Hancock Whitney Corporation — Q2 2023 Form 10-Q
Business context and period. Regional banking company reporting the quarter and six months ended June 30, 2023. Unless noted otherwise, figures below are consolidated; financial statement amounts are in U.S. dollars.
Key financial results and position
| Metric | Q2 2023 / June 30, 2023 | Comparison |
|---|---|---|
| Net income | $117.8 million; diluted EPS $1.35 | Q2 2022: $121.4 million; diluted EPS $1.38. Q1 2023 net income was $126.5 million. |
| Net interest income | $273.9 million GAAP; $276.7 million taxable-equivalent (TE) | TE down 4% from Q1 2023; six-month TE income of $564.3 million rose 18% year over year. |
| Net interest margin | 3.30% TE | Down 25 basis points from Q1 2023; six-month margin was 3.42%, versus 2.92% a year earlier. |
| Noninterest income / expense | $83.2 million / $202.1 million | Six-month income declined 3% year over year; expense rose 10% to $403.0 million. |
| Loans / deposits | $23.8 billion / $30.0 billion | Loans rose 3% and deposits 3% from year-end 2022. Noninterest-bearing deposits fell to $12.2 billion from $13.6 billion. |
| Credit quality | Allowance for credit losses $345.7 million, or 1.45% of loans; Q2 net charge-offs $3.4 million, or 0.06% annualized | Nonaccrual loans increased to $78.2 million (0.33% of loans), primarily due to the downgrade of one credit; they were $39.0 million at year-end. |
| Liquidity and funding | Total liquidity $18.5 billion; estimated noncollateralized uninsured deposits $10.3 billion | Core deposits were 91.63% of total deposits, down from 98.12% at year-end; wholesale funds were 11.00% of core deposits. |
| Debt and capital | Short-term borrowings $1.6 billion; long-term debt $236.2 million; stockholders’ equity $3.55 billion | CET1 ratio 11.83%; tangible common equity ratio 7.50%. Company and bank were reported well-capitalized. |
| Cash flow | Six-month operating cash flow $214.7 million | Versus $486.8 million in first-half 2022; cash and due from banks ended at $563.7 million. |
Material changes versus comparable periods
- Q2 net income declined from both Q1 2023 and Q2 2022. Higher funding costs drove a sequential decline in TE net interest income and margin, despite higher loan yields and loan growth.
- Deposit mix shifted toward higher-cost products: retail time deposits reached $3.3 billion, and brokered time deposits $1.2 billion. Noninterest-bearing deposits fell to 40% of deposits from 47% at year-end 2022.
- First-half provision was $13.7 million, versus a $32.3 million provision benefit in first-half 2022, when reserves were released. First-half 2023 net charge-offs were $9.1 million, versus net recoveries of $0.4 million a year earlier.
- Six-month noninterest expense increased $36.0 million, including higher personnel, technology, pension-related and deposit-insurance costs. The efficiency ratio was 55.33% in Q2, up from 53.76% in Q1.
- Unrealized losses remained substantial: AFS securities had $738.4 million of gross unrealized losses; HTM securities’ fair value was $240.7 million below amortized cost. Management characterized losses as materially non-credit-related and said it did not expect to need to sell securities before recovery.
Outlook, commentary and risks
- Management expects 2023 loan growth in the low-to-mid single digits and deposit growth to be flat or in the low single digits. It expects further net interest margin compression in the second half, likely at a slower pace than in the first half.
- Management expects full-year 2023 noninterest income to increase 1%–2% from 2022, noninterest expense to increase 7.5%–8.5%, and the effective tax rate to be about 21%.
- Management expects low-to-modest charge-offs and credit-loss provision for the rest of 2023, while noting outcomes depend on loan growth, portfolio mix, asset quality and economic forecasts. Its allowance model weighted a mild-recession scenario 60% and baseline 40%; the recession scenario assumed a downturn beginning in Q3 2023.
- Liquidity sources exceeded estimated noncollateralized uninsured deposits. Available liquidity included unpledged securities and borrowing capacity; the company had not borrowed under the Federal Reserve Bank Term Funding Program and said it did not intend to do so.
- The FDIC proposed a special assessment related to the 2023 bank failures. Based on the proposal, the company estimated expense of approximately $24 million; the final amount was uncertain and was excluded from expense guidance. The company expected to accrue it when probable and estimable, before year-end.
- Key risks include deposit pricing and retention, higher funding costs, possible recession and inflation, credit losses, interest-rate and securities valuation exposure, regulatory and deposit-insurance costs, and operational, cyber and third-party risks. Management said pending litigation was not expected to materially affect financial position or liquidity.
- The board authorized repurchases of up to 4.3 million shares through December 31, 2024; none had been repurchased under the program by June 30. The quarterly dividend was $0.30 per share.
Important facts for investors to verify
- Whether margin pressure and deposit migration continue, and how deposit costs, brokered funding and noninterest-bearing balances evolve.
- Whether the $24 million estimated FDIC special assessment changes when the final rule is issued, and how it affects expense guidance.
- Whether the increase in nonaccrual loans tied mainly to one downgraded credit is isolated, and whether criticized loans, charge-offs and allowance coverage remain stable.
- How the bank’s liquidity compares with uninsured deposits under stress, including the availability and cost of contingent funding.
- How unrealized securities losses, AOCI and interest-rate movements affect capital, liquidity flexibility and reported earnings.