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A month has gone by since the last earnings report for Hancock Whitney (HWC). Shares have lost about 7.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Hancock Whitney due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Hancock Whitney Q1 Earnings Beat on Provision Benefits
Hancock Whitney’s first-quarter 2022 earnings of $1.40 per share handily outpaced the Zacks Consensus Estimate of $1.32. The bottom line improved 15.7% from the prior-year quarter.
Results benefited from a fall in non-interest expenses, a slight rise in loan balance and provision benefit. However, a decline in net interest income, which reflected relatively lower interest rates and reduced non-interest income, were the undermining factors.
Net income came in at $123.5 million, up 15.2% year over year.
Revenues and Expenses Fall
Total revenues were $311.9 million, down 3% year over year. The top line also missed the Zacks Consensus Estimate of $314.5 million.
Net interest income (on a tax-equivalent basis) declined 2.7% to $231 million. NIM was 2.81%, contracting 28 basis points (bps).
Non-interest income was $83.4 million, declining 4.2%. A drastic fall in secondary mortgage market operations fees mainly led to this decrease.
Total non-interest expenses fell 6.8% to $179.9 million. The decline was mainly attributable to lower personnel expenses.
Efficiency ratio decreased to 56.03% from 58.12% in the year-ago quarter. A decline in efficiency ratio indicates an improvement in profitability.
As of Mar 31, 2022, total loans were $21.3 billion, up almost 1% from the prior-quarter end. Total deposits were relatively stable at $30.5 billion.
Credit Quality Improves
Provision for loan losses was a benefit of $22.5 million compared with a benefit of $4.9 million in the prior-year quarter. Net charge-offs (annualized) were 0.01% of average total loans, down 33 bps.
Total non-performing assets plunged 58.4% from the prior-year quarter to $51.7 million.
Capital & Profitability Ratios Improve
As of Mar 31, 2022, Tier 1 leverage ratio was 8.38%, up from 7.89% at the end of the year-earlier quarter. Common equity Tier 1 ratio was 11.12%, up from 11% as of Mar 31, 2021.
At the end of the first quarter, return on average assets was 1.39%, up from the year-ago period’s 1.28%. Return on average common equity was 13.88%, up from 12.63% in the prior-year quarter.
Share Repurchase Update
Hancock Whitney repurchased 350,000 shares at an average price of $52.79 per share.
Full-Year 2022 Outlook
Management expects total core loans (excluding Paycheck Protection Program loans) to be up 6-8% year over year, with quarterly performance affected by seasonality.
Total deposits are expected to be flat or slightly down from the 2021 level.
NIM is expected to widen on the back of expected future rate hikes.
Non-interest income is expected to be down 1-3% year over year due to lower secondary mortgage fees.
Non-interest expenses are anticipated to be down 2-3%.
Reserve for credit losses will be driven by future assumptions in economic forecasts. The company expects reserve releases to taper off over the next few quarters.
The effective tax rate is anticipated to be 19-21%.
Path to 55% Efficiency Ratio
Hancock Whitney targets to achieve an efficiency ratio of 55% by the end of the fourth quarter of 2022. For this, management came up with revenue and efficiency strategies.
The company projects continued momentum in core loan growth at a mid-single-digit rate and to maintain quarterly expenses in 2022. It tends to have additional efficiency initiatives like strategic procurements that will support its cost-saving plan. To improve revenues, the company has been hiring bankers in growth and new markets across its footprint, with more such hiring planned for this year. It has further deployed its excess liquidity into loans and reinvestments in bonds.
Three-Year Corporate Strategic Objectives (to be Achieved by 4Q24)
Return on assets of 1.35-1.45% is expected.
Tangible common equity (TCE) of more than 8% is anticipated.
Return on TCE is expected to be more than 15%.
The efficiency ratio of less than or equal to 55% is targeted.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 5.64% due to these changes.
At this time, Hancock Whitney has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Hancock Whitney has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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