It has been about a month since the last earnings report for Hancock Whitney (HWC). Shares have lost about 6.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Hancock Whitney due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Hancock Whitney's Q4 Earnings Beat, Revenues Rise Y/Y
Hancock Whitney’s fourth-quarter 2019 adjusted earnings per share of $1.06 beat the Zacks Consensus Estimate of $1.04. However, the bottom line fell 5.4% from the year-ago quarter’s reported figure.
Results excluded certain non-operating expenses related to the MidSouth Bancorp, Inc. acquisition completed in September. After considering these charges, net income came in at $92.1 million or $1.03 per share, down from the $96.2 million or $1.10 per share in the prior-year quarter.
Higher net revenues, decent loan growth, expanding margins and the MidSouth Bancorp acquisition drove the results. Also, improved capital ratios aided the performance. However, higher expenses and fall in deposits acted as headwinds.
For 2019, earnings of $3.72 per share matched the prior year’s figure, but missed the consensus estimate of $4.06. Net income (GAAP basis) grew 1.1% to $327.4 million.
Revenues Up, Expenses Rise
Net revenues were $316.1 million, up 8.3% year over year. The figure surpassed the Zacks Consensus Estimate of $315.3 million.
For 2019, net revenues were $1.21 billion, up 6.8%. Also, the top line matched the consensus estimate.
Net interest income on tax equivalent basis grew 6.9% year over year to $236.7 million. NIM on a tax-equivalent basis, came in at 3.43%, up 4 basis points.
Non-interest income totaled $82.9 million, indicating 11.3% improvement from the year-ago quarter. Increase in all fee income components except trust fees led to this upside.
Total operating expenses jumped 10.3% year over year to $197.9 million. This upswing resulted from rise in almost all the cost components.
As of Dec 31, 2019, total loans were $21.2 billion, up nearly 1% from the prior-quarter end. However, total deposits declined 1.6% from the previous quarter to $23.8 billion.
Credit Quality Improves
Net charge-offs from the non-covered loan portfolio was 0.18% of average total loans, declining from 0.56% in the year-ago quarter. Also, provision for loan losses declined 36% to $5.2 million. Additionally, total non-performing assets decreased 4.3% year over year to $337.5 million.
Profitability Ratios Decline, Capital Ratios Improve
Return on average assets was 1.20% at the end of the reported quarter, down from the 1.35% recorded in the prior-year quarter. In addition, return on average common equity was 10.52% as of Dec 31, 2019 compared with the 12.76% recorded on Dec 31, 2018.
As of Dec 31, 2019, Tier 1 leverage ratio was 8.76%, up from the 8.67% recorded at the end of the year-earlier quarter. Tier 1 risk-based capital ratio was 10.54%, up from 10.48%.
For 2020, management projects loan growth to be in the mid-single digits range.
NIM for 2020 is expected to decline, given the gradual runoff of accretion and reclassification of discount to allowance for credit losses. On the other hand, core NIM is likely to be relatively stable on the back of company’s proactive portfolio management efforts. Both these expectations are based on the assumption of no rate cuts this year.
For 2020, non-interest income is expected to increase 2-3% on a year-over-year basis.
Operating expenses are expected to rise 6-7% in 2020. This includes the impact of the MidSouth Bancorp acquisition, technology investments and market disruption opportunities. Excluding the impact of the acquisition and technology investments, operating expenses are likely to be up 2-2.5%.
For the first quarter of 2020, provision for credit losses is anticipated to be $8-10 million.
Further, the company plans to lower its loan exposure to energy sector to 2-4% this year.
Effective tax rate is expected to be nearly 18-19% on both quarterly and annual basis.
Three-year Corporate Strategic Objectives
Efficiency ratio is projected to be lower than 56%.
ROA (operating) is likely to be between 1.30% and 1.40%. Tangible common equity (TCE) ratio is anticipated to be more than 8% and return on tangible common equity (ROTCE) ratio (operating) is expected to be above 15%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, Hancock Whitney has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hancock Whitney has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.