Loan Growth Supports Hancock Whitney (HWC) Amid Cost Troubles – May 18, 2022

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Hancock Whitney Societyit is (HWC Free Report) strategic expansion initiatives and strong loan and deposit balances position it well for the future. Its effective capital deployment activities point to a strong liquidity position, through which it will continue to build shareholder value.

Analysts also appear optimistic about the company’s earnings growth potential. The Zacks consensus estimate for HWC’s revenue for the current year has been revised up 3.5% in the past 30 days.

However, despite expected rate hikes, relatively low interest rates may hamper margin growth to some extent. High expenses will likely hurt profits. Thus, the company currently carries a Zacks Rank #3 (Hold).

So far this year, shares of Hancock Whitney have lost 3.6% compared to the 12.7% decline seen by the industry.

Image source: Zacks Investment Research

Regarding its fundamentals, while revenue (on a tax equivalent basis) declined in the first quarter of 2022, it experienced a compound annual growth rate (CAGR) of 6.9% over the past six months. recent years (2016-2021). Total loans recorded a CAGR of 4.8% over the same period. Robust economic growth and a gradual increase in demand for loans will likely continue to support turnover.

For 2022, management expects total base lending (excluding Paycheck Protection Program lending) to grow 6-8% year-over-year, with quarterly performance impacted by seasonality. Total deposits are expected to be flat or slightly down from the reported 2021 level.

In addition to organic expansion efforts, HWC has undertaken acquisitions in the past, which continue to support its finances. Given the strength of its balance sheet, the company is well positioned to continue growing through inorganic means to diversify revenue and improve market share.

The company’s strategic investments in growth and new markets should further strengthen its revenue and contribute to achieving an efficiency ratio of 55% by the end of the fourth quarter of 2022.

As of March 31, 2022, Hancock Whitney had total debt of $1.86 billion (87.1% of which consisted of short-term borrowings). The company maintains investment grade ratings of BBB/Baa3 and a stable outlook from Standard and Poor’s and Moody’s Investors Service, respectively. Thus, despite a huge debt balance, the company will probably be able to meet its short-term obligations, even if the economic situation deteriorates.

However, while HWC’s spending declined in the first quarter of 2022, it also recorded a five-year CAGR of 3.9% (2017-2021). Although the acquisition of MidSouth Bancorp has resulted in significant cost savings, the company’s continued efforts to grow inorganically and upgrade technology should keep costs high in the near term.

Margin pressure is another major concern. While the Net Interest Margin (NIM) (tax equivalent) improved to 3.44% in 2019, it decreased to 3.38% in 2018 from 3.43% in 2017. The downward trend continued in 2020, 2021 and the first quarter of 2022, as NIM decreased to 3.27%, 2.95% and 2.81%, respectively. Despite the rate hikes in March and May, as well as expectations of further rate hikes in 2022, relatively lower rates could keep the NIM under pressure for some time in the near term.

Hancock Whitney has significant exposure to residential mortgages, construction and land development, and commercial real estate loans. Despite some improvement in the housing sector, the company’s exposure to these risky loans remains a concern. If real estate prices deteriorate, the company’s finances will suffer.

Actions to Consider

A few higher-ranked stocks in the financial sector are Gladstone Capital Corporation (HAPPY free report) and Main Street Capital Corporation (MAIN free report). GLAD and MAIN currently carry a Zacks rank #2 (buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gladstone Capital’s consensus earnings estimate for the current financial year has been revised up 8.1% in the past 60 days. Over the past year, GLAD’s share price has increased by 9.6%.

Main Street Capital’s earnings estimates for the current year have been revised up 1.4% in the past 60 days. MAIN shares have lost 3.9% over the past year.

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