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Higher Rates, Expansion Efforts Aid Hancock Whitney (HWC)

Hancock Whitney Corporation’s HWC expansion initiatives, and solid loans and deposit balances position it well for the future. Its efficient capital deployment activities indicate a solid liquidity position, through which it will keep enhancing shareholder value.

Analysts have maintained a neutral stance toward the stock. The Zacks Consensus Estimate for HWC’s current-year earnings has been unchanged over the past 30 days.

Looking at its fundamentals, while the company’s revenues (on a tax-equivalent basis) declined in first-quarter 2022, it witnessed a compound annual growth rate (CAGR) of 6.9% over the last six years (2016-2021). Total loans saw a CAGR of 4.8% over the same time frame. Robust economic growth and a gradual rise in loan demand will likely continue to support the top line.

While Hancock Whitney’s net interest margin (NIM) (tax-equivalent) improved in 2019, the same declined in 2020, 2021 and the first half of 2022. Nonetheless, the rate hikes this year, along with expectations of additional hikes, will support the company’s NIM in the quarters ahead.

Management expects every 25-bps increase in the Fed Funds rate to widen its NIM by 4-6 bps. The company anticipates the Fed Funds rates to reach 3.50% by 2022-end. It also noted that higher rates helped it reach the targeted efficiency ratio of 55% well ahead of time.

Apart from organic expansion efforts, HWC has undertaken acquisitions in the past, which continue to support its financials. Given the strong balance sheet position, the company is well-poised to further grow through inorganic means to diversify revenues and improve market share.

As of Jun 30, 2022, Hancock Whitney had total debt of $870.1 million (74.2% of which consisted of short-term borrowings). As of the same date, cash and due from banks was $698.3 million. The company maintains investment grade ratings of BBB/Baa3 and a stable outlook from Standard and Poor, and Moody’s Investors Service, respectively. Thus, given the earnings strength and decent liquidity position, the company will likely be able to meet its debt obligations in the near term, even if the economic situation worsens.

However, while HWC’s expenses declined in the first six months of 2022, the same witnessed a five-year (2017-2021) CAGR of 3.9%. Though the acquisition of MidSouth Bancorp resulted in significant cost savings, the company’s continued efforts to expand inorganically, inflationary pressure and upgrade technology are expected to keep costs elevated in the near term.

Hancock Whitney has significant exposure to residential mortgage, construction and land development, as well as commercial real estate loans. Despite some improvements in the housing sector, the company’s exposure to these loans is concerning, as any deterioration in real estate prices will hurt financials.

Stocks to Consider

A couple of stocks from the finance space worth a look at are S&T Bancorp, Inc. STBA and Arrow Financial Corporation AROW.

The consensus estimate for S&T Bancorp and Arrow Financial’s current-year earnings has been revised upward over the past 60 days.

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