Executive Summary / Key Takeaways

• Hancock Whitney has successfully executed a multi-year strategy to significantly strengthen its balance sheet, enhance profitability and efficiency, and build robust capital levels, positioning it among top-quartile peers.
• With foundational goals achieved, the company is strategically pivoting towards balance sheet growth in 2025, driven by targeted organic hiring of revenue-generating staff and the recent acquisition of Sabal Trust Company to expand its wealth management footprint.
• Despite a slight contraction in loans in Q1 2025 due to specific payoffs, management expects low single-digit loan and deposit growth for the full year, back-half loaded, supported by building pipelines and the impact of new hires.
• Net interest margin is expected to see modest, consistent expansion throughout 2025, primarily fueled by lower deposit costs as CDs reprice and bond portfolio cash flows are reinvested at higher yields, offsetting pressure from variable loan rates.
• Credit quality remains sound, with management expecting modest charge-offs and provisioning in line with peers, while maintaining an elevated allowance for credit losses reflecting ongoing economic uncertainty and geopolitical factors.

Hancock Whitney: Fortifying The Balance Sheet For A Growth Pivot

Hancock Whitney Corporation, a regional financial holding company with a history stretching back 125 years to 1899, has long been a fixture in the Gulf South. Rooted in core values emphasizing community service and resilience, the company has navigated various economic cycles and natural disasters, consistently playing a role in regional recovery efforts. In recent years, particularly since 2020, HWC embarked on a deliberate strategic transformation. The focus shifted towards fortifying the institution: derisking the balance sheet and loan book, building reserves, enhancing profitability and efficiency, and significantly growing capital levels. This multi-year effort has successfully positioned HWC with financial metrics and capital ratios among the best in its mid-cap peer group.

At the heart of HWC's operational strategy lies a commitment to efficiency, partly enabled by technology. While not possessing a single, unique banking technology moat in the way a specialized fintech might, HWC leverages technology extensively in its internal operations and service delivery. Investments in areas like strategic procurement and data processing contribute to cost control, allowing the company to manage expenses effectively. Management commentary highlights that ongoing technology enhancements and outsourced initiatives support operational efficiency, helping to absorb costs associated with growth initiatives. This focus on operational leverage is a key component of HWC's ability to maintain a competitive cost structure.

The competitive landscape for HWC is primarily defined by other regional banks operating across the Southeast, such as Regions Financial (RF), Truist Financial (TFC), First Horizon (FHN), and Prosperity Bancshares (PB), alongside smaller community banks and increasingly, non-bank financial service providers and fintech firms. Compared to larger rivals like TFC and RF, HWC operates at a smaller scale, which can sometimes translate to higher relative debt levels and potentially lower margins if not managed effectively. However, HWC's strategic emphasis on cost efficiency, partly through technology adoption in operations, provides a quantifiable advantage, contributing to lower operating costs per unit compared to some peers like FHN and TFC. This efficiency allows HWC to potentially offer more competitive pricing in certain lending segments while maintaining profitability. HWC's deep regional network and focus on granular, full-service relationships also serve as a competitive differentiator against larger, more transactional institutions and geographically limited players like PB in Texas.

With the foundational goals of strengthening the balance sheet and capital achieved, HWC is now executing a strategic pivot towards growth. This isn't a return to aggressive, undifferentiated expansion, but a targeted approach focused on building value through deeper client relationships and expanding presence in attractive markets. A key component of this strategy is organic growth through the hiring of additional revenue-generating staff, including commercial and business bankers and wealth advisors, particularly in high-growth areas like Texas and Florida. The company added seven net new bankers in Q4 2024 and expects to continue hiring at a similar pace throughout 2025, aiming to build pipelines and drive future balance sheet expansion.

Complementing the organic effort is strategic, targeted inorganic growth. The recent acquisition of Sabal Trust Company, which closed on May 2, 2025, is a prime example. This all-cash transaction significantly bolsters HWC's wealth management capabilities, making Florida its largest wealth management fee state and the Tampa-St. Pete area its largest individual wealth management market. This acquisition aligns perfectly with HWC's strategy to develop greater market share in higher-growth areas and enhance its fee income profile, particularly in serving privately owned businesses and their owners – a stated aspirational goal for the company.

Financially, HWC's performance in Q1 2025 reflects the ongoing dynamics of the current economic environment and the company's strategic responses. Net interest income (te) for the quarter was $272.7 million, a slight decrease from Q4 2024, primarily due to fewer accrual days and lower loan yields and volume, largely offset by a decrease in deposit costs and volume. Year-over-year, however, NII (te) was up from Q1 2024, as the decline in interest-bearing liability rates outpaced the decrease in earning asset yields. The net interest margin expanded to 3.43% in Q1 2025, up from 3.41% in Q4 2024 and 3.32% in Q1 2024. This expansion was largely driven by lower deposit costs, higher securities yields, and a more favorable funding mix, including the maturity of brokered deposits and repayment of short-term FHLB borrowings.

Noninterest income totaled $94.8 million in Q1 2025, an increase from both Q4 2024 and Q1 2024. This growth was broad-based across most revenue lines, including service charges on deposits (driven by business analysis fees and consumer overdrafts), trust fees (reflecting market value and sales volumes), secondary mortgage operations (due to higher production and a greater percentage of loans sold), BOLI income (benefiting from mortality gains), and other miscellaneous income (boosted by syndication fees and SBIC income). This performance underscores the success of HWC's strategic investments in fee-generating businesses. Noninterest expense saw a modest increase linked-quarter to $205.1 million, influenced by factors like ORE expense, regulatory fees, personnel, and data processing, partially offset by decreases in business development and other areas.

The balance sheet at March 31, 2025, shows total assets of $34.75 billion. Total loans were $23.10 billion, a decrease from $23.30 billion at December 31, 2024. This linked-quarter contraction was primarily due to higher payoffs on large healthcare and commercial non-real estate loans, offsetting otherwise solid production. Management noted that the purposeful reduction in Shared National Credit (SNC) exposure, a headwind in prior quarters, is largely complete, removing that specific drag on growth moving forward. Deposits totaled $29.19 billion, down from $29.49 billion at year-end 2024, mainly due to seasonal public funds outflows. Encouragingly, noninterest-bearing deposit balances increased slightly, and the DDA mix remained stable at 36%. The cost of deposits continued its downward trend, benefiting from CD maturities repricing at lower rates.

Asset quality metrics reflect a period of normalization from historically low levels, but remain strong relative to peers. Nonaccrual loans increased to $104.2 million at March 31, 2025, up from $97.3 million at year-end 2024, while criticized commercial loans decreased to $594.1 million from $623.0 million. Annualized net charge-offs were 0.18% in Q1 2025, down from 0.20% in Q4 2024. The allowance for credit losses stood at $343.2 million, representing 1.49% of total loans, a slight increase from 1.47% at December 31, 2024. This elevated reserve level reflects management's cautious stance given ongoing economic uncertainty, including potential impacts from tariffs and geopolitical factors, which led to a 60% weighting of a downside mild recessionary scenario in the ACL calculation.

HWC's capital position is a significant source of strength. At March 31, 2025, the common equity Tier 1 ratio was 14.48% and the tangible common equity ratio was 10.01%. These ratios are well in excess of regulatory minimums and reflect strong capital generation from profitability and effective capital management. The company increased its common stock dividend by $0.05 per share in Q1 2025 and repurchased 350,000 shares under its new buyback program, demonstrating a commitment to returning capital to shareholders while maintaining robust capital levels to support future growth.

Outlook and Guidance

Looking ahead, management's guidance for 2025 signals continued progress on key financial metrics and a pivot towards balance sheet expansion. Full-year 2025 net interest income (te) is expected to be up between 3% and 4% compared to 2024, with modest and consistent NIM expansion throughout the year. This is anticipated to be driven by lower deposit costs, low single-digit loan growth, and the continued repricing of securities and fixed-rate loan portfolios. The guidance incorporates an assumption of 75 basis points of rate cuts in the second half of 2025, although modeling suggests similar NII results even with no rate cuts.

Period-end loan growth for 2025 is projected in the low single digits from the December 31, 2024 balance, with most of the growth expected in the second half of the year as new hires become productive and pipelines convert. Deposit growth is also expected in the low single digits. Noninterest income is guided to be up between 9% and 10% for the full year, reflecting the impact of the Sabal Trust acquisition and continued organic growth in fee-generating businesses. Adjusted noninterest expense is expected to increase by 4% to 5%, incorporating the costs associated with the organic growth plan and the Sabal acquisition, which management aims to offset through ongoing efficiency initiatives. The effective income tax rate is expected to be between 20% and 21%. Modest charge-offs and provision for credit losses are anticipated to continue in line with peer levels. Share repurchases are expected to continue at the current pace or potentially higher, depending on balance sheet growth dynamics and share valuation.

Risks and Challenges

Despite the strong positioning and positive outlook, HWC faces several risks. The macroeconomic environment remains dynamic, with uncertainty surrounding the impact of tariffs, ongoing inflationary pressures, and the trajectory of interest rates. While the labor market has shown resilience, a potential mild recession, as factored into the ACL calculation, could impact credit quality and loan demand. Geopolitical conflicts also add to the uncertainty. Credit quality normalization could accelerate if economic conditions deteriorate, although management believes the portfolio is diversified and issues are currently situational rather than systemic. The FDIC special assessment related to prior bank failures represents an ongoing, albeit currently estimated, expense. Fraud and cybersecurity risks, potentially exacerbated by advancements in AI, require continuous investment and vigilance. Regulatory changes could also impact operations and capital requirements.

Conclusion

Hancock Whitney has successfully executed a strategic transformation, building a strong, profitable, and well-capitalized financial institution. The company is now poised for a pivot to growth, leveraging its fortified balance sheet to support targeted organic expansion through hiring and strategic inorganic moves like the Sabal Trust acquisition. While facing ongoing economic uncertainty and competitive pressures, HWC's focus on operational efficiency, granular relationship banking, and diverse fee income streams provides a solid foundation. The outlook for modest NIM expansion and low single-digit balance sheet growth in 2025, supported by strong capital and disciplined credit management, underscores the investment thesis. Investors should monitor the pace of loan and deposit growth, the successful integration of Sabal Trust, and the impact of the evolving macroeconomic environment on credit quality and demand.