Hancock Whitney Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in millions unless stated otherwise. The company is a regional bank holding company operating through Hancock Whitney Bank.
Financial performance and position
| Metric | Q3 2022 / September 30, 2022 | Comparison |
|---|---|---|
| Net interest income | $280.3; $282.9 taxable-equivalent | Taxable-equivalent NII rose 19% year over year and 14% from Q2 |
| Net interest margin | 3.54% taxable-equivalent | Up 60 basis points year over year and 50 basis points from Q2 |
| Noninterest income | $85.3 | Down 9% year over year; down less than 1% from Q2 |
| Noninterest expense | $193.5 | Down 1% year over year; up 3% from Q2 |
| Net income / diluted EPS | $135.4 / $1.55 | Compared with $129.6 / $1.46 in Q3 2021 and $121.4 / $1.38 in Q2 2022 |
| Loans | $22.6 billion | Up 7% from year-end 2021 and 3% from Q2 |
| Deposits | $29.0 billion | Down 5% from year-end 2021 and 3% from Q2 |
| Allowance for credit losses | $339.6; 1.50% of loans | Nearly unchanged from Q2; down from $371.4 at year-end 2021 |
| Capital | CET1 ratio 11.10%; tangible common equity ratio 6.73% | CET1 was broadly stable; tangible common equity was down from 7.71% at year-end |
| Cash flows, nine months | Operating cash flow $675.1; investing cash flow $1,279.3; financing cash flow $(1,766.0) | Cash and due from banks ended at $589.6 |
At September 30, total assets were $34.6 billion and stockholders’ equity was $3.18 billion. Long-term debt was $236.4 million; short-term borrowings were $1.54 billion, including $1.0 billion of floating-rate FHLB advances. The filing reports $18.1 billion in net available liquidity sources. The $0.27 quarterly dividend was maintained.
Material changes and notable items
- Q3 earnings growth reflected higher interest income as rates rose, loan growth, and deployment of excess liquidity into higher-yielding assets. The quarter’s taxable-equivalent NIM expanded to 3.54% from 2.94% a year earlier.
- Deposits declined amid seasonal public-fund outflows, customer spending and competition for deposits. Management reported a linked-quarter loan-to-deposit ratio of 75.87%.
- Noninterest income declined year over year, principally reflecting lower mortgage banking income and derivative income. Secondary mortgage market operations income was $3.3 million, down 53% year over year.
- For the first nine months, net income was $380.3 million versus $325.5 million in 2021. Taxable-equivalent NII was $762.2 million, up 7%; noninterest income was $254.4 million, down 7% as reported. The 2021 comparison included $7.4 million of nonoperating gains.
- Net charge-offs were $1.3 million in Q3, or 0.02% of average loans on an annualized basis. Nonperforming assets were $43.8 million, or 0.19% of loans plus foreclosed assets.
- Higher market rates sharply reduced the value of securities classified available for sale. AOCI loss widened to $812.8 million from $53.9 million at year-end, primarily due to securities and cash-flow-hedge valuation changes. The company transferred $561.8 million of securities from available for sale to held to maturity during the year. Management characterized securities losses as non-credit-related and said it did not expect to need to sell securities before recovery.
- The company repurchased 1.20 million shares during the first nine months for $58.9 million; its buyback authorization was scheduled to expire December 31, 2022.
Outlook, risks and contingencies
- Management expected further near-term NIM expansion, but at a slower pace than in Q3, and said the company remained asset-sensitive. Its interest-rate model estimated year-one NII increases of 4.10% and 8.14% under parallel +100 and +200 basis-point shocks, respectively; decreases of 4.55% and 7.11% under a -100 basis-point shock.
- Management expected Q4 loan growth of approximately $200–$450 million and full-year 2022 loan growth of about 8%–9% from year-end 2021. It expected year-end deposits to be 3%–4% below year-end 2021, despite typical seasonal Q4 growth.
- Management expected full-year noninterest income, excluding nonoperating items, to decline 3%–4% from 2021, and full-year noninterest expense to be down slightly from 2021. Planned elimination of certain consumer NSF and overdraft fees was expected to reduce revenue by about $2–$3 million per quarter in 2023. Management estimated a 2022 effective tax rate of approximately 21%.
- For its credit-loss estimate, management assigned 75% probability to a downside mild-recession scenario and 25% to its baseline. The downside case assumed a recession beginning in Q4 2022, lasting three quarters, with a peak-to-trough GDP decline of about 1.4%. Management cited inflation, interest-rate increases, supply-chain disruption, geopolitical conflict and potential recession as uncertainties; it expected low-to-modest Q4 charge-offs and provision.
- Other disclosed risks include deposit competition and outflows, credit deterioration, interest-rate and securities valuation risk, mortgage-market weakness, cybersecurity and third-party service disruptions, regulatory changes, and the LIBOR transition. Approximately 26% of the loan portfolio remained tied to LIBOR at quarter-end; the company said failure to manage the transition could adversely affect results.
- The company is party to ordinary-course legal proceedings; management did not expect pending litigation or regulatory matters to materially adversely affect consolidated financial position or liquidity. Commitments to extend credit were $10.3 billion and letters of credit were $373.0 million; these are off-balance-sheet exposures, not necessarily expected funding needs.
Important facts for investors to verify
- Whether deposit trends and funding costs stabilize, and how they affect NIM as rates rise and competition intensifies.
- Whether loan growth, criticized credits and credit losses evolve consistently with management’s outlook and the recession-weighted allowance assumptions.
- The effect of unrealized securities losses and further rate movements on AOCI, tangible common equity and capital, including liquidity available without securities sales.
- Whether management achieves its loan, deposit, fee-income, expense and tax expectations, including the impact of planned overdraft and NSF fee changes.
- Progress on LIBOR-linked contract remediation and exposure to the remaining LIBOR portfolio.