Published: 2022-05-04 12:48:25 ET

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36872

HANCOCK WHITNEY CORPORATION

(Exact name of registrant as specified in its charter)

 

Mississippi		64-0693170
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Hancock Whitney Plaza, 2510 14th Street, Gulfport, Mississippi		39501
(Address of principal executive offices)		(Zip Code)

(228) 868-4000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $3.33 per share	HWC	Nasdaq
6.25% Subordinated Notes	HWCPZ	Nasdaq

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer	☒		Accelerated filer	☐
Non-accelerated filer	☐		Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

86,369,000 common shares were outstanding at April 30, 2022.

 

 

 

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Hancock Whitney Corporation

Index

 

Part I. Financial Information		Page Number
ITEM 1.	Financial Statements	5
	Consolidated Balance Sheets (unaudited) – March 31, 2022 and December 31, 2021	5
	Consolidated Statements of Income (unaudited) – Three Months Ended March 31, 2022 and 2021	6
	Consolidated Statements of Comprehensive Income (unaudited) – Three Months Ended March 31, 2022 and 2021	7
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) – Three Months Ended March 31, 2022 and 2021	8
	Consolidated Statements of Cash Flows (unaudited) – Three Months Ended March 31, 2022 and 2021	9
	Notes to Consolidated Financial Statements (unaudited) – March 31, 2022 and 2021	10
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	62
ITEM 4.	Controls and Procedures	64
Part II. Other Information
ITEM 1.	Legal Proceedings	65
ITEM 1A.	Risk Factors	65
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
ITEM 3.	Default on Senior Securities	N/A
ITEM 4.	Mine Safety Disclosures	N/A
ITEM 5.	Other Information	N/A
ITEM 6.	Exhibits	66
Signatures		67

 

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Hancock Whitney Corporation

Glossary of Defined Terms

Entities:

Hancock Whitney Corporation – a financial holding company registered with the Securities and Exchange Commission

Hancock Whitney Bank – a wholly-owned subsidiary of Hancock Whitney Corporation through which Hancock Whitney Corporation conducts its banking operations

Company – Hancock Whitney Corporation and its consolidated subsidiaries

Parent – Hancock Whitney Corporation, exclusive of its subsidiaries

Bank – Hancock Whitney Bank

Other Terms:

 

ACL – allowance for credit losses

AFS – available for sale securities

AMERIBOR - Index created by the American Financial Exchange as a potential replacement for LIBOR; calculated daily as the volume-weighted average interest rate of the overnight unsecured loans on American Financial Exchange

AOCI – accumulated other comprehensive income or loss

ALCO – Asset Liability Management Committee

ALLL – allowance for loan and lease losses

ARRC – Alternative Reference Rates Committee

ASC – Accounting Standards Codification

ASU – Accounting Standards Update

ATM – automated teller machine

Basel III – Basel Committee's 2010 Regulatory Capital Framework (Third Accord)

Beta – amount by which deposit or loan costs change in response to movement in short-term interest rates

BOLI – bank-owned life insurance

bp(s) – basis point(s)

C&I – commercial and industrial loans

CARES Act – Coronavirus Aid, Relief, and Economic Security Act

CD – certificate of deposit

CDE – Community Development Entity

CECL – Current Expected Credit Losses, the term commonly used to refer to the methodology of estimating credit losses required by ASC 326, “Financial Instruments – Credit Losses.” ASC 326 was adopted by the Company on January 1, 2020, superseding the methodology prescribed by ASC 310.

CEO – Chief Executive Officer

CFPB– Consumer Financial Protection Bureau

CFO – Chief Financial Officer

CME – Chicago Mercantile Exchange

CMO – collateralized mortgage obligation

Core Loans – loans excluding Paycheck Protection Program (PPP) loans

Coronavirus – the novel coronavirus declared a pandemic during the first quarter of 2020, resulting in prolonged market disruptions

COSO – Committee of Sponsoring Organizations of the Treadway Commission

COVID-19 – disease caused by the novel coronavirus

CRE – commercial real estate

DEI – Diversity, equity and inclusion

DIF – Deposit Insurance Fund

Excess Liquidity – deposits held at the Federal Reserve above $200 million, plus excess investments in the securities portfolio above normal cash flows

FASB – Financial Accounting Standards Board

FDIC – Federal Deposit Insurance Corporation

FDICIA – Federal Deposit Insurance Corporation Improvement Act of 1991

Federal Reserve Board – The 7-member Board of Governors that oversees the Federal Reserve System, establishes

monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed

by the President subject to Senate confirmation, and serve 14-year terms.

Federal Reserve System – The 12 Federal Reserve Banks, with each one serving member banks in its own district. This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the

credit structure. They implement the policies of the Federal Reserve Board and also conduct economic research.

FFIEC – Federal Financial Institutions Examination Council

FHA – Federal Housing Administration

FHLB – Federal Home Loan Bank

GAAP – Generally Accepted Accounting Principles in the United States of America

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HTM – held to maturity securities

IRS – Internal Revenue Service

LIBOR – London Interbank Offered Rate

LIHTC – Low Income Housing Tax Credit

LTIP – long-term incentive plan

MBS – mortgage-backed securities

MD&A – management’s discussion and analysis of financial condition and results of operations

MDBCF – Mississippi Department of Banking and Consumer Finance

NAICS – North American Industry Classification System

NII – net interest income

n/m – not meaningful

NSF – Non-sufficient funds

OCI – other comprehensive income or loss

ORE – other real estate defined as foreclosed and surplus real estate

PCD – purchased credit deteriorated loans, as defined by ASC 326

PPNR – Pre-provision net revenue

PPP – Paycheck Protection Program, a loan program administered by the Small Business Administration designed to provide a direct incentive for small businesses to keep workers on payroll during interruptions caused by the COVID-19 pandemic

Reference rate reform – refers to the global transition away from LIBOR and other interbank offered rates toward new reference rates that are more reliable and robust

Repos – securities sold under agreements to repurchase

SBA – Small Business Administration

SBIC – Small Business Investment Company

SEC – U.S. Securities and Exchange Commission

Securities Act – Securities Act of 1933, as amended

SOFR – secured overnight financing rate

te – taxable equivalent adjustment, or the term used to indicate that a financial measure is presented on a fully taxable equivalent basis

TDR – troubled debt restructuring

TSR – total shareholder return

U.S. Treasury – The United States Department of the Treasury

VERIP – Voluntary Early Retirement Incentive Program

Volcker Rule – Section 619 of the Dodd-Frank Act and regulations promulgated thereunder, as applicable

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Part I. Financial Information

Item 1. Financial Statements

Hancock Whitney Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

 

		March 31,				December 31,
(in thousands, except per share data)		2022				2021
ASSETS
Cash and due from banks		$	703,421			$	401,201
Interest-bearing bank deposits			3,132,551				3,830,177
Federal funds sold			459				458
Securities available for sale, at fair value (amortized cost of $6,380,002 and $6,984,530)			5,993,007				6,986,698
Securities held to maturity (fair value of $2,429,049 and $1,631,482)			2,488,088				1,565,751
Loans held for sale (includes $25,046 and $41,022 measured at fair value)			59,877				93,069
Loans			21,323,341				21,134,282
Less: allowance for loan losses			(317,843	)			(342,065	)
Loans, net			21,005,498				20,792,217
Property and equipment, net of accumulated depreciation of $286,052 and $280,065			353,441				350,309
Right of use assets, net of accumulated amortization of $37,511 and $34,425			100,889				102,239
Prepaid expenses			43,572				38,793
Other real estate and foreclosed assets, net			6,345				7,533
Accrued interest receivable			98,873				96,938
Goodwill			855,453				855,453
Other intangible assets, net			66,479				70,226
Life insurance contracts			726,308				664,535
Funded pension assets, net			233,195				227,870
Deferred tax asset, net			59,606				—
Other assets			390,229				447,738
Total assets		$	36,317,291			$	36,531,205
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing		$	14,976,670			$	14,392,808
Interest-bearing			15,523,039				16,073,089
Total deposits			30,499,709				30,465,897
Short-term borrowings			1,620,302				1,665,061
Long-term debt			240,454				244,220
Accrued interest payable			2,999				3,103
Lease liabilities			120,788				122,079
Deferred tax liability, net			—				19,434
Other liabilities			382,088				341,059
Total liabilities			32,866,340				32,860,853
Stockholders' equity:
Common stock			309,513				309,513
Capital surplus			1,742,021				1,755,701
Retained earnings			1,758,693				1,659,073
Accumulated other comprehensive loss, net			(359,276	)			(53,935	)
Total stockholders' equity			3,450,951				3,670,352
Total liabilities and stockholders' equity		$	36,317,291			$	36,531,205
Preferred shares authorized (par value of $20.00 per share)			50,000				50,000
Preferred shares issued and outstanding			—				—
Common shares authorized (par value of $3.33 per share)			350,000				350,000
Common shares issued			92,947				92,947
Common shares outstanding			86,460				86,749

 

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

 

		Three Months Ended
		March 31,
(in thousands, except per share data)		2022				2021
Interest income:
Loans, including fees		$	192,750			$	213,713
Loans held for sale			691				671
Securities-taxable			37,164				31,203
Securities-tax exempt			4,655				4,783
Short-term investments			1,526				415
Total interest income			236,786				250,785
Interest expense:
Deposits			3,778				9,227
Short-term borrowings			1,419				1,533
Long-term debt			3,126				5,438
Total interest expense			8,323				16,198
Net interest income			228,463				234,587
Provision for credit losses			(22,527	)			(4,911	)
Net interest income after provision for credit losses			250,990				239,498
Noninterest income:
Service charges on deposit accounts			21,674				19,146
Trust fees			15,279				15,003
Bank card and ATM fees			20,396				18,120
Investment and annuity fees and insurance commissions			7,427				7,458
Secondary mortgage market operations			3,746				11,710
Securities transactions, net			(87	)			—
Other income			14,997				15,652
Total noninterest income			83,432				87,089
Noninterest expense:
Compensation expense			85,993				95,846
Employee benefits			21,403				23,769
Personnel expense			107,396				119,615
Net occupancy expense			11,680				12,910
Equipment expense			4,867				4,781
Data processing expense			24,239				22,947
Professional services expense			7,793				11,251
Amortization of intangible assets			3,748				4,419
Deposit insurance and regulatory fees			3,740				3,395
Other real estate and foreclosed assets expense (income)			(1,764	)			6
Other expense			18,240				13,748
Total noninterest expense			179,939				193,072
Income before income taxes			154,483				133,515
Income taxes expense			31,005				26,343
Net income		$	123,478			$	107,172
Earnings per common share-basic		$	1.40			$	1.21
Earnings per common share-diluted		$	1.40			$	1.21
Dividends paid per share		$	0.27			$	0.27
Weighted average shares outstanding-basic			86,660				86,752
Weighted average shares outstanding-diluted			86,936				86,805

 

See notes to unaudited consolidated financial statements.

 

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

 

	Three Months Ended
	March 31,
(in thousands)	2022				2021
Net income	$	123,478			$	107,172
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain or loss on securities available for sale and cash flow hedges		(390,904	)			(145,490	)
Reclassification of net (income) loss realized and included in earnings		(3,838	)			286
Amortization of unrealized net gain (loss) on securities transferred to held to maturity		261				(56	)
Other comprehensive loss before income taxes		(394,481	)			(145,260	)
Income tax benefit		(89,140	)			(33,748	)
Other comprehensive loss net of income taxes		(305,341	)			(111,512	)
Comprehensive loss	$	(181,863	)		$	(4,340	)

 

See notes to unaudited consolidated financial statements.

 

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

Three Months Ended March 31, 2022 and 2021																		Accumulated
		Common Stock																Other
(in thousands, except parenthetical share data)		Shares Issued				Amount				Capital Surplus				Retained Earnings				Comprehensive Income (Loss)				Total
Balance, December 31, 2021			92,947			$	309,513			$	1,755,701			$	1,659,073			$	(53,935	)		$	3,670,352
Net income			—				—				—				123,478				—				123,478
Other comprehensive loss			—				—				—				—				(305,341	)			(305,341	)
Comprehensive loss			—				—				—				123,478				(305,341	)			(181,863	)
Dividends declared ($0.27 per common share)			—				—				—				(23,909	)			—				(23,909	)
Common stock activity, long-term incentive plans			—				—				3,929				51				—				3,980
Repurchase of common stock (350,000 shares)			—				—				(18,490	)			—				—				(18,490	)
Issuance of stock from dividend reinvestment and stock purchase plans			—				—				881				—				—				881
Balance, March 31, 2022			92,947			$	309,513			$	1,742,021			$	1,758,693			$	(359,276	)		$	3,450,951
Balance, December 31, 2020			92,947			$	309,513			$	1,757,937			$	1,291,506			$	80,069			$	3,439,025
Net income			—				—				—				107,172				—				107,172
Other comprehensive loss			—				—				—				—				(111,512	)			(111,512	)
Comprehensive loss			—				—				—				107,172				(111,512	)			(4,340	)
Dividends declared ($0.27 per common share)			—				—				—				(24,021	)			—				(24,021	)
Common stock activity, long-term incentive plans			—				—				5,204				31				—				5,235
Issuance of stock from dividend reinvestment and stock purchase plans			—				—				1,004				—				—				1,004
Balance, March 31, 2021			92,947			$	309,513			$	1,764,145			$	1,374,688			$	(31,443	)		$	3,416,903

 

See notes to unaudited consolidated financial statements.

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Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

		Three Months Ended
		March 31,
(in thousands)		2022				2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	123,478			$	107,172
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			7,177				7,083
Provision for credit losses			(22,527	)			(4,911	)
Gain on other real estate and foreclosed assets			(3,014	)			(253	)
Loss on sale of securities			87				—
Deferred tax expense			10,099				2,300
Increase in cash surrender value of life insurance contracts			(634	)			(9,400	)
Net decrease in loans held for sale			27,250				8,031
Net amortization of securities premium/discount			11,356				13,211
Amortization of intangible assets			3,748				4,419
Stock-based compensation expense			5,292				5,517
Net change in liability from variation margin collateral			15,828				56,744
Increase (decrease) in interest payable and other liabilities			18,512				(23,472	)
Decrease in other assets			91,643				98,052
Other, net			(7,761	)			(9,453	)
Net cash provided by operating activities			280,534				255,040
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of available for sale securities			73,219				—
Proceeds from maturities of securities available for sale			167,949				311,232
Purchases of securities available for sale			(228,454	)			(1,164,798	)
Proceeds from maturities of securities held to maturity			28,125				37,830
Purchases of securities held to maturity			(391,761	)			(59,362	)
Net (increase) decrease in short-term investments			697,625				(1,005,325	)
Proceeds from sales of loans and leases			18,890				7,373
Net (increase) decrease in loans			(227,948	)			101,924
Purchase of life insurance contracts			(60,000	)			(45,000	)
Proceeds from the surrender of life insurance contracts			—				44,045
Purchases of property and equipment			(11,353	)			(4,269	)
Proceeds from sales of other real estate			6,227				4,191
Other, net			3,002				5,809
Net cash provided by (used in) investing activities			75,521				(1,766,350	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits			33,812				1,512,643
Net decrease in short-term borrowings			(44,759	)			(14,766	)
Proceeds from the issuance of long-term debt			—				22,388
Repayments of long-term debt			(79	)			(3,209	)
Dividends paid			(23,804	)			(24,021	)
Payroll tax remitted on net share settlement of equity awards			(1,396	)			(494	)
Proceeds from exercise of stock options			—				132
Proceeds from dividend reinvestment and stock purchase plans			881				1,004
Repurchase of shares			(18,490	)			—
Net cash provided by (used in) financing activities			(53,835	)			1,493,677
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS			302,220				(17,633	)
CASH AND DUE FROM BANKS, BEGINNING			401,201				526,306
CASH AND DUE FROM BANKS, ENDING		$	703,421			$	508,673
SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans		$	118			$	1,799

 

See notes to unaudited consolidated financial statements.

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HANCOCK WHITNEY CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

 

The objective of this discussion and analysis is to provide material information relevant to the assessment of the financial condition and results of operations of Hancock Whitney Corporation and subsidiaries during the three months ended March 31, 2022 and selected comparable prior periods, including an evaluation of the amounts and certainty of cash flows from operations and outside sources. This discussion and analysis is intended to highlight and supplement financial and operating data and information presented elsewhere in this report, including the consolidated financial statements and related notes. The discussion contains forward-looking statements within the meaning and protections of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, our actual results may differ from those expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q and in other reports or documents that we file from time to time with the SEC include, but are not limited to, the following:

 

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Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “forecast,” “goals,” “targets,” “initiatives,” “focus,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements. Additional factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and in other periodic reports that we file with the SEC.

You are cautioned not to place undue reliance on these forward-looking statements. We do not intend, and undertake no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.

OVERVIEW

Non-GAAP Financial Measures

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP measures used to describe our performance. These non-GAAP financial measures have inherent limitations as analytical tools and should not be considered on a standalone basis or as a substitute for analyses of financial condition and results as reported under GAAP. Non-GAAP financial measures are not standardized and therefore, it may not be possible to compare these measures with other companies that present measures having the same or similar names. These disclosures should not be considered an alternative to GAAP.

A reconciliation of those measures to GAAP measures are provided in the Consolidated Financial Results table later in this item. The following is a summary of these non-GAAP measures and an explanation as to why they are deemed useful.

Consistent with the provisions of subpart 229.1400 of the Securities and Exchange Commission’s Regulation S-K, “Disclosures by Bank and Savings and Loan Registrants,” we present net interest income, net interest margin and efficiency ratios on a fully taxable equivalent (“te”) basis. The te basis adjusts for the tax-favored status of net interest income from certain loans and investments using a statutory federal tax rate of 21% to increase tax-exempt interest income to a taxable equivalent basis. We believe this measure to be the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources.

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We present certain additional non-GAAP financial measures to assist the reader with a better understanding of the Company’s performance period over period, as well as to provide investors with assistance in understanding the success management has experienced in executing its strategic initiatives. These non-GAAP measures may reference the concept “operating.” We use the term “operating” to describe a financial measure that excludes income or expense considered to be nonoperating in nature. Items identified as nonoperating are those that, when excluded from a reported financial measure, provide management or the reader with a measure that may be more indicative of forward-looking trends in our business.

We define Operating Pre-Provision Net Revenue as total revenue (te) less noninterest expense, excluding nonoperating items. Management believes that operating pre-provision net revenue is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.

 

 

Current Economic Environment

 

During the first quarter of 2022, the U.S. economy contracted for the first time since the second quarter 2020, as Gross Domestic Product (GDP) declined 1.4% on an annualized basis. The decline in real GDP reflected a decline in Federal national defense spending, a decline in net exports, and a decline in private inventory investment. There were, however, bright spots, as consumer spending, a primary driver of economic activity, grew 2.7%, slightly above the fourth quarter 2021 rate of 2.5%. Business spending, as measured by residential and nonresidential investment increased 7.3% at an annualized rate, above the fourth quarter 2021 rate of 2.7%. According to the U.S. Bureau of Labor and Statistics, the rate of unemployment again declined, falling to 3.6% in March 2022 from 3.9% in December 2021. At present, the epidemiological risks of COVID-19 have lessened and most of the social restrictions in response to those risks have been removed. However, lingering and pervasive economic effects of the pandemic remain, including supply chain backlogs, labor shortages and increased input costs, resulting in escalating inflationary conditions. Further, the recent military conflict between Russia and Ukraine has prompted concern over global commodity supply, intensifying inflationary pressures. In response to these conditions, in March 2022, the Federal Reserve approved the first interest rate increase in over three years. The 25-basis point interest rate increase is expected to be the first of potentially several increases in the next year.

 

Our markets continued to show moderate signs of improvement in the quarter. Tourism has improved, driven by the return of several events for the first time since the onset of the pandemic. Our credit quality metrics continued to improve and remain at historically low levels. In the first quarter of 2022, we experienced core loan growth across most of our portfolio, with an increased loan pipeline and an uptick in credit line utilization that led to a 2% linked-quarter growth rate in core loans (excluding PPP). Core loan growth and an improving asset mix have contributed favorably to our net interest margin and income, while excess liquidity from PPP loan forgiveness and elevated deposit levels remained a headwind.

 

Economic Outlook

 

We utilize economic forecasts produced by Moody’s Analytics (Moody’s) that provide various scenarios to assist in the development of our economic outlook. This outlook discussion utilizes the March 2022 Moody’s forecast, the most current available at March 31, 2022. The forecasts are anchored on a baseline forecast scenario, which Moody’s defines as the “most likely outcome” of where the economy is headed based on current conditions. Several upside and downside scenarios are produced that are derived from the baseline scenario. Since the onset of the COVID-19 pandemic, conditions such as infection and morbidity rates and social, commercial and governmental response thereto have been the primary drivers of the assumptions underlying the forecasts. As geopolitical and economic conditions have evolved, the narratives used in forming March 2022 economic scenarios shifted to a focus on supply chain issues, rising oil prices and inflation.

 

While remaining overall positive, the assumptions underlying the March 2022 baseline forecast are slightly less optimistic in certain areas than the December 2021 baseline, and certain new risks have been incorporated. Key assumptions within the March 2022 baseline forecast include the following: (1) Russian invasion will go no further than Ukraine and, as such, disruption to the U.S. economy will be limited and temporary; (2) the passage of a $600 billion Building a Better America legislation package; (3) unemployment forecasted at 3.6% in 2022 and 3.4% in 2023, with full-employment being achieved in late 2022 or early 2023; (4) forecasted GDP growth of 3.5% in 2022 and 3.1% in 2023; (5) four 25-basis point interest rate increases in 2022; and (6) COVID-19 infections abated in March 2022.

 

The alternative Moody’s forecast scenarios have varying depictions of economic performance as compared to the baseline. Consistent with the prior quarter, management determined that assumptions provided for in the downside slower near-term growth (S-2) to be somewhat more likely than the baseline scenario; as such, the S-2 scenario was given a 60% probability weighting in our allowance for credit losses calculation at March 31, 2022. The S-2 scenario assumes that the conflict between Russian and Ukraine spans longer than anticipated and that global supply chain issues worsen, prompting a higher rate of inflation than in the baseline scenario. As a

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result, the Federal Reserve is expected to raise interest rates more than anticipated in the baseline scenario, generating corrections in equity markets and declines in spending. Further, the scenario assumes the economic legislation package will be less effective; unemployment begins to rise in the second quarter of 2022, with the return to full employment not occurring until the fourth quarter of 2023; and the number of COVID-19 cases, hospitalizations and deaths begin to rise in March 2022, slowing consumer spending on retail goods and travel and leisure activities.

 

Despite the lingering economic effects of the COVID-19 pandemic and the emergence of new risks stemming from geopolitical conflict, overall credit loss outlook on our portfolio has not changed significantly. Positive economic indicators of growth in our footprint, continued improvements in our asset quality metrics and minimal credit losses in recent periods allowed for a modest release of credit loss reserves during the period.

 

The effect of rising inflation and the Federal Reserve's actions to counter those effects are likely to reduce economic growth. While the operating environment remains challenging, we expect the planned interest rate increases will contribute favorably to our net interest margin and income, and we do not expect the rate increases to significantly impact core loan growth guidance. We continue to focus on effectively managing our asset/liability mix to maximize resources.

 

Forward-looking information based on management’s expectation of near-term performance is provided in the sections that follow. Given the economic volatility experienced over the past two years, the remaining economic effects of the pandemic and the risks and uncertainties surrounding geopolitical unrest, it is not possible to accurately predict the extent, severity or duration that these conditions may have upon our results of operation. We continuously seek to monitor and anticipate developments as they relate to our business.

 

 

Highlights of the First Quarter 2022

 

We reported net income for the first quarter of 2022 of $123.5 million, or $1.40 per diluted common share, compared to $137.7 million, or $1.55 per diluted common share in the fourth quarter of 2021 and $107.2 million, or $1.21 per diluted common share, in the first quarter of 2021. There were no nonoperating items in the first quarters of 2022 or 2021. There was $4.9 million, or $0.04 per share after-tax, of net nonoperating income items in the fourth quarter of 2021, mostly attributable to hurricane-related insurance proceeds.

First quarter 2022 results compared to fourth quarter 2021:

 

 

We reported solid results for the first quarter of 2022 that are a good start to the year. We had core loan growth, stable deposits, and what we believe to be the beginning of a widening net interest margin. Our asset quality metrics are at historically low levels, our capital levels are solid, and we continue strategic expense management while investing for revenue growth.

 

During the quarter, we added ten new bankers across our footprint, including additions in Dallas, San Antonio, Austin, Houston, Beaumont, Nashville, Tampa and Lafayette. This is in addition to fifteen bankers hired in the second half of 2021, with additional hires planned during the remainder of 2022. Revenue enhancements funded through continued expense focus, along with expected interest rate increases, sets the path for our target of a 55% efficiency ratio (currently at 56.03%) by the fourth quarter of 2022 or possibly sooner.

 

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In March, we announced a strategic decision addressing recent trends in the banking industry to eliminate consumer (retail) non-sufficient funds fees and certain overdraft fees by the end of 2022. The annual impact upon fee income is estimated to be $10 million to $11 million. We believe these changes are in line with an evolving retail banking industry, as traditional banks adjust products to meet consumer needs and provide them with the tools needed to help manage their overall finances. We expect to see improving account acquisition rates in 2023 with this change and as we launch additional retail products and features.

 

 

 

Consolidated Financial Results

 

The following table contains the consolidated financial results for the periods indicated.

 

		Three Months Ended
(in thousands, except per share data)		March 31, 2022					December 31, 2021					September 30, 2021					June 30, 2021					March 31, 2021
Income Statement Data:
Interest income		$		236,786			$		238,756			$		244,417			$		248,300			$		250,785
Interest income (te) (a)				239,331					241,391					247,185					251,154					253,707
Interest expense				8,323					9,460					9,708					13,657					16,198
Net interest income (te)				231,008					231,931					237,477					237,497					237,509
Provision for credit losses				(22,527	)				(28,399	)				(26,955	)				(17,229	)				(4,911	)
Noninterest income				83,432					89,612					93,361					94,272					87,089
Noninterest expense				179,939					182,462					194,703					236,770					193,072
Income before income taxes				154,483					164,845					160,322					109,374					133,515
Income tax expense				31,005					27,102					30,740					20,656					26,343
Net income		$		123,478			$		137,743			$		129,582			$		88,718			$		107,172
For informational purposes - included above, pre-tax
Nonoperating item included in noninterest income:
Gain on hurricane-related insurance settlement		$		—			$		3,600			$		—			$		—			$		—
Gain on sale of Hancock Horizon Funds				—					—					4,576					—					—
Gain on sale of Mastercard Class B common stock				—					—					—					2,800					—
Nonoperating items included in noninterest expense:
Efficiency initiatives				—					(649	)				(1,867	)				40,812					—
Hurricane related expenses				—					(680	)				5,092					—					—
Loss on redemption of subordinated notes				—					—					—					4,165					—
Balance Sheet Data:
Period end balance sheet data
Loans		$		21,323,341			$		21,134,282			$		20,886,015			$		21,148,530			$		21,664,859
Earning assets				32,997,323					33,610,435					32,348,036					32,075,450					32,134,637
Total assets				36,317,291					36,531,205					35,318,308					35,098,709					35,072,643
Noninterest-bearing deposits				14,976,670					14,392,808					13,653,376					13,406,385					13,174,911
Total deposits				30,499,709					30,465,897					29,208,157					29,273,107					29,210,520
Stockholders' equity				3,450,951					3,670,352					3,629,766					3,562,901					3,416,903
Average balance sheet data
Loans		$		21,122,038			$		20,770,130			$		20,941,173			$		21,388,814			$		21,745,298
Earning assets				33,201,926					32,913,659					32,097,381					32,195,515					31,015,637
Total assets				36,003,803					35,829,027					35,207,960					35,165,684					34,078,200
Noninterest-bearing deposits				14,363,324					14,126,335					13,535,961					13,237,796					12,374,235
Total deposits				30,029,793					29,750,665					29,237,306					29,228,809					28,138,763
Stockholders' equity				3,607,061					3,642,003					3,606,087					3,488,592					3,441,466
Common Shares Data:
Earnings per share - basic		$		1.40			$		1.56			$		1.46			$		1.00			$		1.21
Earnings per share - diluted				1.40					1.55					1.46					1.00					1.21
Cash dividends per common share				0.27					0.27					0.27					0.27					0.27
Book value per share (period end)				39.91					42.31					41.81					41.03					39.38
Tangible book value per share (period end)				29.25					31.64					31.10					30.27					28.57
Weighted average number of shares - diluted				86,936					87,132					87,006					86,990					86,805
Period end number of shares				86,460					86,749					86,823					86,847					86,777

 

 

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		Three Months Ended
($ in thousands)		March 31, 2022					December 31, 2021					September 30, 2021					June 30, 2021					March 31, 2021
Performance and other data:
Return on average assets				1.39	%				1.53	%				1.46	%				1.01	%				1.28	%
Return on average common equity				13.88	%				15.00	%				14.26	%				10.20	%				12.63	%
Return on average tangible common equity				18.66	%				20.13	%				19.22	%				13.94	%				17.38	%
Tangible common equity (b)				7.15	%				7.71	%				7.85	%				7.70	%				7.26	%
Tangible common equity Tier 1 (CET1) ratio				11.12	%				11.09	%				11.17	%				10.98	%				11.00	%
Net interest margin (te)				2.81	%				2.80	%				2.94	%				2.96	%				3.09	%
Noninterest income as a percentage of total revenue (te)				26.53	%				27.87	%				28.22	%				28.41	%				26.83	%
Efficiency ratio (c )				56.03	%				56.57	%				57.44	%				57.01	%				58.12	%
Allowance for credit loss as a percentage of total loans				1.63	%				1.76	%				1.92	%				2.03	%				2.11	%
Annualized net charge-offs to average loans				0.01	%				0.01	%				0.03	%				0.20	%				0.34	%
Nonperforming assets as a percentage of loans, ORE and foreclosed assets				0.24	%				0.32	%				0.34	%				0.46	%				0.57	%
FTE headcount				3,543					3,486					3,429					3,626					3,926
Reconciliation of operating revenue and operating pre-provision net revenue (non-GAAP measure) (te) (d)
Net interest income		$		228,463			$		229,296			$		234,709			$		234,643			$		234,587
Noninterest income				83,432					89,612					93,361					94,272					87,089
Total revenue				311,895					318,908					328,070					328,915					321,676
Taxable equivalent adjustment				2,545					2,635					2,768					2,854					2,922
Nonoperating revenue				—					(3,600	)				(4,576	)				(2,800	)				—
Total revenue (te)		$		314,440			$		317,943			$		326,262			$		328,969			$		324,598
Noninterest expense				(179,939	)				(182,462	)				(194,703	)				(236,770	)				(193,072	)
Nonoperating expense				—					(1,329	)				3,225					44,977					—
Operating pre-provision net revenue (te)		$		134,501			$		134,152			$		134,784			$		137,176			$		131,526

 

 

RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the first quarter of 2022 was $231.0 million, down $0.9 million, or less than 1%, compared to the fourth quarter of 2021 and down $6.5 million, or 3%, from the first quarter of 2021.

The decrease in net interest income (te) compared to the fourth quarter of 2021 is largely attributable to two fewer accrual days and a decline in the accretion of PPP loan fees, and to a lesser extent, a decline in purchase accounting discount accretion and nonaccrual interest recoveries, largely offset by a lower cost of funds and a favorable change in the earning asset mix. The reduction in the cost of funds reflects a favorable change in the deposit mix that includes increases in noninterest-bearing and lower-cost interest-bearing transaction deposits along with declines in higher-cost time deposits and a seasonal reduction of interest bearing public fund deposits. The favorable change in the mix of average earning assets was the result of increases in loans and investment securities and a decrease in lower-yielding short-term investments.

The net interest margin for the first quarter of 2022 was 2.81%, up 1 bp from 2.80% in the fourth quarter of 2021, for the first quarterly increase since the onset of the pandemic. The slight widening of net interest margin from the prior quarter was largely due to a 7 bp improvement from a favorable shift in the earning asset mix, along with a modest improvement in the cost of funds. This improvement was partially offset by a 6 bp decline due to the impact of almost $200 million of PPP loan forgiveness during the current quarter.

The $6.5 million decrease in net interest income (te) compared to the first quarter of 2021 is attributable to a $14.4 million decline in interest income and fees as a result of lower average loan balances and yields, a $4.2 million decrease in nonaccrual interest recoveries and $2.0 million of lower purchase accounting discount accretion. These decreases were partially offset by income associated with a $1.2 billion increase in average securities, a $1.6 million increase in short-term investments, $1.7 million in lower securities premium amortization, and a $7.9 million decline in interest expense. The decline in interest expense was driven by lower rates paid on interest-bearing deposit accounts and a decline in interest on long-term debt due to the redemption of $150 million of subordinated debt at

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5.95% in the second quarter of 2021. The increase in securities and short-term investments average balances are the result of excess liquidity driven largely by a $1.9 billion increase in average deposits and PPP loan forgiveness.

The net interest margin was down 28 bps compared to the first quarter of 2021 as a result of the continued low interest rate environment resulting in a less favorable mix of average earning assets as inflows from PPP loan forgiveness and repayments were reinvested into lower-yielding assets, partially offset by a favorable change in the funding mix to lower cost products. Compared to the first quarter of 2021, the yield on earning assets was down 39 bps, while the cost of funds decreased 11 bps to 0.10%. The reduction in cost of funds reflects the previously mentioned shift in mix to lower cost products, the strategic reduction of promotional deposit rates and the redemption of $150 million of higher-cost subordinated notes.

We anticipate that the net interest margin will continue to widen during the remainder of 2022 as additional Federal Reserve interest rate increases are expected and through continued deployment of excess liquidity into higher-yielding loans and investment securities.

The following tables detail the components of our net interest income (te) and net interest margin.

 

		Three Months Ended
		March 31, 2022												December 31, 2021												March 31, 2021
(dollars in millions)		Volume				Interest (d)				Rate				Volume				Interest (d)				Rate				Volume				Interest (d)				Rate
Average earning assets
Commercial & real estate loans (te) (a)		$	17,119.3			$	150.3				3.56	%		$	16,802.8			$	150.7				3.56	%		$	17,334.3			$	155.9				3.65	%
Residential mortgage loans			2,441.3				21.0				3.44	%			2,365.8				20.5				3.46	%			2,600.5				24.7				3.79	%
Consumer loans			1,561.4				18.4				4.77	%			1,601.5				18.9				4.68	%			1,810.5				21.4				4.79	%
Loan fees & late charges			—				4.4				0.00	%			—				10.3				0.00	%			—				13.4				0.00	%
Total loans (te) (b)			21,122.0				194.1				3.72	%			20,770.1				200.4				3.83	%			21,745.3				215.4				4.01	%
Loans held for sale			64.3				0.7				4.36	%			77.4				0.6				3.02	%			111.8				0.7				2.41	%
US Treasury and government agency securities			397.8				1.6				1.64	%			418.4				1.6				1.60	%			214.5				0.9				1.77	%
Mortgage-backed securities and    collateralized mortgage obligations			7,352.5				34.5				1.88	%			7,019.6				30.5				1.74	%			6,307.9				29.4				1.86	%
Municipals (te)			916.5				6.7				2.93	%			924.1				6.8				2.93	%			934.5				6.8				2.93	%
Other securities			21.0				0.2				3.31	%			16.2				0.1				3.50	%			11.6				0.1				4.07	%
Total securities (te) (c)			8,687.8				43.0				1.98	%			8,378.3				39.0				1.86	%			7,468.5				37.2				2.00	%
Total short-term investments			3,327.8				1.5				0.19	%			3,687.9				1.4				0.15	%			1,690.0				0.4				0.10	%
Total earning assets (te)		$	33,201.9			$	239.3				2.91	%		$	32,913.7			$	241.4				2.92	%		$	31,015.6			$	253.7				3.30	%
Average interest-bearing liabilities
Interest-bearing transaction and savings deposits		$	11,423.4			$	1.1				0.04	%		$	11,405.1			$	1.3				0.04	%		$	10,796.0			$	3.4				0.13	%
Time deposits			1,088.5				0.6				0.24	%			1,161.4				0.8				0.27	%			1,757.4				3.0				0.69	%
Public funds			3,154.6				2.1				0.26	%			3,057.8				2.8				0.36	%			3,211.1				2.8				0.36	%
Total interest-bearing deposits			15,666.5				3.8				0.10	%			15,624.3				4.9				0.12	%			15,764.5				9.2				0.24	%
Repurchase agreements			587.5				0.1				0.06	%			589.4				0.1				0.06	%			583.7				0.1				0.13	%
Other short-term borrowings			1,102.4				1.3				0.49	%			1,102.2				1.4				0.49	%			1,104.7				1.4				0.49	%
Long-term debt			241.8				3.1				5.17	%			245.4				3.1				5.12	%			396.7				5.5				5.48	%
Total borrowings			1,931.7				4.5				0.95	%			1,937.0				4.6				0.95	%			2,085.1				7.0				1.34	%
Total interest-bearing liabilities			17,598.2				8.3				0.19	%			17,561.3				9.5				0.21	%			17,849.6				16.2				0.37	%
Net interest-free funding sources			15,603.7												15,352.4												13,166.0
Total cost of funds		$	33,201.9			$	8.3				0.10	%		$	32,913.7			$	9.5				0.11	%		$	31,015.6			$	16.2				0.21	%
Net interest spread (te)						$	231.0				2.72	%						$	231.9				2.70	%						$	237.5				2.94	%
Net interest margin		$	33,201.9			$	231.0				2.81	%		$	32,913.7			$	231.9				2.80	%		$	31,015.6			$	237.5				3.09	%

 

 

 

 

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Provision for Credit Losses

During the first quarter of 2022, we recorded a negative provision for credit losses of $22.5 million, compared to negative provisions for credit losses of $28.4 million in the fourth quarter of 2021, and $4.9 million in the first quarter of 2021. The first quarter of 2022 negative provision included net charge-offs of $0.3 million and a reserve release of $22.8 million. The fourth quarter of 2021 negative provision included net charge-offs of $0.7 million and a reserve release of $29.1 million. The first quarter of 2021 negative provision for credit loss included net charge-offs of $18.3 million and a reserve release of $23.2 million. The negative provision for credit losses recorded in the first quarter of 2022 and fourth quarter of 2021 were largely the result of continued improvement in asset quality with minimal losses over the past few quarters and continued improvement in economic conditions in our footprint. The modest negative provision for credit loss in the first quarter of 2021 was the result of improvement in macroeconomic forecasts and the contraction in the core loan portfolio (excluding PPP).

Net charge-offs in the first quarter of 2022 were $0.3 million, or 0.01% of average total loans on an annualized basis, compared to $0.7 million, or 0.01% in the fourth quarter of 2021, and $18.3 million, or 0.34% in the first quarter of 2021. The first quarter of 2022 included $1.2 million of consumer net charge-offs, largely offset by net recoveries of $0.8 million for commercial and less than $0.1 million for residential mortgage, virtually unchanged from fourth quarter of 2021 levels. Net charge-offs in the first quarter of 2021 included $16.2 million of commercial net charge-offs, largely energy-related, $0.1 million of mortgage net recoveries and $2.5 million of consumer net charge-offs.

Future assumptions in economic forecasts and our own asset quality metrics will drive our outlook for the level of forecasted reserves. We currently expect reserve releases will continue; however, we expect to see them taper off over the next few quarters.

The discussion labeled "Allowance for Credit Losses and Asset Quality" appears later in this Item and provides additional information on these changes and on general credit quality.

Noninterest Income

Noninterest income totaled $83.4 million for the first quarter of 2022, down $6.2 million, or 7%, from the fourth quarter of 2021, and down $3.7 million, or 4%, from the first quarter of 2021. There were no nonoperating items included in noninterest income in the first quarters of 2022 and 2021. There was $3.6 million of nonoperating noninterest income in the fourth quarter of 2021 attributable to a gain on a hurricane-related insurance settlement. Excluding this item, operating noninterest income decreased $2.6 million, or 3%, linked quarter. The decrease in operating noninterest income from the prior quarter was largely attributable to a decline in secondary mortgage market operations income. The decrease compared to the same quarter last year was attributable to declines in secondary mortgage market operations income, bank-owned life insurance (BOLI) income, and derivative fees, partially offset by an increase in other income largely due to Small Business Investment Company (SBIC) income and other revenue items described below.

The components of noninterest income are presented in the following table for the indicated periods.

 

		Three Months Ended
		March 31,				December 31,				March 31,
(in thousands)		2022				2021				2021
Service charges on deposit accounts		$	21,674			$	21,346			$	19,146
Trust fees			15,279				15,547				15,003
Bank card and ATM fees			20,396				20,638				18,120
Investment and annuity fees and insurance commissions			7,427				7,546				7,458
Secondary mortgage market operations			3,746				5,456				11,710
Income from bank-owned life insurance			3,545				3,795				7,281
Credit related fees			2,669				2,618				2,844
Income from customer and other derivatives			2,349				1,722				5,035
Securities transactions, net			(87	)			—				—
Gain on hurricane-related insurance settlement			—				3,600				—
Other miscellaneous			6,434				7,344				492
Total noninterest income		$	83,432			$	89,612			$	87,089

Service charges are composed of overdraft and nonsufficient funds fees, business and corporate account analysis fees, overdraft protection fees and other customer transaction-related charges. Service charges on deposits totaled $21.7 million for the first quarter of 2022, up $0.3 million, or 2%, from the fourth quarter of 2021, and up $2.5 million, or 13%, from the first quarter of 2021. The

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increase from the fourth quarter of 2021 is primarily attributable to an increase in business account service charges, partially offset by a decrease in consumer overdraft fees. The increase from the first quarter of 2021 was largely due to both increased activity-related fees and higher overdraft fees, which have increased as consumer spending activity has returned to a more typical level. As noted previously, the Company has announced plans to eliminate consumer (retail) non-sufficient funds fees and certain overdraft fees by the end of 2022, which are currently reflected in this revenue line item. We expect these fees to decrease, on average, by approximately $2 to $3 million per quarter for 2023.

Trust fee income represents revenue generated from a full range of trust services, including asset management and custody services provided to individuals, businesses and institutions. Trust fees decreased $0.3 million, or 2%, from the prior quarter and increased $0.3 million, or 2%, compared to the same quarter a year ago. The decrease compared to the prior quarter is primarily due to a decline in employee benefits trust income. The increase from the same quarter last year was largely due to an increase in personal trust income with the rebound of equity markets, and a new fee structure introduced during the second quarter of 2021. These increases were partially offset by a decline in Hancock Horizon mutual funds income as the funds were sold in late 2021.

Bank card and ATM fees include interchange and other income from credit and debit card transactions, fees earned from processing card transactions for merchants, and fees earned from ATM transactions. Bank card and ATM fees totaled $20.4 million for the first quarter of 2022, down $0.2 million, or 1%, from the fourth quarter of 2021 and up $2.3 million, or 13%, from the same quarter last year. The decrease from the prior quarter was largely due to two fewer activity days. The increase compared to the same quarter last year was largely due to higher levels of activity as economic conditions related to the pandemic have returned to a more typical level.

Investment and annuity fees and insurance commissions decreased $0.1 million, or 2%, compared to the fourth quarter of 2021 and were virtually flat compared to the same quarter a year ago. The decline from the prior quarter was largely due to lower underwriting activity, insurance commissions, and investment fees, partially offset by higher annuity fees. Compared to the same quarter a year ago, lower levels of underwriting and insurance fees were offset by an increase in investment fees.

Income from secondary mortgage market operations is comprised of income produced from the origination and sales of residential mortgage loans in the secondary market. We offer a full range of mortgage products to our customers and typically sell longer-term fixed rate loans while retaining the majority of adjustable rate loans, as well as loans generated through programs to support customer relationships. Income from secondary mortgage market operations was $3.7 million in the first quarter of 2022, down $1.7 million, or 31%, from the fourth quarter of 2021 and down $8.0 million, or 68%, from the first quarter of 2021. The decrease from the prior quarter and the same quarter last year was due largely to both a lower level of refinancing activity as interest rates have begun to rise, and a lower percentage of originated loans sold in the secondary market. The level of mortgage applications during the first quarter of 2022 was down approximately 15% when compared to the fourth quarter of 2021 and down 37% when compared to the first quarter of 2021. The percentage of originated loans sold in the secondary market declined to 27% in the first quarter of 2022 from 35% in the fourth quarter of 2021 and 64% in the same quarter last year. Secondary mortgage market operations income will vary based on application volume and pull through rates. We expect income from secondary mortgage market operations to remain low as the demand for mortgage loans and refinancing slows in the rising interest rate environment.

Income from bank-owned life insurance (BOLI) is typically generated through insurance benefit proceeds as well as the growth of the cash surrender value of insurance contracts held. Income from bank-owned life insurance was $3.5 million for the first quarter of 2022, down $0.3 million, or 7%, from the fourth quarter of 2021, and down $3.7 million, or 51%, from the first quarter of 2021. The linked-quarter decrease is attributable to a higher level of benefit proceeds recorded in fourth quarter of 2021, and the decrease from the prior year is largely attributable to income received in connection with the purchase of policies in the first quarter of 2021.

Credit-related fees include fees assessed on letters of credit and unused portions of loan commitments. Credit related fees were $2.7 million for the first quarter of 2022, up $0.1 million, or 2%, from the fourth quarter of 2021 and down $0.2 million, or 6%, from the first quarter of 2021. The linked quarter increase is primarily attributable to an increase in letter of credit fees, partially offset by a decline in loan commitment fees, as credit line utilization increased during the period. The decrease from the first quarter of 2021 is primarily attributable to a decrease in both letters of credit fees and loan commitment fees.

Income from customer and other derivatives is largely from our customer interest rate derivative program and totaled $2.3 million for the first quarter of 2022 compared to $1.7 million in the fourth quarter of 2021 and $5.0 million for the first quarter of 2021. The decrease from the same quarter last year is largely attributable to the demand during the first quarter of 2021 for interest rate swap arrangements due to the long-term interest rate environment at the time. Derivative income can be volatile and is dependent upon the composition of the portfolio, volume and mix of sales activity and market value adjustments due to market interest rate movement.

Other miscellaneous income is comprised of various items, including income from small business investment companies (SBIC), FHLB stock dividends, and syndication fees. Other miscellaneous income (excluding nonoperating items) totaled $6.4 million, down

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$0.9 million compared to the fourth of 2021 and up $5.9 million compared to the first quarter of 2021. The decrease compared to the prior period was largely driven by a lower level of SBIC income and syndication fees, partially offset by an increase in gains on sales of assets. The increase compared to the prior year reflects increased SBIC income as a result of an approximately $4.7 million pandemic related write-down in the first quarter of 2021, and higher syndication fees.

Management expects our 2022 fee income, excluding nonoperating items, to decline 1% to 3%, from the 2021 level of $353.4 million, largely due to lower secondary mortgage fees.

 

Noninterest Expense

Noninterest expense for the first quarter of 2022 was $179.9 million, down $2.5 million, or 1%, from the fourth quarter of 2021, and down $13.1 million, or 7%, from the first quarter of 2021. There were no nonoperating noninterest expense items in the first quarters of 2022 and 2021. During the fourth quarter of 2021, there was a net negative $1.3 million of nonoperating noninterest expense largely resulting from accrual reversals related to both Hurricane Ida expenses and closed branch writedowns, partially offset by expense associated with efficiency initiatives. Excluding the nonoperating items, operating noninterest expense was down $3.9 million, or 2% from the prior quarter. The decrease in operating expense from the prior quarter was largely driven by lower professional services expense with lower consulting and legal fees, other real estate gains, lower data processing expense with fewer processing days and lower personnel expense with one less workday. Compared to the same quarter last year, the decrease was largely attributable to personnel expense savings as a result of reduced headcount, lower occupancy expense resulting from branch closures, and a decrease in professional services expense, partially offset by an increase in business development costs and data processing expense as a result of higher level of card activity. A more detailed discussion of the variances follows.

The components of noninterest expense for the periods indicated are presented in the following tables.

 

		Three Months Ended
		March 31,				December 31,				March 31,
(in thousands)		2022				2021				2021
Compensation expense		$	85,993			$	89,555			$	95,846
Employee benefits			21,403				18,573				23,769
Personnel expense			107,396				108,128				119,615
Net occupancy expense			11,680				11,947				12,910
Equipment expense			4,867				4,100				4,781
Data processing expense			24,239				25,157				22,947
Professional services expense			7,793				11,206				11,251
Amortization of intangible assets			3,748				3,919				4,419
Deposit insurance and regulatory fees			3,740				3,540				3,395
Other real estate and foreclosed asset expense			(1,764	)			246				6
Advertising			3,166				4,041				2,486
Corporate value, franchise and other non-income taxes			4,248				3,178				4,464
Telecommunications and postage			2,925				3,078				3,318
Entertainment and contributions			2,961				2,653				1,448
Travel expense			660				908				357
Printing and supplies			1,003				895				978
Tax credit investment amortization			1,004				1,099				1,112
Other retirement expense			(6,772	)			(7,296	)			(6,545	)
Loss on facilities and equipment from consolidation			—				(1,599	)			—
Other miscellaneous			9,045				7,262				6,130
Total noninterest expense		$	179,939			$	182,462			$	193,072

 

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Nonoperating Expenses (included above)

		Three Months Ended
		March 31,				December 31,				March 31,
(in thousands)		2022				2021				2021
Nonoperating expense
Personnel expense		$	—			$	949			$	—
Equipment expense			—				3				—
Advertising			—				14				—
Loss on facilities and equipment from consolidation			—				(1,599	)			—
Other miscellaneous			—				(696	)			—
Total nonoperating expenses		$	—			$	(1,329	)		$	—

Personnel expense consists of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and medical, life and disability. Personnel expense totaled $107.4 million for the first quarter of 2022, down $0.7 million, or 1%, compared to the prior quarter and down $12.2 million, or 10%, compared to the same quarter last year. The decrease from the prior quarter was largely due to one less payroll day and lower bonus and incentives from a lower level of secondary mortgage production. The decrease from the same quarter last year is largely attributable to a decrease of 383 full-time equivalent employees (FTEs), primarily the result of the efficiency measures implemented during 2021, including a voluntary early retirement program and the closure of 20 financial centers, partially offset by annual merit raises.

Occupancy and equipment expenses are primarily composed of lease expenses, depreciation, maintenance and repairs, rent, taxes, and other equipment expenses. Occupancy and equipment expenses totaled $16.5 million in the first quarter of 2022, up $0.5 million, or 3%, from the fourth quarter of 2021 and down $1.1 million, or 6%, from the first quarter of 2021. The linked-quarter increase was largely related to higher equipment expense related to annual maintenance contract renewals, partially offset by a decrease in occupancy expense related to higher sublease rental income. The decrease from the same quarter last year is primarily attributable to the closure of 26 financial centers during 2021 as a result of efficiency initiatives.

Data processing expense includes expenses related to third party technology processing and servicing costs, technology project costs and fees associated with bank card and ATM transactions. Data processing expense was $24.2 million for the first quarter of 2022, down $0.9 million, or 4%, compared to the fourth quarter of 2021, and up $1.3 million, or 6%, compared to the first quarter of 2021. The decrease from the fourth quarter of 2021 is largely due to a lower level of card activity with two fewer activity days. The increase from first quarter of 2021 is largely due to higher processing expense related to the increase in bank card activity.

Professional services expense for the first quarter of 2022 totaled $7.8 million, down $3.4 million, or 30%, compared to the previous quarter and $3.5 million, or 31%, from the first quarter of 2021. The decrease from the fourth quarter of 2021 and the same quarter last year is primarily attributable to lower levels of expense related to PPP consulting support, as well as a reduction in legal fees.

Deposit insurance and regulatory fees totaled $3.7 million, up $0.2 million, or 6%, from the fourth quarter of 2021 and up $0.3 million, or 10%, from the first quarter of 2021. The increase from the prior quarter and the prior year is due largely to the impact on our risk based assessment of declining levels of low-risk PPP loans and lower levels of excess liquidity to our FDIC insurance cost. We expect our FDIC insurance cost to continue to increase as we continue to redeploy our excess liquidity and as our PPP loans pay down.

Other real estate and foreclosed asset expense reflected net income of $1.8 million for the first quarter of 2022 resulting from gains on sales of properties, compared to minimal activity in both the prior quarter and the same quarter last year. Other real estate gain or losses may occur periodically and are dependent on the volume of properties for sale and current market conditions.

Corporate value, franchise and other non-income tax expense for the first quarter of 2022 totaled $4.2 million, up $1.1 million, or 34%, over the prior quarter and down $0.2 million, or 5%, compared to the same quarter last year. The increase from the fourth quarter of 2021 reflects an increase in bank share tax as the benefit from the net loss recorded in 2020 concluded in 2021. The decrease from the same quarter last year is primarily due to a $1.2 million termination penalty on a BOLI transaction incurred in the first quarter of 2021, partially offset by the bank share tax benefit realized during 2021 from the net loss recorded in 2020.

Business development-related expenses (including advertising, travel, entertainment and contributions) totaled $6.8 million for the first quarter of 2022, down $0.8 million, or 11%, from the fourth quarter of 2021, and up $2.5 million, or 58%, from the first quarter of 2021. The linked-quarter decrease was largely due to a decrease in advertising and travel, and the increase over last year was largely due to entertainment and contributions, advertising and travel expense.

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All other expenses, excluding amortization of intangibles and nonoperating items, totaled $7.2 million for the first quarter of 2022, an increase of $1.5 million from the fourth quarter of 2021, and $2.2 million from the first quarter of 2021. The increase for both periods is due in part to increases in noncredit losses of $0.9 million linked-quarter and $2.1 million from the same quarter last year, and other miscellaneous smaller items.

 

We expect our 2022 operating expense to be down approximately 2% to 3% from the 2021 level of $760.1 million, reflecting our continued focus on expense management. We expect our ongoing expense initiatives, including strategic procurement, combined with the full-year impact of initiatives completed through 2021, will support the strategy of using cost control measures to fund revenue enhancements, such as additional investments in technology and additional bankers, and reduce the overall impact of wage inflation.

 

 

Income Taxes

 

The effective income tax rate for the first quarter of 2022 was approximately 20.1% compared to 16.4% in the fourth quarter of 2021 and 19.7% in the first quarter of 2021. The linked-quarter increase in the effective income tax rate is due primarily to a $4.9 million income tax benefit in the fourth quarter of 2021 from an increase in the 2020 net operating loss (“NOL”).

 

Many factors impact the effective income tax rate including, but not limited to, the level of pre-tax income and relative impact of net tax benefits related to tax credit investments, tax-exempt interest income, bank-owned life insurance, and nondeductible expenses. Based on the current forecast, management expects the effective income tax rate for 2022 will be in the 19%-21% range, absent any changes in tax law.

 

Our effective tax rate has historically varied from the federal statutory rate primarily because of tax-exempt income and tax credits. Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the bank-owned life insurance program are the major components of tax-exempt income. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. These investments are made primarily in the markets we serve and are directed at tax credits issued under the Federal and State New Market Tax Credit (“NMTC”) programs, Low-Income Housing Tax Credit (“LIHTC”) programs, as well as pre-2018 Qualified Zone Academy Bonds (“QZAB”) and Qualified School Construction Bonds (“QSCB”). These investments generate tax credits, which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes.

 

We have invested in NMTC projects through investments in our own Community Development Entities (“CDE”), as well as other unrelated CDEs. Federal tax credits from NMTC investments are recognized over a seven-year period, while recognition of the benefits from state tax credits varies from three to five years. We have also invested in affordable housing projects that generate federal LIHTC tax credits that are recognized over a ten-year period, beginning in the year the rental activity begins. The amortization of the LIHTC investment cost is recognized as a component of income tax expense in proportion to the tax credits recognized over the ten-year credit period.

 

Based on tax credit investments that have been made to date in 2022, we expect to realize benefits from federal and state tax credits over the next three years totaling $10.0 million, $10.1 million and $7.4 million in 2023, 2024, and 2025, respectively. We intend to continue making investments in tax credit projects. However, our ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits.

 

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity management ensures that funds are available to meet the cash flow requirements of our depositors and borrowers, while also meeting the operating, capital and strategic cash flow needs of the Company, the Bank and other subsidiaries. As part of the overall asset and liability management process, liquidity management strategies and measurements have been developed to manage and

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monitor liquidity risk. The Company has access to sufficient liquidity for cash requirements, both on balance sheet and with $21.4 billion in net available sources of funds at March 31, 2022, summarized as follows:

		March 31, 2022
(in thousands)		Total Available				Amount Used				Net Availability
Internal Sources
Free Securities, cash and other		$	7,386,592			$	—			$	7,386,592
External Sources
Federal Home Loan Bank			5,739,451				1,200,814				4,538,637
Federal Reserve Bank			3,603,969				—				3,603,969
Brokered deposits			4,574,956				9,190				4,565,766
Other			1,294,000				—				1,294,000
Total Liquidity		$	22,598,968			$	1,210,004			$	21,388,964

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities and repayments of investment securities and occasional sales of various assets. Short-term investments such as federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with the Federal Reserve Bank or with other commercial banks are additional sources of liquidity to meet cash flow requirements. Free securities represent unpledged securities that can be sold or used as collateral for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window. Management has established an internal target for the ratio of free securities to total securities of 20% or greater. As shown in the table below, our ratio of free securities to total securities was 50.63% at March 31, 2022, compared to 53.95% at December 31, 2021 and 62.98% at March 31, 2021. Securities and FHLB letters of credit are pledged as collateral related to public funds and repurchase agreements. Pledged securities at March 31, 2022 totaled $4.2 billion, up $250 million from December 31, 2021. The increase in pledged securities, as well as the decrease in the ratio of free securities to total securities, was the result of utilizing securities to replace FHLB letters of credit as pledged collateral.

			March 31,				December 31,				March 31,
Liquidity Metrics			2022				2021				2021
Free securities / total securities				50.63	%			53.95	%			62.98	%
Core deposits / total deposits				98.94	%			98.66	%			97.65	%
Wholesale funds / core deposits				6.21	%			6.45	%			7.45	%
Quarter-to-date average loans /quarter-to-date average deposits				70.34	%			69.81	%			77.28	%

 

The liability portion of the balance sheet provides liquidity mainly through the ability to use cash sourced from various customers’ interest-bearing and noninterest-bearing deposit and sweep accounts. At March 31, 2022, deposits totaled $30.5 billion, an increase of $33.8 million, or less than 1%, from December 31, 2021 and an increase of $1.3 billion, or 4%, from March 31, 2021. The year over year increase is largely attributable to higher balances in consumer and business accounts, due in part to stimulus and hurricane-related insurance proceeds. Core deposits consist of total deposits excluding certificates of deposit of $250,000 or more and brokered deposits. Core deposits totaled $30.2 billion at March 31, 2022, up $120.2 million, or less than 1%, compared to December 31, 2021, and up $1.7 billion, or 6%, from March 31, 2021. The ratio of core deposits to total deposits was 98.94% at March 31, 2022, compared to 98.66% at December 31, 2021 and 97.65% at March 31, 2021. Brokered deposits totaled $14.2 million as of March 31, 2022, a decrease of $16.0 million compared to December 31, 2021 and a decrease of $61.3 million compared to March 31, 2021. The Company has had only limited brokered deposit activity over the periods disclosed due to our excess liquidity. The use of brokered deposits as a funding source is subject to certain policies regarding the amount, term and interest rate.

 

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings from customers provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, the Bank has a line of credit with the FHLB that is secured by blanket pledges of certain mortgage loans. At March 31, 2022, the Bank had borrowings of approximately $1.1 billion and had approximately $4.5 billion available under this line. The unused borrowing capacity at the Federal Reserve’s discount window is approximately $3.6 billion. There were no outstanding borrowings with the Federal Reserve at any date during any period covered by this report.

 

Wholesale funds, which are comprised of short-term borrowings, long-term debt and brokered deposits were 6.21% of core deposits at March 31, 2022, compared to 6.45% at December 31, 2021 and 7.45% at March 31, 2021. At March 31, 2022, wholesale funds totaled $1.9 billion, a decrease of $64.5 million, or 3%, from December 31, 2021 and a decrease of $250.9 million, or 12%, from March 31, 2021. The quarter over quarter decline was primarily due to decreased repurchase agreements and brokered deposits. The year over year decrease was largely attributable to the redemption of $150 million of our 5.95% subordinated notes during the second quarter of

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2021, as well as decreased brokered deposits, repurchase agreements, and other short term borrowings. The Company has established an internal target for wholesale funds to be less than 25% of core deposits.

 

Another key measure used to monitor our liquidity position is the loan-to-deposit ratio (average loans outstanding for the reporting period divided by average deposits outstanding). The loan-to-deposit ratio measures the amount of funds the Company lends for each dollar of deposits on hand. Our average loan-to-deposit ratio for the first quarter of 2022 was 70.34%, compared to 69.81% for the fourth quarter of 2021 and 77.28% for the first quarter of 2021. Management has an established target range for the loan-to-deposit ratio of 87% to 89%, but will operate outside that range under certain circumstances, such as those caused by the continuing impact of the pandemic. Average loans outstanding for the first quarter of 2022, the fourth quarter of 2021, and the first quarter in 2021, included approximately $0.4 billion, $0.7 billion, and $2.2 billion, respectively, of low-risk SBA guaranteed PPP loans that are primarily repaid through the forgiveness process, which is expected to be substantially complete by end of the second quarter of 2022.

 

Cash generated from operations is another important source of funds to meet liquidity needs. The consolidated statements of cash flows included in Part I. Item 1 of this document present operating cash flows and summarize all significant sources and uses of funds during the three months ended March 31, 2022 and 2021.

 

Dividends received from the Bank have been the primary source of funds available to the Parent for the payment of dividends to our stockholders and for servicing its debt. The liquidity management process takes into account the various regulatory provisions that can limit the amount of dividends the Bank can distribute to the Parent. The Parent targets cash and other liquid assets to provide liquidity in an amount sufficient to fund approximately four quarters of ongoing cash or liquid asset needs, consisting primarily of common stockholder dividends, debt service requirements, and any expected share repurchase or early extinguishment of debt. The Parent may operate below the target level on a temporary basis if a return to the target can be achieved in the near-term, generally not to exceed four quarters. The Parent had cash and liquid assets of $89.0 million at March 31, 2022.

 

During the first quarter of 2022, we repurchased 350,000 shares of our common stock at an average cost of $52.82 per share, inclusive of commissions, under a Board authorization to repurchase up to 4,338,000 shares of the company’s common stock, set to expire December 31, 2022. To-date, the Company has repurchased 799,876 shares under this plan at a total cost of $40.3 million.

 

On June 15, 2021, the Parent utilized excess liquidity to redeem all of its issued and outstanding 5.95% subordinated notes due with an aggregate principal amount of $150 million.

 

 

Capital Resources

 

Stockholders’ equity totaled $3.5 billion at March 31, 2022, down $219.4 million from December 31, 2021 and up $34.0 million from March 31, 2021. The decrease from December 31, 2021 is primarily attributable to a $305.3 million decrease in accumulated other comprehensive income, largely due to fair value adjustments on securities available for sale and cash flow hedges, $23.9 million of dividends, and the repurchase of $18.5 million of common stock. These factors were partially offset by $123.5 million in net income and $4.9 million of long-term incentive plan and dividend reinvestment activity. The increase from March 31, 2021 is attributable to $479.5 million of net income and $18.4 million of long term incentive plan and dividend reinvestment activity, partially offset by a decline of $327.8 million of accumulated other comprehensive income, largely attributable to fair value adjustments on the available for sale securities portfolio, and, to a lesser degree, cash flow hedges, and $95.8 million of dividends and the repurchase of $40.3 million of common stock.

 

 

The tangible common equity (TCE) ratio was 7.15% at March 31, 2022, compared to 7.71% at December 31, 2021 and 7.26% at March 31, 2021. The decreases from both comparative periods are largely attributable to other comprehensive loss that resulted from fair value adjustments to the available for sale securities portfolio, as well as to dividends and common stock repurchases. These factors were partially offset by net income and long-term incentive plan and dividend reinvestment activity. The ratio as compared to December 31, 2021 was influenced by tangible asset contraction, primarily in short-term investments. The ratio as compared to March 31, 2021 was influenced by growth in tangible assets that resulted from deployment of excess liquidity into short-term investments and investment securities.

The regulatory capital ratios of the Company and the Bank at March 31, 2022 remained well in excess of current regulatory minimum requirements, including capital conservation buffers, by at least $486 million. The Company and the Bank have been categorized as “well-capitalized” in the most recent notices received from our regulators. Refer to the Supervision and Regulation section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion of our capital requirements.

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The following table shows the regulatory capital ratios for the Company and the Bank as calculated under current rules for the indicated periods. The capital ratios reflect the election to use the CECL five-year transition rule that allowed for the option to delay for two years the estimated impact of CECL on regulatory capital (0% in 2020 and 2021), followed by a three-year transition (25% in 2022, 50% in 2023, 75% in 2024, and 100% thereafter). The two-year delay includes the full impact of January 1, 2020 cumulative effect impact plus an estimated impact of CECL calculated quarterly as 25% of the current ACL over the January 1, 2020 balance (modified transition amount). The modified transition amount was recalculated each quarter in 2020 and 2021, with the December 31, 2021 impact of $24.9 million plus day one impact of $44.1 million (net of tax) carrying through the remaining three years of the transition, as adjusted by the applicable transition percentage.

 

		Well-				March 31,				December 31,				September 30,				June 30,				March 31,
		Capitalized				2022				2021				2021				2021				2021
Total capital (to risk weighted assets)
Hancock Whitney Corporation			10.00	%			12.82	%			12.84	%			13.06	%			12.94	%			13.60	%
Hancock Whitney Bank			10.00	%			12.33	%			12.33	%			12.51	%			12.45	%			12.52	%
Tier 1 common equity capital (to risk weighted assets)
Hancock Whitney Corporation			6.50	%			11.12	%			11.09	%			11.17	%			10.98	%			11.00	%
Hancock Whitney Bank			6.50	%			11.27	%			11.24	%			11.30	%			11.20	%			11.26	%
Tier 1 capital (to risk weighted assets)
Hancock Whitney Corporation			8.00	%			11.12	%			11.09	%			11.17	%			10.98	%			11.00	%
Hancock Whitney Bank			8.00	%			11.27	%			11.24	%			11.30	%			11.20	%			11.26	%
Tier 1 leverage capital
Hancock Whitney Corporation			5.00	%			8.38	%			8.25	%			8.15	%			7.83	%			7.89	%
Hancock Whitney Bank			5.00	%			8.49	%			8.36	%			8.25	%			7.98	%			8.08	%

Hancock Whitney Corporation total capital to risk weighted assets ratios after March 31, 2021 reflect the impact of the June 15, 2021 redemption of $150 million of subordinated notes of the Parent that qualified as tier 2 capital in the calculation of certain regulatory capital ratios, reducing total capital to risk weighted assets ratio by approximately 60 bps. Our regulatory ratios also reflect the impact of PPP loans, which are guaranteed by the SBA and, when meeting certain criteria, are subject to forgiveness to the debtor by the SBA. These loans carry a 0% risk-weighting in the tier 1 and total capital regulatory ratios due to the full guarantee by the SBA. However, these loans are reflected in average assets used to compute tier 1 leverage. PPP loans totaled $335 million, $531 million and $2.3 billion as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

On April 22, 2021, our board of directors authorized the repurchase of up to 4,338,000 shares of the Company’s common stock (approximately 5% of the shares of common stock outstanding as of March 31, 2021). The authorization is currently set to expire on December 31, 2022. The shares may be repurchased in the open market, by block purchase, through accelerated share repurchase plans, in privately negotiated transactions or otherwise, in one or more transactions, from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the Securities and Exchange Commission. The repurchase authorization may be terminated or amended by the Board at any time prior to the expiration date. During the first quarter of 2022, 350,000 shares were repurchased under this program at an average cost of $52.82 per share, inclusive of commissions. To date, 799,876 shares with an average cost of $50.36 have been repurchased under this program.

On January 27, 2022, our board of directors declared a regular first quarter cash dividend of $0.27 per share, consistent with the prior quarter. The Company has paid uninterrupted dividends to its shareholders since 1967.

BALANCE SHEET ANALYSIS

Short-Term Investments

Short-term assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors. Short-term investments, including interest-bearing bank deposits and federal funds sold, were $3.1 billion at March 31, 2022, down $0.7 billion from December 31, 2021 and up $0.8 billion from March 31, 2021. Average short-term investments of $3.3 billion for the first quarter of 2022 were down $0.4 billion compared to the fourth quarter of 2021, and up $1.6 billion compared to the first quarter of 2021. Typically, these balances will change on a daily basis depending upon movement in customer loan and deposit accounts. However,

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excess liquidity that has stemmed from pandemic related conditions (refer to the discussion of Liquidity above) continues to drive an elevated balance of short-terms investments, largely held at the Federal Reserve.

Securities

Investment in securities totaled $8.5 billion at March 31, 2022, down $71.4 million, or 1%, from December 31, 2021, and up $475.1 million, or 6%, from March 31, 2021. The decrease from December 31, 2021 was the result of a negative market valuation adjustment of $389.2 million, partially offset by net purchases of $317.8 million. The increase from March 31, 2021 reflects net purchases of $882.9 million, partially offset by a negative valuation adjustment of $407.8 million. The net purchases from the prior quarter and the same quarter last year reflect investment of a portion of excess cash from federal funds into higher-yielding securities. Our securities portfolio includes securities categorized as available for sale and held to maturity. At March 31, 2022, securities available for sale totaled $6.0 billion and securities held to maturity totaled $2.5 billion. As a result of excess liquidity, and to provide some protection from the impact of future interest rate changes upon accumulated other comprehensive income, we reclassified securities available for sale with an aggregate fair value of $561.8 million to the securities held to maturity portfolio during the first quarter of 2022. The purpose of the securities portfolio is to increase profitability, mitigate interest rate risk, provide liquidity and comply with regulatory pledging requirements. Available for sale securities are carried at fair value and may be sold prior to maturity. Unrealized gains or losses on available for sale securities, net of deferred taxes, are recorded as accumulated other comprehensive income in stockholders’ equity.

Our securities portfolio consists mainly of residential and commercial mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies. We invest only in high quality investment grade securities with a targeted portfolio effective duration generally between two and five and a half years. At March 31, 2022, the average expected maturity of the portfolio was 5.86 years with an effective duration of 4.47 years and a nominal weighted-average yield of 1.93%. Under an immediate, parallel rate shock of 100 bps and 200 bps, the effective durations would be 4.60 years in both scenarios. At December 31, 2021, the average expected maturity of the portfolio was 5.80 years with an effective duration of 4.25 years and a nominal weighted-average yield of 1.87%. The average maturity of the portfolio at March 31, 2021 was 5.93 years, with an effective duration of 4.76 years and a nominal weighted-average yield of 1.95%. The changes in expected maturity, effective duration, and nominal weighted-average yield compared to both December 31, 2021 and March 31, 2021 was the result of reinvestment of maturities and paydowns and growth from the investment of excess liquidity. At March 31, 2022, approximately $1.9 billion of our available for sale securities are hedged with $1.7 billion in fair value hedges in order to provide protection and flexibility to reposition and/or reprice the portfolio in a rising interest rate environment, effectively reducing the duration (market price risk) on the hedged securities. Our strategy in the near term will be to invest in the securities portfolio as rates rise and monitor our hedge positions to adjust interest rate sensitivity.

 

At the end of each reporting period, we evaluate the securities portfolio for credit loss. Based on our assessments, expected credit loss was negligible for all periods in 2022 and 2021, and therefore no allowance for credit loss was recorded.

Loans

Total loans at March 31, 2022 were $21.3 billion, up $189.1 million, or 1%, from December 31, 2021, and down $341.5 billion, or 2%, from March 31, 2021. The linked-quarter increase was primarily attributable to growth of $385.3 million in core loans, as demand for traditional loan products increased, driven by our east and west regions and equipment finance specialty line, partially offset by a decrease of $196.2 million in PPP loans. The decline compared to March 31, 2021 is due to a net decrease in PPP loans of $2.0 billion, partially offset by growth of $1.7 billion in core loans.

The following table shows the composition of our loan portfolio at each date indicated:

 

		March 31,				December 31,				September 30,				June 30,				March 31,
(in thousands)		2022				2021				2021				2021				2021
Total loans:
Commercial non-real estate		$	9,584,480			$	9,612,460			$	9,416,990			$	9,532,710			$	10,091,342
Commercial real estate - owner occupied			2,868,233				2,821,246				2,812,926				2,809,868				2,795,104
Total commercial and industrial			12,452,713				12,433,706				12,229,916				12,342,578				12,886,446
Commercial real estate - income producing			3,563,299				3,464,626				3,467,939				3,419,028				3,411,028
Construction and land development			1,286,655				1,228,670				1,213,991				1,295,036				1,122,141
Residential mortgages			2,462,900				2,423,890				2,351,053				2,412,459				2,488,792
Consumer			1,557,774				1,583,390				1,623,116				1,679,429				1,756,452
Total loans		$	21,323,341			$	21,134,282			$	20,886,015			$	21,148,530			$	21,664,859

 

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Commercial and industrial (“C&I”) loans, including both non-real estate and owner occupied real estate secured loans, totaled approximately $12.5 billion, or 58% of the total loan portfolio, at March 31, 2022, an increase of $19 million, or less than 1%, from December 31, 2021, and a decrease of $434 million, or 3%, from March 31, 2021. The linked-quarter increase is primarily attributable to growth of $215 million, or 2%, in core loans, partially offset by a $196 million reduction in PPP loans, due to repayment primarily through the SBA’s forgiveness program. Core loan growth reflects increased production in our commercial portfolio and in our equipment finance portfolio, as well as an increase in the line utilization rate. The year over year decrease is attributable to a $2.0 billion net reduction in PPP loans, partially offset by $1.6 billion of core loan growth. PPP loans included in C&I portfolio totaled $335 million at March 31, 2022, $531 million at December 31, 2021, and $2.3 billion at March 31, 2021.

The Bank lends mainly to middle market and smaller commercial entities, although it participates in larger shared credit loan facilities. Shared national credits funded at March 31, 2022 totaled approximately $2.2 billion, or 10% of total loans, an increase of $64 million from December 31, 2021 and $554 million from March 31, 2021. At March 31, 2022, approximately $375 million of our shared national credits were with healthcare-related customers, with the remaining portfolio in commercial real estate and other diverse industries.

 

Our loan portfolio is well diversified by product, client, and geography throughout our footprint. Nevertheless, we may be exposed to certain concentrations of credit risk which exist in relation to different borrowers or groups of borrowers, specific types of collateral, industries, loan products, or regions. The following table provides detail of the more significant industry concentrations for our commercial and industrial loan portfolio, which is based on NAICS codes for all industries, with the exceptions of energy, which is based on the borrower’s source of revenue (i.e. a manufacturer whose income is derived from energy-related business is reported as energy), and PPP loans, as those are expected to be 100% SBA guaranteed and therefore have limited credit risk.

 

		March 31,								December 31,								September 30,								June 30,								March 31,
		2022								2021								2021								2021								2021
						Pct of								Pct of								Pct of								Pct of								Pct of
( $ in thousands )		Balance				Total				Balance				Total				Balance				Total				Balance				Total				Balance				Total
Commercial & industrial loans:
Real estate and rental and leasing		$	1,363,548				11	%		$	1,311,241				11	%		$	1,298,560				11	%		$	1,250,737				10	%		$	1,234,521				10	%
Health care and social assistance			1,182,345				10	%			1,284,578				10	%			1,219,769				10	%			1,086,845				9	%			1,140,616				9	%
Retail trade			1,104,686				9	%			1,086,204				9	%			1,069,225				9	%			1,051,317				9	%			1,033,822				8	%
Construction			1,027,469				8	%			923,040				7	%			861,075				7	%			753,049				6	%			648,379				5	%
Manufacturing			984,699				8	%			919,830				7	%			928,041				8	%			946,266				8	%			928,993				7	%
Finance and insurance			911,910				7	%			896,105				7	%			796,980				7	%			772,464				6	%			680,368				5	%
Wholesale trade			856,534				7	%			823,295				7	%			808,252				7	%			751,689				6	%			707,541				5	%
Transportation and warehousing			771,865				6	%			780,934				6	%			785,367				6	%			769,145				6	%			789,573				6	%
Professional, scientific, and technical services			662,559				5	%			621,739				5	%			521,965				4	%			503,425				4	%			486,970				4	%
Accommodation, food services and entertainment			644,919				5	%			595,698				5	%			604,550				5	%			605,728				5	%			625,352				5	%
Public administration			588,755				5	%			596,301				5	%			625,979				5	%			638,921				5	%			629,571				5	%
Other services (except public administration)			401,243				3	%			424,090				4	%			421,884				3	%			420,321				4	%			433,848				3	%
Energy			249,235				2	%			266,235				2	%			264,791				2	%			274,641				2	%			284,435				2	%
Educational services			274,848				2	%			255,127				2	%			251,383				2	%			260,366				2	%			268,305				2	%
Other			1,093,270				9	%			1,118,230				9	%			836,765				6	%			840,141				7	%			648,547				5	%
Total commercial & industrial loans			12,117,885				97	%			11,902,647				96	%			11,294,586				92	%			10,925,055				89	%			10,540,841				82	%
PPP loans			334,828				3	%			531,059				4	%			935,330				8	%			1,417,523				11	%			2,345,605				18	%
Total commercial & industrial loans		$	12,452,713				100	%		$	12,433,706				100	%		$	12,229,916				100	%		$	12,342,578				100	%		$	12,886,446				100	%

Commercial real estate – income producing loans totaled approximately $3.6 billion at March 31, 2022, an increase of $99 million, or 3%, from December 31, 2021 and $152 million, or 4%, from March 31, 2021. Construction and land development loans, totaling approximately $1.3 billion at March 31, 2022, increased $58 million, or 5%, from December 31, 2021 and increased $165 million, or 15%, from March 31, 2021. The following table details the end-of-period aggregated commercial real estate – income producing and

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construction loan balances by property type. Loans reflected in 1-4 family residential construction include both loans to construction builders as well as single family borrowers.

 

		March 31,								December 31,								September 30,								June 30,								March 31,
		2022								2021								2021								2021								2021
						Pct of								Pct of								Pct of								Pct of								Pct of
( $ in thousands )		Balance				Total				Balance				Total				Balance				Total				Balance				Total				Balance				Total
Commercial real estate - income producing and construction loans:
Healthcare related properties		$	815,090				17	%		$	766,338				16	%		$	677,137				15	%		$	676,587				14	%			614,510				14	%
Retail			793,126				17	%			777,594				17	%			756,619				16	%			781,143				16	%			742,649				16	%
Multifamily			695,090				14	%			647,300				14	%			696,924				15	%			688,900				15	%			648,097				14	%
Industrial			568,886				12	%			561,022				12	%			577,988				12	%			569,123				12	%			544,755				12	%
Office			554,005				11	%			501,771				11	%			487,510				10	%			501,885				11	%			506,661				11	%
1-4 family residential construction			516,580				11	%			469,690				10	%			441,925				9	%			426,745				9	%			426,124				9	%
Hotel/motel and restaurants			441,285				9	%			437,241				9	%			504,536				11	%			501,434				11	%			519,736				12	%
Other land loans			214,446				4	%			257,594				5	%			291,415				7	%			318,136				7	%			283,833				6	%
Other			251,446				5	%			274,746				6	%			247,876				5	%			250,111				5	%			246,804				6	%
Total commercial real estate - income producing and construction loans		$	4,849,954				100	%		$	4,693,296				100	%		$	4,681,930				100	%		$	4,714,064				100	%			4,533,169				100	%

Our residential mortgages loan portfolio totaled $2.5 billion at March 31, 2022, up $39 million, or 2%, from December 31, 2021 and down $26 million, or 1%, from March 31, 2021. The increase in residential mortgage loans from the prior quarter was due to a lower level of originated loans sold in the secondary market, down to 27% from 35% in the quarter ending December 31, 2021, partially offset by a 2% decline in production. The decrease from the same quarter last year was due to continued refinance activity due to the interest rate environment which led to demand for longer term, fixed rate mortgages, which we typically originate for sale in the secondary market, and, as such, we have experienced a decline in our residential mortgage portfolio. The consumer loan portfolio totaled $1.6 billion at March 31, 2022, down $26 million, or 2%, from December 31, 2021, and down $199 million, or 11%, from March 31, 2021. The decline in the consumer loan portfolio is due in part to the exit of indirect automobile lending, and decreased loan demand.

 

Management expects core loan growth (excluding PPP loans) of 6% to 8% for the full year 2022, with quarterly results reflecting normal seasonality. We expect the majority of our PPP loans to be forgiven by the end of the second quarter of 2022.

Allowance for Credit Losses and Asset Quality

The Company's allowance for credit losses was $348.6 million at March 31, 2022, compared to $371.4 million at December 31, 2021 and $456.9 million at March 31, 2021.

The $22.8 million decrease in the March 31, 2022 allowance for credit losses is primarily attributable to lower collectively evaluated reserves driven by the economic forecast and improving asset quality, and lower individually evaluated reserves (generally used for nonperforming and troubled debt restructured loans) due largely to customer payment activity. The slower near-term growth S-2 scenario (anchored on the baseline) was weighted most heavily at 60% and the baseline scenario was weighted 40% to incorporate reasonably possible alternative economic outcomes. Both economic scenarios utilized reflect continued recovery from the economic downturn in the first half of 2020; however, each scenario has varying degrees of severity and duration of inflationary pressures and volatility in commodities prices stemming from geopolitical unrest.

The March 2022 baseline forecast assumes that the Russian invasion of Ukraine will have a marginal impact on the U.S. economy and disruptions to commodity markets will be limited and temporary. The date for abatement of the pandemic, where total case growth is less than 0.05% per day, occurred in the first quarter of 2022 and the forecast assumes that COVID-19 will be endemic and seasonal. Congress will pass a $600 billion Building a Better America plan by the third quarter of 2022, which will focus on clean-energy tax credits and other climate change programs. Inflation moderates and returns to the Federal Reserve’s target of 2% in the first half of next year and the Federal Reserve raises the target range for the federal funds rate four times this year, 25 basis points each time. The slower near-term growth S-2 forecast reflects a slower economic recovery than the baseline forecast, with the conflict between Russia and Ukraine persisting longer than in the baseline, resulting in further supply-chain disruption and volatility in commodities prices. Additionally, new cases, hospitalizations and deaths from COVID-19 begin to rise again, and as a result, a slower return to spending on air travel, retail and hotels than baseline. The S-2 scenario also assumes less effective stimulus and a slower return to full employment. Additional information on the Moody’s forecast is provided in the “Economic Outlook” section of this document

 

The allowance release of $22.8 million in the first quarter 2022 and the release of $108.4 million when compared to March 31, 2021 are across most portfolios and reflect the continued improvement in the economic conditions in our market and overall asset quality. Our allowance for credit loss coverage to total loans remains strong at 1.63% at March 31, 2022, or 1.66% when excluding SBA

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guaranteed PPP loans, compared to 1.76% at December 31, 2021, or 1.80% excluding PPP loans, and 2.11% at March 31, 2021, or 2.35% excluding PPP loans. While our reserve coverage to total loans continues to decline, it remains elevated compared to normalized levels, with borrower performance for select regions/industries not yet at pre-pandemic levels and uncertainty related to future payment performance as the impact of the federal stimulus tapers and modifications expire. The impact of the COVID-19 variants, inflationary pressures, global supply chain issues, and labor supply shortages in our markets adds uncertainty to the overall outlook.

The allowance for credit losses on the commercial portfolio decreased to $291.5 million, or 1.68% of that portfolio, at March 31, 2022 compared to the December 31, 2021 allowance of $307.9 million, or 1.80%. The decrease in the commercial allowance is primarily due to improved economic conditions in our footprint and improved asset quality metrics, with several quarters of little to no net charge-offs. Our residential mortgage allowance for credit loss decreased to $26.4 million, or 1.07% of that portfolio, at March 31, 2022, compared to $30.6 million, or 1.26%, at December 31, 2021, due primarily to a favorable movement in forecasted variables for home prices. Our allowance for credit losses on the consumer portfolio was $30.7 million, or 1.97%, at March 31, 2022, compared to $32.8 million, or 2.07%, at December 31, 2021.

Criticized commercial loans totaled $282.5 million at March 31, 2022, down 2% from $287.2 million at December 31, 2021 and down 19% from $347.8 million at March 31, 2021. The reduction in commercial criticized loans reflects payoffs, paydowns, upgrades, and charge-offs exceeding new downgrades. Criticized loans are defined as those having potential weaknesses that deserve management’s close attention (risk-rated as special mention, substandard and doubtful), including both accruing and nonaccruing loans. The Company routinely assesses the ratings of loans in its portfolio through an established and comprehensive portfolio management process. In addition, the Company often looks at portfolios of loans to determine if there are areas of risk not specifically identified in its loan by loan approach.

Net charge-offs were $0.3 million, or 0.01% of average total loans on an annualized basis in the first quarter of 2022, virtually unchanged compared to $0.7 million, or 0.01% of average total loans in the fourth quarter of 2021 and down from $18.3 million, or 0.34% in the first quarter of 2021. Our commercial portfolio had net recoveries of $0.8 million and $0.5 million in the first quarter of 2022 and the fourth quarter of 2021, respectively. The first quarter of 2021 commercial net charge-offs totaled $16.2 million, consisting largely of charges related to energy-dependent credits. Our residential mortgage portfolio reflected minimal net recoveries in the first quarter of 2022 and the fourth and first quarter of 2021, and consumer net charge-offs were $1.2 million in the first quarter of 2022, virtually flat to the prior quarter and down from $2.1 million in the first quarter of 2021.

 

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The following table sets forth activity in the allowance for credit losses for the periods indicated:

 

		Three Months Ended
		March 31,				December 31,				March 31,
(in thousands)		2022				2021				2021
Provision and Allowance for Credit Losses
Allowance for loan losses:
Allowance for loan losses at beginning of period		$	342,065			$	371,521			$	450,177
Loans charged-off:
Commercial non real estate			2,659				1,154				17,512
Commercial real estate - owner-occupied			—				1,457				347
Total commercial & industrial			2,659				2,611				17,859
Commercial real estate - income producing			4				194				194
Construction and land development			—				7				248
Total commercial			2,663				2,812				18,301
Residential mortgages			42				495				109
Consumer			2,680				2,848				3,694
Total charge-offs			5,385				6,155				22,104
Recoveries of loans previously charged-off:
Commercial non real estate			2,142				2,406				1,899
Commercial real estate - owner-occupied			389				279				37
Total commercial & industrial			2,531				2,685				1,936
Commercial real estate - income producing			878				5				—
Construction and land development			68				624				159
Total commercial			3,477				3,314				2,095
Residential mortgages			61				526				206
Consumer			1,528				1,646				1,549
Total recoveries			5,066				5,486				3,850
Total net charge-offs			319				669				18,254
Provision for loan losses			(23,903	)			(28,787	)			(7,563	)
Allowance for loan losses at end of period		$	317,843			$	342,065			$	424,360
Reserve for Unfunded Lending Commitments:
Reserve for unfunded lending commitments at beginning of period		$	29,334			$	28,946			$	29,907
Provision for losses on unfunded lending commitments			1,376				388				2,652
Reserve for unfunded lending commitments at end of period		$	30,710			$	29,334			$	32,559
Total Allowance for Credit Losses		$	348,553			$	371,399			$	456,919
Total Provision for Credit Losses		$	(22,527	)		$	(28,399	)		$	(4,911	)
Coverage Ratios:
Allowance for loan losses to period-end loans			1.49	%			1.62	%			1.96	%
Allowance for credit losses to period-end loans			1.63	%			1.76	%			2.11	%
Charge-offs ratios:
Gross charge-offs to average loans			0.10	%			0.12	%			0.41	%
Recoveries to average loans			0.10	%			0.10	%			0.07	%
Net charge-offs to average loans			0.01	%			0.01	%			0.34	%
Net Charge-offs to average loans by portfolio
Commercial non real estate			0.02	%			(0.05	)%			0.63	%
Commercial real estate - owner-occupied			(0.06	)%			0.17	%			0.04	%
Total commercial & industrial			0.00	%			0.00	%			0.50	%
Commercial real estate - income producing			(0.10	)%			0.02	%			0.02	%
Construction and land development			(0.02	)%			(0.20	)%			0.03	%
Total commercial			(0.02	)%			(0.01	)%			0.38	%
Residential mortgages			(0.00	)%			(0.01	)%			(0.02	)%
Consumer			0.30	%			0.30	%			0.48	%

 

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The following table sets forth nonperforming assets by type for the periods indicated, consisting of nonaccrual loans, troubled debt restructurings and foreclosed and surplus ORE and other foreclosed assets. Loans past due 90 days or more and still accruing are also disclosed.

 

		March 31,				December 31,				September 30,				June 30,				March 31,
(in thousands)		2022				2021				2021				2021				2021
Loans accounted for on a nonaccrual basis:
Commercial non-real estate		$	4,065			$	4,058			$	7,167			$	16,029			$	24,108
Commercial non-real estate - restructured			1,247				2,915				2,781				3,095				3,542
Total commercial non-real estate			5,312				6,973				9,948				19,124				27,650
Commercial real estate - owner occupied			2,514				3,104				4,922				6,276				9,922
Commercial real estate - owner-occupied - restructured			235				1,817				1,798				1,839				1,882
Total commercial real estate - owner-occupied			2,749				4,921				6,720				8,115				11,804
Commercial real estate - income producing			1,880				5,377				4,167				4,975				4,729
Commercial real estate - income producing - restructured			76				81				82				86				89
Total commercial real estate - income producing			1,956				5,458				4,249				5,061				4,818
Construction and land development			578				837				1,230				2,004				1,680
Construction and land development - restructured			6				7				8				8				9
Total construction and land development			584				844				1,238				2,012				1,689
Residential mortgage			20,709				23,483				23,423				30,995				39,066
Residential mortgage - restructured			2,036				1,956				2,541				1,780				1,649
Total residential mortgage			22,745				25,439				25,964				32,775				40,715
Consumer			9,093				11,888				12,238				16,464				21,758
Consumer - restructured			—				—				—				—				—
Total consumer			9,093				11,888				12,238				16,464				21,758
Total nonaccrual loans		$	42,439			$	55,523			$	60,357			$	83,551			$	108,434
Restructured loans - still accruing:
Commercial non-real estate		$	494			$	515			$	480			$	526			$	2,337
Commercial real estate - owner occupied			—				—				—				—				—
Commercial real estate - income producing			—				—				—				—				341
Construction and land development			117				118				119				120				121
Residential mortgage			1,363				2,169				1,407				2,103				2,457
Consumer			929				986				1,065				1,081				1,064
Total restructured loans - still accruing			2,903				3,788				3,071				3,830				6,320
Total nonperforming loans			45,342				59,311				63,428				87,381				114,754
ORE and foreclosed assets			6,345				7,533				8,423				10,201				9,467
Total nonperforming assets (a)		$	51,687			$	66,844			$	71,851			$	97,582			$	124,221
Loans 90 days past due still accruing (b)		$	4,258			$	5,524			$	9,970			$	8,925			$	5,090
Total restructured loans		$	6,503			$	10,564			$	10,281			$	10,638			$	13,491
Ratios:
Nonaccrual loans to total loans			0.20	%			0.26	%			0.29	%			0.40	%			0.50	%
Nonperforming assets to loans plus ORE and foreclosed assets			0.24	%			0.32	%			0.34	%			0.46	%			0.57	%
Allowance for loan losses to nonaccrual loans and accruing loans 90 days past due			680.65	%			560.33	%			528.28	%			432.19	%			373.81	%
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due			640.81	%			527.59	%			506.17	%			415.00	%			354.09	%
Loans 90 days past due still accruing to loans			0.02	%			0.03	%			0.05	%			0.04	%			0.02	%

 

Nonperforming assets totaled $51.7 million at March 31, 2022, down $15.2 million from December 31, 2021, and $72.5 million from March 31, 2021. Nonperforming loans decreased $14.0 million compared to December 31, 2021, and $69.4 million from March 31, 2021. The declines in nonperforming loans was largely attributable to payoffs and charge-offs outpacing downgrades. ORE and foreclosed assets were $6.3 million at March 31, 2022, down from $7.5 million at December 31, 2021, and $9.5 million at March 31, 2021. Nonperforming assets as a percentage of total loans, ORE and other foreclosed assets was 0.24% at March 31, 2022, down 8 bps from December 31, 2021, and 33 bps from March 31, 2021.

Future assumptions in economic forecasts and our own asset quality metrics will drive our outlook for the level of forecasted reserves. We currently expect reserve releases will continue, however, expect to see them taper off over the next few quarters.

 

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Deposits

Deposits provide the most significant source of funding for our interest earning assets. Generally, our ability to compete for market share depends on our deposit pricing and our wide range of products and services that are focused on customer needs. In order to meet our customers’ needs, we offer high-quality banking services with convenient delivery channels, including online and mobile banking. We provide specialized services to our commercial customers to promote commercial deposit growth. These services include treasury management, industry expertise and lockbox services. Since early 2020, deposit levels have also been influenced by pandemic driven factors, such as inflows from government stimulus payments, deposits related to funding PPP loans into business checking accounts and a slowdown in customer spending during the height of the pandemic.

Total deposits were $30.5 billion at March 31, 2022, up $34 million, or less than 1%, from December 31, 2021, with a favorable change in the deposit mix that included a $584 million increase in noninterest-bearing deposits and a $550 million decrease in interest-bearing accounts, including an $81 million decrease in higher-cost time deposits. Total deposits increased $1.3 billion, or 4%, from March 31, 2021, with strong growth of $1.8 billion in noninterest-bearing and a $513 million decrease in interest-bearing transaction deposits. Growth in noninterest-bearing deposits includes both commercial and consumer accounts. The decrease in interest-bearing deposits is largely a function of the low interest rate environment and deposit pricing. Average deposits for the first quarter of 2022 were $30.0 billion, up $279 million, or 1%, from the fourth quarter of 2021 and up $1.9 billion, or 7%, from the first quarter of 2021.

The following table shows the composition of our deposits at each date indicated.

		Three Months Ended
		March 31,				December 31,				September 30,				June 30,				March 31,
(in thousands)		2022				2021				2021				2021				2021
Noninterest-bearing deposits		$	14,976,670			$	14,392,808			$	13,653,366			$	13,406,385			$	13,174,911
Interest-bearing retail transaction and savings deposits			11,488,607				11,677,333				11,306,731				11,325,942				11,218,208
Interest-bearing public fund deposits:
Public fund transaction and savings deposits			2,962,811				3,216,651				2,938,943				3,090,247				3,067,819
Public fund time deposits			51,496				77,956				116,445				116,552				130,704
Total interest-bearing public fund deposits			3,014,307				3,294,607				3,055,388				3,206,799				3,198,523
Retail time deposits			1,010,935				1,091,959				1,183,482				1,319,857				1,604,754
Brokered time deposits			9,190				9,190				9,190				14,124				14,124
Total interest-bearing deposits			15,523,039				16,073,089				15,554,791				15,866,722				16,035,609
Total deposits		$	30,499,709			$	30,465,897			$	29,208,157			$	29,273,107			$	29,210,520

Noninterest-bearing demand deposits were $15.0 billion at March 31, 2022, up $584 million, or 4%, from December 31, 2021, and $1.8 billion, or 14%, from March 31, 2021. The linked quarter increase reflects growth in noninterest-bearing commercial and public funds deposits due in part to typical seasonality related to taxes, while the year-over-year changes is likely the result of pandemic and hurricane related cash inflows. Noninterest-bearing demand deposits comprised 49% of total deposits at March 31, 2022, 47% at December 31, 2021 and 45% at March 31, 2021.

 

Interest-bearing transaction and savings accounts of $11.5 billion at March 31, 2022 were down $189 million, or 2%, from December 31, 2021 and up $270 million, or 2%, from March 31, 2021. Interest-bearing public fund deposits totaled $3.0 billion at March 31, 2022, down $280.3 million, or 9%, from December 31, 2021, and down $184.2 million, or 6%, from March 31, 2021. Time deposits other than public funds totaled $1.0 billion at March 31, 2022, down $81.0 million, or 7%, from December 31, 2021, and $593.8 million, or 37%, from March 31, 2021. The decrease in time deposits from both periods was due in part to maturing retail and jumbo certificates of deposit which were not renewed, likely due to prevailing rates that reflect management’s strategic approach to lowering the cost of funds.

Management expects deposits to remain flat to down slightly from the December 31, 2021 level of $30.5 billion.

 

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Short-Term Borrowings

At March 31, 2022, short-term borrowings totaled $1.6 billion, down $45 million, or 3%, from December 31, 2021 and down $32 million, or 2%, from March 31, 2021, driven mainly by changes in customer repurchase agreements. Average short-term borrowings of $1.7 billion in the first quarter of 2022 were virtually flat when compared to both the prior quarter and same quarter last year.

Short-term borrowings are a core portion of the Company’s funding strategy and can fluctuate depending on our funding needs and the sources utilized. Customer repurchase agreements and FHLB borrowings are the major sources of short-term borrowings. Customer repurchase agreements are offered mainly to commercial customers to assist them with their cash management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for corporate or investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, amounts available will vary. FHLB borrowings are funds from the Federal Home Loan Bank that are collateralized by certain residential mortgage and commercial real estate loans included in the Bank’s loan portfolio, subject to specific criteria.

Included in short-term borrowings at March 31, 2022 are $1.1 billion of FHLB advances consisting of five fixed rate notes maturing between 2034 and 2035, that are classified as short-term as the FHLB has the option to put (terminate) the advance prior to maturity. The advances were entered into in late 2019 into early 2020 with average interest rates of 0.49%. The Company has access to sufficient liquidity should these advances be called.

Long-Term Debt

Long-term debt totaled $240.5 million at March 31, 2022, down $3.8 million, or 2%, from December 31, 2021, and down $157.1 million, or 40%, from March 31, 2021. The decrease from March 31, 2021 is largely attributable to the redemption of $150 million of subordinated notes on June 15, 2021.

Long-term debt at March 31, 2022 includes subordinated notes payable with an aggregate principal amount of $172.5 million with a stated maturity of June 15, 2060, a fixed rate of 6.25% per annum that qualify as Tier 2 capital of certain regulatory capital ratios. Subject to prior approval by the Federal Reserve, the Company may redeem these notes in whole or in part on any of its quarterly interest payment dates after June 15, 2025.

 

 

OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

In the normal course of business, the Bank enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded, although they expose the Bank to varying degrees of credit risk and interest rate risk in much the same way as funded loans. Under regulatory capital guidelines, the Company and Bank must include unfunded commitments meeting certain criteria in risk-weighted capital calculations.

Commitments to extend credit include revolving commercial credit lines, non-revolving loan commitments issued mainly to finance the acquisition and development or construction of real property or equipment, and credit card and personal credit lines. The availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower continues to meet credit standards established in the underlying contract and has not violated other contractual conditions. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower. Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates. A number of commercial and personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do not necessarily represent our future cash requirements.

A substantial majority of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services.

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The contract amounts of these instruments reflect our exposure to credit risk. The Bank undertakes the same credit evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support. At March 31, 2022, the Company had a reserve for unfunded lending commitments totaling $30.7 million.

The following table shows the commitments to extend credit and letters of credit at March 31, 2022 according to expiration date.

 

						Expiration Date
						Less than				1-3				3-5				More than
(in thousands)		Total				1 year				years				years				5 years
Commitments to extend credit		$	9,612,025			$	4,086,523			$	2,500,027			$	2,219,598			$	805,877
Letters of credit			382,067				287,586				82,761				11,720				—
Total		$	9,994,092			$	4,374,109			$	2,582,788			$	2,231,318			$	805,877

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no material changes or developments during the reporting period with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with those generally practiced within the banking industry which require management to make estimates and assumptions about future events. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and the resulting estimates form the basis for making judgments about the carrying values of certain assets and liabilities not readily apparent from other sources. Actual results could differ significantly from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 14 to our consolidated financial statements included elsewhere in this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s net income is materially dependent upon net interest income. The Company’s primary market risk is interest rate risk which stems from uncertainty with respect to absolute and relative levels of future market interest rates that affect financial products and services. In order to manage the exposures to interest rate risk, management measures the sensitivity of net interest income and cash flows under various market interest rate scenarios, establishes interest rate risk management policies and implements asset/liability management strategies designed to produce a relatively stable net interest margin under varying interest rate environments.

The following table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in rates at March 31, 2022. Shifts are measured in 100 basis point increments in a range from -500 to +500 basis points from base case, with +100 through +300 basis points presented in the table below. Our interest rate sensitivity modeling incorporates a number of assumptions including loan and deposit repricing characteristics, the rate of loan prepayments and other factors such as loan floors the impact of off-balance sheet hedges. The base scenario assumes that the current interest rate environment is held constant over a 24-month forecast period and is the scenario to which all others are compared in order to measure the change in net interest income. Policy limits on the change in net interest income under a variety of interest rate scenarios are approved by the Board of Directors. All policy scenarios assume a static volume forecast where the balance sheet is held constant, although other scenarios are modeled.

 

		Estimated Increase
		(Decrease) in NII
Change in Interest Rates		Year 1				Year 2
(basis points)
+100			6.84	%			10.32	%
+200			14.54	%			21.24	%
+300			22.21	%			32.12	%

 

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The results indicate an increased level of asset sensitivity across most scenarios driven primarily by a large short-term excess reserves position held at the Federal Reserve, repricing in variable rate loans, and a funding mix which has a higher composition of non-interest bearing and lower rate sensitive deposits. When deemed to be prudent, management has taken actions to mitigate exposure to interest rate risk with on- or off-balance sheet financial instruments and intends to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.

 

Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet and earnings is fluid and would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Certain assets such as adjustable-rate loans have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring exposure to interest rate risk.

 

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021, but the publication of the remaining LIBOR offered rates will continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they will examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.

 

Regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee ("ARRC") have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., AMERIBOR or the Secured Overnight Financing Rate ("SOFR") as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments.

We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies.

Management has established a LIBOR Transition Working Group (the “Group”) whose purpose is to direct the overall transition process for the Company. The Group is an internal, cross-functional team with representatives from business lines, support and control functions and legal counsel. Beginning in the third quarter of 2019, key provisions in our loan documents were modified to ensure new and renewed loans include appropriate pre-cessation trigger language and LIBOR fallback language for transition from LIBOR to the new benchmark when such transition occurs. All direct exposures resulting from existing financial contracts that mature after 2021 have been inventoried and are monitored on an ongoing basis. Remediation of these exposures will be consistent with industry timing. The Group has also inventoried indirect LIBOR exposures within the Company's systems, models and processes. The results of this assessment will drive development and prioritization of remediation plans, and the Group is continuing to monitor developments and taking steps to ensure readiness when the LIBOR benchmark rate is discontinued. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.

The Bank has adopted several replacement benchmarks to use in place of LIBOR benchmark rates, with AMERIBOR along with Chicago Mercantile Exchange Inc. (“CME”) Term SOFR and FRB-NY SOFR as the primary rates. The replacement benchmarks rates adopted by the Bank have been affirmed to comply with the 19 principles set forth by the International Organization of Securities Commissions ("IOSCO") for Financial Benchmarks, and it further provides the Bank confidence these replacement benchmarks are

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based on transparent, market-based transactions. The Bank began using these replacement benchmarks towards the end of the third quarter of 2021.

At March 31, 2022, approximately 31% of our loan portfolio, excluding PPP loans, consisted of variable rate loans tied to LIBOR, along with related derivatives and other financial instruments.

 

Item 4. Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2022, the Company’s disclosure controls and procedures were effective.

Our management, including the Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the three month period ended March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company, including subsidiaries, is party to various legal proceedings arising in the ordinary course of business. We do not believe that loss contingencies, if any, arising from pending litigation and regulatory matters will have a material adverse effect on our consolidated financial position or liquidity.

Item 1A. Risk Factors

The Company disclosed risk factors in its Annual Report on Form 10-K for the year ended December 31, 2021. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition, and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company has in place a Board approved stock buyback program whereby the Company is authorized to repurchase up to 4.3 million shares of its common stock through the program’s expiration date of December 31, 2022. The program allows the Company to repurchase its common shares in the open market, by block purchase, through accelerated share repurchase programs, in privately negotiated transactions, or otherwise, in one or more transactions. Following is a summary of repurchases during the three months ended March 31, 2022.

 

		Total number of shares or units purchased				Average price paid per share				Total number of shares purchased as part of a publicly announced plan or program				Maximum number of shares that may yet be purchased under such plans or programs
January 1, 2022 - January 31, 2022			—				—				—				3,850,124
February 1, 2022 - February 28, 2022			165,767			$	53.08				165,767				3,684,357
March 1, 2022 - March 31, 2022			184,233			$	52.59				184,233				3,500,124
			350,000			$	52.82				350,000

 

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Item 6. Exhibits

(a) Exhibits:

 

Exhibit Number		Description		Filed Herewith		Form		Exhibit		Filing Date
3.1		Second Amended and Restated Articles of Hancock Whitney Corporation				8-K		3.1		5/1/2020
3.2		Second Amended and Restated Bylaws of Hancock Whitney Corporation				8-K		3.2		5/1/2020
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
101.INS		Inline XBRL Instance Document		X
101.SCH		Inline XBRL Taxonomy Extension Schema Document		X
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document		X
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document		X
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document		X
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document		X
104		Cover Page Interactive Data File		X

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Hancock Whitney Corporation
	By:		/s/ John M. Hairston
			John M. Hairston
			President & Chief Executive Officer
			(Principal Executive Officer)
			/s/ Michael M. Achary
			Michael M. Achary
			Senior Executive Vice President & Chief Financial Officer (Principal Financial Officer)
			May 4, 2022

 

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