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Hancock Whitney Provides Q2 Guidance, Expects PPP Loan Growth

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At the KBW Virtual Southeast Bank Conference, Hancock Whitney Corporation (HWC - Free Report) stated that it expects loan growth in second-quarter 2020 to be aided by Paycheck Protection Program (“PPP”) loan funding. However, growth in PPP loans will likely be partially offset by the lack of demand for overall loans along with pay downs of lines of credit.

Pay downs are expected in the second quarter because in first-quarter 2020, clients drew on credit lines, owing to the heightened fear and the subsequent lockdown caused by the coronavirus outbreak.

Notably, as of May 31, 2020, Hancock Whitney originated more than 12,000 PPP loans worth $2.3 billion. Based on the current loan forgiveness expectations, the company expects gross fees of nearly $73 million.

The effective yield on PPP loans is projected to be 4%.

The Paycheck Protection Program was designed to support small business owners, who were facing the risk of shutting down due to the economic fallout. However, recently, a House panel responsible for overseeing the coronavirus pandemic response accused several banks to have preferred larger, well-funded companies over the smaller ones from rural or minority communities, while approving loans under PPP.

Hence, an investigation is being conducted on several big banks, including JPMorgan Chase (JPM - Free Report) , Wells Fargo (WFC - Free Report) , Citigroup (C - Free Report) and few others regarding their role in the PPP.

At the conference, Hancock Whitney also said that it expects more than half of its deferrals outstanding as of May 31, 2020, to roll off in the next few weeks as when the lockdown began many customers became very cautious and reacted accordingly.

While some customers might need an extension in deferrals, others will likely require a structured solution or workout plan.

Notably, in the first quarter, almost all companies built significant reserves in order to cope with the virus outbreak-induced uncertainty. Hancock Whitney witnessed a substantial increase in provision for credit losses in first-quarter 2020. It recorded provisions of $246.8 million, up from $18 million recorded in the year-ago quarter. Also, the company’s allowance for credit losses totaled $475 million.

While it expects to continue to build allowance for credit losses in the second quarter as well, the amount will likely be less than that in the previous quarter.

Although the lockdown is getting lifted in most places and businesses are getting resumed, higher reserves will likely negatively impact banks’ profitability to some extent in the near term.

Our Take

For Hancock Whitney, near-zero interest rates are expected to hurt its net interest margin in the near term. Moreover elevated expenses mainly due to technology enhancement efforts will likely hamper the bottom line to an extent.

Shares of the company have lost 47.5% so far this year compared with a decline of 32% recorded by the industry.

Currently, Hancock Whitney carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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