Hancock Whitney Corporation — Q3 2023 Form 10-Q
Business context and reporting period. Regional banking holding company; results are for the quarter and nine months ended September 30, 2023. Balance-sheet comparisons are to December 31, 2022 unless noted. Dollar amounts below are in millions unless stated otherwise.
Key financial results
| Metric | Q3 2023 | Comparison |
|---|---|---|
| Net income | $97.7 | Down 28% from $135.4 in Q3 2022; down from $117.8 in Q2 2023 |
| Diluted EPS | $1.12 | Compared with $1.55 in Q3 2022 and $1.35 in Q2 2023 |
| Net interest income, taxable-equivalent | $272.1 | Down 2% from Q2; $836.4 for nine months, up 10% year over year |
| Net interest margin, taxable-equivalent | 3.27% | Down 3 basis points from Q2 and 27 basis points from Q3 2022 |
| Provision for credit losses | $28.5 | Includes a $29.7 charge-off related to one syndicated borrower |
| Noninterest income | $86.0 | Up 3% from Q2; nine-month total of $249.5, down 2% year over year |
| Noninterest expense | $204.7 | Up 1% from Q2; nine-month total of $607.7, up 8% year over year |
| Operating pre-provision net revenue, taxable-equivalent | $153.4 | Down 3% from Q2; non-GAAP measure |
For the first nine months, net income was $342.0, diluted EPS was $3.92, and GAAP net interest income was $828.1 versus $754.5 in 2022. Return on average assets was 1.09% for Q3 and 1.28% for the nine-month period.
Balance sheet, liquidity and capital
- Total assets were $36.3 billion; loans were $24.0 billion, up 4% from year-end 2022. Growth was concentrated in income-producing commercial real estate and residential mortgages; consumer loans declined.
- Deposits were $30.3 billion, up 4% from year-end. Noninterest-bearing deposits declined 15% to $11.6 billion, or 38% of deposits, as customers shifted toward interest-bearing products. Retail time deposits rose to $4.0 billion; brokered time deposits were $1.2 billion.
- Available liquidity was reported at $19.0 billion, compared with approximately $10.5 billion of uninsured, noncollateralized deposits. Available funding included $5.9 billion of FHLB capacity and $3.5 billion at the Federal Reserve discount window. The company said it had not borrowed under the Bank Term Funding Program.
- Short-term borrowings were $1.43 billion, including $900 million of FHLB advances scheduled to mature October 2, 2023. Long-term debt was $236 million, including $172.5 million of 6.25% subordinated notes due 2060.
- Common equity was $3.50 billion. Tangible common equity was 7.34%; the CET1 ratio was 12.06%. Management said the company and bank remained well-capitalized and above regulatory minimums.
- Accumulated other comprehensive loss was $895 million. Securities had substantial interest-rate-related unrealized losses: $897 million gross on available-for-sale securities and $298 million on held-to-maturity securities. Management said it did not expect to need to sell them before recovery.
- Nine-month operating cash flow was $402 million; investing cash outflow was $1.15 billion and financing cash inflow was $726 million. Cash and due from banks ended at $541 million.
Material changes and credit quality
- A single syndicated borrower’s conversion from Chapter 11 to Chapter 7 bankruptcy led to a $29.7 million Q3 charge-off. Net charge-offs were $38.3 million, or 0.64% of average loans annualized, versus $3.4 million in Q2. Management characterized the event as borrower-specific, not indicative of a broader trend.
- Allowance for credit losses was $335.9 million, equal to 1.40% of loans, down from 1.48% at year-end. Nonaccrual loans were $60.3 million, or 0.25% of loans. Criticized commercial loans totaled $275.1 million, down 9% from year-end.
- Management weighted its credit-loss economic scenarios 40% to a baseline and 60% to a mild recession scenario. The latter assumes a recession beginning in Q4 2023, 2024 GDP contraction of 0.2%, and 2024 unemployment of 6.1%.
- Deposit costs rose sharply: average interest-bearing deposit cost was 2.84% in Q3, while noninterest-bearing deposits continued to run off. The nine-month increase in net interest income was more than offset in Q3 by higher funding costs, contributing to margin compression.
Outlook, risks and unusual items
- Management expected low-to-mid-single-digit full-year 2023 loan growth and relatively flat to low-single-digit deposit growth. It anticipated Q4 net interest margin compression of 3–5 basis points, assuming no further 2023 Federal Funds rate increases.
- Management expected Q4 noninterest income to decline slightly from Q3 and full-year 2023 noninterest income to rise 1%–2% from 2022. It expected Q4 expense to decline slightly, but full-year expense to rise 7.5%–8.5% from 2022.
- The FDIC proposed a special assessment related to 2023 bank failures. The company estimated approximately $24 million under the proposal, but said the final calculation could change; it expected to record the expense before year-end when probable and estimable. This estimate was excluded from expense guidance.
- Management expected low-to-modest Q4 charge-offs and provision, subject to loan growth, portfolio mix, asset quality and economic forecasts. It continued to cite inflation, elevated rates, possible recession, deposit competition, regulatory costs, real-estate collateral values, cybersecurity and operational risks, and geopolitical events as uncertainties.
- Legal proceedings were described as ordinary-course matters not expected to materially affect financial position or liquidity. No material changes to previously disclosed risk factors were reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the $29.7 million borrower charge-off is isolated and how subsequent criticized, nonaccrual and charge-off trends develop.
- Deposit mix, pricing and retention, including the pace of noninterest-bearing deposit runoff, brokered-deposit maturities and funding costs.
- Q4 net interest margin performance against management’s 3–5 basis-point compression expectation.
- The final FDIC special-assessment rule and the amount and timing of any recorded expense.
- Liquidity and capital resilience, including the effects of unrealized securities losses and any need to use external funding.
- Progress against loan, deposit, income and expense outlooks; the filing provides no explicit earnings-per-share guidance.