Hancock Whitney Corporation
2018 Annual Report
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Your Dream. Our Mission.
Earnings Per Share – Diluted
$3.72
Hancock Whitney Corporation
Financial Highlights
$2.10
$1.87
$1.64
$2.48
(Dollars in thousands, except per share amounts)
2018
2017
INCOME STATEMENT DATA
Net income
Net interest income (TE)*
$323,770
$215,632
$865,015
$826,702
Pre-provision net revenue (PPNR) (TE) (a)
$434,409
$401,792
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2014
2015
2016
2017
2018
$120
COMMON SHARE DATA
Earnings per share – diluted
+25%
334.8 323.4
267.1
$110
PPNR(TE)(a)
(in millions)
$100
S
N
O
I
L
L
I
M
$
$90
$401.8
$80
$434.4
+84%
25
20
Book value per share (period-end)
Total Loans
(in billions)
Tangible book value per share (period-end)
Cash dividends per share
Market data
High sales price
$15.7
Low sales price
$16.8
$13.9
$20.0
$19.0
$323.4
$70
$256.4
$60
$286.7
2016
15
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Period-end closing price
2015
500
400
300
200
100
0
500
25
25
400
20
20
300
15
15
200
10
10
100
5
5
0
0
0
25
4.0
3.5
20
3.0
2.5
15
2.0
10
1.5
1.0
5
0.5
0
0.0
10
5
0
25
4.0
3.5
20
3.0
15
2.5
2.0
10
1.5
1.0
5
0.5
0
0.0
2014
2015
2016
2017
2018
PPNR(TE)(a)
Total Loans
Total Deposits
(in millions)
(in billions)
(in billions)
$22.3
$401.8
$19.0
$23.2
$434.4
$20.0
$19.4
$16.8
$323.4
$16.6
$286.7
$13.9
$18.3
$15.7
$256.4
2014
2014
2014
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
$350
$300
YTD ACTUAL
2016 GOAL
+25%
Total Deposits
Earnings Per Share – Diluted
(in billions)
258.7
$250
267.1
S
N
O
I
L
L
I
M
$
$200
$150
$22.3
$23.2
$3.72
$19.4
$100
$50
$2.48
$0
$1.87
2014
2015
$16.6
$2.10
$18.3
$1.64
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
PERIOD-END BALANCE SHEET DATA
Securities
Loans
Earning assets
2014
2015
Total assets
Total deposits
2016
2017
2018
Total Loans
Common stockholders’ equity
Earnings Per Share – Diluted
(in billions)
PERFORMANCE RATIOS
Return on average assets
$3.72
$20.0
Return on average common equity
$16.8
$19.0
$15.7
Net interest margin (TE)*
$13.9
$2.10
Efficiency ratio (b)
$2.48
$1.87
$1.64
Allowance for loan losses as percent of period-end loans
Tangible common equity ratio (c)
Return on average tangible common equity
Leverage (Tier 1) ratio
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
$120
334.8 323.4
Earnings Per Share – Diluted
$110
+84%
$100
$90
S
N
O
I
L
L
I
M
$
$3.72
*Taxable equivalent (TE) amounts are calculated using a federal income tax rate of 21% for year ended
December 31, 2018 and 35% for all other years presented.
$70
$2.48
$80
$2.10
(a) Pre-provision net revenue is net interest income (TE)* and noninterest income less noninterest expense.
2016
Management believes that PPNR is a useful financial measure because it enables investors to assess the
company’s ability to generate capital to cover credit losses through a credit cycle.
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
$1.64
$1.87
$60
(b) The efficiency ratio is noninterest expense to total net interest income (TE)* and noninterest income,
excluding amortization of purchased intangibles and nonoperating items.
(c) The tangible common equity ratio is common stockholders’ equity less intangible assets divided by total
2015
2016
assets less intangible assets.
2018
2014
2017
+25%
334.8 323.4
$350
$120
$300
$110
YTD ACTUAL
2016 GOAL
+25%
334.8 323.4
+84%
$120
$110
+84%
$3.72
$35.98
$25.62
$1.02
$56.40
$32.59
$34.65
$2.48
$33.86
$24.05
$0.96
$53.35
$41.05
$49.50
$5,670,584
$5,888,380
$20,026,411
$19,004,163
$25,836,239
$25,024,792
$28,235,907
$27,336,086
$23,150,185
$22,253,202
$3,081,340
$2,884,949
1.17%
11.04%
3.38%
57.77%
0.97%
8.02%
15.62%
8.67%
0.82%
7.68%
3.43%
58.87%
1.14%
7.73%
10.78%
8.43%
To Our Shareholders:
As of May 25, 2018, we became Hancock Whitney.
PPNR(TE)(a)
(in millions)
Celebrating Hancock Whitney. On May 25, 2018 we opened the
Nasdaq Stock Market as Hancock Whitney Corporation (HWC), formally
introducing the new Hancock Whitney name and brand to America’s
25
investment community.
Total Loans
(in billions)
$434.4
$401.8
20
$19.0
$20.0
$323.4
$286.7
$256.4
2014
2015
2016
$16.8
15
$15.7
$13.9
Our new name and new brand mark a new chapter in our ongoing
story. Together, they embody what we believe and how we’ve
done business for more than 120 years. They fortify our priority
to protect deposits and affirm our mission to help people achieve
their financial goals and dreams. Our Hancock Whitney name
and brand embrace our steadfast commitment and timeless core
values, bring our long history full-circle, symbolize our warm 5-star
service and help make banking simpler for our clients.
2014
2018
2018
2015
2016
2017
10
5
0
2017
$323.4
$286.7
$256.4
$16.6
$16.8
$15.7
$13.9
15
$19.4
$20.0
$18.3
$19.0
Total Loans
(in billions)
Total Deposits
(in billions)
$22.3
$23.2
Earnings Per Share – Diluted
2018 was another landmark year for us. America’s leading
independent bank rating and analysis firm, BauerFinancial, Inc.,
recommended Hancock Whitney among America’s strongest,
safest banks for 117 consecutive quarters. Additionally, Greenwich
Associates—long respected for lauding banks that deliver the best
quality to clients—awarded us a total of 19 national and regional
awards for middle market and small business banking and brand
excellence in 2018. That raises our grand total of Greenwich
Awards to 161, with 14 Best Brand Awards since 2013 and 147
Excellence Awards since 2005.
$2.48
$3.72
$1.64
$1.87
$2.10
2.5
2.0
4.0
3.0
3.5
Strong Growth, Improved Performance
For 2018 as a whole, we delivered solid quarterly results and
significantly improved performance. For the full year of 2018, net
income was up 50 percent, earnings per share (EPS) increased
$1.24 to $3.72 per share, return on assets (ROA) was up 35 bps
to 1.17 percent, loans grew $1 billion to end the year at $20 billion,
commercial criticized loans declined $451 million, or 42 percent,
and we achieved our goal of reducing our energy exposure to
approximately 5 percent.
On an operating basis, net income was up almost $100 million, or
38 percent, operating EPS increased $1.10 to just under $4 per
share, and ROA was up 29 basis points to 1.25 percent.1 The year
ended with tangible common equity (TCE) back above 8 percent
and improved operating leverage of $38 million.
We achieved these financial accomplishments while completing
two significant transactions: the divestiture of Harrison Finance
in March and the acquisition of Capital One’s trust and asset
management business in July. Our board, executive team and
I are grateful to and proud of the nearly 4,000 associates who
worked hard every day to achieve these results.
During the year, we remained prudent in how we deployed
our capital. First and foremost, our priority is to use capital for
continued organic growth. In 2018 our total assets grew almost
$1 billion without any traditional merger and acquisition (M&A)
activity. Second, we used capital to reward our shareholders
through dividends. Mid-year, the company’s board of directors
approved a quarterly common stock dividend of $.27 per common
share, representing an increase of $.03 per share, or 12.5 percent.
500
PPNR(TE)
(in millions)
$434.4
$401.8
$286.7
$256.4
$323.4
400
We were also very conservative with common stock buybacks
and M&A activity in 2018. We repurchased 200,000 shares of
300
common stock early in the fourth quarter, and considered only
200
complementary, financially compelling M&A opportunities.
The acquisition of Capital One’s trust and asset management
100
business was mainly an in-market, fee-generating transaction,
which positions Hancock Whitney as a top-50 U.S. trust firm by
revenue, as of September 30, 2018. We do not anticipate any large
or strategic transactions in the near future.
2018
2015
2014
2016
2017
0
2014
2016
2015
2017
2016
2018
2017
Total Deposits
(in billions)
$22.3
$23.2
Earnings Per Share – Diluted
$3.72
1.5
1.0
0.5
0.0
PPNR(TE)
(in millions)
2014
2015
2016
2017
$401.8
$434.4
2018
$286.7
$256.4
$323.4
2018
500
400
300
200
100
0
Earnings Per Share – Diluted
$3.72
$2.10
$1.87
$1.64
$2.48
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
$2.48
1 See “Non-GAAP Financial Measures” in our Annual Report on Form 10-K.
$2.10
$1.87
$1.64
1
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Earnings Per Share – Diluted
$3.72
$2.10
$1.87
$1.64
$2.48
2014
2015
2016
2017
2018
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
500
400
300
200
100
0
25
20
10
5
0
25
20
15
10
5
0
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
PPNR(TE)(a)
(in millions)
$434.4
$401.8
2014
2015
2016
2017
2018
2014
2015
$19.4
$18.3
$16.6
500
400
300
200
100
0
25
20
15
10
5
0
Culture of Diversity and Inclusion
Investing in People and Communities
Research shows that companies that prioritize diversity and
inclusion improve productivity, innovation and associate
engagement. We believe a diverse organization reflecting the
demographics of the markets in which we operate allows us to
understand and meet our clients’ changing needs.
In 2018 associates recorded 5,648 volunteer hours through
Community Connection, our corporate program providing
associates one paid day annually to volunteer in their communities.
We invested more than $7 million in philanthropic and community
donations, with more than $3 million supporting Community
Reinvestment Act efforts.
From the top. Our commitment to creating a diverse, inclusive
organization begins with our board of directors and extends across all
areas of the company.
The membership of our board of directors reflects this belief in
creating a diverse organization.
Our recent associate engagement survey found most associates
describe Hancock Whitney as an inclusive place to work where
all associates have opportunities to grow. A cross-organizational
Hancock Whitney Diversity Council of associates, internships and
mentorships, and new professional development curriculums will
help sustain those results and enhance diversity and inclusion
across the company.
Our wealth management group recently announced a Diversity
Leaders Investment Strategy (DLIS), a separately managed
investment product, which offers clients ways to diversify their
portfolios and make social impacts through investments in
companies with strong inclusion priorities.
Connecting with our communities. Associates in the Tampa Bay
area and across all markets volunteer every day to help people in the
communities they serve.
From Houston, Texas to Lafayette, Lake Charles, Baton Rouge
and New Orleans, Louisiana; from South Mississippi to Mobile
and Baldwin Counties, Alabama, and the Florida Panhandle; and
from Destin and Panama City to Tallahassee, Jacksonville and
Tampa, Florida; we proudly invest in our communities through
major sponsorships supporting collegiate and professional athletic
teams, educational institutions, theatres and performing arts
centers, museums and cultural arts centers, conservation and
environmental education and research facilities, wildlife habitats,
horticultural groups, and other organizations integral to community
life across the Gulf South corridor.
Penguin parade. As title
sponsor for Hancock Whitney
Splash Bash benefiting
the Mississippi Aquarium,
we’re helping foster marine
research, conservation and
community growth and get
to welcome rare African
penguins to our headquarters
through educational outreach.
2
Through our programs and partnerships, our community
development and affordable housing lending dollars totaled $265
million in 2018. During the last two years, we provided more than
$3 billion-plus in small business loans to support economic growth;
and, since 2007, we’ve deployed $177 million in New Markets Tax
Credit allocations to help low-income communities.
In 2018, we formed the Hancock Whitney Community Development
Advisory Council, a group of outstanding nonprofit leaders across
the region who provide strategic insights and advice on how
to identify more philanthropic opportunities, especially in
underserved areas.
When Hurricane Michael devastated Northwest Florida, we
immediately waived ATM fees for Florida clients and set up
special disaster recovery assistance loan and payment deferral
options. Most of our Florida Panhandle branches resumed serving
clients within 24 hours of the hurricane. In two days, we opened
Panama City’s first two temporary banking units within yards of our
destroyed Highway 77 location to help people start recovery. Bank
officers met with local leaders to assess the most urgent community
needs, and we contributed more than $200,000 to establish relief
accounts. Our associates also served nearly 4,000 meals to first
responders and emergency teams restoring critical services and
providing essential supplies to local storm victims.
Creating community opportunity. Established in 2017 to recommend
ways to enhance our community reinvestment impact, our Community
Development Advisory Council consists of outstanding nonprofit leaders
who help facilitate community development across our footprint.
This past year, Rebuilding Together, the leading national nonprofit
devoted to home repairs and community revitalization, named
Hancock Whitney Executive Vice President for Business
Development Kevin Rafferty as national chairperson. Rafferty has
been instrumental in numerous neighborhood revitalizations over
the past 40 years and facilitated a $50,000 Hancock Whitney
contribution that helped generate millions to help Hurricane
Harvey victims.
Rebuilding homes and lives. Local associates joined Rebuilding
Together’s Build A Healthy Neighborhood national project to help repair
homes in New Orleans’ historic St. Roch area.
Associates participated in financial education activities teaching
critical money management skills to more than 7,000 students and
adults through 230-plus organizations. Hancock Whitney Financial
Cents, our comprehensive online and in-person financial education
program for adults and students, includes proprietary, FDIC and
state banking association curriculums. In 2018 students completed
8,000-plus learning hours through the web-based student
component that supports classroom instruction and state
requirements at no cost to schools or taxpayers. We also introduced
an online adult education program at hancockwhitney.com with
easy-to-follow playlists on important financial topics.
Florida Strong. In the wake of Hurricane Michael, our local team
continues to serve clients from Panama City’s first two temporary
banking units as we rebuild our destroyed Highway 77 financial center.
Learn more about our community commitment and corporate
stewardship from our Environmental, Social Responsibility and
Governance Report at www.hancockwhitney.com/investors under
the Corporate Overview tab.
Locations and Leadership
We recently relocated our New Orleans regional headquarters
from a complex of seven historic buildings at 228 St. Charles
Avenue to the Hancock Whitney Center. In the heart of the city’s
downtown business district, the 51-story skyscraper is one of the
most prominent structures along the city’s skyline and Louisiana’s
tallest office building. This newer, more scalable space creates a
more contemporary setting in which to better serve our clients.
3
Making Dreams Real
For more than a century, our leaders looked to their linked
histories to safeguard depositors’ money and serve communities.
Our 20th century ties cemented the core values, client service
and community commitment that gave rise to the 21st century
Hancock Whitney.
Your Dream. Our Mission. We’re honored to move our founders’ vision
forward by striving to deliver warm, 5-star service to our clients and
helping to create new opportunities every day for our communities.
Today, we’re building on our Hancock Whitney legacy with
dedication, innovation and determination. We’re bringing our brand
to life with new ideas rooted in enduring principles. We’re working
together in partnerships that connect people to opportunities. We’re
making Your Dream. Our Mission. the promise that empowers
success and sustains us as a strong, growing and nationally
recognized Gulf South financial services leader.
Our board of directors, executive management and associates
join me in thanking you for your investment and confidence in
Hancock Whitney.
With appreciation,
John M. Hairston
President & CEO
W i t h t h e a c q u i s i t i o n o f
Capital One’s trust and asset
m a n a g e m e n t b u s i n e s s ,
we expanded our wealth
management presence in
Louisiana and Texas and
now have trust offices in
metropolitan New York and
New Jersey. That transaction
created the opportunity to
enter the Beaumont, Texas,
market and open a new
downtown financial center.
Additionally, we opened new
financial centers in Pace,
Florida; the Kirby Collection
at River Oaks and the Cypress
community, both in Houston,
Texas; on Admiral Doyle Drive
in New Iberia, Louisiana; in the
Couret Farms development
of Lafayette, Louisiana; and
along a revitalized section of
Baronne Street in New Orleans. A renovated Mandeville, Louisiana,
financial center offers better banking space for clients on the
Lake Pontchartrain Northshore. Additionally, we are rebuilding
our Panama City, Florida, Highway 77 financial center that was
destroyed by Hurricane Michael.
Taking service to new heights.
We’ve relocated our New Orleans
regional headquarters to Hancock
Whitney Center, Louisiana’s tallest
office building rising from the heart
of the city’s downtown business
district.
With 35 years of bank leadership and credit experience, Christopher
S. Ziluca joined Hancock Whitney as Chief Credit Officer in summer
2018. As we continue our solid commitment to corporate risk
management, Michael Otero advanced to the position of Deputy
Chief Risk Officer as Josh Caldwell took on Otero’s former Chief
Internal Auditor role.
In spring 2019, our current Chairman of the Board James B. “Jim”
Estabrook, Jr., will retire, as will longtime director Eric J. Nickelsen.
These leaders have selflessly served our company and helped
guide our growth to become the 51st largest bank holding company
headquartered in the United States as of December 31, 2018.
More important, they have steadfastly supported the ongoing
governance of our company according to the highest standards of
honor, integrity and service. We are forever indebted to both of
these extraordinary individuals for their commitment to our
company and the communities we serve.
Dedicated service. HWC Chairman of the Board Jim Estabrook
(left) of Pascagoula, Mississippi, and Director Eric J. Nickelsen of
Pensacola, Florida, will retire in spring 2019 after many years of
commitment to our company.
4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-36872
Hancock Whitney Corporation
(Exact name of registrant as specified in its charter)
Mississippi
(State or other jurisdiction of incorporation or organization)
64-0693170
(I.R.S. Employer Identification Number)
Hancock Whitney Plaza, 2510 14th Street,
Gulfport, Mississippi
(Address of principal executive offices)
39501
(Zip Code)
(228) 868-4727
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class)
COMMON STOCK, $3.33 PAR VALUE
(Name of Exchange on Which Registered)
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95) No (cid:133)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:95)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes (cid:95) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:95) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, small reporting company or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
(cid:95)
Non-accelerated filer
(cid:133)
(cid:3)
Emerging growth company (cid:133)(cid:3)
Accelerated filer
Smaller reporting company
(cid:133)
(cid:133)
(cid:3)
(cid:3)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:95)
The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 22, 2019 was $4.0 billion based upon the closing
market price on NASDAQ on June 30, 2018. For purposes of this calculation only, shares held by nonaffiliates are deemed to consist of (a) shares
held by all shareholders other than directors and executive officers of the registrant plus (b) shares held by directors and officers as to which
beneficial ownership has been disclaimed.
On January 31, 2019, the registrant had 85,686,848 shares of common stock outstanding.
Portions of the definitive proxy statement for our annual meeting of shareholders to be filed with the Securities and Exchange
Commission (“SEC” or “the Commission”) are incorporated by reference into Part III of this Report.
DOCUMENTS INCORPORATED BY REFERENCE
Hancock Whitney Corporation
Form 10-K
Index
BUSINESS
PART I
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
ITEM 5.
ITEM 6.
ITEM 7.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.
ITEM 12.
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15.
ITEM 16
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
4
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30
30
30
31
33
37
69
70
130
130
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Hancock Whitney Corporation
Glossary of Defined Terms
Entities:
Hancock Whitney Corporation* – a financial holding company registered with the Securities and Exchange Commission
Hancock Whitney Bank* – a wholly-owned subsidiary of Hancock Whitney Corporation through which Hancock Whitney
Corporation conducts its banking operations
Company – Hancock Whitney Corporation and its wholly-owned subsidiaries
Parent – Hancock Whitney Corporation, exclusive of its subsidiaries
Bank – Hancock Whitney Bank
*On May 25, 2018, Hancock Whitney Corporation changed its name from Hancock Holding Company, and Hancock Whitney Bank
changed its name from Whitney Bank.
ALCO – Asset Liability Management Committee
AOCI – accumulated other comprehensive income or loss
ALLL – allowance for loan and lease losses
AMT – Alternative Minimum Tax
ASC – Accounting Standards Codification
ASU – Accounting Standards Update
ATM – automated teller machine
Basel II – Basel Committee's 2004 Regulatory Capital Framework (Second Accord)
Basel III – Basel Committee's 2010 Regulatory Capital Framework (Third Accord)
Basel Committee – Basel Committee on Banking Supervision
BSA – Bank Secrecy Act
bp(s) – basis point(s)
C&I – commercial and industrial loans
CD – certificate of deposit
CDE – Community Development Entity
CET1 – common equity tier 1 capital as defined by Basel III capital rules
CFPB – Consumer Finance Protection Bureau
COSO – Committee of Sponsoring Organizations of the Treadway Commission
CMO – Collateralized Mortgage Obligation
CRA – Community Reinvestment Act of 1977
CRE – commercial real estate
DIF – Deposit Insurance Fund
Dodd-Frank Act – The Dodd-Frank Wall Street Reform and Consumer Protection Act
EITF – Emerging Issues Task Force
FASB – Financial Accounting Standards Board
FDIC – Federal Deposit Insurance Corporation
FDICIA – Federal Deposit Insurance Corporation Improvement Act of 1991
Federal Reserve Bank – The 12 banks that are the operating arms of the U.S. central bank. They implement the
policies of the Federal Reserve Board and also conduct economic research.
Federal Reserve Board – The 7-member Board of Governors that oversees the Federal Reserve System, establishes
monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed
by the President subject to Senate confirmation, and serve 14-year terms.
Federal Reserve System – The 12 Federal Reserve Banks, with each one serving member banks in its own district.
This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the
credit structure.
FFIEC – Federal Financial Institutions Examination Council
FHA – Federal Housing Administration
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FHLB – Federal Home Loan Bank
FNBC or First NBC – The former New Orleans, Louisiana-based First NBC Bank that failed on April 28, 2017
FNBC I – Transaction in which the Company acquired selected assets and liabilities from FNBC on March 10, 2017
FNBC II – Transaction in which the Company acquired selected assets and liabilities from the FDIC as receiver for FNBC under
agreement dated April 28, 2017
FNBC Transactions – The FNBC I and FNBC II transactions, collectively
GAAP – Generally Accepted Accounting Principles in the United States of America
HFC – Harrison Finance Company, a former consumer finance subsidiary
LIBOR – London Interbank Offered Rate
LIHTC – Low Income Housing Tax Credit
LTIP – long-term incentive plan
MBS – mortgage-backed securities
MD&A – management’s discussion and analysis of financial condition and results of operations
MDBCF – Mississippi Department of Banking and Consumer Finance
NAICS – North American Industry Classification System
n/m – not meaningful
OCI – other comprehensive income or loss
ORE – other real estate
PPNR – pre-provision net revenue (te)
SEC – U.S. Securities and Exchange Commission
Securities Act – Securities Act of 1933, as amended
Tax Act – Tax Cuts and Jobs Act of 2017
TDR – troubled debt restructuring (as defined in ASC 310-40)
te – taxable equivalent adjustment, or the term used to indicate that a financial measure is presented on a fully taxable equivalent basis
USA Patriot – Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001
U.S. Treasury – The United States Department of the Treasury
Volcker Rule – section 619 of the Dodd-Frank Act and regulations promulgated thereunder, as applicable
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PART I
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning and protections of section 27A of the Securities Act of 1933, as
amended, and section 21E of the Securities Exchange Act of 1934, as amended. Important factors that could cause actual results to
differ materially from the forward-looking statements we make in this annual report are set forth in this Annual Report on Form 10-K
and in other reports or documents that we file from time to time with the SEC and include, but are not limited to, the following:
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balance sheet and revenue growth expectations may differ from actual results;
the risk that our provision for loan losses may be inadequate or may be negatively affected by credit risk exposure;
loan growth expectations;
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(cid:120)(cid:3) management’s predictions about charge-offs, including energy-related credits, the impact of changes in oil and gas prices on
our energy portfolio, and the downstream impact on businesses that support that sector, especially in the Gulf Coast Region;
the risk that our enterprise risk management framework may not identify or address risks adequately, which may result in
unexpected losses;
the impact of the trust and asset management transaction or future business combinations on our performance and financial
condition including our ability to successfully integrate the business;
deposit trends;
credit quality trends;
changes in interest rates;
net interest margin trends;
future expense levels;
success of revenue-generating initiatives;
the effectiveness of derivative financial instruments and hedging activities to manage risks;
risks related to our reliance on third parties to provide key components of our business infrastructure, including the risks
related to disruptions in services or financial difficulties of a third-party vendor;
risks related to the ability of our operational framework to manage risks associated with our business such as credit risk and
operation risk, including third-party vendors and other service providers, which could among other things, result in a breach
of operating or security systems as a result of a cyber-attack or similar act;
projected tax rates;
future profitability;
purchase accounting impacts, such as accretion levels;
our ability to identify and address potential cybersecurity risks, including data security breaches, credential stuffing, malware,
“denial-of-service” attacks, “hacking” and identify theft, a failure of which could disrupt our business and result in the
disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our
systems, increased costs, losses, or adverse effects to our reputation;
our ability to receive dividends from Hancock Whitney Bank could affect our liquidity, including our ability to pay dividends
or take other capital actions;
the impact on our financial results, reputation, and business if we are unable to comply with all applicable federal and state
regulations or other supervisory actions or directives and any necessary capital initiatives;
our ability to effectively compete with other traditional and non-traditional financial services companies, some of whom
possess greater financial resources than we do or are subject to different regulatory standards than we are;
our ability to maintain adequate internal controls over financial reporting;
potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory
proceedings and enforcement actions;
the financial impact of future tax legislation;
changes in laws and regulations affecting our businesses, including legislation and regulations relating to bank products and
services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental
and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce
our revenue, impose additional costs on us, or otherwise negatively affect our businesses; and
other risks and risk factors described in Item 1A. “Risk Factors” herein and those identified from time to time in reports we
file with the SEC.
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Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the
words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “forecast,” “goals,” “targets,” “initiatives,” “focus,”
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“potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,”
“would,” and “could.” Forward-looking statements are based upon the current beliefs and expectations of management and on
information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to
update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new
information or future events. Factors that could cause actual results to differ from those expressed in the Company’s forward-looking
statements include, but are not limited to, those risk factors outlined in Item 1A. “Risk Factors.”
You are cautioned not to place undue reliance on these forward-looking statements. We do not intend, and undertake no obligation, to
update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or
changes in other factors affecting such statements, except as required by law.
ITEM 1. BUSINESS
ORGANIZATION AND RECENT DEVELOPMENTS
Hancock Whitney Corporation is a financial services company organized in 1984 as a bank holding company registered under the
Bank Holding Company Act of 1956, as amended. In 2002, the Company qualified as a financial holding company, giving it broader
powers to engage in financial activities. In 2011, the Company completed the acquisition of Whitney Holding Corporation and its
subsidiary bank, Whitney National Bank. The merger represented the combination of two well-established Gulf South banks,
Hancock Bank, founded in 1899, and Whitney Bank, founded in 1883. Following the merger, the Company’s subsidiary banks
operated as “Hancock Bank” in Mississippi, Alabama and Florida and as “Whitney Bank” in Louisiana and Texas. On May 25, 2018,
the Company consolidated its two iconic brands and now operates the financial holding company and the bank as Hancock Whitney
Corporation and Hancock Whitney Bank, respectively. The Company’s decision to consolidate the brands highlights its respect for the
legacy of two grand old banks.
The Company, headquartered in Gulfport, Mississippi, provides a comprehensive network of full service financial choices through its
bank subsidiary, Hancock Whitney Bank (the “Bank”), a Mississippi state bank and other nonbank affiliates.
At December 31, 2018, our balance sheet had grown to $28.2 billion, with loans totaling $20.0 billion and deposits totaling
$23.2 billion, and we had 3,933 employees on a full time equivalent basis.
NATURE OF BUSINESS AND MARKETS
The Bank offers a broad range of traditional and online banking services to commercial, small business and retail customers,
providing a variety of transaction and savings deposit products, treasury management services, secured and unsecured loan products
(including revolving credit facilities), and letters of credit and similar financial guarantees. The Bank also provides trust and
investment management services to retirement plans, corporations and individuals.
We offer other services through bank and nonbank subsidiaries. Our nonbank subsidiary Hancock Whitney Investment Services, Inc.
provides discount investment brokerage services, annuity and life insurance products and participates in select underwriting
transactions, primarily for banking clients with which we have an existing relationship. Our bank subsidiaries Hancock Whitney
Equipment Finance, LLC and Hancock Whitney Equipment Finance and Leasing, LLC, provide commercial finance products to
middle market and corporate clients, including loans, leases and related structures. We also have several special purpose subsidiaries
to facilitate investments in new market tax credit activities and others that operate and sell certain foreclosed assets.
We operate primarily in the Gulf South region comprised of southern Mississippi; southern and central Alabama; southern Louisiana;
the northern, central, and panhandle regions of Florida; and the Houston, Texas area. We also operate a loan production office in
Nashville, Tennessee and separate trust and investment management offices in Texas, New York and New Jersey.
Our operating strategy is to provide customers with the financial sophistication and range of products of a regional bank, while
successfully retaining the commercial appeal and level of service of a community bank. Our size and scale enables us to attract and
retain high quality employees, to whom we refer as associates, who are focused on executing this strategy.
Some of the most common forms of commerce along the Gulf Coast are energy and related services, petrochemical refining, military
and government related activities, educational and medical complexes, transportation services and port facilities, tourism and gaming.
Our priority is to grow revenue in our existing markets with controlled expenses while providing five-star service through enhanced
technology and processes that make banking simpler for our clients. We have and will continue to invest in promoting new and
enhanced products that contribute to the goals of continuing to diversify our sources of revenue and increasing core deposit funding.
Our July 2018 acquisition of Capital One’s trust and asset management business expanded our existing trust operations, and provides
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opportunity to develop relationships for other private, wholesale and retail services. We will continue to evaluate future acquisition
opportunities that have the potential to increase shareholder value, provided overall economic conditions and our capital levels support
such a transaction.
Additional information regarding the Company and the Bank is available at https://www.hancockwhitney.com using the link titled
Investor Relations.
Loan Production, Underwriting Standards and Credit Review
The Bank’s primary lending focus is to provide commercial, consumer and real estate loans to consumers, small and middle market
businesses, and corporate clients in the markets served by the Bank. We seek to provide quality loan products that are attractive to the
borrower and profitable to the Bank. We look to build strong, profitable client relationships over time and maintain a strong presence
and position of influence in the communities we serve. Through our relationship-based approach, we have developed a deep
knowledge of our customers and the markets in which they operate. We continually work to ensure consistency of the lending
processes across our banking footprint, to strengthen the underwriting criteria we employ to evaluate new loans and loan renewals,
and to diversify our loan portfolio in terms of type, industry and geographical concentration. We believe that these measures position
the Bank to meet the credit needs of businesses and consumers in the markets we serve while pursuing a balanced strategy of loan
profitability, growth and credit quality.
The following describes the underwriting procedures of the lending function and presents our principal categories of loans. The results
of our lending activities and the relative risk of the loan portfolio are discussed in Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
The Bank has a set of loan policies, underwriting standards and key underwriting functions designed to achieve a consistent lending
and credit review approach. Our underwriting standards address the following criteria:
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collateral requirements;
guarantor requirements (including policies on financial statements, tax returns, and guarantees);
requirements regarding appraisals and their review;
loan approval hierarchy;
standard consumer and small business credit scoring underwriting criteria (including credit score thresholds, maximum
maturity and amortization, loan-to-value limits, global debt service coverage, and debt to income limits);
commercial real estate and commercial and industrial underwriting guidelines (including minimum debt service coverage
ratio, maximum amortization, minimum equity requirements, maximum loan-to-value ratios);
lending limits; and
credit approval authorities.
Additionally, our loan concentration policy sets limits and manages our exposures within specified concentration tolerances, including
those to particular borrowers, foreign entities, industries, and property types for commercial real estate. This policy sets standards for
portfolio risk management and reporting, the monitoring of large borrower concentration limits and systematic tracking of large
commercial loans and our portfolio mix. We continually monitor our concentration of commercial real estate, health care and energy-
related loans to ensure the mix is consistent with our risk tolerance. We define concentration as the total of funded and unfunded
commitments as a percentage of total Bank capital (as defined for risk-based capital ratios). Portfolio segment concentrations (shown
as a percentage of risk-based capital) as of December 31, 2018 are as follows:
Portfolio Segment Concentrations
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Commercial non-real estate — 480%
Commercial real estate - owner occupied — 117%
Non-owner occupied commercial real estate — 115%
Residential mortgage — 140%
Consumer real estate secured — 84%
Consumer other — 66%
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The following details the more significant industry concentrations for commercial non-real estate and owner occupied real estate
included above (shown as a percentage of risk-based capital) as of December 31, 2018:
Significant Industry Concentrations
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Mining, oil and gas — 61%
Manufacturing — 55%
Healthcare and social service — 53%
Real estate — 52%
Retail trade – 46%
Construction — 44%
Finance and insurance — 44%
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Transportation and warehousing — 37%
Government and public administration – 30%
Professional, scientific and technology services — 27%
Education – 20%
Our underwriting process is structured to require oversight that is proportional to the size and complexity of the lending relationship.
We delegate designated regional managers, relationship managers, and credit officers loan authority that can be utilized to approve
credit commitments for a single borrowing relationship. The limit of delegated authority is based upon the experience, skill and
training of the relationship manager or credit officer. Certain types and sizes of loans and relationships must be approved by either one
of the Bank’s centralized underwriting units or by Regional or Senior Regional Commercial Credit Officers, either individually or
jointly with either the Chief Credit Officer or Chief Credit Approval Officer, depending upon the overall size of the borrowing
relationship.
Loans are underwritten in accordance with the underwriting standards and loan policies of the Bank. Loans are underwritten primarily
on the basis of the borrower’s ability to make timely debt service payments, and secondarily on collateral value. Generally, real estate
secured loans and mortgage loans are made when the borrower produces evidence of the ability to make timely debt service payments
along with appropriate equity investment in the property. Appropriate and regulatory compliant third party valuations are required at
the time of origination for real estate secured loans.
The following briefly describes the composition of our loan portfolio by segment:
Commercial and industrial
The Bank offers a variety of commercial loan services to a diversified customer base over a range of industries, including energy,
wholesale and retail trade in various durable and nondurable products, manufacturing of such products, marine transportation and
maritime construction, financial and professional services, healthcare services, and agricultural production. Commercial and industrial
loans are made available to businesses for working capital (including financing of inventory and receivables), business expansion, to
facilitate the acquisition of a business, and the purchase of equipment and machinery, including equipment leasing.
Commercial non-real estate loans may be secured by the assets being financed or other tangible or intangible business assets such as
accounts receivable, inventory, ownership, enterprise value, or commodity interests, and may incorporate a personal or corporate
guarantee; however, some short-term loans may be made on an unsecured basis, including a small portfolio of corporate credit cards,
generally issued as a part of overall customer relationships. Asset-based loans, such as accounts receivables and commodity interest
secured loans, may have limits on borrowing that are based on the collateral values. In the case of loans secured by accounts
receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to
collect amounts due from its customers.
Commercial real estate – owner occupied loans consist of commercial mortgages on properties where repayment is generally
dependent on the cash flow from the ongoing operations and activities of the borrower. Like commercial non-real estate, these loans
are primarily made based on the identified cash flows of the borrower, but also have the added strength of the value of underlying real
estate collateral.
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Commercial real estate – income producing
Commercial real estate – income producing loans consist of loans secured by commercial mortgages on properties where the loan is
made to real estate developers or investors and repayment is dependent on the sale, refinance or income generated from the operation
of the property. Properties financed include retail, office, multifamily, senior housing, hotel/motel, skilled nursing facilities and other
commercial properties.
Repayment of commercial real estate – income producing loans is generally dependent on the successful operation of the property
securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general
economy. The properties securing the commercial real estate – income producing portfolios are diverse in terms of type and
geographic location. We monitor and evaluate these loans based on collateral, geography and risk grade criteria. This portfolio has
experienced minimal losses in the last few years; however, past experience has shown that commercial real estate conditions can be
volatile, so we actively monitor concentrations within this portfolio segment.
Construction and land development
Construction and land development loans are made to facilitate the acquisition, development, improvement and construction of both
commercial and residential-purpose properties. Such loans are made to builders and investors where repayment is expected to be
made from the sale, refinance or operation of the property or to businesses to be used in their business operations.
Acquisition and development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of
real estate absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are generally
based upon cost estimates, the amount of sponsor equity investment, and the projected value of the completed project. The Bank
monitors the construction process to mitigate or identify risks as they arise. Construction loans often involve the disbursement of
substantial funds with repayment largely dependent on the success of the ultimate project. Sources of repayment for these types of
construction loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an
interim loan commitment from the Bank until permanent financing is obtained. These loans are typically closely monitored by on-site
inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to
interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term
financing to repay the construction loan in full.
Owner occupied loans for the development and improvement of real property to commercial customers to be used in their business
operations are underwritten subject to normal commercial and industrial credit standards and are generally subject to project tracking
processes, similar to those required for the non-owner occupied loans.
This portfolio also includes residential construction loans and loans secured by raw land not yet under development.
Residential Mortgages
Residential mortgages consist of closed-end loans secured by first liens on 1- 4 family residential properties. The portfolio includes
both fixed and adjustable rate loans, although most longer-term, fixed-rate loans originated are sold in the secondary mortgage market.
The sale of fixed-rate mortgage loans allows the Bank to manage the interest rate risks related to such lending operations.
Consumer
Consumer loans include second lien mortgage home loans, home equity lines of credit and nonresidential consumer purpose loans.
Nonresidential consumer loans include both direct and indirect loans. Direct nonresidential consumer loans are made to finance the
purchase of personal property, including automobiles, recreational vehicles and boats, and for other personal purposes (secured and
unsecured), and deposit account secured loans. Indirect nonresidential loans include automobile financing provided to the consumer
through an agreement with automobile dealerships. Consumer loans also include a small portfolio of credit card receivables issued on
the basis of applications received through referrals from the Bank’s branches, online and other marketing efforts.
The Bank approves consumer loans based on income and financial information submitted by prospective borrowers as well as credit
reports collected from various credit agencies. Financial stability and credit history of the borrower are the primary factors the Bank
considers in granting such loans. The availability of collateral is also a factor considered in making such loans. Preference is also
given to borrowers in the Bank’s primary market areas.
Securities Portfolio
The investment portfolio primarily consists of U.S. agency debt securities, U.S. agency mortgage-related securities and obligations of
states and municipalities classified as either available for sale or held to maturity. We consider the available for sale portfolio as one of
many sources of liquidity available to fund our operations. Investments are made in accordance with an investment policy approved by
the Board Risk Committee. Company policies generally limit investments to agency securities and municipal securities determined to
be investment grade according to an internally generated score, which generally includes a rating of not less than “Baa” or its
equivalent by a nationally recognized statistical rating organization. The investment portfolio is tested monthly under multiple
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stressed interest rate scenarios, the results of which are used to manage our interest rate risk position. The rate scenarios include
regulatory and management agreed upon instantaneous and ramped rate movements that may be up to plus 500 basis points. The
combined portfolio has a target effective duration of two to five and a half years.
A significant portion of the securities portfolio is used to secure certain deposits and other liabilities requiring collateralization.
However, to maintain an adequate level of liquidity, we limit the percentage of securities that can be pledged in order to keep a portion
of securities available for sale. The securities portfolio can also be pledged to increase our line of credit available at the Federal Home
Loan Bank (FHLB) of Dallas, although we have not had to do so historically.
The investments subcommittee of the asset/liability committee (ALCO) is responsible for the oversight, monitoring and management
of the investment portfolio. The investments subcommittee is also responsible for the development of investment strategies for the
consideration and approval of ALCO. Final authority and responsibility for all aspects of the conduct of investment activities rests
with the Board Risk Committee, all in accordance with the overall guidance and limitations of the investment policy. See Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations-Enterprise Risk Management,” for further
discussion.
Deposits
The Bank has several programs designed to attract deposit accounts from consumers and businesses at interest rates generally
consistent with market conditions. Deposits are the most significant funding source for the Company’s interest-earning assets. Interest
paid on deposits represents the largest component of our interest expense. Deposits are attracted principally from clients within our
retail branch network through the offering of a broad array of deposit products to individuals and businesses, including noninterest-
bearing demand deposit accounts, interest-bearing transaction accounts, savings accounts, money market deposit accounts, and time
deposit accounts. Terms vary among deposit products with respect to commitment periods, minimum balances and applicable fees.
Interest rates offered on interest-bearing deposits are determined based on a number of factors, including, but not limited to,
(1) interest rates offered in local markets by competitors, (2) current and expected economic conditions, (3) anticipated future interest
rates, (4) the expected amount and timing of funding needs, and (5) the availability and cost of alternative funding sources. Deposit
flows are controlled primarily through pricing, and to a lesser extent, through promotional activities. Management believes that the
rates that it offers on deposit accounts are generally competitive with other financial institutions in the Bank’s respective market areas.
Client deposits are attractive sources of funding because of their stability and low relative cost. Deposits are regarded as an important
part of the overall client relationship.
The Bank also holds deposits of public entities. The Bank’s strategy for acquiring public funds, as with any type of deposit, is
determined by ALCO’s funding and liquidity subcommittee while pricing decisions are determined by ALCO’s deposit pricing
subcommittee. Typically, many public fund deposits are allocated based upon the rate of interest offered and the ability of a bank to
provide collateralization. The Bank can influence the level of its public fund deposits through pricing decisions. Public deposits
typically require the pledging of collateral, most commonly marketable securities and Federal Home Loan Bank letters of credit. This
is taken into account when determining the level of interest to be paid on public deposits. The pledging of collateral, monitoring and
management reporting represents additional operational requirements for the Bank. Public fund deposits are more volatile than other
core deposits because they tend to be price sensitive and have high balances. Public funds are only one of many possible sources of
liquidity that the Bank has available to draw upon as part of its liquidity funding strategy as set by ALCO.
Brokered deposits of $1.23 billion at December 31, 2018 represent about 5% of total deposits. Brokered deposits are funds which the
Bank obtains through deposit brokers who sell participations in a given bank deposit account or instrument to one or more investors.
These brokered deposits are fully insured by the FDIC because they are participated out by the deposit broker in shares of $250,000 or
less. These brokered deposit issuances were approved by ALCO as one component of its funding strategy to support ongoing asset
growth until such time as customer deposit growth ultimately replaces the brokered deposits. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”), the Bank may continue to accept brokered deposits as long as it is either “well-
capitalized” or “adequately-capitalized.”
Trust Services
The Bank, through its trust department, offers a full range of trust services on a fee basis. In its trust capacities, the Bank provides
investment management services on an agency basis and acts as trustee for pension plans, profit sharing plans, corporate and
municipal bond issues, living trusts, life insurance trusts and various other types of trusts created by or for individuals, businesses, and
charitable and religious organizations. During 2018, the acquisition of a bank-managed high net worth individual and institutional
investment management and trust business expanded the Bank’s existing trust operations. As of December 31, 2018, the trust
department of the Bank had approximately $23.6 billion of assets under administration compared to $15.5 billion as of December 31,
2017. As of December 31, 2018, administered assets include investment management and investment advisory agency accounts
totaling $5.3 billion, corporate trust accounts totaling $4.0 billion, and the remaining balances were personal, employee benefit, estate
and other trust accounts.
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COMPETITION
The financial services industry is highly competitive in our market areas. The principal factors in the competition for deposits and loans
are interest rates and fee structures associated with the various products offered. We also compete through the efficiency, quality and
range of services and products we provide, as well as the convenience provided by an extensive network of customer access channels
including local branch offices, ATMs, online and mobile banking, and telebanking centers. In attracting deposits and in our lending
activities, we generally compete with other commercial banks, savings associations, credit unions, mortgage banking firms, consumer
finance companies, securities brokerage firms, mutual funds and insurance companies, and other financial and non-financial institutions
offering similar products.
AVAILABLE INFORMATION
We make available free of charge, on or through our investor relations website www.hancockwhitney.com/investors, our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and amendments to such filings, as soon as reasonably practicable after each is
electronically filed with, or furnished to, the SEC. The SEC maintains a website that contains the Company’s reports, proxy
statements, and the Company’s other SEC filings. The address of the SEC’s website is www.sec.gov. We include our website address
throughout this filing only as textual references. The information contained on our website is not incorporated in this document by
reference.
Also available on our investor relations website are our corporate governance documents, including Corporate Governance
Guidelines, Code of Business Ethics for Officers and Associates, Whistleblower Policy, Code of Ethics for Financial Officers, Code of
Ethics for Directors and Committee Charting. These documents are also available in print to any stockholder who requests a copy.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under federal and state law. This discussion is a summary and is
qualified in its entirety by reference to the particular statutory and regulatory provisions described below and is not intended to be an
exhaustive description of the statutes or regulations applicable to the Company or the Bank.
Changes in laws and regulations may alter the structure, regulation and competitive relationships of financial institutions. In addition,
bank regulatory agencies may issue enforcement actions, policy statements, interpretive letters and similar written guidance applicable
to us or the Bank. It cannot be predicted whether and in what form new laws and regulations, or interpretations thereof, may be
adopted or the extent to which the business of the Company and the Bank may be affected thereby, but they may have a material
adverse effect on our business, operations, and earnings.
Supervision, regulation, and examination of the Company, the Bank, and our respective subsidiaries by the appropriate regulatory
agencies, as described herein, are intended primarily for the protection of consumers, bank depositors and the Deposit Insurance Fund
(“DIF”) of the FDIC, and the U.S. banking and financial system, rather than holders of our capital stock.
Bank Holding Company Regulation
The Company is subject to extensive supervision and regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”) pursuant to the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). We are
required to file with the Federal Reserve periodic reports and such other information as the Federal Reserve may request. Ongoing
supervision is provided through regular examinations by the Federal Reserve and other means that allow the regulators to gauge
management’s ability to identify, assess and control risk in all areas of operations in a safe and sound manner and to ensure
compliance with laws and regulations. In addition to regulation by the Federal Reserve as a bank holding company, the Company is
subject to regulation by the State of Mississippi under its general business corporation laws, and to supervision by the Mississippi
Department of Consumer Finance (the “MDBCF”). The Federal Reserve may also examine our non-bank subsidiaries. Various
federal and state bodies regulate and supervise our brokerage, investment advisory, insurance agency and processing operations.
These include, but are not limited to, the SEC, the Financial Industry Regulatory Authority, federal and state banking regulators and
various state regulators of insurance and brokerage activities.
Violations of laws and regulations, or other unsafe and unsound practices, may result in regulatory agencies imposing fines or
penalties, cease and desist orders, or taking other enforcement actions. Under certain circumstances, these agencies may enforce these
remedies directly against officers, directors, employees and other parties participating in the affairs of a bank or bank holding
company. Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions,
federal and state banking regulators have the authority to compel or restrict certain actions on our part if they determine that we have
insufficient capital or other resources, or are otherwise operating in a manner that may be deemed to be inconsistent with safe and
9
sound banking practices. Under this authority, our bank regulators can require us or our subsidiaries to enter into informal or formal
supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consent or cease and
desist orders, pursuant to which we would be required to take identified corrective actions to address cited concerns and to refrain
from taking certain actions.
If we become subject to and are unable to comply with the terms of any future regulatory actions or directives, supervisory
agreements, or orders, then we could become subject to additional, heightened supervisory actions and orders, possibly including
consent orders, prompt corrective action restrictions and/or other regulatory actions, including prohibitions on the payment of
dividends on our common stock and preferred stock. If our regulators were to take such additional supervisory actions, then we could,
among other things, become subject to significant restrictions on our ability to develop any new business, as well as restrictions on our
existing business, and we could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed
period of time, or both. The terms of any such supervisory action could have a material negative effect on our business, reputation,
operating flexibility, financial condition, and the value of our common stock and preferred stock.
Activity Limitations. The Company is registered with the Federal Reserve as a bank holding company and has elected to be treated as
a financial holding company under the Bank Holding Company Act. Bank holding companies generally are limited to the business of
banking, managing or controlling banks, and other activities that the Federal Reserve determines to be closely related to banking, or
managing or controlling banks as to be a proper incident thereto. Bank holding companies are prohibited from acquiring or obtaining
control of more than five percent (5%) of the outstanding voting interests of any company that engages in activities other than those
activities permissible for bank holding companies. Examples of activities that the Federal Reserve has determined to be permissible
are making, acquiring, brokering, or servicing loans; leasing personal property; providing certain investment or financial advice;
performing certain data processing services; acting as agent or broker in selling credit life insurance and other insurance products in
certain locations; and performing certain insurance underwriting activities. The Bank Holding Company Act does not place
geographic limits on permissible non-banking activities of bank holding companies. Even with respect to permissible activities,
however, the Federal Reserve has the power to order a holding company or its subsidiaries to terminate any activity or its control of
any subsidiary when the Federal Reserve has reasonable cause to believe that continuation of such activity or control of such
subsidiary would pose a serious risk to the financial safety, soundness or stability of any bank subsidiary of that holding company.
As a financial holding company, we are permitted to engage directly or indirectly in a broader range of activities than those permitted
for a bank holding company. Financial holding companies may also engage in activities that are considered to be financial in nature,
as well as those incidental or complementary to financial activities. We and the Bank must each remain “well-capitalized” and “well-
managed” and the Bank must receive a Community Reinvestment Act (“CRA”) rating of at least “Satisfactory” at its most recent
examination in order for us to maintain our status as a financial holding company. If the Company or the Bank ceases to be “well
capitalized” or “well managed” under applicable regulatory standards, or if the Bank receives a rating of less than satisfactory under
the CRA, the Federal Reserve Board may, among other things, place limitations on our ability to conduct these broader financial
activities or, if the deficiencies persist, require us to divest the banking subsidiary or the businesses engaged in activities permissible
only for financial holding companies.
In addition, the Federal Reserve has the power to order a bank holding company or its subsidiaries to terminate any nonbanking
activity or terminate its ownership or control of any nonbank subsidiary, when it has reasonable cause to believe that continuation of
such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank
subsidiary of that bank holding company. As further described below, each of the Company and the Bank is well-capitalized as of
December 31, 2018, and the Bank has a rating of “Satisfactory” in its most recent CRA evaluation.
Source of Strength Obligations. A bank holding company is required to act as a source of financial and managerial strength to its
subsidiary bank and to maintain resources adequate to support its bank. The term “source of financial strength” means the ability of a
company, such as us, that directly or indirectly owns or controls an insured depository institution, such as the Bank, to provide
financial assistance to such insured depository institution in the event of financial distress. The appropriate federal banking agency for
the depository institution (in the case of the Bank, this agency is the FDIC) may require reports from us to assess our ability to serve as
a source of strength and to enforce compliance with the source of strength requirements by requiring us to provide financial assistance
to the Bank in the event of financial distress. If we were to enter bankruptcy or become subject to the orderly liquidation process
established by the Dodd-Frank Act, any commitment by us to a federal bank regulatory agency to maintain the capital of the Bank would
be assumed by the bankruptcy trustee or the FDIC, as appropriate, and entitled to a priority of payment. In addition, the FDIC provides that
any insured depository institution generally will be liable for any loss incurred by the FDIC in connection with the default of, or any
assistance provided by the FDIC to, a commonly controlled insured depository institution. The Bank is an FDIC-insured depository
institution and thus subject to these requirements.
Acquisitions. The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal
Reserve or waiver of such prior approval before it (1) acquires ownership or control of any voting shares of any bank if, after such
acquisition, such bank holding company will own or control more than five percent (5%) of the voting shares of such bank,
(2) acquires all of the assets of a bank, or (3) merges with any other bank holding company. In reviewing a proposed covered
10
acquisition, among other factors, the Federal Reserve considers (1) the financial and managerial resources of the companies involved,
including pro forma capital ratios; (2) the risk to the stability of the United States banking or financial system; (3) the convenience and
needs of the communities to be served, including performance under the CRA; and (4) the effectiveness of the companies in
combatting money laundering. The Federal Reserve also reviews any indebtedness to be incurred by a bank holding company in
connection with a proposed acquisition to ensure that the bank holding company can service such indebtedness without adversely
affecting its ability to serve as a source of strength to its bank subsidiaries. Well capitalized and well managed bank holding
companies are permitted to acquire control of banks in any state, subject to federal regulatory approval, without regard to whether
such a transaction is prohibited by the laws of any state. However, a bank holding company may not, following an interstate
acquisition, control more than 10% of nationwide insured deposits or 30% of deposits within any state in which the acquiring bank
operates. States have the right to lower the 30% limit, although no states within the Company’s current market area have done so.
Federal banking regulators are also required to take into account compliance with the CRA in evaluating any proposal for interstate
bank acquisitions.
Change in Control. Federal law restricts the amount of voting stock of a bank holding company or a bank that a person may acquire
without the prior approval of banking regulators. Under the federal Change in Bank Control Act and the regulations thereunder, a
person or group must give advance notice to and obtain approval from the Federal Reserve before acquiring control of any bank
holding company, such as the Company. The Change in Bank Control Act creates a rebuttable presumption of control if a member or
group acquires a certain percentage or more of a bank holding company’s voting stock, or if one or more other control factors are
present. As a result, a person or entity generally must provide prior notice to the Federal Reserve before acquiring the power to vote
10% or more of our outstanding common stock. The overall effect of such laws is to make it more difficult to acquire a bank holding
company by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently,
shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers
or similar efforts to acquire control of other companies. Investors should be aware of these requirements when acquiring shares of our
stock.
Anti-tying rules. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in
connection with extensions of credit, leases or sales of property, or furnishing of services.
Volcker Rule. The Volcker Rule generally prohibits us and our subsidiaries from (i) engaging in proprietary trading for our own
account, and (ii) acquiring or retaining an ownership interest in or sponsoring a “covered fund,” all subject to certain exceptions. The
Volcker Rule also specifies certain limited activities in which we and our subsidiaries may continue to engage, and required us to
implement a compliance program. On June 5, 2018, the federal banking agencies issued proposed changes to the Volcker Rule, along
with a request for public comment. The proposed changes are intended to simplify compliance with the Rule’s “proprietary trading”
restrictions.
Capital Requirements
We are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to
risk-weighted assets. The required capital ratios are minimums, and the federal banking agencies may determine that a banking
organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and
sound manner. Risks such as concentration of credit risks and the risk arising from non-traditional activities, as well as the
institution’s exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution’s ability to
manage those risks are important factors that are to be taken into account by the federal banking agencies in assessing an institution’s
overall capital adequacy. The following is a brief description of the relevant provisions of these capital rules and their potential
impact on our capital levels.
The Company and the Bank are subject to the following risk-based capital ratios: a common equity Tier 1 ("CET1") risk-based
capital ratio, a Tier 1 risk-based capital ratio, which includes CET1 and additional Tier 1 capital, and a total capital ratio, which
includes Tier 1 and Tier 2 capital. CET1 is primarily comprised of the sum of common stock instruments and related surplus net of
treasury stock, retained earnings, and certain qualifying minority interests, less certain adjustments and deductions, including with
respect to goodwill, intangible assets, mortgage servicing assets and deferred tax assets subject to temporary timing differences.
Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, tier 1 minority interests and
grandfathered trust preferred securities. Tier 2 capital consists of instruments disqualified from Tier 1 capital, including qualifying
subordinated debt, other preferred stock and certain hybrid capital instruments, and a limited amount of loan loss reserves up to a
maximum of 1.25% of risk-weighted assets, subject to certain eligibility criteria. The capital rules also define the risk-weights
assigned to assets and off-balance sheet items to determine the risk-weighted asset components of the risk-based capital rules,
including, for example, certain “high volatility” commercial real estate, past due assets, structured securities and equity holdings.
11
The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to quarterly average assets net of
goodwill, certain other intangible assets, and certain required deduction items. The required minimum leverage ratio for all banks and
bank holding companies is 4%.
In addition, the capital rules require a capital conservation buffer of up to 2.5% above each of the minimum capital ratio requirements
(CET1, Tier 1, and total risk-based capital), which is designed to absorb losses during periods of economic stress. These buffer
requirements must be met for a bank or bank holding company to be able to pay dividends, engage in share buybacks or make
discretionary bonus payments to executive management without restriction. This capital conservation buffer is being phased in, and
was 1.875% as of January 1, 2018 and is 2.5% effective January 1, 2019.
Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have an adverse material effect on our operations or financial condition.
For example, only a well-capitalized depository institution may accept brokered deposits without prior regulatory approval. Failure to
be well-capitalized or to meet minimum capital requirements could also result in restrictions on the Company’s or the Bank’s ability
to pay dividends or otherwise distribute capital or to receive regulatory approval of applications or other restrictions on its growth.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal bank
regulatory agencies to take “prompt corrective action” regarding depository institutions that do not meet minimum capital
requirements. FDICIA establishes five regulatory capital tiers: “well capitalized”, “adequately capitalized”, “undercapitalized”,
“significantly undercapitalized”, and “critically undercapitalized”. A depository institution’s capital tier will depend upon how its
capital levels compare to various relevant capital measures and certain other factors, as established by regulation. FDICIA generally
prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be undercapitalized. The FDICIA imposes progressively
more restrictive restraints on operations, management and capital distributions, depending on the category in which an institution is
classified. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to
growth limitations and are required to submit capital restoration plans for regulatory approval. A depository institution's holding
company must guarantee any required capital restoration plan, up to an amount equal to the lesser of 5 percent of the depository
institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply
with the plan. Federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based
on realistic assumptions and is likely to succeed in restoring the depository institution's capital. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly undercapitalized. All of the federal bank regulatory agencies have
adopted regulations establishing relevant capital measures and relevant capital levels for federally insured depository institutions. The
Bank was well capitalized at December 31, 2018, and brokered deposits are not restricted.
To be well-capitalized, the Bank must maintain at least the following capital ratios:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
6.5% CET1 to risk-weighted assets;
8.0% Tier 1 capital to risk-weighted assets;
10.0% Total capital to risk-weighted assets; and
5.0% leverage ratio.
The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital
requirements imposed under the current capital rules. For purposes of the Federal Reserve’s Regulation Y, including determining
whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as the
Company, must maintain a Tier 1 risk-based capital ratio of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater to
be well-capitalized. If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding
companies as that applicable to the Bank, the Company’s capital ratios as of December 31, 2018 would exceed such revised well-
capitalized standard. Also, the Federal Reserve may require bank holding companies, including the Company, to maintain capital
ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding
company’s particular condition, risk profile and growth plans.
The Company’s and the Bank’s regulatory capital ratios were above the applicable well-capitalized standards and met the then-
applicable capital conservation buffer. Based on current estimates, we believe that the Company and the Bank will continue to
exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer. Risk-based capital ratios
and the leverage capital ratio and at December 31, 2018, under currently applicable capital adequacy rules for the Company and the
Bank were as follows:
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Tier 1 leverage capital ratio
Risk-based capital ratios
Common Equity Tier 1 capital
Tier 1 capital
Total risk-based capital
(Tier 1 plus Tier 2)
*Applies to Bank
Minimum
Well-Capitalized
Under Prompt
Corrective Action*
4.00 %
5.00 %
Minimum Capital Plus
Capital Conservation Buffer
2018
N/A
2019
N/A
Company at
12/31/2018
Bank at
12/31/2018
8.67 %
8.54 %
4.50 %
6.00 %
6.50 %
8.00 %
6.375 %
7.875 %
7.00 %
8.50 %
10.48 %
10.48 %
10.32 %
10.32 %
8.00 %
10.00 %
9.875 %
10.50 %
11.99 %
11.17 %
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, commonly referred to as
CECL, to replace the current “incurred loss” methodology for financial assets measured at amortized cost, and change the approach for
recognizing and recording credit losses on available-for-sale debt securities and purchased credit impaired financial assets. Under the
incurred loss methodology, credit losses are recognized only when the losses are probable or have been incurred; under CECL,
companies are required to recognize the full amount of expected credit losses for the lifetime of the financial assets, based on historical
experience, current conditions and reasonable and supportable forecasts. This change will result in earlier recognition of credit losses
that the Company deems expected but not yet probable. For SEC reporting companies with December 31 fiscal-year ends, such as the
Company, CECL will become effective beginning with the first quarter of 2020. On December 21, 2018, the federal banking agencies
issued a joint final rule to revise their regulatory capital rules to (i) address the upcoming implementation of CECL under GAAP; (ii)
provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to
experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress
testing cycle for certain banking organizations.
Payment of Dividends
Hancock Whitney Corporation is a legal entity separate and distinct from Hancock Whitney Bank and other subsidiaries. Its primary
source of cash, other than securities offerings, is dividends from the Bank. Under the Federal Deposit Insurance Act, no dividends may
be paid by an insured bank if the bank is in arrears in the payment of any insurance assessment due to the FDIC. The payment of
dividends by the Bank may also be affected by other regulatory requirements and policies, such as the maintenance of adequate
capital. If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in, or is about to engage in, an
unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), such
authority may require, after notice and hearing, that such bank cease and desist from such practice. The FDIC has formal and informal
policies which provide that insured banks should generally pay dividends only out of current operating earnings.
Under a Federal Reserve policy adopted in 2009, the board of directors of a bank holding company must consider certain factors to
ensure that its dividend level is prudent relative to maintaining a strong financial position, and is not based on overly optimistic
earnings scenarios, such as potential events that could affect its ability to pay, while still maintaining a strong financial position. As a
general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should consult with the
Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is
not sufficient to fully fund the dividends;
its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective
financial condition; or
it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Stress Testing
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) introduced enhanced regulatory
oversight by requiring annual, company-run stress tests of bank holding companies and banks, such as the Company and the Bank,
that have more than $10 billion but less than $50 billion of consolidated assets. These stress tests analyzed the potential impact of
baseline, adverse, and severely adverse economic scenarios specified by the Federal Reserve for the Company and by the FDIC for the
Bank. The impact of these scenarios were measured against the consolidated earnings, balance sheet and capital of a bank holding
company or depository institution over a designated planning horizon of nine quarters, taking into account the organization’s current
condition, risks, exposures, strategies, and activities, and such factors as the regulators may request of a specific organization.
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The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”) signed into law in May 2018
scaled back certain requirements of the Dodd-Frank Act and provided other regulatory relief. Among the provisions of the Economic
Growth Act that benefit the Company and Bank are that banking organizations having less than $100 billion in consolidated assets,
such as the Company and the Bank, do not have to perform the company-run stress testing previously required by the Dodd-Frank
Act. However, we continue to perform stress testing exercises as part of a prudent risk management process.
Bank Regulation
The operation of the Bank is subject to state and federal statutes applicable to state banks and the regulations of the Federal Reserve,
the FDIC and the Consumer Financial Protection Bureau (“CFPB”). The operations of the Bank may also be subject to applicable
Office of the Comptroller of the Currency (“OCC”) regulation to the extent state banks are granted parity with national banks. Such
statutes and regulations relate to, among other things, required reserves, investments, loans, mergers and consolidations, issuances of
securities, payments of dividends, establishment of branches, consumer protection and other aspects of the Bank’s operations.
Violations of laws and regulations, or other unsafe and unsound practices, may result in these agencies imposing fines or penalties,
cease and desist orders, or taking other enforcement actions. Under certain circumstances, these agencies may enforce these remedies
directly against officers, directors, employees and other parties participating in the affairs of a bank or bank holding company.
Safety and Soundness. The Federal Deposit Insurance Act requires the federal prudential bank regulatory agencies, such as the FDIC,
to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (1)
internal controls; (2) information systems and audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate risk
exposure; and (6) asset quality. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as
standards for compensation, fees and benefits. The federal banking agencies have adopted regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness to implement these required standards. These guidelines set forth the safety and
soundness standards used to identify and address problems at insured depository institutions before capital becomes impaired. Under
the regulations, if a regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require
the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety
and soundness compliance plans.
Examinations. The Bank is subject to regulation, reporting, and periodic examinations by the FDIC, the Mississippi Department of
Banking and Consumer Finance (the “MDBCF”), and the CFPB. These regulatory authorities routinely examine the Bank’s reserves,
loan and investment quality, consumer compliance, management policies, procedures and practices and other aspects of operations.
The FDIC has adopted the Federal Financial Institutions Examination Council’s (“FFIEC”) rating system and assigns each financial
institution a confidential composite rating based on an evaluation and rating of six essential components of an institution’s financial
condition and operations, including Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market
Risk, as well as the quality of risk management practices.
Consumer Protection. The Dodd-Frank Act established the CFPB, an independent regulatory authority housed within the Federal
Reserve having centralized authority, including examination and enforcement authority, for consumer protection in the banking
industry. The CFPB has rule writing, examination, and enforcement authority with regard to the Bank’s (and the Company’s)
compliance with a wide array of consumer financial protection laws, including the Truth in Lending Act, the Real Estate Settlement
Procedures Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Home Mortgage
Disclosure Act, the S.A.F.E. Mortgage Licensing Act, the Fair Credit Reporting Act (except Sections 615(e) and 628), the Fair Debt
Collection Practices Act, and the Gramm-Leach-Bliley Act (sections 502 through 509 relating to privacy), among others. The CFPB
has broad authority to enforce a prohibition on unfair, deceptive, or abusive acts and practice. The Bank is subject to direct
supervision and examination by the CFPB. The CFPB also may examine our other direct or indirect subsidiaries that offer consumer
financial products or services. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that
are stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection
rules adopted by the CFPB against certain institutions.
Branching. The Dodd-Frank Act authorizes national and state banks to establish de novo branches in other states to the same extent a
bank chartered in those states would be so permitted.
Deposit Insurance Assessments. The Deposit Insurance Fund (“DIF”) of the FDIC insures the deposits of the Bank generally up to a
maximum of $250,000 per depositor, per insured bank, for each account ownership category. The FDIC charges insured depository
institutions quarterly premiums to maintain the DIF. Deposit insurance assessments are based on average total consolidated assets
minus its average tangible equity. For larger institutions, such as the Bank, the FDIC uses a performance score and a loss-severity
score to calculate an initial assessment. In calculating these scores, the FDIC uses a bank’s capital level and supervisory ratings (its
“CAMELS ratings”) and certain financial measures to assess the institution’s ability to withstand asset-related stress and funding-
related stress. The FDIC has the ability to make discretionary adjustments to the total score based upon significant risk factors that are
not adequately captured in the calculations.
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In March 2016, the FDIC adopted a final rule to increase the reserve ratio for the DIF to 1.35% of total insured deposits. The rule
imposed a surcharge of 4.5 basis points on the excess of the depository institution’s assessment base over $10 billion until the earlier
of the quarter that the reserve ratio first reaches or exceeds 1.35% or December 31, 2018. The DIF ratio rose to 1.36% and the third
quarter of 2018 was the last period in which large banks were assessed the quarterly surcharge under this restoration plan. In addition,
in 2018 the Bank was subject to quarterly assessments by the FDIC to pay interest on Financing Corporation ("FICO") bonds.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC. The Bank does not believe that it is taking or is subject to any action, condition or violation that could lead to
termination of its deposit insurance. In addition, the Federal Deposit Insurance Act provides that, in the event of the liquidation or other
resolution of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of
insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general
unsecured claims against the institution, including those of the parent bank holding company.
Insider Transactions. In addition to regulating capital, the FDIC has broad authority to prevent the development or continuance of
unsafe or unsound banking practices. Pursuant to this authority, the FDIC has adopted regulations that restrict preferential loans and
loan amounts to “affiliates” and “insiders” of banks, require banks to keep information on loans to major shareholders and executive
officers and bar certain director and officer interlocks between financial institutions.
Mergers, Subsidiaries. The FDIC is also authorized to approve mergers, consolidations and assumption of deposit liability
transactions between insured banks and between insured banks and uninsured banks or institutions to prevent capital or surplus
diminution in such transactions where the resulting, continuing or assumed bank is an insured nonmember state bank.
Reserves. Although the Bank is not a member of the Federal Reserve, it is subject to Federal Reserve regulations that require the Bank
to maintain reserves against transaction accounts (primarily checking accounts). These reserve requirements are subject to annual
adjustment by the Federal Reserve.
Anti-Money Laundering. Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (“USA PATRIOT”) Act of 2001, financial institutions are subject to prohibitions against specified financial
transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with
foreign financial institutions and foreign customers. The USA PATRIOT Act requires financial institutions to establish anti-money
laundering programs with minimum standards that include:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
a system of internal policies, procedures, and controls to ensure ongoing compliance;
the designation of an individual responsible for coordinating and monitoring compliance;
an ongoing employee training program;
an independent audit function to test the programs; and
appropriate risk-based procedures for conducting ongoing customer due diligence.
Bank regulators routinely examine institutions for compliance with these anti-money laundering obligations and recently have been
active in imposing “cease and desist” and other regulatory orders and money penalty sanctions against institutions found to be in
violation of these requirements. In addition, the Financial Crimes Enforcement Network has adopted new regulations that became
effective on May 11, 2018, that require, subject to certain exclusions and exemptions, covered financial institutions to identify and
verify the identity of beneficial owners of legal entity customers.
Economic Sanctions. The Office of Foreign Assets Control (“OFAC”) is responsible for helping to ensure that U.S. entities do not
engage in transactions with certain prohibited parties, as defined by various Executive Orders and acts of Congress. OFAC publishes,
and routinely updates, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts,
including the Specially Designated Nationals and Blocked Persons List. If we find a name on any transaction, account or wire transfer
that is on an OFAC list, we must undertake certain specified activities, which could include blocking or freezing the account or
transaction requested, and we must notify the appropriate authorities.
15
Concentrations in Lending. During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial
Real Estate Lending” (the “Guidance”) and advised financial institutions of the risks posed by CRE lending concentrations. The
Guidance requires that appropriate processes be in place to identify, monitor and control risks associated with real estate lending
concentrations. Higher allowances for loan losses and capital levels may also be required. The Guidance is triggered when CRE loan
concentrations exceed either:
(cid:120)(cid:3) Total reported loans for construction, land development, and other land of 100% or more of a bank’s total risk based
capital; or
(cid:120)(cid:3) Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land
development, and other land of 300% or more of a bank’s total risk based capital.
The Guidance also applies when a bank has a sharp increase in CRE loans or has significant concentrations of CRE secured by a
particular property type.
Community Reinvestment Act. The Bank is subject to the provisions of the CRA, which imposes a continuing and affirmative obligation,
consistent with their safe and sound operation, to help meet the credit needs of entire communities where the bank accepts deposits,
including low- and moderate-income neighborhoods. The FDIC’s assessment of the Bank’s CRA record is made available to the public.
Further, a less than satisfactory CRA rating will slow, if not preclude, expansion of banking activities and prevent a company from
becoming or remaining a financial holding company. Federal CRA regulations require, among other things, that evidence of
discrimination against applicants on a prohibited basis, and illegal or abusive lending practices be considered in the CRA evaluation. The
Bank has a rating of “Satisfactory” in its most recent CRA evaluation.
Consumer Regulation. Activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. These
laws and regulations include, among numerous other things, provisions that:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
limit the interest and other charges collected or contracted for by the Bank, including rules respecting the terms of credit
cards and of debit card overdrafts;
govern the Bank’s disclosures of credit terms to consumer borrowers;
require the Bank to provide information to enable the public and public officials to determine whether it is fulfilling its
obligation to help meet the housing needs of the community it serves;
prohibit the Bank from discriminating on the basis of race, creed or other prohibited factors when it makes decisions to
extend credit;
govern the manner in which the Bank may collect consumer debts; and
prohibit unfair, deceptive or abusive acts or practices in the provision of consumer financial products and services.
Mortgage Rules. Pursuant to rules adopted by the CFPB, banks that make residential mortgage loans are required to make a good faith
determination that a borrower has the ability to repay a mortgage loan prior to extending such credit, require that certain mortgage
loans contain escrow payments, obtain new appraisals under certain circumstances, comply with integrated mortgage disclosure rules,
and follow specific rules regarding the compensation of loan originators and the servicing of residential mortgage loans.
Risk-retention rules. Banks that sponsor the securitization of asset-backed securities are generally required to retain not less than 5%
of the credit risk of any loan they securitize, except for residential mortgages that meet certain low-risk standards.
Transactions with affiliates. There are various restrictions that limit the ability of the Bank to finance, pay dividends or otherwise
supply funds to the Company or other affiliates. In addition, banks are subject to certain restrictions under Section 23A and B of the
Federal Reserve Act on certain transactions, including any extension of credit to its bank holding company or any of its other
affiliates, on investments in the securities thereof, and on the taking of such securities as collateral for loans to any borrower.
Privacy, Credit Reporting and Cybersecurity. The Bank is subject to federal and state banking regulations that limit its ability to
disclose non-public information about consumers to non-affiliated third parties and prescribe standards for the protection of consumer
information. These limitations require us to periodically disclose our privacy policies to consumers and allow consumers to prevent
disclosure of certain personal information to a non-affiliated third party under certain circumstances. Consumers also have the option
to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies
for the purpose of marketing products or services. Banking institutions are required to implement a comprehensive information
security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer
records and information, as well as maintain procedures for notifying customers in the event of a security breach. These security and
privacy policies and procedures for the protection of confidential and personal information are in effect across our lines of business.
The Company has adopted and implemented our Comprehensive Information Security Policy to comply with these federal
requirements.
1
16
The Bank uses credit bureau data in underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act and
Regulation V on a uniform, nationwide basis, including credit reporting, prescreening, and sharing of information between affiliates
and the use of credit data. The Fair and Accurate Credit Transactions Act, which amended the Fair Credit Reporting Act, permits
states to enact identity theft laws that are not inconsistent with the conduct required by the provisions of that Act.
Furthermore, the federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk
management. A financial institution is expected to implement multiple lines of defense against cyber attacks and ensure that their risk
management procedures address the risk posed by potential cyber threats. A financial institution is further expected to maintain
procedures to effectively respond to a cyber attack and resume operations following any such attack. The Company has adopted and
implemented an Information Security Program to comply with the regulatory cybersecurity guidance.
Debit Interchange Fees. Interchange fees are fees that merchants pay to credit card companies and card-issuing banks such as the
Bank for processing electronic payment transactions on their behalf. The maximum permissible interchange fee that an issuer may
receive for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the
transaction, subject to an upward adjustment of 1 cent if an issuer certifies that it has implemented policies and procedures reasonably
designed to achieve the fraud-prevention standards set forth by the Federal Reserve. In addition, the legislation prohibits card issuers
and networks from entering into arrangements requiring that debit card transactions be processed on a single network or only two
affiliated networks, and allows merchants to determine transaction routing.
Nonbanking Subsidiaries
The Company’s nonbanking subsidiaries may also be subject to a variety of state and federal laws. For example, Hancock Whitney
Investment Services, Inc. is subject to supervision and regulation by the SEC, Financial Industry Regulatory Authority (FINRA) and
the State of Mississippi.
Compensation
In June 2010, the federal banking agencies issued joint guidance on executive compensation designed to help ensure that a banking
organization’s incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and
soundness of the organization. In addition, in June 2012, the Commission issued final rules to implement the Dodd-Frank Act’s
requirement that the Commission direct the national securities exchanges to adopt certain listing standards related to the compensation
committee of a company’s board of directors as well as its compensation advisers.
In 2016, the Federal Reserve, FDIC and SEC proposed rules that would, depending upon the assets of the institution, directly regulate
incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2018, these
rules had not been implemented. We have undertaken efforts to ensure that our incentive compensation plans do not encourage
inappropriate risks, consistent with three key principles—that incentive compensation arrangements should appropriately balance risk
and financial rewards, be compatible with effective controls and risk management, and be supported by strong corporate governance.
Accounting and Controls
The Company is also required to file certain reports with, and otherwise comply with the rules and regulations of the SEC under
federal securities laws. For example, we are required to comply with various corporate governance and financial reporting
requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company
Accounting Oversight Board, and Nasdaq. In particular, we are required to include management and independent registered public
accounting firm reports on internal controls over financial reporting as part of our Annual Report on Form 10-K in order to comply
with Section 404 of the Sarbanes-Oxley Act. We have evaluated our controls, including compliance with the SEC rules on internal
controls. The assessments of our financial reporting controls as of December 31, 2018 are included in this report under Item 9A.
“Controls and Procedures.” Our failure to comply with these internal control rules may materially adversely affect our reputation,
ability to obtain the necessary certifications to financial statements, and the value of our securities.
Corporate Governance
The Dodd-Frank Act addresses many investor protection, corporate governance, and executive compensation matters that will affect
most U.S. publicly traded companies. The Dodd-Frank Act (1) grants shareholders of U.S. publicly traded companies an advisory vote
on executive compensation; (2) enhances independence requirements for Compensation Committee members; and (3) requires
companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers.
17
Effect of Governmental Monetary and Fiscal Policies
The difference between the interest rate paid on deposits and other borrowings and the interest rate received on loans and securities
comprises most of a bank’s earnings. In order to mitigate the interest rate risk inherent in the industry, the banking business is
becoming increasingly dependent on the generation of fee and service charge revenue.
The earnings and growth of a bank will be affected by both general economic conditions and the monetary and fiscal policy of the
U.S. government and its agencies, particularly the Federal Reserve. The Federal Reserve sets national monetary policy such as seeking
to curb inflation and combat recession. This is accomplished by its open-market operations in U.S. government securities, adjustments
in the amount of reserves that financial institutions are required to maintain and adjustments to the discount rates on borrowings and
target rates for federal funds transactions. The actions of the Federal Reserve in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates on loans and deposits. The nature and timing of any future changes in monetary
policies and their potential impact on the Company cannot be predicted.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and business experience of our executive officers as of February 28, 2019:
Name
John M. Hairston
Michael M. Achary
Joseph S. Exnicios
D. Shane Loper
Stephen E. Barker
Cecil W. Knight, Jr.
Joy Lambert Phillips
Christopher S. Ziluca
Age
55
58
63
53
62
55
63
57
Position
President of the Company since 2014; Chief Executive Officer since 2008 and Chief
Operating Officer from 2008 to 2014; Director since 2006.
Sr. Executive Vice President since 2017; Executive Vice President from 2008 to 2016; Chief
Financial Officer since 2007.
Sr. Executive Vice President since 2017; Executive Vice President from 2011 to 2016;
President of Hancock Whitney Bank since 2011.
Sr. Executive Vice President since 2017; Executive Vice President from 2008 to 2016; Chief
Operating Officer since 2014; Chief Administrative Officer from 2013 to 2014.
Executive Vice President since 2016; Chief Accounting Officer since 2011.
Executive Vice President since 2016; Chief Banking Officer since 2016; President and owner
of Alidade Partners, LLC from 2012 to 2016.
Executive Vice President since 2009; Corporate Secretary since 2011; General Counsel since
1999.
Executive Vice President since 2018; Chief Credit Officer since 2018; Senior Vice President
and Chief Credit Officer of Webster Bank from 2010 to 2018.
18
ITEM 1A. RISK FACTORS
We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations and
financial condition could be materially adversely affected by the factors described below.
While we describe each risk separately, some of these risks are interrelated and certain risks could trigger the applicability of other
risks described below. Also, the risks and uncertainties described below are not the only ones that we may face. Additional risks and
uncertainties not presently known to us, or that we currently do not consider significant, could also potentially impair, and have a
material adverse effect on our business, results of operations, and financial condition.
Risks Related to Economic and Market Conditions
(cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:89)(cid:88)(cid:79)(cid:81)(cid:72)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3)
(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:17)(cid:3)(cid:3)
Our financial performance may be adversely affected by macroeconomic factors that affect the U.S. economy. Unfavorable economic
conditions, particularly in the Gulf South region, could significantly affect the demand for our loans and other products, the ability of
borrowers to repay loans, and the value of collateral securing loans.
Volatility in global financial markets may have a spillover effect that would ultimately impair the performance of the U.S. economy
and, in turn, our results of operations and financial condition.
(cid:58)(cid:72)(cid:3)(cid:36)(cid:85)(cid:72)(cid:3)(cid:54)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:55)(cid:82)(cid:3)(cid:47)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:53)(cid:76)(cid:86)(cid:78)(cid:17)(cid:3)
Our loan portfolio contains several industry and collateral concentrations including, but not limited to, commercial and residential real
estate, energy and healthcare. Due to the high exposure in these concentrations, disruptions in markets, economic conditions, changes
in laws or regulations or other events could cause a significant impact of the ability of borrowers to repay and may have a material
adverse effect on our business, financial condition and results of operations.
A substantial portion of our loan portfolio is secured by real estate. In weak economies, or in areas where real estate market conditions
are distressed, we may experience a higher than normal level of nonperforming real estate loans. The collateral value of the portfolio
and the revenue stream from those loans could come under stress, and additional provisions for the allowance for loan and lease losses
could be necessitated. Our ability to dispose of foreclosed real estate at prices at or above the respective carrying values could also be
impaired, causing additional losses.
At December 31, 2018, energy or energy-related loans comprised approximately 5.3% of our loan portfolio. Volatility in commodity
prices could have a negative impact on the U.S. economy and, in particular, the economies of energy-dominant states such as Texas
and Louisiana, two of our core markets. Such circumstances could have a material adverse effect on the performance of energy-
related businesses and other commercial segments in these markets, and, in turn, on our financial condition and results of operations.
(cid:38)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:80)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:73)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:71)(cid:72)(cid:73)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:72)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:17)(cid:3)(cid:3)
Our assets and liabilities are primarily monetary in nature and we are subject to significant risks tied to changes in interest rates that
are highly sensitive to many factors that are beyond our control. Our ability to operate profitably is largely dependent upon net interest
income. Net interest income is the primary component of our earnings and is affected by both local external factors such as economic
conditions in the Gulf South and local competition for loans and deposits, as well as broader influences, such as federal monetary
policy and market interest rates. Unexpected movement in interest rates markedly changing the slope of the current yield curve could
cause our net interest margins to decrease, subsequently reducing net interest income. In addition, such changes could adversely affect
the valuation of our assets and liabilities.
As the Federal Reserve Board increases the Fed Funds rate, overall interest rates have also risen, which may negatively impact the
U.S. economy. Further, changes in monetary policy, including changes in interest rates, could influence (i) the amount of interest we
receive on loans and securities, (ii) the amount of interest we pay on deposits and borrowings, (iii) our ability to originate loans and
obtain deposits, (iv) the fair value of our assets and liabilities, and (v) the reinvestment risk associated with changes in the duration of
our mortgage-backed securities portfolio. When interest-bearing liabilities reprice or mature more quickly than interest-earning assets,
an increase in interest rates generally would tend to result in a decrease in net interest income.
In addition, loan originations, and potentially loan revenues, could be adversely impacted by sharply rising interest rates. If market
rates of interest continue to increase, it would increase debt service requirements for some of our borrowers; adversely affect those
19
borrowers’ ability to pay as contractually obligated; potentially reduce loan demand or result in additional delinquencies or charge-
offs; and increase the cost of our deposits, which are a primary source of funding.
The fair market value of our securities portfolio and the investment income from these securities also fluctuate depending on general
economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment
risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result
of interest rate fluctuations.
We are also subject to the following risks:
(cid:120)(cid:3)
(cid:120)(cid:3)
an underperforming stock market could adversely affect wealth management fees associated with managed securities
portfolios and could also reduce brokerage transactions, therefore reducing investment brokerage revenues; and
an increase in inflation could cause our operating costs related to salaries and benefits, technology, and supplies to
increase at a faster pace than revenues.
Although management believes it has implemented an effective asset and liability management strategy to manage the potential
effects of changes in interest rates, including the use of adjustable rate and/or short-term assets, and FHLB advances or longer term
repurchase agreements, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on
our financial condition and results of our operation and our strategies may not always be successful in managing the risk associated
with changes in interest rates.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:82)(cid:88)(cid:81)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:88)(cid:86)(cid:17)(cid:3)(cid:3)
Our ability to engage in routine funding transactions could be adversely affected by the actions and financial soundness and stability
of other financial institutions as a result of credit, trading, clearing or other relationships with such institutions. We routinely execute
transactions with counterparties in the financial industry, including brokers and dealers, commercial banks and other institutional
clients. As a result, defaults by, and even rumors regarding, other financial institutions, or the financial services industry generally,
could impair our ability to effect such transactions and could lead to losses or defaults by us. In addition, a number of our transactions
expose us to credit risk in the event of default of a counterparty or client. Additionally, our credit risk may be increased if the
collateral we hold in connection with such transactions cannot be realized or can only be liquidated at prices that are not sufficient to
cover the full amount of our financial exposure. Any such losses could have a material adverse effect on our financial condition and
results of operations.
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:82)(cid:81)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:3)
Our financial performance is affected by credit policies of monetary authorities, particularly the Federal Reserve. The instruments of
monetary policy employed by the Federal Reserve include open market transactions in U.S. government securities, changes in the
discount rate or the federal funds rate on bank borrowings and changes in reserve requirements against bank deposits. In view of
changing conditions in the national economy and in the money markets, we cannot predict the potential impact of future changes in
interest rates, deposit levels, and loan demand on our business and earnings. Furthermore, the actions of the U.S. government and
other governments may result in currency fluctuations, exchange controls, market disruption, material decreases in the values of
certain of our financial assets and other adverse effects.
(cid:58)(cid:72)(cid:3)(cid:48)(cid:68)(cid:92)(cid:3)(cid:37)(cid:72)(cid:3)(cid:36)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:44)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:37)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:47)(cid:44)(cid:37)(cid:50)(cid:53)(cid:3)
In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop
compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”) has
proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD-
LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced
market transition plan to SOFR from USD-LIBOR and organizations are currently considering industry wide and company-specific
transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have a material number of contracts that are
indexed to USD-LIBOR and have formed an internal working group to monitor this activity and evaluate and address related risks.
If LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reason, interest rates on our
floating rate obligations, loans, derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and expenses
associated with those financial instruments, may be adversely affected. Any uncertainty regarding the continued use and reliability
of LIBOR as a benchmark interest rate could adversely affect the value of our floating rate obligations, loans, derivatives, and other
financial instruments tied to LIBOR rates.
A substantial portion of our variable rate loans are indexed to LIBOR. While many of these loans contain either provisions for the
designation of an alternate benchmark rate or “fallback” provisions providing for alternative rate calculations in the event LIBOR is
20
unavailable, not all of our loans, derivatives or financial instruments contain such provisions, and the existing provisions may not
adequately address the actual changes to LIBOR or the financial impact of successor benchmark rates. We may not be able to
successfully amend these loans, derivatives and financial instruments to provide for alternative benchmarks or alternative rate
calculations and such amendments could prove costly. Even with provisions allowing for designation of alternative benchmarks
or “fallback” provisions, changes to or the discontinuance of LIBOR could result in customer uncertainty and disputes arising as a
consequence of the transition from LIBOR. All of this could result in damage to our reputation, loss of customers and additional costs
to us, all of which could be material.
(cid:55)(cid:68)(cid:91)(cid:3)(cid:79)(cid:68)(cid:90)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)
(cid:3)
The Tax Cuts and Jobs Act enacted on December 22, 2017 provided significant changes to U.S. corporate and individual tax laws.
Future changes to tax laws, including a repeal of all or part of this Act, could significantly impact our business in the form of greater
than expected income tax expense. Such changes may also negatively impact the financial condition of our customers and/or overall
economic conditions.
(cid:42)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:76)(cid:81)(cid:68)(cid:71)(cid:72)(cid:84)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:88)(cid:81)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)
Congress and financial regulators may implement measures designed to stabilize financial markets in periods of disruption. The
overall impact of these efforts on the financial markets may be unclear and could adversely affect our business.
We compete with a number of financial services companies that are not subject to the same degree of regulatory oversight. The impact
of the existing regulatory framework and any future changes to it could negatively affect our ability to compete with these institutions,
which could have a material adverse effect on our results of operations and prospects.
(cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:79)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:17)(cid:3)(cid:3)
Our common stock is listed and traded on the NASDAQ Global Select Market. If our capital resources prove in the future to be
inadequate to meet our capital requirements, we may need to raise additional debt or equity capital. If conditions in the capital markets
are not favorable, we may be constrained in raising capital. We maintain a consistent analyst following; therefore, downgrades in our
prospects by one or more of our analysts may cause our stock price to fall and significantly limit our ability to access the markets for
additional capital requirements. An inability to raise additional capital on acceptable terms when and if needed could have a material
adverse effect on our business, financial condition or results of operations.
The interest rates that we pay on our securities are also influenced by, among other things, the credit ratings that we, our affiliates
and/or our securities receive from recognized rating agencies. Our credit ratings are based on a number of factors, including our
financial strength and some factors not entirely within our control such as conditions affecting the financial services industry
generally, and remain subject to change at any time. A downgrade to the credit rating of us or our affiliates could affect our ability to
access the capital markets, increase our borrowing costs and negatively impact our profitability. A downgrade to us, our affiliates or
our securities could create obligations or liabilities to us under the terms of our outstanding securities that could increase our costs or
otherwise have a negative effect on our results of operations or financial condition. Additionally, a downgrade to the credit rating of
any particular security issued by us or our affiliates could negatively affect the ability of the holders of that security to sell the
securities and the prices at which any such securities may be sold.
Because our decision to incur debt and issue securities in future offerings will depend on market conditions and other factors beyond
our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market
conditions could require us to accept less favorable terms for the issuance of our securities in the future. In addition, geopolitical and
worldwide market conditions may cause disruption or volatility in the U.S. equity and debt markets, which could hinder our ability to
issue debt and equity securities in the future on favorable terms.
(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:87)(cid:86)(cid:3)(cid:80)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)
(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:17)(cid:3)
(cid:3)
The trading price of our common stock depends in part on the research and reports that securities analysts publish about us and our
business. We do not have any control over these analysts, and they may not continue to cover our common stock. If securities
analysts do not continue to cover our common stock, the lack of research coverage may adversely affect the market price of our
common stock. If securities analysts continue to cover our common stock, and our common stock is the subject of an unfavorable
report, the price of our common stock may decline. If one or more of these analysts cease to cover us or fail to publish regular reports
on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline.
21
Risks Related to the Financial Services Industry
(cid:58)(cid:72)(cid:3)(cid:80)(cid:88)(cid:86)(cid:87)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:71)(cid:72)(cid:84)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:3)
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to support our operations
and fund outstanding liabilities, as well as to meet regulatory requirements. Our access to sources of liquidity in amounts adequate to
fund our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services
industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include an economic downturn
that affects the geographic markets in which our loans and operations are concentrated, or any material deterioration of the credit
markets. Our access to deposits may also be affected by the liquidity needs of our depositors and the loss of deposits to alternative
investments. Although we have historically been successful in replacing maturing deposits and advances as necessary, we might not
be able to duplicate that success in the future, especially if a large number of our depositors were to withdraw their amounts on
deposit. A failure to maintain an adequate level of liquidity could materially and adversely affect our business, financial condition and
results of operations.
(cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:79)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:68)(cid:85)(cid:92)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:3)
From time to time, we have sold to certain agencies certain types of mortgage loans that meet their conforming loan requirements in
order to reduce our interest rate risk and provide liquidity. There is a risk that these agencies will limit or discontinue their purchases
of loans that are conforming due to capital constraints, a change in the criteria for conforming loans or other factors. Additionally,
various proposals have been made to reform the U.S. residential mortgage finance market, including the role of the agencies. The
exact effects of any such reforms are not yet known, but may limit our ability to sell conforming loans to the agencies. If we are
unable to continue to sell conforming loans to the agencies, our ability to fund, and thus originate, additional mortgage loans may be
adversely affected, which would in turn adversely affect our results of operations.
(cid:3)
(cid:42)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:17)(cid:3)(cid:3)
We are exposed to the risk that our borrowers will be unable to repay their loans in accordance with their terms and that any collateral
securing the payment of their loans may not be sufficient to assure repayment. Credit risk is inherent in our business and any material
level of credit failure could have a material adverse effect on our operating results. Our credit risk with respect to our real estate and
construction loan portfolio relates principally to the creditworthiness of our corporate borrowers and the value of the real estate
pledged as security for the repayment of loans. Our credit risk with respect to our commercial and consumer loan portfolio will depend
on the general creditworthiness of businesses and individuals within our local markets. Our credit risk with respect to our energy loan
portfolio is subject to commodity pricing that is determined by factors outside of our control.
We make various assumptions and judgments about the collectability of our loan portfolio and provide an allowance for estimated
loan losses based on a number of factors. This process requires difficult, subjective and complex judgments, including analysis of
economic or market conditions that might impair the ability of borrowers to repay their loans. If our assumptions or judgments prove
to be incorrect, the allowance for loan losses may not be sufficient to cover actual loan losses. We may have to increase our allowance
in the future in response to the request of one of our primary banking regulators, to adjust for changing conditions and assumptions, or
as a result of any deterioration in the quality of our loan portfolio. Losses in excess of the existing allowance or any provisions for
loan losses taken to increase the allowance will reduce our net income and could materially adversely affect our financial condition
and results of operations. Future provisions for loan losses may vary materially from the amounts of past provisions.
(cid:58)(cid:72)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:88)(cid:85)(cid:68)(cid:70)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)
In deciding whether to extend credit or enter into other transactions with clients and counterparties, we rely in substantial part on
information furnished by or on behalf of clients and counterparties, including financial statements and other financial information. We
also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with
respect to financial statements, on reports of independent auditors if made available. If this information is inaccurate, we may be
subject to loan defaults, financial losses, regulatory action, reputational harm or other adverse effects with respect to our business,
financial condition and results of operations.
(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:72)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:17)(cid:3)(cid:3)
From time to time we may sell all or a portion of one of more loan portfolios, and in connection therewith we may make certain
representations and warranties to the purchaser concerning the loans sold and the procedures under which those loans have been
originated and serviced. If any of these representations and warranties are incorrect, we may be required to indemnify the purchaser
for any related losses, or we may be required to repurchase part or all of the affected loans. We may also be required to repurchase
loans as a result of borrower fraud or in the event of early payment default by the borrower on a loan we have sold. If we are required
to make any indemnity payments or repurchases and do not have a remedy available to us against a solvent counterparty to the loan or
22
loans, we may not be able to recover our losses resulting from these indemnity payments and repurchases. Consequently, our results of
operations may be adversely affected.
Risks Related to Our Operations
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Our ability to adequately conduct and grow our business is dependent on our ability to create and maintain an appropriate operational
and organizational control infrastructure. Operational risk can arise in numerous ways including employee fraud, theft or malfeasance;
customer fraud; and control lapses in bank operations and information technology. Because the nature of the financial services
business involves a high volume of transactions, certain errors in processing or recording transactions appropriately may be repeated
or compounded before they are discovered. Our dependence on our employees and automated systems, including the automated
systems used by acquired entities and third parties, to record and process transactions may further increase the risk that technical
failures or tampering of those systems will result in losses that are difficult to detect. We are also subject to disruptions of our
operating systems arising from events that are wholly or partially beyond our control. In addition, products, services and processes are
continually changing and we may not fully appreciate or identify new operational risks that may arise from such changes. Failure to
maintain an appropriate operational infrastructure can lead to loss of service to customers, additional expenditures related to the
detection and correction of operational failures, reputational damage and loss of customer confidence, legal actions, and
noncompliance with various laws and regulations.
We continuously monitor our operational and technological capabilities and make modifications and improvements when we believe it
will be cost effective to do so. However, there are inherent limits to such capabilities. In some instances, we may build and maintain
these capabilities ourselves. We also outsource some of these functions to third parties. These third parties may experience errors or
disruptions that could adversely impact us and over which we may have limited control. Third parties may fail to properly perform
services or comply with applicable laws and regulations, and replacing third party providers could entail significant delay and
expense. We also face risk from the integration of new infrastructure platforms and/or new third party providers of such platforms into
existing businesses.
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We depend on our ability to process, record and monitor a large number of client transactions and to communicate with clients and
other institutions on a continuous basis. Our clients depend on us for access to their assets and account information. As client,
industry, public and regulatory expectations regarding operational and information security have increased, our operational systems
and infrastructure continue to be safeguarded and monitored for potential failures, disruptions and breakdowns, whether as a result of
events beyond our control or otherwise.
Our online, business, financial, accounting, data processing, or other operating systems and facilities may stop operating properly or
become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control. For
example, there could be sudden increases in client transaction volume; electrical or telecommunications outages; natural disasters such
as earthquakes, tornadoes, floods, and hurricanes; disease pandemics; events arising from local or larger scale political or social
matters, including terrorist acts; occurrences of employee error, fraud, or malfeasance; and, as described below, cyber-attacks.
Although we have response plans, business continuity plans and other safeguards in place, our operations and communications may be
adversely affected by significant and widespread disruption to our systems and infrastructure that support our businesses and clients.
While we continue to evolve and modify our response and business continuity plans, there can be no assurance in an escalating threat
environment that they will be effective in avoiding disruption and business impacts. Our insurance may not be adequate to compensate
us for all resulting losses, and the cost to obtain adequate coverage may increase for us or the industry.
Security risks for financial institutions such as ours have dramatically increased in recent years, in part because of the proliferation of
new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased
sophistication, resources and activities of hackers, terrorists, activists, organized crime, and other external parties, including nation
state actors. In addition, clients may use devices or software to access our products and services that are beyond our control
environment, which may provide additional avenues for attackers to gain access to confidential information. Although we have
information security procedures and controls in place, certain of our technologies, systems, networks, and clients’ devices and
software have in the past and in the future likely will continue to be the target of cyber-attacks or information security breaches that
could result in the unauthorized release, gathering, monitoring, use, loss, change or destruction of our or our clients’ confidential,
proprietary and other information (including personal identifying information of individuals), or otherwise disrupt our or our clients’
or other third parties’ business operations. Further, U.S. financial institutions and financial services companies will continue to face
breaches in security of their websites or other systems, including attempts to shut down access to their networks and systems in an
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attempt to extract compensation from them to regain control. Financial institutions have also experienced, and will continue to be the
target of, distributed denial-of-service attacks, a sophisticated and targeted attack intended to disable or degrade internet service or to
sabotage systems.
We and others in our industry are, and will continue to be, regularly the subject of attempts by attackers to gain unauthorized access to
our networks, systems, data and other infrastructure, or to obtain, change, or destroy confidential data (including personal identifying
information of individuals) through a variety of means, including computer hacking, acts of vandalism or theft, malware, computer
viruses or other malicious codes, phishing, employee error or malfeasance, catastrophes, unforeseen events or other cyber-attacks. In
the future, these attacks may result in unauthorized individuals obtaining access to our confidential information or that of our clients,
or otherwise accessing, damaging, or disrupting our systems or infrastructure.
To date, we have seen no material impact on our business or operations from cyber attacks or events. Any future significant
compromise or breach of our data security, whether external or internal, or misuse of customer, associate, supplier or Company data,
could result in significant disruption of our operations, reimbursement and other costs, lost sales, fines, lawsuits and other legal
exposure, a loss of trust in us on the part of our clients, vendors or other counterparties, client attrition and damage to our reputation.
Any of these could materially and adversely affect our results of operations, our financial condition, and/or our share price. However,
the ever-evolving threats mean we and our third-party service providers and vendors must continually evaluate and adapt our
respective systems and processes and overall security environment, as well as those of any companies we acquire. We are
continuously enhancing our controls, processes and practices designed to protect our networks, systems, data and other infrastructure
from attack, damage or unauthorized access. This continued enhancement will require us to expend additional resources, including to
investigate and remediate any information security vulnerabilities that may be detected. Despite our ongoing investments in security
resources, talent, and business practices, there is no guarantee that these measures will be adequate to safeguard against all data
security breaches, system compromises or misuses of data.
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Our success depends, in substantial part, on our ability to attract and retain skilled, experienced personnel in key positions within the
organization. Competition for qualified candidates in the activities and markets that we serve is intense. If we are not able to hire or
retain these key individuals, we may be unable to execute our business strategies and may suffer adverse consequences to our
business, financial condition and results of operations.
If we are unable to attract and retain qualified employees, or do so at rates insufficient to maintain our competitive position, or if
compensation costs required to attract and retain employees increase materially, our business and results of operations could be
materially adversely affected.
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Our market areas are susceptible to hurricanes. Natural disasters, such as hurricanes and flooding and man-made disasters, such as oil
spills in the Gulf of Mexico, can disrupt our operations; result in significant damage to our properties or properties and businesses of
our borrowers, including property pledged as collateral; interrupt our ability to conduct business; and negatively affect the local
economies in which we operate.
We cannot predict whether or to what extent damage caused by future hurricanes and other disasters will affect our operations or the
economies in our market areas, but such events could cause a decline in loan originations, a decline in the value or destruction of
properties securing the loans and an increase in the risk of delinquencies, foreclosures or loan losses.
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Negative public opinion can result from our actual or alleged improper activities, such as lending practices, data security breaches,
corporate governance policies and decisions, and acquisitions, any of which may damage our reputation. Additionally, actions taken
by government regulators and community organizations may also damage our reputation. Negative public opinion could adversely
affect our ability to attract and retain customers or expose us to litigation and regulatory action.
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Investments in the portfolio of our defined benefit pension plan may not provide adequate returns to fully fund benefits as they come
due, thus causing higher annual plan expenses and requiring additional contributions by us to the defined benefit pension plan.
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A significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or a
significant and sustained decline in the price of our common stock may necessitate our taking charges in the future to reflect an
impairment of our goodwill. Future regulatory actions could also have a material impact on assessments of goodwill for impairment.
Adverse events or circumstances could impact the recoverability of our intangible assets including loss of core deposits, significant
losses of credit card accounts and/or balances, increased competition or adverse changes in the economy. To the extent these
intangible assets are deemed unrecoverable, a non-cash impairment charge would be recorded, which could have a material adverse
effect on our results of operations.
Risks Related to Our Business Strategy
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Our profitability depends on our ability to compete successfully in a highly competitive market for banking and financial services, and
we expect such challenges to continue. Certain of our competitors are larger and have more resources than we do. We face
competition in our regional market areas from other commercial banks, savings associations, credit unions, mortgage banking firms,
consumer finance companies, securities brokerage firms, mutual funds and insurance companies, and other financial institutions that
offer similar services. Some of our nonbank competitors are not subject to the same extensive supervision and regulation to which we
or the Bank are subject, and may accordingly have greater flexibility in competing for business. Over time, certain sectors of the
financial services industry have become more concentrated, as institutions involved in a broad range of financial services have been
acquired by other firms. These developments could result in our competitors gaining greater capital and other resources, or being able
to offer a broader range of products and services with more geographic range.
Another competitive factor is that the financial services market, including banking services, is undergoing rapid changes with frequent
introductions of new technology-driven products and services. Our future success may depend, in part, on our ability to use
technology competitively to offer products and services that provide convenience to customers and create additional efficiencies in our
operations. The widespread adoption of new technologies will require us to make substantial capital expenditures to modify or adapt
our systems to remain competitive and offer new products and services. Our ability to effectively implement new technologies to
improve our operations and systems will impact our competitive position in the financial services industry. Furthermore, we may not
be successful in introducing new products and services in response to industry trends or developments in technology, or those new
products may not be accepted by customers.
If we are unable to successfully compete for new customers and to retain our current customers, our business, financial condition or
results of operations may also be adversely affected, perhaps materially. In particular, if we experience an outflow of deposits as a
result of our customers desiring to do business with our competitors, we may be forced to rely more heavily on borrowings and other
sources of funding to operate our business and meet withdrawal demands, thereby adversely affecting our net interest margin.
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We continuously evaluate our service offerings and may implement new lines of business or offer new products and services within
existing lines of business in the future. There are substantial risks and uncertainties associated with these efforts. In developing and
marketing new lines of business and/or new products and services, we undergo a new product process to assess the risks of the
initiative, and invest significant time and resources to build internal controls, policies and procedures to mitigate those risks, including
hiring experienced management to oversee the implementation of the initiative. Initial timetables for the introduction and
development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not
prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may
also impact the successful implementation of a new line of business and/or a new product or service. Furthermore, any new line of
business and/or new product or service could require the establishment of new key and other controls and have a significant impact on
our existing system of internal controls. Failure to successfully manage these risks in the development and implementation of new
lines of business and/or new products or services could have a material adverse effect on our business and, in turn, our financial
condition and results of operations.
(cid:50)(cid:88)(cid:85)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:81)(cid:72)(cid:74)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:73)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)
(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:3)(cid:81)(cid:82)(cid:89)(cid:82)(cid:3)(cid:69)(cid:85)(cid:68)(cid:81)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:17)(cid:3)(cid:3)
We may not be able to continue our organic, or internal, growth, which depends upon economic conditions, our ability to identify
appropriate markets for expansion, our ability to recruit and retain qualified personnel, our ability to fund growth at a reasonable cost,
sufficient capital to support our growth initiatives, competitive factors, banking laws, and other factors.
25
We may seek to supplement our internal growth through acquisitions. We cannot predict the number, size or timing of acquisitions, or
whether any such acquisition will occur at all. Our acquisition efforts have traditionally focused on targeted banking entities in
markets in which we currently operate and markets in which we believe we can compete effectively. However, as consolidation of the
financial services industry continues, the competition for suitable acquisition candidates may increase and, as the number of
appropriate targets decreases, the prices for potential acquisitions could increase which could reduce our potential returns, and reduce
the attractiveness of these opportunities to us. We may compete with other financial services companies for acquisition opportunities,
and many of these competitors have greater financial resources than we do and may be able to pay more for an acquisition than we are
able or willing to pay.
We also may be required to use a substantial amount of our available cash and other liquid assets, or seek additional debt or equity
financing, to fund future acquisitions. Such events could make us more susceptible to economic downturns and competitive pressures,
and additional debt service requirements may impose a significant burden on our results of operations and financial condition. If we
are unable to locate suitable acquisition candidates willing to sell on terms acceptable to us, or we are otherwise unable to obtain
additional debt or equity financing necessary for us to continue making acquisitions, we would be required to find other methods to
grow our business and we may not grow at the same rate we have in the past, or at all.
We must generally satisfy several conditions, including receiving federal regulatory approval, before we can acquire a bank or bank
holding company. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other
factors, the effect of the acquisition on competition, financial condition, and future prospects. The regulators also review current and
projected capital ratios and levels; the competence, experience, and integrity of management and its record of compliance with laws
and regulations; the convenience and needs of the communities to be served (including the acquiring institution’s record of
compliance under the Community Reinvestment Act) and the effectiveness of the acquiring institution in combating money laundering
activities. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. We
may also be required to sell banks or branches as a condition to receiving regulatory approval, which condition may not be acceptable
to us or, if acceptable to us, may reduce the benefit of any acquisition. Additionally, federal and/or state regulators may charge us with
regulatory and compliance failures of an acquired business that occurred prior to the date of acquisition, and such failures may result
in the imposition of formal or informal enforcement actions.
We cannot assure you that we will be able to successfully consolidate any business or assets we acquire with our existing business.
The integration of acquired operations and assets may require substantial management effort, time and resources and may divert
management’s focus from other strategic opportunities and operational matters. Acquisitions may not perform as expected when the
transaction was consummated and may be dilutive to our overall operating results and stockholders’ equity per share of common
stock. Specifically, acquisitions could result in higher than expected deposit attrition, loss of key employees or other consequences
that could adversely affect our ability to maintain relationships with customers and employees. We may also sell or consider selling
one or more of our businesses. Such a sale would generally be subject to certain federal and/or state regulatory approvals, and may not
be able to generate gains on sale or related increases in shareholder’s equity commensurate with desirable levels.
In addition to the acquisition of existing financial institutions, as opportunities arise, we plan to continue de novo branching as a part
of our internal growth strategy and possibly enter into new markets through de novo branching. De novo branching and any
acquisition carry numerous risks, including the following:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
the inability to obtain all required regulatory approvals;
significant costs and anticipated operating losses associated with establishing a de novo branch or a new bank;
the inability to secure the services of qualified senior management;
the failure of the local market to accept the services of a new bank owned and managed by a bank holding company
headquartered outside of the market area of the new bank;
economic downturns in the new market;
the inability to obtain attractive locations within a new market at a reasonable cost; and
the additional strain on management resources and internal systems and controls.
We have experienced, to some extent, many of these risks with our de novo branching to date.
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:69)(cid:72)(cid:75)(cid:68)(cid:89)(cid:76)(cid:82)(cid:85)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)
(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:81)(cid:72)(cid:79)(cid:17)(cid:3)(cid:3)
We have significant investments in bank premises and equipment for our branch network. Advances in technology such as e-
commerce, telephone, internet and mobile banking, and in-branch self-service technologies including automated teller machines and
other equipment, as well as an increasing customer preference for these other methods of accessing our products and services, could
26
decrease the value of our branch network, technology, or other retail distribution physical assets and may cause us to change our retail
distribution strategy, close and/or sell certain branches or parcels of land held for development and restructure or reduce our remaining
branches and work force. These actions could lead to losses on these assets or could adversely impact the carrying value of any long-
lived assets and may lead to increased expenditures to renovate, reconfigure or close a number of our remaining branches or to
otherwise reform our retail distribution channel.
Risks Related to the Legal and Regulatory Environment
(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)
We are subject to the regulations of the Commission, the Federal Reserve, the FDIC, the CFPB and the MDBCF. New regulations
issued by these or other agencies may adversely affect our ability to carry on our business activities. We are subject to various federal
and state laws, and certain changes in these laws and regulations may adversely affect our operations. Other than the federal securities
laws, the laws and regulations governing our business are intended primarily for the protection of our depositors, our customers, the
financial system and the FDIC insurance fund, not our shareholders or other creditors. Further, we must obtain approval from our
regulators before engaging in certain activities, and our regulators have the ability to compel us to, or restrict us from, taking certain
actions entirely, such as increasing dividends, entering into merger or acquisition transactions, acquiring or establishing new branches,
and entering into certain new businesses. Noncompliance with certain of these regulations may impact our business plans, including
our ability to branch, offer certain products, or execute existing or planned business strategies.
For additional information regarding laws and regulations to which our business is subject, see “Supervision and Regulation.”
Any of the laws or regulations to which we are subject, including tax laws, regulations or their interpretations, may be modified or
changed from time to time, and we cannot be assured that such modifications or changes will not adversely affect us. Failure to
appropriately comply with any such laws or regulations could result in sanctions by regulatory authorities, civil monetary penalties or
damage to our reputation, all of which could adversely affect our business, financial condition or results of operations.
In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly
rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also
result in additional costs.
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:75)(cid:82)(cid:90)(cid:3)(cid:90)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:3)
The preparation of consolidated financial statements in conformity with U.S generally accepted accounting principles (“GAAP”),
including the accounting rules and regulations of the Commission and the Financial Accounting Standards Board (the “FASB”),
requires management to make significant estimates and assumptions that impact our financial statements by affecting the value of our
assets or liabilities and results of operations. Some of our accounting policies are critical because they require management to make
difficult, subjective and complex judgments about matters that are inherently uncertain and because materially different amounts may
be reported if different estimates or assumptions are used. If such estimates or assumptions underlying our financial statements are
incorrect, our financial condition and results of operations could be adversely affected.
From time to time, the FASB and the Commission change the financial accounting and reporting standards or the interpretation of
such standards that govern the preparation of our external financial statements. These changes are beyond our control, can be difficult
to predict, may require extraordinary efforts or additional costs to implement and could materially impact how we report our financial
condition and results of operations. Additionally, we may be required to apply a new or revised standard retrospectively, resulting in
the restatement of prior period financial statements in material amounts.
Accounting Standards Update 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments,” (commonly referred to as CECL) changes the approach to recognizing credit losses from an “incurred loss”
methodology. Under the incurred loss methodology, credit losses are recognized only when the losses are probable or have been
incurred; under CECL, entities are required to recognize the full amount of expected credit losses for the lifetime of the financial assets,
based on historical experience, current conditions and reasonable and supportable forecasts. The provisions of this Update are effective
January 1, 2020. While we have not yet quantified the financial impact, we expect an increase in the Allowance for Loan Losses upon
adoption, the extent of which is dependent upon the composition of the portfolio as well as economic conditions and forecasts at that
time. Such circumstance may result in an unfavorable impact to our results of operations and our capital level.
27
(cid:58)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)
(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:68)(cid:80)(cid:68)(cid:74)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)
We and certain of our directors, officers and subsidiaries may be named from time to time as defendants in various class actions and
other litigation relating to our business and activities. Past, present and future litigation has included or could include claims for
substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved from time
to time in other reviews, investigations and proceedings (both formal and informal) by governmental, law enforcement and self-
regulatory agencies regarding our business. These matters could result in adverse judgments, settlements, fines, penalties, injunctions,
amendments and/or restatements of our Commission filings and/or financial statements, determinations of material weaknesses in our
disclosure controls and procedures or other relief. Like other financial institutions and companies, we are also subject to risk from
employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial
legal liability or significant regulatory action against us, as well as matters in which we are involved that are ultimately determined in
our favor, could materially adversely affect our business, financial condition or results of operations, cause significant reputational
harm to our business, divert management attention from the operation of our business and/or result in additional litigation.
In addition, in recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of
various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a
lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a
degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or
shareholders. We have been and in the future could become subject to claims based on this or other evolving legal theories.
Risks Related to Our Common Stock
(cid:41)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:71)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:85)(cid:68)(cid:81)(cid:78)(cid:86)(cid:3)
(cid:77)(cid:88)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3)(cid:3)
Our common stock ranks junior to all of our existing and future indebtedness with respect to distributions and liquidation. In addition,
future issuances of equity securities, including pursuant to outstanding options, could dilute the interests of our existing shareholders,
including you, and could cause the market price of our common stock to decline. Moreover, to the extent that we issue restricted stock
units, phantom shares, stock appreciation rights, options or warrants to purchase our common stock in the future and those stock
appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders may experience further
dilution.
Holders of our shares of common stock do not have preemptive rights. Additionally, sales of a substantial number of shares of our
common stock in the public markets and the availability of those shares for sale could adversely affect the market price of our
common stock.
(cid:3)
(cid:50)(cid:88)(cid:85)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)
(cid:83)(cid:68)(cid:92)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:69)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:68)(cid:92)(cid:15)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:17)(cid:3)(cid:3)
We are a bank holding company that conducts substantially all of our operations through our subsidiary Bank. As a result, our ability
to make dividend payments on our common stock will depend primarily upon the receipt of dividends and other distributions from the
Bank.
The ability of the Bank to pay dividends or make other payments to us, as well as our ability to pay dividends on our common stock, is
limited by the Bank’s obligation to maintain sufficient capital and by other general regulatory restrictions on its dividends, which have
tightened since the financial crisis. The Federal Reserve has stated that bank holding companies should not pay dividends from
sources other than current earnings. If these requirements are not satisfied, we will be unable to pay dividends on our common stock.
We may also decide to limit the payment of dividends even when we have the legal ability to pay them in order to retain earnings for
use in our business, which could adversely affect the market value of our common stock. There can be no assurance of whether or
when we may pay dividends in the future.
(cid:3)
(cid:48)(cid:76)(cid:86)(cid:86)(cid:76)(cid:86)(cid:86)(cid:76)(cid:83)(cid:83)(cid:76)(cid:3)(cid:79)(cid:68)(cid:90)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:16)(cid:87)(cid:68)(cid:78)(cid:72)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:79)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:92)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:80)(cid:68)(cid:78)(cid:72)(cid:3)(cid:68)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:16)(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)
(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:86)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:17)(cid:3)(cid:3)
Our amended articles of incorporation and bylaws contain provisions that make it more difficult for a third party to acquire us (even if
doing so might be beneficial to our shareholders) and for holders of our securities to receive any related takeover premium for their
securities.
28
We are also subject to certain provisions of state and federal law and our articles of incorporation that may make it more difficult for
someone to acquire control of us. Under federal law, subject to certain exemptions, a person, entity, or group must notify the federal
banking agencies before acquiring 10% or more of the outstanding voting stock of a bank holding company, including shares of our
common stock. Banking agencies review the acquisition to determine if it will result in a change of control. The banking agencies
have 60 days to act on the notice, and take into account several factors, including the resources of the acquirer and the antitrust effects
of the acquisition. Additionally, a bank holding company must obtain the prior approval of the Federal Reserve before, among other
things, acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank. There are also Mississippi
statutory provisions and provisions in our articles of incorporation that may be used to delay or block a takeover attempt. As a result,
these statutory provisions and provisions in our articles of incorporation could result in our being less attractive to a potential acquirer
and limit the price that investors might be willing to pay in the future for shares of our common stock.
(cid:3)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:79)(cid:82)(cid:86)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:17)(cid:3)(cid:3)
Shares of our common stock are not savings accounts, deposits or other obligations of any depository institution and are not insured or
guaranteed by the FDIC or any other governmental agency or instrumentality, any other deposit insurance fund or by any other public
or private entity, and are subject to investment risk, including the possible loss of principal.
29
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company’s main office, which is the headquarters of the holding company, is located at Hancock Whitney Plaza, in Gulfport,
Mississippi. The Bank makes portions of their main office facilities and certain other facilities available for lease to third parties,
although such incidental leasing activity is not material to the Company’s overall operations.
The Company operates 206 full service banking and financial services offices and 270 automated teller machines across the Gulf
south corridor comprising south Mississippi; southern and central Alabama; southern Louisiana; the northern, central, and Panhandle
regions of Florida; and Houston and Beaumont, Texas. Additionally, the Company operates a loan production office in Nashville,
Tennessee and five trust and asset management offices in New York, New Jersey, Mississippi and Texas. The Company owns
approximately 48% of these facilities, and the remaining banking facilities are subject to leases, each of which we consider reasonable
and appropriate for its location. We ensure that all properties, whether owned or leased, are maintained in suitable condition. We also
evaluate our banking facilities on an ongoing basis to identify possible under-utilization and to determine the need for functional
improvements, relocations, closures or possible sales. The Bank and subsidiaries of the Bank hold a variety of property interests
acquired in settlement of loans. Some of these properties were acquired in transactions before 1979 and are carried at nominal
amounts on our balance sheet and reflected a net gain of $1.6 million in our operating results in 2018.
ITEM 3. LEGAL PROCEEDINGS
We and our subsidiaries are party to various legal proceedings arising in the ordinary course of business. We do not believe that loss
contingencies, if any, arising from pending litigation and regulatory matters will have a material adverse effect on our consolidated
financial position or liquidity.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
30
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock trades on the NASDAQ Global Select Market under the ticker symbol “HWC.” There were 8,306
active holders of record of the Company’s common stock at January 31, 2019 and 85,686,848 shares outstanding.
Stock Performance Graph
The following performance graph and related information are neither “soliciting material” nor “filed” with the SEC, nor shall such
information be incorporated by reference into any future filings under the Securities Act of 1933 or the Securities Exchange Act of
1934, each as amended, except to the extent the Company specifically incorporates it by reference into such filing.
The performance graph compares the cumulative five-year shareholder return on the Company’s common stock, assuming an
investment of $100 on December 31, 2013 and the reinvestment of dividends thereafter, to that of the common stocks of United States
companies reported in the Nasdaq Total Return Index and the common stocks of the KBW Regional Banks Total Return Index. The
KBW Regional Banks Total Return Index is a proprietary stock index of Keefe, Bruyette & Woods, Inc., that tracks the returns of 50
regional banking companies throughout the United States.
31
Equity Compensation Plan Information
The following table provides information as of December 31, 2018 with respect to shares of common stock that may be issued under
the Company’s equity compensation plans.
Plan Category
Equity compensation plans approved by
security holders
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation Plans
(Excluding Securities Reflected in
Column (a))
(c)
218,445 (1)
$
33.71 (2)
1,060,790
(1)(cid:3)
Includes 61,808 shares potentially issuable upon the vesting of outstanding restricted share units and 2,858 shares potentially
issuable upon the vesting of outstanding performance share units that represent awards deferred into the Company’s
Nonqualified Deferred Compensation Plan. Also includes 106,914 of performance stock awards. If the highest level of
performance conditions is met, the total performance shares would be 203,328 and the total performance share units would be
5,716.
(2)(cid:3) The weighted average exercise price relates only to the exercise of outstanding options included in column (a).
Issuer Purchases of Equity Securities
On May 24, 2018, the Company’s board of directors approved a stock buyback program that authorized the repurchase of up to 5%, or
approximately 4.3 million shares of its outstanding common stock. The stock buyback program expires on December 31, 2019, and
may be terminated or amended by the board of directors at any time prior to the expiration date. For more information on the stock
buyback plan, refer to Note 11 – Stockholders’ Equity in Item 8 of this Annual Report on Form 10-K. Common stock repurchase
activity under stock buyback plan during the fourth quarter of 2018 was as follows:
Oct 1, 2018 - Oct 31, 2018
Nov 1, 2018 - Nov 30, 2018
Dec 1, 2018 - Dec 31, 2018
Total
Total Number of
Shares of Units
Purchased
Average Price Paid
Per Share
200,000 $
—
—
200,000 $
41.30
—
—
41.30
Total Number of Shares
Purchased as a Part of
Publicly Announced Plans
or Programs
Maximum Number of
Shares That May Yet Be
Purchased Under Plans
or Programs
200,000
—
—
200,000
4,064,352
4,064,352
4,064,352
32
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth certain selected historical consolidated financial data and should be read in conjunction with Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial
Statements and Notes thereto included in Item 8. “Financial Statements and Supplementary Data.” An overview of non-GAAP
measures and the reasons why management believes they are useful is included in Item 7. Reconciliations of non-GAAP measures
appear later in this Item.
(cid:3)
(cid:3)
Years Ended December 31,
2018
2017
2016
2015
2014
(in thousands, except per share data)
Income Statement:
Interest income (a)
Interest income (te) (b)
Interest expense
Net interest income (te)
Provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
(cid:3)
$
$
1,028,268 $
1,044,445
179,430
865,015
36,116
285,140
715,746
382,116
58,346
323,770 $
Earnings excluding nonoperating items
(cid:3) (cid:3)
$
Net income
Nonoperating income
(cid:3)
Nonoperating expense
(cid:3) (cid:3)
Income tax benefit
(cid:3) (cid:3)
Income tax resulting from re-measurement of deferred tax asset (c) (cid:3) (cid:3)
Nonoperating items, net of applicable income tax benefit
(cid:3) (cid:3)
Operating earnings
(cid:3) $(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
323,770 $
541 (cid:3)
28,943 (cid:3)
(5,938) (cid:3)
— (cid:3)
23,546 (cid:3)
347,316 $(cid:3)
900,581 $
934,971
108,269
826,702
58,968
267,781
692,691
308,434
92,802
215,632 $
(cid:3)
(cid:3) (cid:3)
215,632 $
(4,352) (cid:3)
28,473 (cid:3)
(8,442) (cid:3)
19,520 (cid:3)
35,199 (cid:3)
250,831 $(cid:3)
732,167 $
758,006
73,051
684,955
110,659
250,781
612,315
186,923
37,627
149,296 $
(cid:3)
(cid:3) (cid:3)
149,296 $
— (cid:3)
4,978 (cid:3)
(1,742) (cid:3)
— (cid:3)
3,236 (cid:3)
152,532 $(cid:3)
679,646 $
693,234
54,472
638,762
73,038
237,284
619,655
169,765
38,304
131,461 $
(cid:3)
(cid:3) (cid:3)
131,461 $
(333) (cid:3)
16,241 (cid:3)
(5,568) (cid:3)
— (cid:3)
10,340 (cid:3)
141,801 $(cid:3)
692,813
703,460
38,119
665,341
33,840
227,999
606,666
242,187
66,465
175,722
175,722
—
25,686
(7,263)
—
18,423
194,145
(a)(cid:3)
(b)(cid:3)
(c)(cid:3)
Interest income includes the net impact of discount accretion and premium amortization arising from business combinations totaling $23.1 million, $28.3
million, $19.3 million, $35.1 million and $92.5 million for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
For analytical purposes, management adjusts interest income and net interest income to a taxable equivalent basis using a 21% rate for the year ended December
31, 2018 and a 35% rate for all other periods presented.
Income tax expense resulting from re-measurement of the net deferred tax asset following the enactment of the Tax Act.
33
(in thousands)
Period-End Balance Sheet Data:
Total loans, net of unearned income (a)
Loans held for sale
Securities
Short-term investments
Total earning assets
Allowance for loan losses
Goodwill and other intangible assets
Other assets
Total assets
Noninterest-bearing deposits
Interest-bearing transaction and savings deposits
Interest-bearing public fund deposits
Time deposits
Total interest-bearing deposits
Total deposits
Short-term borrowings
Long-term debt
Other liabilities
Stockholders' equity
Total liabilities & stockholders' equity
Average Balance Sheet Data:
Total loans, net of unearned income (a)
Loans held for sale
Securities (b)
Short-term investments
Total earning assets
Allowance for loan losses
Goodwill and other intangible assets
Other assets
Total assets
Noninterest-bearing deposits
Interest-bearing transaction and savings deposits
Interest-bearing public fund deposits
Time deposits
Total interest-bearing deposits
Total deposits
Short-term borrowings
Long-term debt
Other liabilities
Stockholders' equity
Total liabilities & stockholders' equity
2018
20,026,411 $
28,150
5,670,584
111,094
25,836,239
(194,514)
887,123
1,707,059
28,235,907 $
8,499,027 $
8,000,093
3,006,516
3,644,549
14,651,158
23,150,185
1,589,128
224,993
190,261
3,081,340
28,235,907 $
19,378,428 $
25,710
6,020,947
163,287
25,588,372
(214,452)
859,498
1,522,390
27,755,808 $
8,095,256 $
7,946,765
2,849,297
3,275,680
14,071,742
22,166,998
2,190,772
266,870
198,905
2,932,263
27,755,808 $
$
$
$
$
$
$
$
$
At and For the Years Ended December 31,
2016
2017
2015
19,004,163 $
39,865
5,888,380
92,384
25,024,792
(217,308)
836,163
1,692,439
27,336,086 $
8,307,497 $
8,181,554
3,040,318
2,723,833
13,945,705
22,253,202
1,703,890
305,513
188,532
2,884,949
27,336,086 $
18,280,885 $
21,920
5,442,829
363,077
24,108,711
(223,416)
806,900
1,548,556
26,240,751 $
7,777,652 $
7,746,220
2,664,929
2,642,781
13,053,930
20,831,582
2,006,896
384,127
211,278
2,806,868
26,240,751 $
16,752,151 $
34,064
5,017,128
78,177
21,881,520
(229,418)
708,950
1,614,250
23,975,302 $
7,658,203 $
6,910,466
2,563,758
2,291,839
11,766,063
19,424,266
1,225,406
436,280
169,582
2,719,768
23,975,302 $
16,064,593 $
28,777
4,706,482
380,294
21,180,146
(217,550)
718,592
1,497,445
23,178,633 $
7,232,221 $
6,772,364
2,261,659
2,390,081
11,424,104
18,656,325
1,412,194
469,064
177,983
2,463,067
23,178,633 $
15,703,314 $
20,434
4,463,792
565,555
20,753,095
(181,179)
728,731
1,532,958
22,833,605 $
7,276,127 $
6,767,881
2,253,645
2,051,259
11,072,785
18,348,912
1,423,644
490,145
157,761
2,413,143
22,833,605 $
14,433,367 $
18,101
4,208,195
513,659
19,173,322
(133,470)
740,666
1,464,502
21,245,020 $
6,195,234 $
6,877,394
1,844,802
2,207,359
10,929,555
17,124,789
1,025,133
478,078
174,233
2,442,787
21,245,020 $
2014
13,895,276
20,252
3,826,454
802,948
18,544,930
(128,762)
754,003
1,576,371
20,746,542
5,945,208
6,531,628
1,982,616
2,113,379
10,627,623
16,572,831
1,151,573
373,647
176,089
2,472,402
20,746,542
12,938,869
16,540
3,816,724
423,359
17,195,492
(129,642)
768,047
1,601,883
19,435,780
5,641,792
6,173,683
1,530,972
2,053,546
9,758,201
15,399,993
1,005,680
378,645
176,514
2,474,948
19,435,780
(a)(cid:3)
(b)(cid:3)
Includes nonaccrual loans.
Average securities does not include unrealized holding gains/losses on available for sale securities.
34
($ in thousands)
Performance Ratios:
Return on average assets
Return on average common equity
Return on average tangible common equity
Earning asset yield (te)
Total cost of funds
Net interest margin (te)
Noninterest income to total revenue (te)
Efficiency ratio (a)
Average loan/deposit ratio
FTE employees (period-end)
Capital Ratios:
Common stockholders' equity to total assets
Tangible common equity ratio (b)
Tier 1 leverage
Tier 1 risk-based capital
Total risk-based capital
Select performance measures excluding nonoperating items
Operating earnings per share - diluted
Return on average assets - operating
Return on average common equity- operating
Return on average tangible common equity- operating
Efficiency ratio
Noninterest income as a percent of total revenue (te) - operating
$
$
$
Asset Quality Information:
Nonaccrual loans (c)
Accruing restructured loans
Total nonperforming loans
Other real estate (ORE) and foreclosed assets
Total nonperforming assets
Accruing loans 90 days past due (d)
Net charge-offs - non-purchased credit impaired
Net charge-offs - purchased credit impaired
Allowance for loan losses
Provision for loan losses
Ratios:
Nonperforming assets to loans + ORE
and foreclosed assets
Accruing loans 90 days past due as a percent of loans
Nonperforming assets + accruing loans 90 days past
due to loans + foreclosed assets
Net charge-offs - non-purchased credit impaired to average loans
Allowance for loan losses to period-end loans
Allowance for loan losses to nonperforming loans
and accruing loans 90 days past due
2018
Years Ended December 31,
2016
2015
2017
2014
1.17%
11.04%
15.62%
3.68%
0.70%
3.38%
24.79%
57.77%
87.42%
3,933
10.91%
8.02%
8.67%
10.48%
11.99%
3.99 $
1.25%
11.84%
16.76%
57.77%
24.83%
187,295 $
139,042
326,337
26,270
352,607 $
5,589
52,262
—
194,514
36,116
1.76%
0.03%
1.79%
0.27%
0.97%
0.82%
7.68%
10.78%
3.88%
0.45%
3.43%
24.47%
58.87%
87.76%
3,887
10.55%
7.73%
8.43%
10.21%
11.90%
2.89 $
0.96%
8.94%
12.54%
58.87%
24.16%
252,800 $
120,493
373,293
27,542
400,835 $
27,766
68,729
(177)
217,308
58,968
2.11%
0.15%
2.25%
0.38%
1.14%
0.64%
6.06%
8.56%
3.58%
0.34%
3.23%
26.80%
62.79%
86.11%
3,724
11.34%
8.64%
9.56%
11.26%
13.21%
1.91 $
0.66%
6.19%
8.74%
62.79%
26.80%
317,970 $
39,818
357,788
18,943
376,731 $
3,039
59,057
(594)
229,418
110,659
2.25%
0.02%
2.26%
0.37%
1.37%
0.62%
5.38%
7.72%
3.62%
0.28%
3.33%
27.09%
66.12%
84.28%
3,921
10.57%
7.62%
8.55%
9.96%
11.86%
1.77 $
0.67%
5.80%
8.33%
66.14%
27.06%
159,713 $
4,297
164,010
27,133
191,143 $
7,653
16,212
1,609
181,179
73,038
1.22%
0.05%
1.26%
0.11%
1.15%
0.90%
7.10%
10.30%
4.09%
0.22%
3.87%
25.52%
62.03%
84.02%
3,794
11.92%
8.59%
9.17%
11.23%
12.30%
2.32
1.00%
7.84%
11.37%
62.03%
25.52%
79,537
8,971
88,508
59,569
148,077
4,825
17,119
2,501
128,762
33,840
1.06%
0.03%
1.10%
0.13%
0.93%
58.60%
54.18%
63.58%
105.54%
137.96%
(a)(cid:3)
(b)(cid:3)
(c)(cid:3)
(d)(cid:3)
The efficiency ratio is noninterest expense to total net interest (te) and noninterest income, excluding amortization of purchased intangibles and nonoperating
items
The tangible common equity ratio is common shareholders’ equity less intangible assets divided by total assets less intangible assets.
Included in nonaccrual loans are $85.5 million, $99.2 million, $81.9 million, $8.8 million and $7.0 million of nonaccruing restructured loans at December 31,
2018, 2017, 2016, 2015 and 2014, respectively.
Nonaccrual loans and accruing loans past due 90 days or more do not include purchased credit impaired loans with an accretable yield.
35
rrEC
Reconciliation of Non-GAAP measures:
Operating revenue (te) and operating pre-provision net revenue (te)
(in thousands)
Net interest income
Noninterest income
Total revenue
Taxable equivalent adjustment (a)
Nonoperating revenue
Operating revenue (te)
Noninterest expense
Nonoperating expense
Operating pre-provision net revenue (te)
Operating earnings per share - diluted
$
2018
848,838 $
285,140
2017
792,312 $
267,781
$ 1,133,978 $ 1,060,093 $
16,177
541
34,390
(4,352)
$ 1,150,696 $ 1,090,131 $
(715,746)
28,473
463,423 $
$
(692,691)
28,473
425,913 $
Years Ended December 31,
2016
659,116 $
250,781
909,897 $
25,839
—
935,736 $
(612,315)
4,978
328,399 $
2015
625,174 $
237,284
862,458 $
13,588
—
876,046 $
(619,655)
15,908
272,299 $
2014
654,694
227,999
882,693
10,647
—
893,340
(606,666)
25,686
312,360
($ in thousands, except per share amounts)
Net Income
Net income allocated to participating securities
Net income available to common shareholders
Nonoperating items, net of applicable income tax
Income tax resulting from re-measurement of
deferred tax
Nonoperating items allocated to participating
securities
Operating earnings available to common
shareholders
Weighted average common shares - diluted
Earnings per share - diluted
Operating earnings per share - diluted
$
$
2018
323,770 $
(5,929)
317,841 $
23,546
2017
215,632 $
(4,670)
210,962 $
15,679
2016
149,296 $
(3,598)
145,698 $
3,236
2015
131,461 $
(3,128)
128,333 $
10,340
2014
175,722
(3,631)
172,091
18,423
-
19,520
(439)
(731)
-
(82)
-
-
(233)
(378)
$
$
$
340,948 $
85,521
245,430 $
84,963
148,852 $
77,949
138,440 $
78,307
3.72 $
3.99 $
2.48 $
2.89 $
1.87 $
1.91 $
1.64 $
1.77 $
190,136
82,034
2.10
2.32
(a)(cid:3) Taxable equivalent (te) amounts are calculated using a marginal federal income tax rate of 21% for the year ended December 31, 2018 and 35% for all other
periods presented.
36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this discussion and analysis is to focus on significant changes and events in the financial condition and results of
operations of Hancock Whitney Corporation and subsidiaries during the year ended December 31, 2018 and selected prior periods.
This discussion and analysis is intended to highlight and supplement financial and operating data and information presented elsewhere
in this report, including the consolidated financial statements and related notes. The discussion contains forward-looking statements,
which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, our actual results may
differ from those expressed or implied by the forward-looking statements. See Forward-Looking Statements in Part I of this Annual
Report.
Non-GAAP Financial Measures
Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP measures used to
describe our performance. A reconciliation of those measures to GAAP measures are provided in Item 6. “Selected Financial Data.”
The following is an overview of the non-GAAP measures used and the reasons why management believes they are useful and
important in understanding the Company’s financial condition and results of operations are included below.
Consistent with Securities and Exchange Commission Industry Guide 3, we present net interest income, net interest margin and
efficiency ratios on a fully taxable equivalent (“te”) basis. The te basis adjusts for the tax-favored status of net interest income from
certain loans and investments using the statutory federal tax rate (21% for 2018 and 35% for all other periods presented) to increase
tax-exempt interest income to a taxable-equivalent basis. We believe this measure to be the preferred industry measurement of net
interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.
We present certain additional non-GAAP financial measures to assist the reader with a better understanding of the Company’s
performance period over period, as well as to provide investors with assistance in understanding the success management has
experienced in executing its strategic initiatives. We use the term “operating” to describe a financial measure that excludes income or
expense considered to be nonoperating in nature. Items identified as nonoperating are those that, when excluded from a reported
financial measure, provide management or the reader with a measure that may be more indicative of forward-looking trends in the
Company’s business. However, these non-GAAP financial measures have inherent limitations and should not be considered in
isolation or as a substitute for analysis of results or capital position under U.S. GAAP.
We define Operating Revenue as net interest income (TE) and noninterest income less nonoperating revenue. We define Operating
Pre-Provision Net Revenue as operating revenue (TE) less noninterest expense, excluding nonoperating items. Management believes
that operating pre-provision net revenue is a useful financial measure because it enables investors and others to assess the company’s
ability to generate capital to cover credit losses through a credit cycle.
We define Operating Earnings as reported net income excluding nonoperating items net of income tax. We define Operating
Earnings per Share as operating earnings expressed as an amount available to each common shareholder on a diluted basis.
EXECUTIVE OVERVIEW
2018 was a landmark year for our company. We combined our two iconic brands to become Hancock Whitney Corporation and
Hancock Whitney Bank, at which time we unveiled our new logo and began trading under our new ticker symbol, “HWC.” We began
the move to our new regional headquarters in downtown New Orleans. In addition, we completed an acquisition and a divestiture, two
transactions that support our corporate growth strategy.
Our 2018 results reflect strong growth and improved performance. Loans grew by $1 billion, or 5%. Our net income was up $108
million, or 50%, and our earnings per share increased $1.24 to $3.72. Our return on average assets improved 35 basis points to 1.17%
and our tangible common equity ratio improved 29 basis points to 8.02%, a return to our target of at least 8%.
(cid:36)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:76)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)
On July 13, 2018, we completed the acquisition of the bank-managed high net worth individual and institutional investment
management and trust business of Capital One, National Association (“Capital One”). The combination brought assets under
administration and assets under management to approximately $26 billion and $10 billion, respectively, at the merger date. In
addition, we assumed approximately $217 million of customer deposit liabilities. The combination positioned us as a Top 50 Trust
Firm by Revenue and provides the opportunity to develop relationships for other private, wholesale and retail services.
37
On March 9, 2018, we sold our consumer finance subsidiary, Harrison Finance Company (“HFC”), due to a change in corporate
strategy. The subsidiary operated in 35 offices with 137 employees and had $95 million in loans as of December 31, 2017. The
transaction resulted in a loss on sale totaling $1.1 million.
During the first half of 2017, we completed two business combinations in which we acquired certain assets and assumed certain
liabilities of the former New Orleans, Louisiana-based First NBC Bank, including $2 billion in earning assets and $2.6 billion in
deposits and other liabilities, and received net consideration of approximately $316 million. The business combinations, collectively
referred to as the FNBC transactions, strengthened our position in the Greater New Orleans market area and have been financially
compelling.
For additional information on these transactions, refer to Note 2 – Acquisitions in Item 8. “Financial Statements and Supplementary
Data.”
(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:40)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:40)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:49)(cid:72)(cid:68)(cid:85)(cid:3)(cid:55)(cid:72)(cid:85)(cid:80)(cid:3)(cid:50)(cid:88)(cid:87)(cid:79)(cid:82)(cid:82)(cid:78)(cid:3)
The markets we serve enjoyed a modest to moderate expansion in economic activity during 2018, according to the Federal Reserve’s
Summary of Commentary on Current Economic Conditions (“Beige Book”),
The demand for commercial real estate was strong to steady during 2018 in most of our footprint, ending the year with vacancy rates
modestly trending downward. In our Houston market, apartment rent showed growth in the beginning of the year but slowed toward
the end of the year.
Activity in the energy sector remained strong, but slowed notably with lower oil prices during the latter part of the year. According to
the Federal Reserve Bank of Dallas Energy Survey, most firms surveyed believe their capital spending will increase in 2019 compared
to 2018 and expect oil prices to be above the average needed to profitably drill new wells.
The residential real estate market experienced modest growth during 2018, with increases in new construction and the sales of existing
homes flat in most of our market areas. Housing activity slowed on a year-over-year basis towards the end of 2018, and although
inventory levels remained low, they increased on a year-over-year basis in many markets. In our Houston market, existing home sales
were relatively flat and new construction was slow as developers were adapting to new flood plain regulations in the city.
Retail sales and consumer spending activity in most of our footprint for 2018 was positive, with an increase in retail sales and auto
sales. Online sales activity grew at a faster pace than in-store sales.
Our 2018 results reflect strong growth and improved performance, with strong loan production across most markets and an overall
improvement in credit quality. We believe we are well positioned for continued growth in 2019. Overall, the near term economic
outlook for 2019 remains positive, although somewhat less optimistic than a year ago as a result of trade and political uncertainty and
recent volatility in commodity prices.
(cid:43)(cid:76)(cid:74)(cid:75)(cid:79)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:3)
Net income for the year ended December 31, 2018 was $324 million, or $3.72 per diluted common share, compared to $216 million,
or $2.48 per diluted common share in 2017. Following are financial highlights for the year ended December 31, 2018:
(cid:120)(cid:3) Net income increased 50% over 2017, up $108 million to $324 million. Excluding nonoperatings items, net income
increased $96 million, or 38%, to $347 million when compared to 2017. Nonoperating items are discussed in the noninterest
income and noninterest expense sections that follow.
(cid:120)(cid:3) Earnings per diluted common share increased $1.24, or 50%, to $3.72; excluding nonoperating items, earnings per diluted
common share increased $1.10 to $3.99
(cid:120)(cid:3) Return on average assets improved to 1.17% in 2018, compared to 0.82% in 2017
(cid:120)(cid:3) Pre-provision net revenue (te) was up $38 million, with operating revenue up $61 million and operating expense up $23
million, compared to 2017
(cid:120)(cid:3) Tangible common equity ratio was up 29 bps to 8.02%, compared to 7.73% at year-end 2017
(cid:120)(cid:3) Loan growth of $1.0 billion, or 5%, surpassing $20 billion in total loans, funded mostly by growth in total deposits of $897
million, or 4%
38
(cid:120)(cid:3) Criticized commercial loans declined $451 million, or 42%, with criticized energy loans decreasing $270 million and
criticized nonenergy loans decreasing $181 million; nonperforming loans declined by $47 million, or 13%, with
nonperforming energy loans decreasing $17 million and nonperforming nonenergy loans decreasing $30 million
(cid:120)(cid:3) Total assets at December 31, 2018 were $28.2 billion, up $900 million, or 3%, from December 31, 2017
(cid:120)(cid:3) Divested Harrison Finance on March 9, 2018; acquired the former Capital One trust and asset management business on July
13, 2018
RESULTS OF OPERATIONS
Net Interest Income
Net interest income was $849 million for the year ended December 31, 2018, up from $792 in 2017. Net interest income (te) is the
primary component of our earnings and represents the difference, or spread, between revenue generated from interest-earning assets
and the interest expense related to funding those assets. For analytical purposes, net interest income is adjusted to a taxable equivalent
basis using the statutory federal tax rate (21% for 2018 and 35% for all other periods presented) on tax exempt items (primarily
interest on municipal securities and loans).
2018 compared to 2017
Net interest income (te) for 2018 totaled $865 million, a $38 million, or 5%, increase from 2017. The increase in 2018 net interest
income was largely volume driven, with a $1.5 billion, or 6%, increase in average earning assets compared to a $1.1 billion, or 7%,
increase in interest-bearing liabilities. Taxable equivalent net interest income was negatively impacted in 2018 by a $17.7 million
decrease in the TE adjustment as a result of the lower statutory income tax rate.
The net interest margin (te) is the ratio of net interest income (te) to average earning assets. Net interest margin (te) decreased 5 basis
points (bps) to 3.38% in 2018 from 3.43% in 2017, primarily due to a 7 bp negative impact on the TE adjustment from the lower tax
rate, a 5 bp reduction from the sale of the consumer finance company, and a 3 bp reduction in net purchase accounting discount
accretion. The positive impact from the four rate increases totaling 1% during 2018 by the Federal Reserve provided a partial offset.
The discussions of Asset/Liability Management and Net Interest Income at Risk in this item provide additional information regarding
our management of interest rate risk and the potential impact from changes in interest rates, respectively.
The overall yield on earning assets was 4.08% in 2018, up 20 bps from 2017, driven primarily by a 23 bps increase in loan yield to
4.58% in 2018. The tax-equivalent yield on the investment securities portfolio increased 3 bps from 2017 to 2.53%, which includes an
unfavorable impact of 10 bps to the yield as a result of the lower tax. The securities yield reflects a continued shift in the mix of the
portfolio to a higher concentration of higher-yielding commercial mortgage-backed securities. Average commercial mortgage-backed
securities totaled approximately $1.1 billion for the year ended December 31, 2018 compared to $0.6 billion in 2017.
The cost of funding earning assets increased 25 bps to 0.70% in 2018 from 0.45% in 2017 due largely to the Federal Reserve interest
rate increases during the year, and to a lesser extent, promotional pricing campaigns aimed at attracting and retaining deposits.
Borrowing costs increased 65 bps to 1.98% in 2018 with increased use of higher cost short-term borrowings that are sensitive to
increases in the federal funds rate. Interest-free funding sources, including noninterest-bearing deposits, funded approximately 35% of
average earning assets in 2018, down slightly from 36% in 2017.
Late in fourth quarter of 2018, we used a $33.2 million gain from the sale of our Visa Class B common shares to offset portfolio
restructuring losses totaling $32.7 million. Proceeds from the sale of $481 million bonds yielding 1.97% and $116 million municipal
loans yielding 2.02% were used to purchase $260 million of bonds at 3.59% and to pay down $346 million FHLB advances costing
2.37%. The Visa Class B transaction and related restructuring improved our earning asset yield and funding mix, which is expected to
benefit the net interest margin in 2019 by a total of 7 basis points.
2017 compared to 2016
Net interest income (te) for 2017 totaled $827 million, a $142 million, or 21%, increase from 2016, primarily resulting from interest
earned on a $2.9 billion, or 14%, increase in average earning assets. The average earning asset growth was primarily attributable to
the FNBC transactions and continued growth from strategic initiatives.
The net interest margin increased 20 bps to 3.43% in 2017 primarily due to the acquisition of higher-yielding FNBC loans and three
Federal Reserve rate increases, totaling 75 bps, as well as a 3 bp increase in net purchase accounting discount accretion.
39
The overall yield on earning assets was 3.88% in 2017, up 30 bps from 2016. The loan portfolio yield was up 34 bps to 4.35% in 2017
while the yield on the investment securities portfolio increased 13 bps to 2.50%, reflecting a change in the mix within the portfolio to
higher-yielding commercial mortgage-backed securities.
The cost of funding earning assets increased 11 bps to 0.45% in 2017. Borrowing costs increased 5 bps from 1.28% in 2016 to 1.33%
in 2017 as a result of the Company’s borrowing mix. Interest-free funding sources, including noninterest-bearing deposits, funded
approximately 36% of average earning assets in 2017, down slightly from 37% in 2016.
40
TABLE 1. Summary of Average Balances, Interest and Rates (te)(a)
($ in millions)
Assets
Interest-Earnings Assets:
Commercial & real estate
loans (te)
Residential mortgage loans
Consumer loans
Loan fees & late charges
Loans (te) (b)
Loans held for sale
Investment securities:
U.S. Treasury and government
agency securities
Mortgage-backed securities
and collateralized
mortgage obligations
Municipals
Taxable
Nontaxable (te)
Other securities
Total investment
securities (te) (c)
Short-term investments
Total earning assets (te)
Nonearning assets:
Other assets
Allowance for loan losses
Total assets
Liabilities and
Stockholders' Equity
Interest-bearing Liabilities:
Interest-bearing transaction
and savings deposits
Time deposits
Public funds
Total interest-bearing deposits
Repurchase agreements
Other short-term borrowings
Long-term debt
Total interest-
bearing liabilities
Noninterest-bearing:
Noninterest-bearing deposits
Other liabilities
Stockholders' equity
Total liabilities and
stockholders' equity
Net interest income (te)
and margin
Net earning assets and spread
Interest cost of funding
earning assets
2018
Years Ended December 31,
2017
2016
Average
Balance
Interest (d) Rate
Average
Balance
Interest (d) Rate
Average
Balance
Interest (d) Rate
$
14,487.3 $
2,794.8
2,096.3
19,378.4
25.7
655.0
114.5
117.4
1.3
888.2
0.9
4.52 % $
4.10
5.60
13,751.0 $
2,445.8
2,084.1
4.58
3.68
18,280.9
21.9
584.6
95.0
115.1
(0.4)
794.3
0.9
4.25 % $
3.89
5.52
11,959.2 $
2,044.7
2,060.7
4.35
3.88
16,064.6
28.8
457.7
83.0
105.8
(2.7)
643.8
1.0
3.83 %
4.06
5.13
4.01
3.55
142.6
3.2
2.22
128.1
2.7
2.11
64.6
1.2
1.78
4,927.2
119.1
2.42
4,327.8
96.2
2.22
4,044.3
86.4
2.14
79.7
867.9
3.6
2.3
27.8
0.1
6,021.0
163.3
25,588.4
152.5
2.8
1,044.4
2.96
3.20
2.62
2.53
1.70
4.08 %
2,381.9
(214.5)
27,755.8
$
$
92.5
875.6
18.8
5,442.8
363.1
24,108.7
2,355.5
(223.4)
26,240.8
2.8
34.2
0.4
136.3
3.5
935.0
3.03
3.91
1.92
2.50
0.95
3.88 %
$
104.2
488.5
4.9
3.4
20.3
0.1
3.25
4.16
2.00
111.4
1.8
758.0
2.37
0.47
3.58 %
4,706.5
380.3
21,180.1
2,216.0
(217.6)
23,178.6
$
7,946.8 $
3,275.7
2,849.3
14,071.8
456.0
1,734.8
266.9
41.7
51.9
37.1
130.7
1.1
35.0
12.6
0.52 % $
1.59
1.30
0.93
0.23
2.02
4.73
7,746.2 $
2,642.8
2,664.9
13,053.9
501.7
1,505.2
384.1
29.4
28.0
19.2
76.6
0.6
15.1
16.0
0.38 % $
1.06
0.72
0.59
0.12
1.01
4.16
6,772.4 $
2,390.1
2,261.6
11,424.1
454.5
957.6
469.1
18.2
21.4
9.3
48.9
0.1
3.9
20.1
0.27 %
0.90
0.41
0.43
0.03
0.41
4.27
16,529.5
179.4
1.09 %
15,444.9
108.3
0.70 %
13,305.3
73.0
0.55 %
8,095.2
198.9
2,932.2
7,777.7
211.3
2,806.9
7,232.1
178.1
2,463.1
$
27,755.8
$
26,240.8
$
23,178.6
$
9,058.9
$
865.0
3.38
3.00 $
$
8,663.8
826.7
3.43
3.18 $
$
7,864.8
685.0
0.70 %
0.45 %
3.23
3.03
0.34 %
(a)(cid:3)
(b)(cid:3)
(c)(cid:3)
(d)(cid:3)
Taxable equivalent (te) amounts are calculated using a marginal federal income tax rate of 21% for the year ended December 31, 2018 and 35% for the years
ended December 31, 2017 and 2016.
Includes nonaccrual loans.
Average securities do not include unrealized holding gains or losses on available for sale securities.
Included in interest income is net purchase accounting accretion of $23 million, $28 million, and $19 million for the years ended December 31, 2018, 2017, and
2016, respectively.
41
TABLE 2. Summary of Changes in Net Interest Income (te)(a) (b)
(in thousands)
Interest Income (te)
Commercial & real estate loans (te)
Residential mortgage loans
Consumer loans
Loan fees & late charges
Loans (te) (c)
Loans held for sale
Investment securities:
U.S. Treasury and government
agency securities
Mortgage-backed securities and
collateralized mortgage obligations
Municipals
Taxable
Nontaxable (te)
Other securities
Total investment in securities (te) (d)
Short-term investments
Total earning assets (te)
Interest-bearing transaction and
savings deposits
Time deposits
Public funds
Total interest-bearing deposits
Repurchase agreements
Other interest-bearing liabilities
Long-term debt
Total interest expense
Net interest income (te) variance
$
2018 Compared to 2017
Due to
Change in
Total
Increase
(Decrease)
2017 Compared to 2016
Due to
Change in
Total
Increase
(Decrease)
Volume
Rate
Volume
Rate
$
32,215 $
14,101
(14,823)
—
31,493
142
38,107 $
5,430
17,108
1,626
62,271
(47)
70,322 $
19,531
2,285
1,626
93,764
95
72,951 $
15,708
(170)
—
88,489
(260)
54,000 $ 126,951
12,057
(3,651)
9,332
9,502
2,353
2,353
150,693
62,204
(171)
89
318
152
470
1,299
240
1,539
14,010
8,906
22,916
6,463
3,271
9,734
(377)
(299)
(367)
13,285
(2,515)
42,405
778
7,785
1,414
9,977
(59)
2,665
(5,339)
7,244
35,161 $
(31)
(6,119)
98
3,006
1,838
67,068
11,565
16,165
16,462
44,192
539
17,215
1,971
63,917
3,151 $
(408)
(6,418)
(269)
16,291
(677)
109,473
(364)
15,191
267
22,856
(86)
110,999
(260)
(1,312)
(4)
1,935
1,738
65,966
(624)
13,879
263
24,791
1,652
176,965
12,343
23,950
17,876
54,169
480
19,880
(3,368)
71,161
38,312 $ 104,152 $
2,894
2,419
1,896
7,209
16
3,169
(3,547)
6,847
11,167
8,273
6,530
4,111
9,915
8,019
27,612
20,403
441
425
11,229
8,060
(4,064)
(517)
35,218
28,371
37,595 $ 141,747
(a)(cid:3)
(b)(cid:3)
(c)(cid:3)
(d)(cid:3)
Taxable equivalent (te) amounts are calculated using a marginal federal income tax rate of 21% for the year ended December 31, 2018 and 35% for the years
ended December 31, 2017 and 2016.
Amounts shown as due to changes in either volume or rate includes an allocation of the amount that reflects the interaction of volume and rate changes. This
allocation is based on the absolute dollar amounts of change due solely to changes in volume or rate.
Includes nonaccrual loans.
Average securities do not include unrealized holding gains or losses on available for sale securities.
Provision for Loan Losses
The provision for loan losses was $36.1 million in 2018 compared to $59.0 million in 2017. The provision in 2018 includes net
charge-offs of $52.3 million, or 0.27% of average loans outstanding, partially offset by an allowance release, as energy-related charge-
offs were largely reserved for in earlier periods. Net charge-offs are down from $68.6 million, or 0.37% of average loans, in 2017,
primarily attributable to the energy portfolio, with $18.2 million in 2018 compared to $35.0 million in 2017. Net charge-offs to date
for the current energy cycle (November 2014 – December 2018) total approximately $95 million.
The lower provision for loan losses in 2018 compared to the prior year reflects a continued decline in the allowance on energy-related
loans, with reduced exposure and an overall improvement in portfolio performance, partially offset by an increase in allowance on
nonenergy loans as that portfolio continues to grow.
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—
Allowance for Loan and Lease Losses” provides additional information on changes in the allowance for loans losses and general
credit quality.
42
Noninterest Income
2018 compared to 2017
Noninterest income for 2018 totaled $285 million, a $17.4 million, or 6%, increase from 2017. Nearly all noninterest income
categories, including trust fees, bank card fees, and service charges experienced increases in 2018. Nonoperating income for 2018
included a $1.1 million loss on the disposition of our consumer finance business and the net impact of a portfolio restructure that
included a $33.2 million gain on the sale of Visa Class B common shares, offset by losses on sales of lower yielding securities of
$25.5 million and loans of $7.1 million. Nonoperating income for 2017 included $4.4 million gain on the sale of selected Hancock
Horizon funds.
Table 3 presents, for each of the three years ended December 31, 2018, 2017 and 2016, the components of noninterest income and
nonoperating income items aggregated, along with the percentage changes between years. Table 4 presents nonoperating income by
component for the years ended December 31, 2018 and 2017. There was no nonoperating income during the year ended December 31,
2016.
$
$
TABLE 3. Noninterest Income
($ in thousands)
Service charges on deposit accounts
Trust fees
Bank card and ATM fees
Investment and annuity fees and insurance
commissions
Secondary mortgage market operations
Amortization of loss share receivable
Income from bank-owned life insurance
Credit-related fees
Net gain (loss) on sales of assets
Other miscellaneous income
Total operating noninterest income
Nonoperating income
Total noninterest income
n/m = not meaningful
TABLE 4. Nonoperating Income
($ in thousands)
Gain (loss) on portfolio restructure:
Gain on sale of Visa Class B common shares
Loss on sale of investment securities
Loss of sale of loans
Total net gain on portfolio restructure
Gain (loss) on sale of assets
Total nonoperating income
% Change
(cid:3)
(cid:3)
% Change
2018
85,272
55,488
60,440
25,348
15,632
—
12,424
11,065
(285)
20,297
285,681
(541)
285,140
3 % $
25
12
7
3
100
8
(1)
(109)
3
8 %
(112)
6 % $
2017
83,166
44,538
53,779
23,741
15,209
(2,427)
11,473
11,140
3,126
19,684
263,429
4,352
267,781
12 % $
(4)
13
3
(7)
59
(16)
12
(60)
10
5 %
n/m
7 % $
2016
74,187
46,589
47,427
22,978
16,282
(5,918)
13,596
9,926
7,814
17,900
250,781
—
250,781
2018
2017
$
$
33,229
(25,480)
(7,145)
604
(1,145)
(541)
$
$
—
—
—
—
4,352
4,352
Service charges on deposit accounts were up $2.1 million, or 3%, from 2017 due to increased activity in check printing fees and
overdraft fees from the introduction of the sustained overdraft fee during the third quarter of 2017 and higher activity with a full year
impact of the FNBC transactions.
Trust fees totaled $55.5 million in 2018, an $11.0 million, or 25%, increase from 2017. Trust assets under management increased to
$8.6 billion at December 31, 2018 from $5.9 billion at December 31, 2017. The increases in both trust fees and assets under
management are primarily due to the acquisition of the wealth and asset management business on July 13, 2018.
Bank card and ATM fees totaled $60.4 million in 2018, up $6.7 million, or 12%, compared to 2017. Bank card and ATM fees include
income from credit card, debit card and ATM transactions, and merchant service fees. Product and delivery platform enhancements,
including smart phone payment functionality and improved online account management tools, continue to drive growth.
Investment and annuity fees and insurance commissions totaled $25.3 million in 2018 compared to $23.7 million in 2017. The $1.6
million, or 7%, increase is primarily due to increased annuity income partially offset by lower insurance commissions due to the sale
of Harrison Finance on March 9, 2018.
43
Fees from secondary mortgage operations totaled $15.6 million in 2018, up $0.4 million, or 3%, from a year earlier. Mortgage loan
production decreased by approximately 16% in 2018 compared to 2017, however, the percentage of loan production sold in the
secondary market increased slightly. Secondary mortgage market operations fee income is generated from selling certain types of
originated single-family mortgage loans into the secondary market in an effort to provide mortgage products for our customers while
managing interest rate risk and liquidity. We typically sell longer-term fixed rate loans while retaining the majority of adjustable rate
loans, as well as loans generated through programs to support customer relationships, including programs for high net worth
individuals and non-builder construction loans. The ultimate amount of loans sold in the secondary market relative to the amount
retained by the Company is a management decision made as part of the ALCO process.
Income from bank-owned life insurance (“BOLI”) increased $1.0 million, or 8%, to $12.4 million. This increase was mainly due to a
BOLI investment restructure in June of 2018, as well as the benefit of the income earned from a $23.3 million year-over-year increase
in the average balance of insurance contracts outstanding.
Net losses on sales of assets were $0.3 million in 2018 compared to net gains of $3.1 million in 2017. Gains on sales of assets in 2017
included a $2.9 million gain on the sale of select portfolios of loans as a part of the Company’s balance sheet management process.
Other miscellaneous income was $20.3 million in 2018, up $0.6 million, or 3% compared to 2017. Other miscellaneous income
includes income from derivatives totaling $5.4 million in 2018, compared to $5.9 million in 2017, a decrease of $0.5 million, or 9%.
Derivative income can be volatile and is dependent upon both customer sales activity as well as market value adjustments due to
interest rate movement. The decrease from derivative income was offset by increases in various income items.
2017 compared to 2016
Noninterest income for 2017 totaled $268 million, a $17.0 million, or 7%, increase from 2016. Noninterest income categories
contributing to the increase included service charges, bank card fees, and other credit-related fees. In addition, noninterest income was
favorably impacted by the elimination of the amortization of the FDIC indemnification asset beginning in the third quarter of 2017 as
a result of the termination of the loss share agreements in the second quarter of 2017. These increases were partially offset by a
decline in gains on sales of assets and other decreases discussed below.
Service charges on deposit accounts were up $9.0 million, or 12%, from 2016 due to increased activity in consumer overdrafts as well
as the introduction of the sustained overdraft fee.
Trust fees totaled $44.5 million in 2017, a $2.1 million, or 4%, decrease from 2016 due in part to the sale of select Hancock Horizon
funds mentioned above. Trust assets under management totaled $5.9 billion at December 31, 2017 compared to $6.3 billion at
December 31, 2016.
Bank card and ATM fees totaled $53.8 million in 2017, up $6.4 million, or 13%, compared to 2016, primarily as a result of product
and delivery platform enhancements, including smart phone payment functionality and improved online account management tools.
Investment and annuity fees and insurance commissions totaled $23.7 million in 2017 up $0.8 million, or 3% from 2016 primarily
attributable to fees from new corporate underwriting activities and higher investment fees, partially offset by lower credit life
insurance fees.
Fees from secondary mortgage market operations totaled $15.2 million in 2017, down $1.1 million, or 7%, from a year earlier.
Mortgage loan production increased by approximately 4% in 2017 compared to 2016 with the percentage of loan production sold in
the secondary market decreasing slightly.
Income from bank-owned life insurance decreased $2.1 million, or 16%, in 2017, to $11.5 million. This decrease was mainly due to
higher death benefits recognized in 2016 relative to 2017, partially offset with income earned from a $56.5 million year-over-year
increase in the average balance of insurance contracts outstanding.
Credit-related fee income increased $1.2 million, or 12%, from 2016 mainly due to increases in unused commitment and standby letter
of credit fees.
Gains on sales of assets, which include gains on sales of select portfolios of loans as a part of the Company’s balance sheet
management process and sales of bank property, decreased $4.7 million, or 60%, in 2017 compared to 2016.
Other miscellaneous income was $19.7 million in 2017, up $1.8 million, or 10% compared to 2016. Other miscellaneous income
includes income from derivatives totaling $5.9 million in 2017, compared to $5.2 million in 2016. The $0.7 million, or 13%, increase
was driven by a higher level of customer swap sales in 2017 compared to 2016. The remaining increase was due to various income
items.
44
Noninterest Expense
2018 compared to 2017
Noninterest expense for 2018 totaled $716 million, up $23.1 million, or 3%, compared to 2017. Excluding nonoperating expenses,
noninterest expense increased $22.6 million, or 3%, to $687 million in 2018. The largest individual components of the increase in
operating expense were personnel expense, data processing and professional services. These increases were partially offset by
decreases in other retirement expense.
Table 5 presents, for each of the three years ended December 31, 2018, 2017 and 2016, noninterest expense, with operating expenses
by component and nonoperating expenses aggregated, along with the percentage changes between years. Table 6 presents
nonoperating expenses by component for the same periods.
2018
326,133
73,149
399,282
46,623
14,585
70,557
34,343
22,050
31,423
(2,987)
11,578
13,595
10,806
14,222
(18,661)
39,387
686,803
28,943
715,746
$
$
% Change
3 % $
2
3
(2)
0
8
12
(2)
7
158
(15)
6
36
(3)
22
17
3
2
3 % $
2017
316,849
71,402
388,251
47,417
14,516
65,411
30,554
22,417
29,307
(1,158)
13,642
12,797
7,930
14,618
(15,249)
33,765
664,218
28,473
692,691
% Change
11 % $
8
11
15
6
12
4
13
25
(70)
25
46
11
11
39
(25)
9
472
13 % $
2016
284,219
66,419
350,638
41,296
13,663
58,619
29,380
19,781
23,499
(3,804)
10,938
8,741
7,122
13,146
(10,946)
45,264
607,337
4,978
612,315
TABLE 5. Noninterest Expense
($ in thousands)
Compensation expense
Employee benefits
Personnel expense
Net occupancy expense
Equipment expense
Data processing expense
Professional services expense
Amortization of intangibles
Deposit insurance and regulatory fees
Other real estate expense
Advertising
Corporate value and franchise taxes
Entertainment and contributions
Telecommunications and postage
Other retirement expense
Other expense
Total operating noninterest expense
Nonoperating expense
Total noninterest expense
TABLE 6. Nonoperating Expense
(in thousands)
Personnel expense
Net occupancy expense
Equipment expense
Data processing expense
Professional services expense
Other real estate (income) expense
Advertising
Other expense:
2018
2017
2016
$
$
5,413 $
1,172
1,782
3,572
7,236
2
756
3,302
—
5,708
9,010
28,943 $
3,662 $
452
325
974
9,681
(1,511)
1,389
—
6,603
6,898
13,501
28,473 $
3,975
—
—
—
181
323
—
—
—
499
499
4,978
Loss on restructuring of bank-owned life insurance contracts
Write-down related to termination of FDIC loss share agreement
Other miscellaneous
Total other expense
Total nonoperating expense
Total personnel expense was up $11.0 million, or 3%, in 2018 compared to 2017 primarily due to merit increases and additional
personnel expense from the trust and asset management acquisition.
Total occupancy and equipment expenses decreased $0.7 million, or 1%, in 2018 compared to 2017. This decrease was primarily due
to higher costs in 2017 related to the FNBC transactions and timing of consolidating the acquired branches, partially offset by higher
cost in 2018 related to the trust and asset management transaction.
45
Data processing expense in 2018 was up $5.1 million, or 8%, from 2017, primarily related to revenue-generating initiatives related to
new digital offerings, higher card transaction processing costs resulting from increased card activity and additional processing costs
associated with the acquired trust and asset management business that is awaiting system conversion.
Professional services expense increased $3.8 million, or 12%, from 2017, primarily due to consulting and other professional fees
related to the implementation of revenue generating initiatives.
Amortization of intangibles in 2018 totaled $22.1 million, a $0.4 million, or 2%, decrease from 2017 as a result of the accelerated
amortization methods used, offset by $0.9 million of customer intangibles related to the acquired wealth and asset management
business.
Deposit insurance and regulatory fees increased $2.1 million, or 7%, from 2017 mainly due to asset growth, partially offset by the
elimination of $1.8 million in quarterly large bank surcharge fees beginning in the fourth quarter. Corporate value and franchise taxes
were up $0.8 million, or 6%, to $13.6 million in 2018, also due to asset growth.
Net gains on other real estate dispositions were $3.0 million in 2018, primarily from the sale of one property, compared to net gains of
$1.2 million in 2017.
Noninterest expense in both 2018 and 2017 was reduced by a net credit in other retirement expense. The net credit was $3.4 million
greater in 2018, representing a 22% favorable variance compared to 2017, primarily as a result of strong performance of pension plan
assets in 2017.
All other expenses increased $6.0 million, or 9%, from 2017 due primarily to higher business development expenses and other
operating costs.
Nonoperating expenses totaled $28.9 million in 2018 compared to $28.5 million in 2017. Nonoperating expenses in 2018 included
$12.0 million in brand consolidation expenses, $6.2 million related to the trust and asset management acquisition, $3.3 million related
to the BOLI investment restructure, $3.5 million one-time incentive bonus, and $1.5 million related to the sale of the consumer finance
business. Nonoperating expenses in 2017 included $19.4 million of merger-related costs associated with the FNBC transactions, as
well as the write-down of $6.6 million for the termination of the FDIC loss share agreements.
2017 compared to 2016
Noninterest expense for 2017 totaled $693 million, up $80.4 million, or 13%, compared to 2016. Excluding nonoperating expenses,
noninterest expense increased $56.9 million, or 9%, to $664 million in 2017, compared to 2016. The largest components of this
increase were personnel expense, data processing, occupancy and deposit insurance and regulatory fees. The increase also included
nonpermanent costs to operate the former FNBC branches and maintain separate operations to serve customers following the FNBC II
transaction until systems conversion and overlapping branches were consolidated.
Total personnel expense was up $37.6 million, or 11%, in 2017 compared to 2016 due mainly to nonpermanent transition costs related
to the FNBC acquisition, merit increases and an increase in bonus and other incentive compensation related, in part, to the Company
exceeding its overall corporate objectives for 2017.
Total occupancy and equipment expenses increased $7.0 million, or 13%, in 2017 compared to 2016. This increase was attributable to
the FNBC transactions in 2017.
Data processing expense in 2017 was up $6.8 million, or 12%, from 2016, primarily related to increased debit and credit card
processing activity, as well as outside processing costs related to the new Online and Mobile Banking platform.
Professional services expense increased $1.2 million, or 4%, from 2016, primarily due to consulting and other professional fees related
to the implementation of revenue initiatives.
Amortization of intangibles in 2017 totaled $22.4 million, a $2.6 million, or 13%, increase from 2016, due to additional amortization
of $4.6 million related to the core deposit intangibles recognized in the FNBC transactions.
Other real estate expense for 2017 was a net credit of $1.2 million compared to a net credit of $3.8 million in 2016. Included in 2016
was a $5.3 million gain related to a single asset disposition.
Deposit insurance and regulatory fees increased $5.8 million, or 25%, mainly due to asset growth, including those acquired in the
FNBC transactions. Corporate value and franchise taxes were up $4.1 million, or 46%, to $12.8 million in 2017.
46
Other retirement expense reflects an increased reduction in noninterest expense of $4.3 million, or 39%, due to favorable performance
of the pension plan’s assets in 2016.
Other expenses decreased $6.5 million, or 9%, from 2016 due primarily to unusual expenses incurred in 2016, including a $4.0 million
expense related to an early contract termination and $3.7 million in flood-related expenses associated with major flooding that
impacted the Baton Rouge, Louisiana metropolitan area during August 2016, partially offset by higher advertising and business
development cost.
Nonoperating expenses increased $23.5 million from 2016, due primarily to merger-related costs and the termination of the FDIC loss
share agreements in 2017. Nonoperating costs in 2016 were primarily related to branch rationalization and other organizational
restructuring.
Income Taxes
We recorded income tax expense at an effective rate of 15.3% in 2018, 23.8% (excluding the impact of the $19.5 million charge that
resulted from the re-measurement of the net deferred tax asset) in 2017 and 20.1% in 2016. The decrease in the effective tax rate from
prior years is primarily due to the enactment of the Tax Cuts and Jobs Act (“Tax Act”) on December 22, 2017. The Tax Act revised
U.S. corporate income tax laws most significantly by lowering the statutory corporate federal income tax rate from 35% to 21%,
eliminating or reducing the deductibility of certain meals and entertainment expenses, limiting the deduction of FDIC insurance
premiums, as well as modifying the deductibility of executive compensation through the elimination of the performance-based
compensation exception and changes to the definition of a covered employee. Additionally, our effective tax rate is lower in 2018
because we realized a $9.9 million income tax benefit from deductions claimed on our 2017 income tax returns associated with
various tax initiatives related to fixed assets and the pension plan, among other factors. We are currently forecasting an effective tax
rate for both first quarter 2019 and the full year to be approximately 17%-19%.
Our effective tax rate has historically varied from the federal statutory rate primarily due to tax-exempt income and tax credits.
Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the life insurance
contract program are the major components of tax-exempt income.
Table 7 reconciles reported income tax expense to that computed at the statutory tax rate of 21% for the year ended December 31,
2018 and 35% for the years ended December 31, 2017 and 2016.
TABLE 7. Income Taxes
(in thousands)
Taxes computed at statutory rate
Tax credits:
QZAB/QSCB
NMTC - Federal and State
LIHTC and other tax credits
Total tax credits
State income taxes, net of federal income tax benefit
Tax-exempt interest
Life insurance contracts
Employee share-based compensation
FDIC assessment disallowance
Return to provision adjustment
Impact of deferred tax asset re-measurement
Other, net
Income tax expense
Years Ended December 31,
2018
$
80,244
$
2017
107,952
2016
65,423
$
(3,038)
(7,941)
(365)
(11,344)
8,770
(10,803)
(2,019)
(1,380)
2,818
(9,942)
—
2,002
58,346
(2,570)
(6,716)
—
(9,286)
4,288
(18,870)
(5,360)
(5,824)
—
(120)
19,520
502
92,802
(2,756)
(7,678)
24
(10,410)
2,104
(14,497)
(4,833)
—
—
(549)
—
389
37,627
$
$
$
The reduction in tax benefit attributable to life insurance contracts in 2018 was due in part to a $3.3 million loss incurred in the
restructuring of a portion of our bank-owned life insurance contracts. These deductions were claimed on our 2017 tax return but had
not been recognized in our 2017 financial statements.
The main source of tax credits has been investments in tax-advantage securities and tax credit projects. These investments are made
primarily in the markets we serve and directed at tax credits issued under the Qualified Zone Academy Bonds (QZAB), Qualified
School Construction Bonds (QSCB), as well as Federal and State New Market Tax Credit (NMTC). The investments generate tax
47
credits which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes. The Tax
Act repealed the provisions related to tax credit bonds effective for bonds issued after December 31, 2017.
We have invested in NMTC projects through investments in our own CDE, as well as other unrelated CDEs. Federal tax credits from
NMTC investments are recognized over a seven-year period, while recognition of the benefits from state tax credits varies from three
to five years.
Based only on tax credit investments that have been made to date, and those anticipated to be made utilizing the remaining portion of
our $50 million NMTC allocation received in 2018, we expect to realize benefits from federal and state tax credits over the next three
years totaling $8.7 million, $6.4 million and $4.6 million for 2019, 2020 and 2021, respectively. We intend to continue making
investments in tax credit projects. However, our ability to access new credits will depend upon, among other factors, federal and state
tax policies and the level of competition for such credits.
At December 31, 2018, we had a net deferred tax asset of $23 million, which is net of a state valuation allowance. Several factors are
considered in determining the recoverability of the deferred tax assets, such as the history of taxable earnings, reversal of taxable
temporary differences, future taxable income and tax planning strategies. Based on our review of these factors, we have established a
$1.6 million valuation allowance for state net operating losses.
BALANCE SHEET ANALYSIS
Investment Securities
Our investment in securities was $5.7 billion at December 31, 2018, compared to $5.9 billion at December 31, 2017. The investment
security portfolio is managed by ALCO to assist in the management of interest rate risk and liquidity while providing an acceptable
rate of return. At December 31, 2018, the amortized cost of securities available for sale totaled $2.7 billion and securities held to
maturity totaled $3.0 billion compared to $2.9 billion and $3.0 billion, respectively, at December 31, 2017.
Our securities portfolio consists mainly of residential and commercial mortgage-backed securities and CMOs that are issued or
guaranteed by U.S. government agencies. We invest only in high quality investment grade securities with a targeted duration generally
between two and five and a half years. At December 31, 2018, the average expected maturity of the portfolio was 5.67 years with an
effective duration of 4.67 years and a nominal weighted-average yield of 2.75%. Management simulations indicate that the effective
duration would increase to 4.71 years with a 100 bp increase in the yield curve and increase to 4.80 years with a 200 bp increase. At
December 31, 2017, the average expected maturity of the portfolio was 5.78 years with an effective duration of 4.74 years and a
nominal weighted-average yield of 2.41%. The change in expected maturity, effective duration, and nominal weighted-average yield
is primarily related to the fourth quarter 2018 securities portfolio restructure that included selling $481 million low yielding securities
(book yield of 1.97%) and reinvesting in $260 million of similar securities at higher yields (book yield of 3.59%). The weighted
average yield also benefitted from a combination of paydowns at below average yields and purchases at higher yields in 2018. As a
result of the restructure, we expect the yield on the investment portfolio to increase by 10 bps in 2019.
There were no investments in securities of a single issuer, other than U.S. Treasury and U.S. government agency securities and
mortgage-backed securities issued or guaranteed by U.S. government agencies, that exceeded 10% of stockholders’ equity. We do not
invest in subprime or “Alt A” home mortgage-backed securities. Investments classified as available for sale are carried at fair value,
while held to maturity securities are carried at amortized cost. Unrealized holding gains (losses) on available for sale securities are
excluded from net income and are recognized, net of tax, in other comprehensive income and in AOCI, a separate component of
stockholders’ equity.
48
The amortized cost of securities at December 31, 2018 and 2017 was as follows:
TABLE 8. Debt Securities by Type
(in thousands)
Available for sale securities
U.S. Treasury and government agency securities
Municipal obligations
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
Corporate debt securities
Held to maturity securities
U.S. Treasury and government agency securities
Municipal obligations
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
December 31,
2018
2017
$
74,339 $
246,713
1,468,912
799,060
163,282
3,500
2,755,806 $
50,000 $
688,201
640,393
357,175
1,243,778
2,979,547 $
$
$
$
99,535
245,997
1,729,989
704,518
165,518
3,500
2,949,057
50,000
723,094
725,748
317,185
1,161,484
2,977,511
The amortized cost, fair value and yield of debt securities at December 31, 2018, by final contractual maturity, are presented in the
table below. Securities are classified according to their final contractual maturities without consideration of scheduled and
unscheduled principal amortization, potential prepayments or call options. Accordingly, actual maturities will differ from their
reported contractual maturities. The expected average maturity years presented in the tables includes scheduled principal payments
and assumptions for prepayments.
TABLE 9. Debt Securities Maturities by Type
Contractual Maturity
Over One
Year
Through
Five Years
Over Five
Years
Through
Ten Years
One Year
or Less
Over
Ten
Years
Total
Fair
Value
Weighted
Average
Yield (te)
Expected
Average
Maturity
Years
(in thousands)
Available for sale
U.S. Treasury and government
agency securities
Municipal obligations
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
Other debt securities
Total debt securities
Fair Value
$
$
$
— (cid:3) $
—
362
—
—
1,500
1,862 (cid:3) $
1,868 (cid:3) $
— (cid:3) $
19,437
19,988
14,974
48,965
2,000
105,364 (cid:3) $
106,255 (cid:3) $
— (cid:3) $
219,434
196,668
784,086
—
—
1,200,188 (cid:3) $
1,163,870 (cid:3) $
74,339 (cid:3) $
7,842
1,251,894
—
114,317
—
1,448,392 (cid:3) $
1,419,044 (cid:3) $
74,339 (cid:3) $
246,713
1,468,912
799,060
163,282
3,500
2,755,806 (cid:3) $
2,691,037
71,706
240,426
1,443,402
770,077
161,926
3,500
2,691,037
Weighted Average Yield
2.46%
3.67%
2.81%
2.76%
2.82%
$
Held to maturity
U.S. Treasury and government
agency securities
Municipal obligations
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
Total debt securities
Fair Value
Weighted Average Yield
$
$
— $
18,654
—
—
—
18,654 $
18,676 (cid:3)
5.59%
50,000 $
71,946
5,915
—
—
127,861 $
126,495 (cid:3)
2.82%
— $
594,032
408,006
357,175
66,633
1,425,846 $
1,405,836 (cid:3)
2.81%
— $
3,569
226,472
—
1,177,145
1,407,186 $
1,384,849 (cid:3) $
2.54%
50,000 $
688,201
640,393
357,175
1,243,778
2,979,547 $
2,935,856
2.70%
49,522
681,045
635,737
346,669
1,222,883
2,935,856
49
2.60%
3.64%
2.81%
2.65%
2.68%
2.84%
2.82%
1.67%
3.86%
1.92%
2.72%
2.56%
2.70%
8.6
7.0
5.8
7.4
4.6
1.4
6.4
1.1
6.6
4.0
7.3
4.3
5.0
Loan Portfolio
Total loans at December 31, 2018 were $20.0 billion, compared to $19.0 billion at December 31, 2017. The $1.0 billion, or 5%,
increase is primarily attributable to organic loan growth. The growth in loans is net of a $95 million decrease related to the sale of the
consumer finance company during the first quarter of 2018 and the sale of $116 million of lower-yielding municipal loans during the
fourth quarter of 2018. Management expects approximately $200 to $250 million of period-end loan growth for the first quarter of
2019 due to typical seasonality. Management expects full year average growth percentage for 2019 to be in the mid-single digits.
The composition of our loan portfolio was as follows:
TABLE 10. Loans Outstanding by Type
(in thousands)
Total loans:
Commercial non-real estate
Commercial real estate - owner occupied
Total commercial & industrial
Commercial real estate - income producing
Construction and land development
Residential mortgages
Consumer
Total loans
2018
2017
December 31,
2016
2015
2014
$
8,620,601 $
2,457,748
11,078,349
2,341,779
1,548,335
2,910,081
2,147,867
6,044,060
1,722,140
7,766,200
1,421,908
1,106,761
1,894,181
1,706,226
$ 20,026,411 $ 19,004,163 $ 16,752,151 $ 15,703,314 $ 13,895,276
8,297,937 $
2,142,439
10,440,376
2,384,599
1,373,421
2,690,472
2,115,295
6,995,824 $
1,859,469
8,855,293
1,553,082
1,151,950
2,049,524
2,093,465
7,613,917 $
1,906,821
9,520,738
2,013,890
1,010,879
2,146,713
2,059,931
The commercial and industrial (“C&I”) loan portfolio includes both commercial non-real estate and commercial real estate – owner
occupied loans. C&I loans totaled $11.1 billion, or 55.3% of the total loan portfolio, at December 31, 2018, an increase of $0.6 billion
from December 31, 2017. The growth was across the Company’s entire footprint and in most major lines including real estate, retail,
manufacturing, transportation, and finance and insurance.
Our commercial and industrial customer base is diversified over a range of industries, including energy, wholesale and retail trade in
various durable and nondurable products and the manufacture of such products, marine transportation and maritime construction,
healthcare, financial and professional services, and agricultural production. We lend mainly to middle-market and smaller commercial
entities, although we do participate in larger shared-credit loan facilities with businesses well known to the relationship officers and
generally operating in our market areas. Shared national credits funded at December 31, 2018 totaled approximately $2.0 billion, or
10% of total loans. Approximately $539 million of our shared national credits at December 31, 2018 were with energy-related
borrowers. Effective January 1, 2018, the regulatory definition of a shared national credit was changed to include an aggregate loan
commitment threshold of $100 million, up from $20 million previously.
Loans outstanding to the energy-related industry customers totaled $1.1 billion at December 31, 2018, down $665 million compared to
$1.7 billion at December 31, 2014, the beginning of the energy cycle. The energy portfolio represented 5.3% of total loans at
December 31, 2018, which is at our target concentration level. This concentration is a significant reduction from 12.4% of total loans
at the end of 2014. Approximately $557 million, or 53%, of the portfolio is comprised of loans to customers engaged in oil and gas
exploration and production (“E&P”), which is primarily supported by proved developed producing reserves (“reserve-based lending”),
and transportation and storage (“midstream”). The E&P customers are diversified across a number of basins in the U.S. and the Gulf
of Mexico. The remaining $502 million, or 47%, of the energy portfolio is comprised of loans to customers that provide onshore and
offshore services and products to support exploration and production activities (“support services”). We intend to maintain our total
energy concentration at approximately 5% while continuing to shift the mix within the portfolio to approximately one-third support
services subsector and two-thirds E&P and midstream subsectors.
Our concentration in healthcare and social assistance of approximately $1.1 billion is relatively flat year over year. This portfolio is
diverse across industry types, including lending to medical practitioners, hospitals, post-acute and outpatient care, life sciences,
behavioral health services and various other health-related services. Our criticized levels in this portfolio are down considerably year
over year at 1.8% at December 31, 2018 compared to 3.2% at December 31, 2017.
Commercial real estate – income producing loans totaled $2.3 billion at December 31, 2018, a decrease of $42.8 million, or 2%, from
December 31, 2017. Construction and land development loans totaled approximately $1.5 billion at December 31, 2018, compared to
$1.4 billion at December 31, 2017.
50
Residential mortgages were up $219.6 million, or 8%, from December 31, 2017. The increase in mortgage loans is due primarily to
success in originating private banking loans. Consumer loans totaled $2.1 billion at December 31, 2018, an increase of $32.6 million,
or 2%, compared to December 31, 2017, which is net of a $95 million reduction for the sale of the consumer finance subsidiary.
The following tables provide detail of the more significant industry concentrations for our commercial and industrial loan portfolio,
which is based on NAICS codes, and property type concentrations of our commercial real estate - income producing portfolios.
TABLE 11. Commercial & Industrial Loans by Industry Concentration
($ in thousands)
Commercial & industrial loans:
Real estate and rental and leasing
Health care and social assistance
Mining, quarrying, and oil and gas extraction (a)
Retail trade (a)
Manufacturing (a)
Public administration
Transportation and warehousing (a)
Construction (a)
Finance and insurance
Wholesale trade (a)
Professional, scientific, and technical services (a)
Other services (except public administration) (a)
Accommodation and food services
Educational services
Other
December 31,
2018
2017
Balance
Pct of
Total
Balance
$
1,349,674
1,120,799
1,016,870
902,783
866,079
814,442
717,746
643,932
605,663
602,052
462,984
436,390
383,087
359,997
795,851
12 %
$
10
1,122,389
1,118,288
9
8
8
7
7
6
6
6
4
4
3
3
7
992,179
757,998
745,744
840,773
609,011
619,956
501,157
578,037
429,637
356,787
324,619
462,595
981,206
Pct of
Total
11 %
11
10
7
7
8
6
6
5
6
4
3
3
4
9
Total commercial & industrial loans
$
11,078,349
100 %
$
10,440,376
100 %
(a)(cid:3) The $1.1 billion total energy-related lending portfolio at December 31, 2018 and 2017 includes loans within each of these industry categories
TABLE 12. Commercial Real Estate – Income Producing by Property Type Concentration
($ in thousands)
Commercial real estate - income producing loans:
Retail
Office
Hotel/motel
Multifamily
Industrial
Other
Total commercial real estate - income producing loans
2018
Balance
507,129
444,973
374,430
332,145
311,933
371,169
2,341,779
$
$
December 31,
Pct of
Total
22 %
19
16
14
13
16
100 %
2017
Balance
526,929
441,539
328,238
341,783
272,133
473,977
2,384,599
$
$
Pct of
Total
22 %
19
14
14
11
20
100 %
51
The following table shows average loans by category for each of the prior three years and the effective taxable equivalent yield as a
percentage of total loans:
TABLE 13. Average Loans
($ in thousands)
Total loans:
Commercial & real estate loans
Residential mortgages
Consumer
Total loans
Average
Balance
2018
Yield
(te)
Pct of
Total
Years Ended December 31,
2017
Yield
(te)
Average
Balance
Pct of
Total
Average
Balance
2016
Yield
(te)
Pct of
Total
$
$
14,487,335
2,794,804
2,096,289
19,378,428
4.52 %
4.10
5.60
4.58 %
75 % $
14
11
100 % $
13,751,022
2,445,787
2,084,076
18,280,885
4.25 %
3.89
5.52
4.35 %
75 % $
13
12
100 % $
11,959,204
2,044,718
2,060,671
16,064,593
3.83 %
4.06
5.13
4.01 %
74 %
13
13
100 %
(a)(cid:3) Taxable equivalent (te) amounts are calculated using a marginal federal income tax rate of 21% for the year ended December 31, 2018 and 35% for the years
ended December 31, 2017 and 2016.
As a part of a balance sheet restructure, we sold approximately $116 million of lower-yielding municipal loans with a book yield of
2.02% in 2018. Management expects that transaction will increase the loan yield by 2 bps in 2019.
The following table sets forth, for the periods indicated, the approximate contractual maturity by type of the loan portfolio:
TABLE 14. Loan Maturities by Type
December 31, 2018
(in thousands)
Total loans:
Commercial non-real estate
Commercial real estate - owner occupied
Total commercial & industrial
Commercial real estate - income producing
Construction and land development
Residential mortgages
Consumer
Total loans
Maturity Range
Within
One Year
After One
Through
Five Years
After Five
Years
Total
$
$
2,225,435 $
184,185
2,409,620
426,623
294,857
38,667
165,513
3,335,280 $
4,582,407 $
1,011,752
5,594,159
1,430,380
664,466
27,610
570,112
8,286,727 $
1,812,759 $
1,261,811
3,074,570
484,776
589,012
2,843,804
1,412,242
8,404,404 $
8,620,601
2,457,748
11,078,349
2,341,779
1,548,335
2,910,081
2,147,867
20,026,411
The sensitivity to interest rate changes for the portion of our loan portfolio that matures after one year is shown below.
TABLE 15. Loan Sensitivity to Changes in Interest Rates
(in thousands)
Total loans:
Commercial non-real estate
Commercial real estate - owner occupied
Total commercial & industrial
Commercial real estate - income producing
Construction and land development
Residential mortgages
Consumer
Total loans
December 31, 2018
Fixed Rate
Floating Rate
Total
$
$
3,029,315 $
1,694,931
4,724,246
915,545
594,253
1,803,053
776,189
8,813,286 $
3,365,851 $
578,632
3,944,483
999,611
659,225
1,068,361
1,206,165
7,877,845 $
6,395,166
2,273,563
8,668,729
1,915,156
1,253,478
2,871,414
1,982,354
16,691,131
52
Nonperforming Assets
The following table sets forth nonperforming assets by type for the periods indicated, consisting of nonaccrual loans, troubled debt
restructurings (TDRs) and other real estate owned (ORE) and foreclosed assets. Loans past due 90 days or more and still accruing are
also disclosed.
TABLE 16. Nonperforming Assets
(in thousands)
Loans accounted for on a nonaccrual basis: (a)
Commercial non-real estate
Commercial non-real estate - restructured
Total commercial non-real estate
Commercial real estate - owner occupied
Commercial real estate - owner occupied - restructured
Total commercial real estate - owner occupied
Commercial real estate - income producing
Commercial real estate - income producing - restructured
Total commercial real estate - income producing
Construction and land development
Construction and land development -restructured
Total construction and land development
Residential mortgage
Residential mortgage - restructured
Total residential mortgage
Consumer
Total nonaccrual loans
Restructured loans - still accruing:
Commercial non-real estate
Commercial real estate - owner occupied
Commercial real estate - income producing
Construction and land development
Residential mortgage
Consumer
Total restructured loans - still accruing
Total nonperforming loans
ORE and foreclosed assets
Total nonperforming assets (b)
Loans 90 days past due still accruing (c)
Total restructured loans
Ratios:
Nonperforming assets to loans plus ORE
and foreclosed assets
Allowance for loan losses to nonperforming loans
and accruing loans 90 days past due
Loans 90 days past due still accruing to loans
2018
2017
December 31,
2016
2015
2014
$
$
$
$
$
$
26,617
84,036
110,653
16,682
213
16,895
4,991
—
4,991
2,134
12
2,146
34,594
1,272
35,866
16,744
187,295
130,075
7,286
398
9
546
728
139,042
326,337
26,270
352,607
5,589
224,575
$
$
$
$
$
$
63,387
89,476
152,863
23,549
2,440
25,989
9,054
5,520
14,574
3,791
16
3,807
38,703
1,777
40,480
15,087
252,800
114,224
1,578
3,827
—
480
384
120,493
373,293
27,542
400,835
27,766
219,722
$
$
$
$
$
$
170,703
78,334
249,037
13,433
981
14,414
13,147
807
13,954
3,651
898
4,549
22,815
851
23,666
12,350
317,970
32,887
493
5,939
—
259
240
39,818
357,788
18,943
376,731
3,039
121,689
$
$
$
$
$
$
83,677
5,066
88,743
8,841
1,160
10,001
10,225
590
10,815
15,993
1,301
17,294
23,082
717
23,799
9,061
159,713
—
1,638
2,473
20
106
60
4,297
164,010
27,133
191,143
7,653
13,131
$
$
$
$
$
$
14,248
1,263
15,511
13,589
1,911
15,500
12,428
691
13,119
5,187
2,378
7,565
21,348
746
22,094
5,748
79,537
424
2,116
1,464
4,905
54
8
8,971
88,508
59,569
148,077
4,825
15,960
1.76 %
2.11 %
2.25 %
1.22 %
1.06 %
58.60 %
0.03 %
54.18 %
0.15 %
63.58 %
0.02 %
105.54 %
0.05 %
137.96 %
0.03 %
(a)(cid:3)
(b)(cid:3)
(c)(cid:3)
Nonaccrual loans and accruing loans past due 90 days or more do not include acquired credit-impaired loans which were written down to fair value upon
acquisition and accrete interest income the remaining life of the loan.
Includes total nonaccrual loans, total restructured loans—still accruing and ORE and foreclosed assets.
Excludes accruing TDR already reflected as a restructured accruing loan.
Nonperforming assets decreased $48 million, or 12%, in 2018 to $352.6 million at December 31, 2018. Nonaccrual loans decreased
$65.5 million from December 31, 2017, with energy-related nonaccruals down $36 million and nonenergy-related nonaccruals down
$29.5 million.
Loans modified in TDRs totaled $224.6 million at December 31, 2018 compared to $219.7 million at December 31, 2017, including
$85.5 million and $99.2 million, respectively, of loans reported in nonaccrual loans. TDRs arise when a borrower is experiencing, or is
expected to experience, financial difficulties in the near-term and, consequently, a modification that would otherwise not be
considered is granted to the borrower. Certain loans modified in a TDR may continue to accrue interest when the individual facts and
circumstances of the borrower indicate that we will collect all amounts due. Accruing TDRs totaled $139 million, or 43% of
nonperforming loans at December 31, 2018, up from $120.5 million, or 32% of nonperforming loans at December 31, 2017. The
$18.5 million increase is mainly attributable to energy-related loans that moved from nonaccrual to accruing.
Nonenergy-related nonperforming loans totaling $130 million at December 31, 2018 are spread across industries and geographies and
do not indicate any systemic risk in our portfolios. We continue to make progress in working through our problem credits in both our
energy and nonenergy portfolios and expect that improvement to continue into 2019, assuming no significant changes in economic
conditions. Our TDR balances will likely remain elevated until we are able to work them into conforming instruments.
53
Allowance for Loan and Lease Losses
The allowance for loan and lease losses represents management’s estimate of probable credit losses inherent in the loan and lease
portfolios at period end. We determine the allowance in accordance with applicable accounting literature as well as regulatory
guidance related to receivables and contingencies. Management, with Board of Directors oversight, is responsible for ensuring the
adequacy of the allowance. The allowance is evaluated for adequacy on at least a quarterly basis. For a discussion of this process, see
Note 1 to the consolidated financial statements located in Item 8. “Financial Statements and Supplementary Data.”
At December 31, 2018, the allowance for loan losses was $194.5 million compared to $217.3 million at December 31, 2017. This
decrease is attributable to a reduction in the allowance for energy-related loans, partially offset by an increase in the non-energy
allowance. The energy-related allowance decreased $37.0 million to $33.2 million at December 31, 2018, and represented 3.1% of
energy loans outstanding. Management believes the allowance level for the energy portfolio, as built in previous years, remains
adequate and allowed the reserve to decline with charge-offs in 2018. The non-energy allowance was up $14.2 million to $161.3
million in 2018, reflecting continued growth and diversification of the portfolio.
Criticized commercial loans totaled $626 million at December 31, 2018, down from $1.1 billion at December 31, 2017. Criticized
loans are defined as those having potential weaknesses that deserve management’s close attention (risk-rated special mention,
substandard and doubtful), including both accruing and nonaccruing loans. Criticized energy-related credits decreased approximately
$270 million and criticized non-energy commercial credits decreased $181 million. As of December 31, 2018, criticized loans in the
energy portfolio were $279 million, or approximately 26% of that portfolio, down from 52% a year earlier. Energy-related loans
delinquent for more than 30 days, including accrual and nonaccrual loans, totaled $33.6 million, or 3%, of the energy portfolio at
December 31, 2018.
Management continues to closely monitor the ability of the our energy related customers to service their debt, including reviews of
customers’ balance sheets, leverage ratios, collateral values and other critical lending metrics. We will continue to maintain a higher
than average reserve on the energy portfolio until remaining criticized energy credit percentages normalize. The Company has
recorded approximately $95 million in energy related net charge-offs since the start of the cycle in late 2014, including net charge-offs
of $18.2 million in 2018.
The ratio of the allowance for loan losses as a percentage of period-end loans was 0.97% at December 31, 2018, compared to 1.14% at
December 31, 2017. The reduction in coverage is due to the decline in energy allowance levels with improving credit metrics. The
nonenergy allowance coverage to total loans of 0.85% at December 31, 2018, is up 3 bps compared to year-end 2017, reflecting higher
coverage on the commercial portfolio with lower coverage in residential mortgage with continued positive trends and lower consumer
mortgage coverage due to the sale of our consumer finance subsidiary. Management believes the coverage levels are consistent with
the risk inherent in the growing nonenergy portfolio.
Net charge-offs during 2018 were $52.3 million, or 0.27%, of average total loans down from charge-offs of $68.6 million, or 0.37% of
average total loans, for the year ended December 31, 2017. Energy net charge-offs contributed $18.2 million and $35.0 million to total
losses for the years ended December 31, 2018 and 2017, respectively. Commercial nonenergy net charge-offs increased $9.8 million
during 2018 to $16.8 million, with the increase being due to a few relatively large charges during the year. Residential mortgage loans
reflected a net recovery in 2018 of $1.6 million as compared to net charge-offs of $1.8 million in 2017. Consumer net charge-offs
were down $6.0 million in 2018 to $18.8 million, due mostly to an $8.0 million reduction related to the sale of our consumer finance
subsidiary, partially offset by increases in other direct and indirect lending.
54
The following table sets forth activity in the allowance for loan losses for the periods indicated:
TABLE 17. Summary of Activity in the Allowance for Loan Losses
(in thousands)
Allowance for loan losses at beginning of period
Loans charged-off:
Commercial non real estate
Commercial real estate - owner occupied
Total commercial & industrial
Commercial real estate - income producing
Construction and land development
Total Commercial
Residential mortgages
Consumer
Total charge-offs
Recoveries of loans previously charged-off:
Commercial non real estate
Commercial real estate - owner occupied
Total commercial & industrial
Commercial real estate - income producing
Construction and land development
Total commercial
Residential mortgages
Consumer
Total recoveries
Total net charge-offs
Provision for loan losses
Decrease in allowance as a result of sale of subsidiary
Decrease in FDIC loss share receivable
Allowance for loan losses at end of period
$
Ratios:
Gross charge-offs to average loans
Recoveries to average loans
Net charge-offs to average loans
Allowance for loan losses to period-end loans
2018
217,308
2017
229,418
$
$
December 31,
2016
181,179
$
2015
128,762
$
2014
133,626
$
40,069
8,059
48,128
1,633
334
50,095
614
23,913
74,622
14,385
317
14,702
221
96
15,019
2,179
5,162
22,360
52,262
36,116
(6,648)
—
194,514
$
51,479
558
52,037
259
696
52,992
2,839
31,430
87,261
7,526
848
8,374
988
1,603
10,965
1,064
6,680
18,709
68,552
58,968
—
(2,526)
217,308
$
42,620
1,847
44,467
347
982
45,796
1,363
26,107
73,266
4,084
749
4,833
991
2,086
7,910
895
5,998
14,803
58,463
110,659
—
(3,957)
229,418
$
8,361
1,392
9,753
2,833
2,834
15,420
2,407
16,831
34,658
5,046
2,634
7,680
763
3,089
11,532
771
4,534
16,837
17,821
73,038
—
(2,800)
181,179
$
7,034
5,294
12,328
3,635
4,918
20,881
3,293
15,325
39,499
3,532
1,505
5,037
1,614
7,138
13,789
645
5,445
19,879
19,620
33,840
—
(19,084)
128,762
0.39 %
0.12 %
0.27 %
0.97 %
0.47 %
0.10 %
0.38 %
1.14 %
0.45 %
0.09 %
0.37 %
1.37 %
0.20 %
0.09 %
0.11 %
1.15 %
0.24 %
0.11 %
0.13 %
0.93 %
An allocation of the loan loss allowance by major loan category is set forth in the following table. The decrease in the allowance for
commercial non-real estate loans is primarily attributable to the energy-related portfolio discussed above.
TABLE 18. Allocation of Allowance for Loan Losses by Category
($ in thousands)
Total loans:
Commercial non-real estate
Commercial real estate -
owner occupied
Total commercial
& industrial
Commercial real estate -
income producing
Construction and land
development
Total commercial
Residential mortgages
Consumer
Total loans
$
2018
2017
December 31,
2016
2015
2014
Allowance
for
Loan
Losses
% of
Total
Allowance
Allowance
for
Loan
Losses
% of
Total
Allowance
Allowance
for
Loan
Losses
% of
Total
Allowance
Allowance
for
Loan
Losses
% of
Total
Allowance
Allowance
for
Loan
Losses
% of
Total
Allowance
$
97,752
50 $
127,918
59 $
147,052
64 $
109,428
60 $
51,169
13,757
7
12,962
6
11,083
5
9,858
6
13,536
111,509
57
140,880
65
158,135
69
119,286
66
64,705
17,638
9
13,709
6
13,509
6
6,041
3
7,546
15,647
144,794
23,782
25,938
194,514
8
74
12
14
100 $
7,372
161,961
24,844
30,503
217,308
3
75
11
14
100 $
6,271
177,915
25,361
26,142
229,418
3
78
11
11
100 $
5,642
130,969
25,353
24,857
181,179
3
72
14
14
100 $
6,421
78,672
28,660
21,430
128,762
55
40
10
50
6
5
61
22
17
100
Short-Term Investments
Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, increased $18.7 million from
December 31, 2017 to a total of $111.1 million at December 31, 2018. Average short-term investments for 2018 totaled $163.3
million, a $199.8 million, or 55%, decrease from 2017. Short-term liquidity assets are held to ensure funds are available to meet the
cash flow needs of both borrowers and depositors.
Deposits
Total deposits at December 31, 2018 were $23.1 billion, up $0.9 billion, or 4%, from December 31, 2017. Average total deposits in
2018 of $22.2 billion were up $1.3 billion, or 6%, over 2017.
At December 31, 2018, noninterest-bearing deposits totaled $8.5 billion, a $0.2 billion, or 2%, increase over December 31, 2017. The
proportion of noninterest-bearing deposits in the overall deposit mix was 36.7% at December 31, 2018 compared to 37.3% at the end
of December 31, 2017.
Interest-bearing transaction and savings deposits decreased $0.2 billion to $8.0 billion at December 31, 2018 compared to $8.2 billion
at December 31, 2017.
Interest-bearing public fund deposits at December 31, 2018 were relatively unchanged compared to December 31, 2017. Year-end
public fund account balances are subject to annual fluctuations dependent upon a number of factors, including the timing of tax
collections. Seasonal cash inflows from public entities in the fourth quarter of each year typically results in higher balances than at
other times during the year with subsequent reductions in the first quarter of the following year.
Time deposits at December 31, 2018 increased $0.9 billion, or 34%, from December 31, 2017. This increase was primarily due to a
$411 million increase in brokered time deposits, $347 million increase in time deposits under $250,000, and a $156 million increase in
time deposits over $250,000. The use of brokered deposits as a funding source is subject to strict parameters regarding the amount,
interest rate and maturity.
Table 19 sets forth average balances and weighted-average rates paid on deposits for each year in the three-year period ended
December 31, 2018, as well as the percentage of total deposits for each category. Table 20 sets forth the maturities of time certificates
of deposit greater than $250,000 at December 31, 2018.
TABLE 19. Average Deposits
($ in millions)
Interest-bearing deposits:
Interest-bearing transaction deposits
Money market deposits
Savings deposits
Time deposits
Public Funds
Total interest-bearing deposits
$
Noninterest bearing demand deposits
Total deposits
$
2018
2017
2016
Average
Balance
Rate
Mix
Average
Balance
Rate
Mix
Average
Balance
Rate
Mix
1,436.1 0.14%
3,700.9 0.43
1,642.3 0.01
2,383.1 0.90
2,261.7 0.41
11,424.1 0.43%
7,232.2
18,656.3
7.7 %
19.8
8.8
12.8
12.1
61.2
38.8
100.0 %
1,651.4 0.25 %
4,338.9 0.57
1,765.8 0.03
2,632.9 1.06
2,664.9 0.72
13,053.9 0.59 %
7,777.7
20,831.6
7.9 % $
20.8
8.6
12.6
12.8
62.7
37.3
100.0 % $
1,666.4 0.38%
4,520.1 0.77
1,770.9 0.02
3,265.1 1.59
2,849.3 1.30
14,071.8 0.93%
8,095.2
22,167.0
7.5 % $
20.4
8.0
14.7
12.9
63.5
36.5
100.0 % $
56
TABLE 20. Maturity of Time Certificates of Deposit greater than or equal to $250,000*
(in thousands)
Three months
Over three months through six months
Over six months through one year
Over one year
Total
* Includes public fund time deposits
Short-Term Borrowings
December 31,
2018
198,112
269,236
329,619
235,547
1,032,514
$
$
The $1.2 billion of FHLB borrowings at December 31, 2018 consists of three fixed rate notes totaling $250 million that mature in
2019 and six variable rate term notes totaling $910 million maturing from 2020 to 2026. These notes reprice either monthly or
quarterly and may be repaid at our option, either in whole or in part, on any monthly repricing date subject to a two week advanced
notice requirement.
Table 21 sets forth balances of short-term borrowings for each of the past three years. Short-term borrowings consist of federal funds
purchased, securities sold under agreements to repurchase and borrowings from the FHLB. Customer repurchase agreements are a
significant source of customer funding. These agreements are offered mainly to commercial customers to assist them with their
ongoing cash management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for
corporate or investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, the
amounts available over time will vary.
TABLE 21. Short-Term Borrowings
($ in thousands)
Federal funds purchased:
Amount outstanding at period end
Average amount outstanding during period
Maximum amount at any month end during period
Weighted-average interest at period end
Weighted-average interest rate during period
Securities sold under agreements to repurchase:
Amount outstanding at period end
Average amount outstanding during period
Maximum amount at any month end during period
Weighted-average interest at period end
Weighted-average interest rate during period
FHLB borrowings:
Amount outstanding at period end
Average amount outstanding during period
Maximum amount at any month end during period
Weighted-average interest at period end
Weighted-average interest rate during period
Long-Term Debt
$
425 $
Years Ended December 31,
2018
2017
2016
39,968
100,925
2.00%
2.11%
428,599 $
456,000
500,345
0.32%
0.23%
140,754 $
27,063
140,754
1.00%
1.37%
430,569 $
501,719
587,569
0.17%
0.12%
2,275
14,052
59,475
0.38%
0.50%
358,131
454,571
579,099
0.04%
0.03%
1,160,104 $
1,694,804
2,410,258
2.48%
2.02%
1,132,567 $
1,478,114
2,061,652
1.35%
1.00%
865,000
943,570
1,175,000
0.54%
0.41%
$
$
At December 31, 2018, long-term debt totaled $225 million, down $81 million from December 31, 2017. The decrease was primarily
a result of the $89.2 million repayment of the remaining balance of the LIBOR plus 1.50% per annum three-year senior unsecured
single-draw term note facility that matured in December 2018.
57
Long-term debt at December 31, 2018 included $150 million of 30-year subordinated notes at a fixed rate of 5.95% maturing on June
15, 2045. Subject to prior approval by the Federal Reserve, we may redeem the notes in whole or in part on any interest payment date
on or after June 15, 2020. This debt qualifies as Tier 2 capital in the calculation of certain regulatory capital ratios.
Other long-term debt consists primarily of borrowings associated with tax credit fund activities.
Item 8. “Financial Statements and Supplementary Data—Note 9” provides further discussion on long-term debt.
Loan Commitments and Letters of Credit
In the normal course of business, the Bank enters into financial instruments, such as commitments to extend credit and letters of credit,
to meet the financing needs of their customers. Such instruments are not reflected in the accompanying consolidated financial
statements until they are funded, although they expose the Bank to varying degrees of credit risk and interest rate risk in much the
same way as funded loans.
Commitments to extend credit totaled $7.2 billion at December 31, 2018, of which $581.2 million represents commitments to extend
credit to energy-related borrowers. Commitments to lend include revolving commercial credit lines, non-revolving loan commitments
issued mainly to finance the acquisition and development of construction of real property or equipment, and credit card and personal
credit lines. The availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower
continues to meet credit standards established in the underlying contract, which may include the maintenance of sufficient collateral
coverage levels, payment and financial performance, and compliance with other contractual conditions. Loan commitments generally
have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower. Credit card and personal
credit lines are generally subject to adjustment or cancellation if the borrower’s credit quality deteriorates. A number of commercial
and personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do
not necessarily represent our future cash requirements.
A substantial majority of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial
commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit
enhancement to customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to
vendors of essential goods and services.
The contract amounts of these instruments reflect our exposure to credit risk. The Bank undertakes the same credit evaluation in
making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral
or other credit support.
The following table shows the commitments to extend credit and letters of credit at December 31, 2018 and 2017 according to
expiration date.
TABLE 22. Loan Commitments and Letters of Credit
(in thousands)
December 31, 2018
Commitments to extend credit
Letters of credit
Total
(in thousands)
December 31, 2017
Commitments to extend credit
Letters of credit
Total
Total
Less Than
1 Year
1-3
Years
3-5
Years
More Than
5 Years
Expiration Date
$
$
7,234,528 $
365,498
7,600,026 $
3,297,301 $
280,114
3,577,415 $
1,485,363 $
36,633
1,521,996 $
1,542,817 $
48,751
1,591,568 $
909,047
—
909,047
Total
Less Than
1 Year
1-3
Years
3-5
Years
More Than
5 Years
Expiration Date
$
$
6,689,033 $
348,377
7,037,410 $
2,813,301 $
298,927
3,112,228 $
1,610,457 $
44,186
1,654,643 $
1,334,392 $
5,132
1,339,524 $
930,883
132
931,015
58
ENTERPRISE RISK MANAGEMENT
We proactively manage risks to capture opportunities and maximize shareholder value. We balance revenue generation and
profitability with the inherent risks of our business activities. Enterprise risk management helps protect shareholder value by
assessing, monitoring, and managing the risks associated with our businesses. Strong risk management practices enhance decision-
making, facilitate successful implementation of new initiatives, and where appropriate, support undertaking greater levels of well-
managed risk to drive growth and achieve strategic objectives. Our risk management culture integrates a board-approved risk appetite
with senior management direction and governance to facilitate the execution of the Company’s strategic plan. This integration ensures
the daily management of risks by product types and continuous corporate monitoring of the levels of risk across the Company. We
make changes to our enterprise risk management program and risk governance framework as described here at the direction of senior
management and the Board of Directors to capture opportunities and to respond to changes in strategic, business, and operational
environments.
Risk Categories and Definitions
Consistent with other participants in the financial services industry, the primary risk exposures of the Company are credit, market,
liquidity, operational, legal, reputational, and strategic. We have adopted these seven risk categories as outlined by the Federal
Reserve Board and other bank regulators to govern the risk management of banks and bank holding companies. Oversight
responsibility for these categories is assigned within our risk committee governance structure.
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
Credit risk arises from the potential that a borrower or counterparty will fail to perform on an obligation.
Market risk is a financial institution’s condition resulting from adverse movements in market rates or prices, such as
interest rates, foreign exchange rates, or equity prices.
Liquidity risk is the potential that an institution will be unable to meet its obligations as they come due because of an
inability to liquidate assets or obtain adequate funding (referred to as “funding liquidity risk”) or that it cannot easily
unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or
market disruptions (“market liquidity risk”).
Operational risk is the potential that inadequate information systems, operational problems, breaches in internal controls,
breaches in customer data, fraud, or unforeseen catastrophes will result in unexpected losses. Consistently and
interchangeably for the Company, Basel II defines this risk as the risk of loss resulting from inadequate or failed internal
processes, people and systems, or from external events. The Company assesses compliance risk, the risk to current or
anticipated earnings or capital arising from violations of laws, rules or regulations, or from non-conformance with
prescribed practices, internal policies and procedures or ethical standards, as a subcategory of operational risk.
Legal risk is the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively
affect the operations or condition of a banking organization.
Reputational risk is the potential that negative publicity regarding an institution’s business practices, whether true or not,
will cause a decline in the customer base, costly litigation, or revenue reductions. The Company also recognizes its
reputation with shareholders and associates is an important factor of reputational risk.
Strategic risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from adverse
business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the competitive
landscape of banking and financial services industries and operating environment.
59
Risk Committee Governance Structure
Effective risk management governance requires active oversight, participation, and interaction by senior management and the Board of
Directors. Our enterprise risk management framework uses a tiered risk/reward committee structure to facilitate the timely discussion
of significant risks, issues and risk mitigation strategies to inform management and the Board’s decision making. Additionally, the
committee structure provides ongoing oversight and facilitates escalation within assigned risk committees. Following is a summary of
our risk governance structure and related responsibilities:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
Board risk committees. The Company’s Board of Directors has established a Board Risk Committee and Credit Risk
Management Subcommittee of the Board Risk Committee to oversee the effective establishment of a risk governance
framework, provide for an independent Credit Review assurance function, ensure the overall corporate risk profile is
within its risk appetite, and direct changes or make recommendations to the Board of Directors when determined
necessary. Additionally, the Board of Directors has established an Audit Committee to provide independent oversight on
the effectiveness of these matters and the Company’s internal control environment. The Board Risk Committee is chaired
by an independent director. The Board has designated Ms. Joan Teofilo, an independent director who serves on the Board
Risk Committee, as its risk management expert.
Governance committees. The Capital Committee (CAPCO) of the Company serves as the senior level management
risk/reward committee and oversees the business strategy, organizational structure, capital planning, and liquidity
strategies for the Company. CAPCO directly oversees the strategic and reputation risk categories, which include litigation
strategy and the development of capital stress testing within the Company’s risk governance framework. CAPCO drives
business strategy development and execution, provides corporate financial oversight, and is responsible for portfolio risk
committee oversight. CAPCO provides oversight of the portfolio risk/reward committees to ensure tactics to address
business strategy changes are properly vetted and adopted, and protect the Company’s reputation.
Portfolio committees. The Company has three portfolio risk/reward committees focusing on credit (CREDCO), market
and liquidity (ALCO), and operational, legal and compliance (OPCO) risk categories. These committees review and
monitor the risk categories in a portfolio context ensuring risk assessment and management processes are being effectively
executed to identify and manage risk and direct changes and escalate issues to CAPCO and Board Risk Committees when
needed. The committees also monitor the risk portfolios for changes to the Company’s risk profile as well as ensure the
risk portfolio is performing within the board-approved risk appetite. Portfolio committees report to CAPCO.
Risk Leadership and Organization
The risk management function of the Company, which includes the Chief Risk Officer, is led by the President of Hancock Whitney
Bank. The Chief Risk Officer provides overall vision, direction and leadership regarding our enterprise risk management program.
The Chief Risk Officer exercises independent judgment and reporting of risk through a direct working relationship with the Board
Risk Committee, and the Chief Credit Officer has the same role with the Credit Risk Management Subcommittee. The functional areas
reporting to the Chief Risk Officer are the enterprise risk management program office, operational risk management, model validation,
regulatory relations, corporate insurance and the enterprise-wide compliance program. The Chief Risk Officer also works closely with
the Chief Internal Auditor to provide assurance to the Board and senior management regarding risk management controls and their
effectiveness. The Chief Internal Auditor reports to the Board’s Audit Committee to assure independence of the internal audit
function. Other risk management functions reporting to the President include the Chief Credit Officer and Bank Secrecy Act (BSA)
Officer.
Credit Risk
The Bank’s primary lending focus is to provide commercial, consumer, and real estate loans to consumers, to small and middle market
businesses, to larger corporate clients in their respective market areas, and to state, county, and municipal government entities.
Diversification in the loan portfolio is a means to reduce the risks associated with economic fluctuations. The Bank has no significant
concentrations of loans to individual borrowers or foreign entities.
Approximately 5% of the Bank’s loan portfolio consists of commercial non-real estate loans to the energy and energy-related sectors.
These energy-based loans are actively reviewed, reported and managed. This level of lending to the energy sector is expected given
our footprint and is an area of specialization and core competency of our organization. Managing collateral is an essential component
of managing the Bank’s energy-related credit risk exposure. Collateral valuations are obtained at the time of origination, and updated
if it is determined that the collateral value has deteriorated or if the loan is deemed to be a problem loan. In light of the current
pressure on the energy sector, we continue to manage our exposure, improve our cross industry diversification, and proactively
manage potential impacts to earnings.
Real estate loan levels are monitored throughout the year and the bank currently does not have a commercial real estate concentration
as defined by interagency guidelines.
60
Managing collateral is also an essential component of managing the Bank’s real estate-related credit risk exposure. For real estate-
secured loans, third party valuations are obtained at the time of origination, and updated if it is determined that the collateral value has
deteriorated or if the loan is deemed to be a problem loan. Property valuations are ordered through, and reviewed by, the Bank’s
appraisal department. The property valuation, along with anticipated selling costs, are used to determine if there is loan impairment,
leading to a recommendation for partial charge off or appropriate allowance allocation.
The Bank maintains an active Credit Review function, whose Credit Review Manager reports to the Credit Risk Management
Subcommittee, a subcommittee of the Board Risk Committee, to help ensure that developing credit concerns are identified and
addressed in a timely manner. Further, an active watch list review process is in place as part of the Bank’s problem loan management
strategy, and a list of loans 90 days past due and still accruing is reviewed with management (including the Chief Credit Officer) at
least monthly. Recommendations flow from all of the above activities with the goal of recognizing nonperforming loans and
determining the appropriate accrual status.
Asset/Liability Management
Asset liability management consists of quantifying, analyzing and controlling interest rate risk (IRR) to maintain stability in net
interest income under varying interest rate environments. The principal objective of asset liability management is to maximize net
interest income while operating within acceptable risk limits established for interest rate risk and maintaining adequate levels of
liquidity. Our net earnings are materially dependent on our net interest income.
IRR on the Company’s balance sheet consists of reprice, option, yield curve, and basis risks. Reprice risk results from differences in
the maturity or repricing of asset and liability portfolios. Option risk arises from “embedded options” present in many financial
instruments such as loan prepayment options, deposit early withdrawal options and interest rate options. These options allow
customers opportunities to benefit when market interest rates change, which typically results in higher costs or lower revenue for the
Company. Yield curve risk refers to the risk resulting from unequal changes in the spread between two or more rates for different
maturities for the same instrument. Basis risk refers to the potential for changes in the underlying relationship between market rates
and indices, which subsequently result in a narrowing of the profit spread on an earning asset or liability. Basis risk is also present in
administered rate liabilities, such as savings accounts, negotiable order of withdrawal accounts, and money market accounts where
historical pricing relationships to market rates may change due to the level or directional change in market interest rates.
ALCO manages our IRR exposures through pro-active measurement, monitoring, and management actions. ALCO is responsible for
maintaining levels of IRR within limits approved by the Board of Directors through a risk management policy that is designed to
produce a stable net interest margin in periods of interest rate fluctuation. Accordingly, the Company’s interest rate sensitivity and
liquidity are monitored on an ongoing basis by its ALCO, which oversees market risk management and establishes risk measures,
limits and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. A variety of
measures are used to provide for a comprehensive view of the magnitude of interest rate risk, the distribution of risk, the level of risk
over time and the exposure to changes in certain interest rate relationships.
The Company utilizes an asset/liability model as the primary quantitative tool in measuring the amount of IRR associated with
changing market rates. The model is used to perform net interest income, economic value of equity, and GAP analyses. The model
quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next twelve-month and
24-month periods. The model measures the impact on net interest income relative to a base case scenario of hypothetical fluctuations
in interest rates over the next 24 months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing
and the repricing and maturity characteristics of the existing and projected balance sheet. The impact of interest rate derivatives, such
as interest rate swaps, caps and floors, is also included in the model. Other interest rate-related risks such as prepayment, basis and
option risk are also considered.
Net Interest Income at Risk
Our primary market risk is interest rate risk that stems from uncertainty with respect to the absolute and relative levels of future
market interest rates that affect our financial products and services. In an attempt to manage our exposure to interest rate risk,
management measures the sensitivity of our net interest income and cash flows under various market interest rate scenarios,
establishes interest rate risk management policies and implements asset/liability management strategies designed to produce a
relatively stable net interest margin under varying rate environments.
The following table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting
from an instantaneous and sustained parallel shift in rates at December 31, 2018. Shifts are measured in 100 basis point increments in
a range from -500 to +500 basis points from base case, with -200 through +300 basis points presented in Table 23. Our interest rate
sensitivity modeling incorporates a number of assumptions including loan and deposit repricing characteristics, the rate of loan
prepayments and other factors. The base scenario assumes that the current interest rate environment is held constant over a 24-month
forecast period and is the scenario to which all others are compared in order to measure the change in net interest income. Policy limits
61
on the change in net interest income under a variety of interest rate scenarios are approved by the Board. All policy scenarios assume
a static volume forecast where the balance sheet is held constant, although other scenarios are modeled.
TABLE 23. Net Interest Income (te) at Risk
Change in Interest Rates
(basis points)
- 200
- 100
+ 100
+ 200
+ 300
Estimated Increase
(Decrease) in NII
Year 1
Year 2
(8.77) %
(3.97) %
3.12 %
5.85 %
8.33 %
(11.57) %
(5.08) %
3.78 %
6.94 %
9.61 %
The results indicate a general asset sensitivity across most scenarios driven primarily by repricing in variable rate loans and a funding
mix which is composed of material volumes of non-interest bearing and lower rate sensitive deposits. When deemed prudent,
management has taken actions to mitigate exposure to interest rate risk with on- or off-balance sheet financial instruments and intends
to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying
the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap
agreements or other financial instruments used for interest rate risk management purposes.
Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as
anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the
U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic
management of our balance sheet and earnings is fluid and would be adjusted to accommodate these movements. As with any method
of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although
certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in market rates. Certain assets such as adjustable-rate loans
have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Also, the ability of many
borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring
exposure to interest rate risk.
Liquidity
Liquidity management is focused on ensuring that funds are available to meet the cash flow requirements of our depositors and
borrowers, while also meeting the operating, capital and strategic cash flow needs of the Company, the Bank and other subsidiaries.
We develop liquidity management strategies and measures and monitor liquidity risk as part of an overall asset/liability management
process.
TABLE 24. Liquidity Metrics
Free securities / total securities
Core deposits / total deposits
Wholesale funds / core deposits
Average loans / average deposits
2018
41.39 %
90.47 %
14.53 %
87.42 %
2017
44.15 %
93.03 %
13.76 %
87.76 %
2016
23.46 %
93.22 %
13.00 %
86.11 %
The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities and repayments of
investment securities and occasional sales of various assets. Short-term investments such as federal funds sold, securities purchased
under agreements to resell and interest-bearing deposits with the Federal Reserve Bank or with other commercial banks are additional
sources of liquidity to meet cash flow requirements. Free securities represent unpledged securities that can be sold or used as collateral
for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank
discount window. Management has established an internal target for the ratio of free securities to total securities to be 20% or more.
As shown in Table 24 above, our ratios of free securities to total securities were 41.39% and 44.15%, respectively, at December 31,
2018 and 2017. The total pledged securities at December 31, 2018 were up $70 million compared to December 31, 2017.
62
The liability portion of the balance sheet provides liquidity mainly through the Company’s ability to use cash sourced from various
customers’ interest-bearing and noninterest-bearing deposit accounts and sweep accounts. At December 31, 2018, deposits totaled
$23.2 billion, an increase of $0.9 billion, or 4%, from December 31, 2017. Core deposits represent total deposits excluding certificates
of deposits (“CDs”) of $250,000 or more and brokered deposits. The ratio of core deposits to total deposits was 90.47% at
December 31, 2018, compared to 93.03% to December 31, 2017. Core deposits totaled $20.9 billion at December 31, 2018, an
increase of $0.2 billion from December 31, 2017. Brokered deposits totaled $1.2 billion as of December 31, 2018 compared to $0.8
billion at December 31, 2017. Use of brokered deposits as a funding source is subject to strict parameters regarding the amount, term,
and interest rate.
Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings from customers provide
additional sources of liquidity to meet short-term funding requirements. In addition to funding from customer sources, the Bank has a
line of credit with the FHLB that is secured by blanket pledges of certain mortgage loans. At December 31, 2018, the Bank had
borrowed $1.2 billion from the FHLB and had approximately $3.1 billion remaining available under this line. The Bank also has
unused borrowing capacity at the Federal Reserve’s discount window of approximately $2.5 billion. There were no outstanding
borrowings with the Federal Reserve at December 31, 2018 and December 31, 2017.
Wholesale funds which were comprised of short-term borrowings, long-term debt and brokered deposits were 14.53% of core deposits
at December 31, 2018 and 13.76% at December 31, 2017. The increase was related to a $195 million increase in wholesale funds,
primarily from a $390 million increase in brokered deposits partially offset by a $140 million decrease in federal funds purchased and
a $243 million increase in core deposits. The Company has established an internal target for wholesale funds to be less than 25% of
core deposits.
Another key measure the Company uses to monitor its liquidity position is the loan to deposit ratio (average loans outstanding for the
reporting period divided by average deposits outstanding). The loan-to-deposit ratio measures the amount of funds the Company
lends out for each dollar of deposits on hand. The Company’s loan-to-deposit ratio was 87.42% for 2018, down 34 bps from 2017, as
average deposits grew at a faster pace than average loans. Management has established a target range for the loan to deposit ratio from
83% to 87% but will operate temporarily outside that range depending on market conditions. In January 2019 the Board Risk
Committee changed the target ratio for the loan to deposit ratio from 87% to 89%. Cash generated from operations is another
important source of funds to meet liquidity needs. The consolidated statements of cash flows present operating cash flows and
summarize all significant sources and uses of funds for the three years ended December 31, 2018.
Dividends received from the Bank have been the primary source of funds available to the Parent Company for the payment of
dividends to our stockholders and for servicing its debt. The liquidity management process takes into account the various regulatory
provisions that can limit the amount of dividends that the Bank can distribute to the Parent Company, as described in Note 11 to the
consolidated financial statements, “Stockholders’ Equity.” It is the Company’s policy to maintain cash or other liquid assets to provide
liquidity in an amount sufficient to fund a minimum of six quarters of anticipated common stockholder dividends.
Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal controls and processes, people and systems, or from
external events, including fraud, litigation and breaches in data security. We depend on the ability of our employees and systems to
process, record and monitor a large number of transactions on an on-going basis. As operational risk remains elevated and as
customer and regulatory expectations regarding information security have increased, the Company continues to enhance its controls,
processes and systems in order to protect the Company’s networks, computers, software and data from attack, damage or unauthorized
access.
Cybersecurity is a significant operational risk for financial institutions as a result of increases in the number of incidents and the
sophistication of cyber-attacks. Cyber-attacks include computer hacking, acts of vandalism or theft, malware, computer viruses or
other malicious codes, credential validation, denial of service, phishing, and employee malfeasance, each utilized to disrupt the
operations of a financial institution, which in certain instances have resulted in unauthorized access to confidential, proprietary or
other information, including customer account information.
The Board Risk Committee has primary responsibility for the oversight of operational risk. In this capacity, the Board Risk
Committee oversees the Company’s processes for identifying, assessing, monitoring and managing cybersecurity risk. The Chief
Information Security Officer (CISO), a member of management, supports the information security risk oversight responsibilities of the
Board and its committees and involves the appropriate personnel in information risk management. The CISO attends Board Risk
Committee meetings on a quarterly basis and sits in executive session with the Board Risk Committee members twice each year. The
CISO annually provides an Information Security Program Summary report to the Board, outlining the overall status of our Information
Security Program and the Company’s compliance with regulatory guidelines. In addition, individual business lines have direct and
63
primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business
activities.
The CISO is also responsible for managing the day-to-day cybersecurity operations and leads the IT Risk Governance Subcommittee,
a management level committee, whose objective is to protect the integrity, security, safety and resiliency of our corporate information
systems and assets. This committee meets regularly to review the development of our Information Security Program. Our
Information Security Program is comprised of a collection of policies, guidelines and procedures, which are regularly updated and
approved by appropriate management committees. As part of our Information Security Program, we have adopted a Comprehensive
Information Security Policy and an Incident Response Plan. The Incident Response Plan is intended to proceed on parallel paths in
the event of an incident, including implementation of (i) a forensic and containment, eradication and remediation plan, and (ii) a line
of business response plan (including legal, compliance, business, insurance and communications).
We contract with outside vendors on an annual basis to conduct vulnerability/penetration tests against the Company’s network. We
have also contracted with third parties to assist in cyber incident response, forensics and communications. Any third party service
provider or vendor utilized as part of the Company’s cybersecurity framework is required to comply with the Company’s policies
regarding non-public personal information and information security. In addition, information security training programs are in place
for all new associates, as well as required annual training for all associates. Internal policies and procedures have been adopted to
encourage the reporting of potential security attacks or risks.
To date the Company has not experienced an attack that has significantly impacted its results of operations, financial condition and
cash flows. However, “denial of service” attacks continue to be launched against a number of other large financial services
institutions and there can be no assurance that the Company will be able to detect or prevent such attacks in the future. Addressing
cybersecurity risks is a priority for the Company, and the Company is committed to enhancing its systems of internal controls and
business continuity and disaster recovery plans. See Item 1A. “Risk Factors” for further discussion of the risks associated with an
interruption or breach in our information systems or infrastructure.
CONTRACTUAL OBLIGATIONS
The following table summarizes all significant contractual obligations as of December 31, 2018, according to payments due by period.
Obligations under deposit contracts and short-term borrowings are not included. The maturities of time deposits in amounts greater
than $250,000 are presented in Table 20. Purchase obligations represent legal and binding contracts to purchase services and goods
that cannot be settled or terminated without paying substantially all of the contractual amounts.
TABLE 25. Contractual Obligations
(in thousands)
Long-term debt obligations
Operating lease obligations
Purchase obligations
Total
CAPITAL RESOURCES
Total
473,986 $
182,596
142,789
799,371 $
$
$
Less Than
1 Year
Payment due by period
1-3
Years
3-5
Years
More Than
5 Years
22,659 $
18,476
82,459
123,594 $
57,183 $
32,839
45,931
135,953 $
30,682 $
29,879
14,399
74,960 $
363,462
101,402
—
464,864
The Company currently has a strong capital position which is vital to continued profitability, promotes depositor and investor
confidence, and provides a solid foundation for future growth and flexibility in addressing strategic opportunities. Stockholders’
equity totaled $3.1 billion at December 31, 2018 compared to $2.9 billion at December 31, 2017. The $196.4 million increase resulted
primarily from net income for the year of $323.8 million, partially offset by $88.8 million in dividends paid and a $46.3 million
increase in other comprehensive income (losses) related to the market adjustment on the available for sale securities portfolio and the
unfunded pension liability.
Our tangible common equity ratio was 8.02% at December 31, 2018, compared to 7.73% a year earlier, a return to management’s
established internal target of at least 8.00%. Management allows the tangible common equity ratio to drop below 8.00% on a
temporary basis if it believes that the shortfall can be replenished through normal operations within a short time frame.
The primary quantitative measures that regulators use to gauge capital adequacy are the ratios of total, tier 1 and common equity tier 1
regulatory capital to risk-weighted assets (risk-based capital ratios) and the ratio of Tier 1 capital to average total assets (leverage
ratio). The Federal Reserve Board’s final rule implementing the Basel III regulatory capital framework and related Dodd-Frank Act
changes was effective for the Company on January 1, 2015. The final rule strengthened the definition of regulatory capital, increased
64
risk-based capital requirements, and made selected changes to the calculation of risk-weighted assets. The rule sets the Basel III
minimum regulatory capital requirements for all organizations. It includes a new common equity Tier 1 ratio of 4.5% of risk-weighted
assets, raises the minimum Tier 1 capital ratio from 4.0% to 6.0% of risk-weighted assets and sets a new conservation buffer of 2.5%
of risk-weighted assets; however, the rule allows for transition periods for certain changes, including the conservation buffer. Based
on capital ratios as of December 31, 2018 using Basel III definitions, the Company and the Bank exceeded all capital requirements of
the new rule, including the fully phased-in conservation buffer. The Company and the Bank have established internal targets for its
total risk-based capital ratio, Tier 1 risk-based capital ratio and leverage ratio of 11.5%, 9.5% and 7.0%, respectively.
In July 2018, the board of directors increased quarterly cash dividends from $0.24 per share to $0.27 per share, a 12.5% increase. The
annual cash dividend payable rate increased to $1.08 per share, compared to the previous rate of $0.96 per share. The Company has
paid uninterrupted quarterly dividends to shareholders since 1967.
65
At December 31, 2018, our regulatory capital ratios were well in excess of current regulatory minimum requirements. Additionally,
both the Company and the Bank were considered “well capitalized” by regulatory agencies. The following table shows the
Company’s capital ratios for the past five years. Note 11 – Stockholders’ Equity to the consolidated financial statements provides
additional information about the Bank’s regulatory capital ratios.
TABLE 26. Risk-Based Capital and Capital Ratios
(in thousands)
Common equity tier 1 capital
Additional tier 1 capital
Tier 1 capital
Tier 2 capital
Total capital
Risk-weighted assets
Ratios
2018
2017
2016
2015
2014
$
2,391,762 $
2,184,812 $
2,214,723 $
1,777,348
—
1,777,348
168,362
$
1,945,710
$ 22,814,154 $ 21,695,628 $ 19,404,265 $ 18,515,904 $ 15,822,448
—
2,214,723
367,308
2,582,031 $
—
1,844,992
350,921
2,195,913 $
—
2,184,812
379,418
2,564,230 $
—
2,391,762
344,514
2,736,276 $
1,844,992 $
Leverage (Tier 1 capital to average assets)
Common equity tier 1 capital to
risk-weighted assets *
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Common stockholders' equity to total assets
Tangible common equity to total assets
8.67%
8.43%
9.56%
8.55%
9.17%
10.48%
10.48%
11.99%
10.91%
8.02%
10.21%
10.21%
11.90%
10.55%
7.73%
11.26%
11.26%
13.21%
11.34%
8.64%
9.96%
9.96%
11.86%
10.57%
7.62%
n/a
11.23%
12.30%
11.92%
8.59%
* Common equity tier 1 capital only effective for years ended after December 31, 2014.
STOCK REPURCHASE PROGRAM
On May 24, 2018, the Company’s board of directors approved a stock buyback program that authorized the repurchase of up to 5%, or
approximately 4.3 million shares, of its outstanding common stock. The approved program allows the Company to repurchase its
common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as
amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company in one or more
transactions, from time to time until December 31, 2019. The Company is not obligated to purchase any shares under this program,
and the board of directors may terminate or amend the program at any time prior to the expiration date. During the fourth quarter of
2018, the Company repurchased 200,000 shares of its common stock at an average price of $41.30 per share.
See Item 5. “Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for
additional discussion of the Company’s common stock buyback program.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 2018 was $96.2 million, or $1.10 per diluted common share, compared to $83.9 million, or $.96,
in the third quarter of 2018 and $55.4 million, or $.64, in the fourth quarter of 2017. The fourth quarter of 2018 included $1.9 million
($.02 per share after-tax impact) of nonoperating items. The third quarter of 2018 included $4.8 million ($.05 per share impact) of
nonoperating items and the fourth quarter of 2017 included a tax reform related re-measurement charge of the net deferred tax asset of
$19.5 million ($.22 per share impact).
Highlights of our fourth quarter of 2018 results (compared to third quarter 2018):
•(cid:3) Net income increased $12.4 million, or 15%
•(cid:3) Diluted earnings per share increased $.14 to $1.10; excluding nonoperating items, diluted earnings per share increased $.11 to
$1.12
•(cid:3) Loans increased $483 million, or 2%, surpassing $20 billion in total loans; the growth reflects sale of $116 million of loans
during the fourth quarter
•(cid:3) Net interest margin (te) expanded by 3 basis points to 3.39%
•(cid:3) Criticized commercial loans declined $208 million, or 25% linked-quarter, of which $78 million was in the energy portfolio
•(cid:3) Tangible common equity ratio improved to 8.02%, up 35 basis points
•(cid:3) Effective income tax rate of 8% was lower than typical rate of 18%, primarily attributable to tax reform strategies and the
vesting of stock-based incentive awards
66
Total loans at December 31, 2018 were $20.0 billion, an increase of $483 million, or 2%, from September 30, 2018. The Company’s
net loan growth during the quarter was diversified across the footprint and also in areas identified as part of the Company’s revenue-
generating initiatives.
Total deposits at December 31, 2018 were $23.2 billion, up $732 million, or 3%, from September 30, 2018. The fourth quarter
increase is consistent with seasonal fourth quarter growth trends experienced in past years.
Noninterest-bearing deposits totaled $8.5 billion at December 31, 2018, up $358 million, or 4%, from September 30, 2018 and
comprised 37% of total deposits at December 31, 2018. Interest-bearing transaction and savings deposits totaled $8.0 billion at year-
end 2018, up $28 million, or less than 1%, compared to September 30, 2018.
Time deposits of $3.6 billion decreased $46 million, or 1%, while interest-bearing public fund deposits increased $393 million, or
15%, to $3.0 billion at December 31, 2018.
The provision for loan losses recorded in the fourth quarter of 2018 was $8.1 million, up from $6.9 million in the third quarter of
2018. Net charge-offs were $28.1 million, or 0.56% of average total loans on an annualized basis in the fourth quarter of 2018,
compared to $6.9 million, or 0.14% of average total loans, for the third quarter of 2018. The increase in net charge-offs is primarily
attributable to charges on two commercial relationships, one energy and one nonenergy.
Net interest income (te) for the fourth quarter of 2018 was $221.5 million, up $3.2 million from the third quarter of 2018. The
increase is a result of a higher level of average earning assets in the quarter, a shift in our funding mix and a higher securities yield
following the portfolio restructuring during the fourth quarter. These improvements were partially offset by a 7 bp increase in the cost
of funds related in part to higher rates paid on time deposits and public deposits. The improvement in net interest income (te) resulted
in a 3 bp expansion of the net interest margin (te) to 3.39%.
Noninterest income totaled $74.5 million for the fourth quarter of 2018, down $1 million, or 1%, from the third quarter of 2018. Trust
fees, insurance and investment commissions and annuity fees, and income from secondary mortgage market operations all experienced
moderate declines, primarily attributable to market conditions. Bank card and ATM fees increased $0.8 million; the increase is
consistent with seasonal trends in card activity.
Noninterest expense declined $1.8 million from the third quarter of 2018. Excluding items identified as nonoperating, noninterest
expense was relatively unchanged from the prior quarter.
The effective income tax rate for the fourth quarter of 2018 was 8%. The lower rate in the fourth quarter was primarily related to tax
reform strategies and the excess tax benefit of stock based compensation deduction in excess of book expense resulting from awards
vesting during the quarter. The effective income tax rate continues to be less than the statutory rate due primarily to tax-exempt
income and tax credits.
The summary of quarterly financial information appearing in Item 8. “Financial Statements and Supplementary Data” provides
selected comparative financial information for each of the four quarters of 2018 and 2017.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The accounting principles we follow and the methods for applying these principles conform to accounting principles generally
accepted in the United States of America and general practices followed by the banking industry. The significant accounting principles
and practices we follow are described in Note 1 to the consolidated financial statements. These principles and practices require
management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial
statements and accompanying notes. Management evaluates the estimates and assumptions made on an ongoing basis to help ensure
the resulting reported amounts reflect management’s best estimates and judgments given current facts and circumstances. The
following discusses certain critical accounting policies that involve a higher degree of management judgment and complexity in
producing estimates that may significantly affect amounts reported in the consolidated financial statements and notes.
Acquisition Accounting
Acquisitions are accounted for under the purchase method of accounting. Purchased assets, including identifiable intangible assets,
and assumed liabilities are recorded at their respective acquisition date fair values. Management applies various valuation
methodologies to these assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do
not exist for the particular item being valued. Examples of such items include loans, deposits, identifiable intangible assets and certain
other assets and liabilities acquired or assumed in business combinations. Management uses significant estimates and assumptions to
value such items, including, among others, projected cash flows, repayment rates, default rates and losses assuming default, discount
rates, and realizable collateral values. The purchase date valuations and any subsequent adjustments also determine the amount of
67
goodwill or bargain purchase gain recognized in connection with the business combination. Certain assumptions and estimates must
be updated regularly in connection with the ongoing accounting for purchased loans. Valuation assumptions and estimates may also
have to be revisited in connection with periodic assessments of possible value impairment, including impairment of goodwill,
intangible assets and certain other long-lived assets. The use of different assumptions could produce significantly different valuation
results, which could have material positive or negative effects on our results of operations.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (ALLL) is a valuation account available to absorb losses on loans and leases. The ALLL is
established and maintained at an amount that in management’s estimation is sufficient to cover the estimated credit losses inherent in
the loan and lease portfolios of the Company as of the date of the determination. Credit losses arise not only from credit risk, but also
from other risks inherent in the lending process including, but not limited to, collateral risk, operational risk, concentration risk, and
economic risk. As such, all related risks of lending are considered when assessing the adequacy of the allowance for loan and lease
losses. Quarterly, management estimates inherent losses in the portfolio based on a number of factors, including the Company’s past
loan loss and delinquency experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’
ability to repay, the estimated value of any underlying collateral and current economic conditions.
The analysis and methodology for estimating the ALLL for originated and acquired performing loans include two primary elements. A
loss rate analysis that incorporates a historical loss rate as updated for current conditions is used for loans collectively evaluated for
impairment, and a specific reserve analysis is used for loans individually evaluated for impairment.
The loss rate analysis includes several subjective inputs including portfolio segmentation, portfolio risk ratings, historical look-back
and loss emergence periods. Management considers the appropriateness of these critical assumptions as part of its allowance review.
The loss rate analysis is supplemented by a review of qualitative factors that considers whether current conditions differ from those
existing during the historical-based loss rate analysis. Such factors include, but are not limited to, problem loan trends, changes in loan
profiles and volumes, changes in lending policies and procedures, current economic and business conditions and credit concentrations.
While qualitative data related for these factors is used where available, there is a high level of judgment applied assumptions that are
susceptible to significant change.
The qualitative component comprised 37% of the total ALLL as of December 31, 2018. The qualitative component of the ALLL
remains elevated in 2018 compared to historical levels given the prolonged stress in the energy industry and as well as the continued
benign credit environment that results in lower quantitative loss calculations. While we believe the level of allowance is sufficient to
absorb losses inherent in the portfolio today, actual results could differ significantly depending on the depth and duration of the energy
cycle and the overall impact to the portfolio, which remains uncertain.
For loans impaired that are individually evaluated, a specific allowance is calculated as the shortfall between the loan’s value and its
recorded investment. The loan’s value is measured by either the loan’s observable market price, the fair value of the collateral of the
loan (less liquidation costs) if it is collateral dependent, or by the present value of expected future cash flows discounted at the loan’s
effective interest rate. Values for impaired loans are highly subjective and actual results could differ.
Goodwill Impairment Testing
Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired, or the excess of the fair value of
the net liabilities assumed over the consideration received. Goodwill is not amortized but is assessed for impairment on an annual
basis, or more often if events or circumstances indicate there may be impairment. The impairment test compares the estimated fair
value of a reporting unit with its net book value. We have assigned all goodwill to one reporting unit that represents our overall
banking operations. The fair value of the reporting unit is based on valuation techniques that market participants would use in an
acquisition of the whole unit, such as estimated discounted cash flows, the quoted market price of our common stock adjusted for a
control premium and observable average price-to-earnings and price-to-book multiples of our competitors. If the unit’s fair value is
less than its carrying value, an estimate of the implied fair value of the goodwill is compared to the goodwill’s carrying value and any
impairment recognized.
We completed our annual impairment test of goodwill as of September 30, 2018 and concluded that there was no impairment. We
used the discounted net present value of estimated future cash flows approach to measure the fair value of goodwill at September 30,
2018. This valuation technique requires significant assumptions concerning the expected net interest margins and other revenue and
expense levels, loan and deposit growth rates, and discount rates for cash flows. Changes to any of these assumptions could result in
significantly different results.
68
Income Taxes
Judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating
uncertainties in the application of accounting principles and complex tax laws. The Tax Cuts and Jobs Act that was signed into law on
December 22, 2017 significantly revised U.S. corporate income tax laws by, among other things, lowering the statutory corporate tax
rate from 35% to 21% and eliminating or reducing certain deductions. Refer to Note 13 – Income Taxes within Item 8. “Financial
Statements and Supplementary Data” for more information regarding the Tax Cuts and Jobs Act and its impact to our consolidated
financial statements.
Accounting for Retirement Benefits
Management makes a variety of assumptions in applying principles that govern the accounting for benefits under the Company’s
defined benefit pension plans and other postretirement benefit plans. These assumptions are essential to the actuarial valuation that
determines the amounts recognized and certain disclosures it makes in the consolidated financial statements related to the operation of
these plans. Two of the more significant assumptions concern the expected long-term rate of return on plan assets and the rate needed
to discount projected benefits to their present value. Changes in these assumptions impact the cost of retirement benefits recognized in
net income and comprehensive income. Certain assumptions are closely tied to current conditions and are generally revised at each
measurement date. For example, the discount rate is reset annually with reference to market yields on high quality fixed-income
investments. Other assumptions, such as the rate of return on assets, are determined, in part, with reference to historical and expected
conditions over time and are not as susceptible to frequent revision. Holding other factors constant, the cost of retirement benefits will
move opposite to changes in either the discount rate or the rate of return on assets. Item 8. “Financial Statements and Supplementary
Data—Note 16” provides further discussion on the accounting for retirement and employee benefit plans and the estimates used in
determining the actuarial present value of the benefit obligations and the net periodic benefit expense.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to our consolidated financial statements that appears in Item 8. “Financial Statements and Supplementary Data.”
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required for this item is included in the section entitled “Asset/Liability Management” that appears in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated here by reference.
69
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s unaudited quarterly results for 2018 and 2017 are presented below.
Summary of Quarterly Results
(Unaudited)
(in thousands, except per share data)
Income Statement Data:
Interest income (te) (a)
Interest expense
Net interest income (te)
Taxable equivalent adjustment
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Balance Sheet Data:
Period end balance sheet data
Total assets
Earning assets
Loans
Deposits
Stockholders' equity
Average balance sheet data
Total assets
Earning assets
Loans
Deposits
Stockholders' equity
Performance Ratios:
Return on average assets
Return on average common equity
Net interest margin (te)
Common Shares Data:
Earnings per share:
Basic
Diluted
Cash dividends per common share
Market data:
High sales price
Low sales price
Period-end closing price
Trading volume
Operating pre-provision net revenue (TE) (b)
Net interest income
Noninterest income
Total revenue
Taxable equivalent adjustment
Nonoperating revenue
Operating revenue (TE)
Noninterest expense
Nonoperating expense
Operating pre-provision net revenue (TE)
First
Second
Third
Fourth
2018
$
$
$
$
$
$
$
$
$
$
$
$
245,358 $
(35,731)
209,627
3,963
205,664
(12,253)
66,252
(170,791)
88,872
16,397
72,475 $
27,297,337 $
25,105,948
19,092,504
22,485,722
2,896,038
27,237,077 $
25,106,283
19,028,490
22,043,419
2,872,813
1.08%
10.23%
3.37%
0.83 $
0.83 $
0.24 $
56.40 $
49.48
51.70
35,370
205,664 $
66,252
271,916 $
3,963
1,145
277,024 $
(170,791)
5,853
112,086 $
256,385 $
(40,757)
215,628
4,081
211,547
(8,891)
68,832
(184,402)
87,086
15,909
71,177 $
27,925,477 $
25,625,047
19,370,917
22,235,338
2,929,555
27,485,052 $
25,391,025
19,193,234
22,101,474
2,908,997
1.04%
9.81%
3.40%
0.82 $
0.82 $
0.24 $
55.00 $
45.76
46.65
35,705
211,547 $
68,832
280,379 $
4,081
—
284,460 $
(184,402)
15,805
115,863 $
267,307 $
(49,018)
218,289
4,095
214,194
(6,872)
75,518
(181,187)
101,653
17,775
83,878 $
28,098,175 $
25,668,281
19,543,717
22,417,807
2,978,878
28,026,923 $
25,832,372
19,464,639
22,021,559
2,952,431
1.19%
11.27%
3.36%
0.96 $
0.96 $
0.27 $
53.00 $
46.05
47.55
28,332
214,194 $
75,518
289,712 $
4,095
—
293,807 $
(181,187)
4,827
117,447 $
275,395
(53,924)
221,471
4,038
217,433
(8,100)
74,538
(179,366)
104,505
8,265
96,240
28,235,907
25,836,239
20,026,411
23,150,185
3,081,340
28,259,963
26,011,183
19,817,729
22,498,145
2,993,265
1.35%
12.76%
3.39%
1.11
1.10
0.27
49.22
32.59
34.77
33,269
217,433
74,538
291,971
4,038
(604)
295,405
(179,366)
2,458
118,497
(a)(cid:3)
(b)(cid:3)
Taxable equivalent (te) amounts are calculated using a marginal federal income tax rate of 21%.
For discussion of this and other non-GAAP measures, refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
70
Summary of Quarterly Results (continued)
(Unaudited)
(in thousands, except per share data)
Income Statement Data:
Interest income (te) (a)
Interest expense
Net interest income (te)
Taxable equivalent adjustment
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Balance Sheet Data:
Period end balance sheet data
Total assets
Earning assets
Loans
Deposits
Stockholders' equity
Average balance sheet data
Total assets
Earning assets
Loans
Deposits
Stockholders' equity
Performance Ratios:
Return on average assets
Return on average common equity
Net interest margin (te)
Common Shares Data:
Earnings per share
Basic
Diluted
Cash dividends per common share
Market data:
High sales price
Low sales price
Period-end closing price
Trading volume
Operating Pre-Provision Net Revenue (b)
Net interest income
Noninterest income
Total revenue
Taxable equivalent adjustment
Nonoperating revenue
Operating revenue (TE)
Noninterest expense
Nonoperating expense
Operating pre-provision net revenue (TE)
First
Second
Third
Fourth
2017
$
$
$
$
$
$
$
$
$
$
$
$
210,813 $
(20,824)
189,989
8,298
181,691
(15,991)
63,491
(163,542)
65,649
16,635
49,014 $
25,485,026 $
23,278,297
18,204,868
19,922,020
2,763,622
24,756,506 $
22,770,001
18,204,868
19,922,020
2,763,622
.80%
7.27%
3.37%
0.57 $
0.57 $
0.24 $
49.50 $
41.71
45.55
45,119
181,691 $
63,491
245,182 $
8,298
(4,352)
249,128 $
(163,542)
6,463
92,049 $
234,741 $
(26,460)
208,281
8,564
199,717
(14,951)
67,487
(183,470)
68,783
16,516
52,267 $
26,630,569 $
24,295,892
18,473,841
21,442,815
2,813,962
26,526,253 $
24,339,130
18,369,446
20,932,561
2,786,566
.79%
7.52%
3.43%
0.60 $
0.60 $
0.24 $
52.94 $
42.70
49.00
39,035
199,717 $
67,487
267,204 $
8,564
—
275,768 $
(183,470)
10,617
102,915 $
241,295 $
(29,859)
211,436
8,579
202,857
(13,040)
67,115
(177,616)
79,316
20,414
58,902 $
26,816,755 $
24,545,798
18,786,285
21,533,859
2,863,275
26,677,573 $
24,487,426
18,591,219
21,349,818
2,838,517
.88%
8.23%
3.44%
0.68 $
0.68 $
0.24 $
50.40 $
41.05
48.45
33,243
202,857 $
67,115
269,972 $
8,579
—
278,551 $
(177,616)
11,393
112,328 $
248,122
(31,126)
216,996
8,949
208,047
(14,986)
69,088
(168,063)
94,686
39,237
55,449
27,336,086
25,024,792
19,004,163
22,253,202
2,884,949
26,973,507
24,812,676
18,839,537
21,762,757
2,867,475
.82%
7.67%
3.48%
0.64
0.64
0.24
53.35
46.18
49.50
29,308
208,047
69,688
277,735
8,949
—
286,684
(168,063)
—
118,621
(a)(cid:3)
(b)(cid:3)
Taxable equivalent (te) amounts are calculated using a marginal federal income tax rate of 35%.
For discussion of this and other non-GAAP measures, refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
71
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Hancock Whitney Corporation has prepared the consolidated financial statements and other information in our
Annual Report on Form 10-K in accordance with accounting principles generally accepted in the United States of America and is
responsible for its accuracy. The financial statements necessarily include amounts that are based on management’s best estimates and
judgments. In meeting its responsibility, management relies on internal accounting and related control systems. The internal control
systems are designed to ensure that transactions are properly authorized and recorded in the Company’s financial records and to
safeguard the Company’s assets from material loss or misuse. Such assurance cannot be absolute because of inherent limitations in
any internal control system.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in the Rule 13(a)–15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of
management, including the Company’s principal executive officer and principal financial officer, the Company conducted an
evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management also conducted
an assessment of requirements pertaining to Section 112 of the Federal Deposit Insurance Corporation Improvement Act. This section
relates to management’s evaluation of internal control over financial reporting, including controls over the preparation of financial
statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-
9C) and in compliance with laws and regulations. Our evaluation included a review of the documentation of controls, evaluations of
the design of the internal control system and tests of the effectiveness of internal controls.
The Company’s internal control over financial reporting as of December 31, 2018 was audited by PricewaterhouseCoopers, LLP, an
independent registered public accounting firm, as stated in their accompanying report which expresses an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2018.
Based on the Company’s evaluation under the framework in Internal Control – Integrated Framework (2013), management concluded
that internal control over financial reporting was effective as of December 31, 2018.
John M. Hairston
President & Chief Executive Officer
(Principal Executive Officer)
February 28, 2019
Michael M. Achary
Senior Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
February 28, 2019
72
Report of Independent Registered Public Accounting Firm
(cid:3)
To(cid:3)the(cid:3)Board of Directors and Shareholders of Hancock Whitney Corporation:(cid:3)
Opinions(cid:3)on(cid:3)the(cid:3)Financial(cid:3)Statements(cid:3)and(cid:3)Internal(cid:3)Control(cid:3)over(cid:3)Financial(cid:3)Reporting(cid:3)
We have audited the accompanying consolidated balance sheets of Hancock Whitney Corporation and its subsidiaries (the
“Company”) as of December 31, 2018 and December 31, 2017, and the related consolidated statements of income and
comprehensive income, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended
December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We
also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and December 31, 2017, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the COSO.
Basis(cid:3)for(cid:3)Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control over Financial. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
Definition(cid:3)and(cid:3)Limitations(cid:3)of(cid:3)Internal(cid:3)Control(cid:3)over(cid:3)Financial(cid:3)Reporting(cid:3)
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Management's assessment and our audit of Hancock Whitney Corporation's
internal control over financial reporting also included controls over the preparation of financial statements in accordance
with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) to comply
with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA).
A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and
73
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
(cid:3)
/s/ PricewaterhouseCoopers LLP(cid:3)
(cid:3)
New Orleans, Louisiana
February 28, 2019
(cid:3)
We have served as the Company’s auditor since 2009.
74
Hancock Whitney Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)
Assets:
Cash and due from banks
Interest-bearing bank deposits
Federal funds sold
Securities available for sale, at fair value (amortized cost of $2,755,806 and
$2,949,057)
Securities held to maturity (fair value of $2,935,856 and $2,962,010)
Loans held for sale
Loans
Less: allowance for loan losses
Loans, net
Property and equipment, net of accumulated depreciation of $225,969 and
$214,998
Prepaid expense
Other real estate and foreclosed assets, net
Accrued interest receivable
Goodwill
Other intangible assets, net
Life insurance contracts
Deferred tax asset, net
Other assets
Total assets
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Short-term borrowings
Long-term debt
Accrued interest payable
Other liabilities
Total liabilities
Stockholders' equity:
Common stock
Capital surplus
Retained earnings
Accumulated other comprehensive loss, net
Total stockholders' equity
Total liabilities and stockholders' equity
Preferred shares authorized (par value of $20.00 per share)
Preferred shares issued and outstanding
Common shares authorized (par value of $3.33 per share)
Common shares issued
Common shares outstanding
See accompanying notes to consolidated financial statements.
75
December 31,
2018
2017
$
383,372 $
110,579
515
2,691,037
2,979,547
28,150
20,026,411
(194,514)
19,831,897
353,668
35,047
26,270
86,681
790,972
96,151
549,300
22,967
249,754
28,235,907 $
8,499,027 $
14,651,158
23,150,185
1,589,128
224,993
12,267
177,994
25,154,567
292,716
1,725,741
1,243,592
(180,709)
3,081,340
28,235,907 $
50,000
—
350,000
87,903
85,643
$
$
$
386,948
92,157
227
2,910,869
2,977,511
39,865
19,004,163
(217,308)
18,786,855
333,663
28,015
27,542
82,191
745,523
90,640
541,081
53,979
239,020
27,336,086
8,307,497
13,945,705
22,253,202
1,703,890
305,513
8,680
179,852
24,451,137
292,716
1,718,117
1,008,518
(134,402)
2,884,949
27,336,086
50,000
—
350,000
87,903
85,200
Hancock Whitney Corporation and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
Interest income:
Loans, including fees
Loans held for sale
Securities-taxable
Securities-tax exempt
Short-term investments
Total interest income
Interest expense:
Deposits
Short-term borrowings
Long-term debt
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income:
Service charges on deposit accounts
Trust fees
Bank card and ATM fees
Investment and annuity fees and insurance commissions
Secondary mortgage market operations
Amortization of loss share receivable
Net gain on sales of assets
Securities transactions
Other income
Total noninterest income
Noninterest expense:
Compensation expense
Employee benefits
Personnel expense
Net occupancy expense
Equipment expense
Data processing expense
Professional services expense
Amortization of intangibles
Deposit insurance and regulatory fees
Other real estate income
Other expense
Total noninterest expense
Income before income taxes
Income taxes
Net income
Earnings per common share - basic
Earnings per common share - diluted
Dividends paid per share
Weighted average shares outstanding-basic
Weighted average shares outstanding-diluted
See accompanying notes to consolidated financial statements.
76
2018
Years Ended December 31,
2017
2016
$
877,875
946
124,720
21,951
2,776
1,028,268
$ 772,030
851
102,013
22,235
3,452
900,581
$ 625,023
1,022
91,099
13,222
1,801
732,167
130,715
36,096
12,619
179,430
848,838
36,116
812,722
85,272
55,488
60,440
25,348
15,632
—
24,654
(25,480)
43,786
285,140
330,968
73,727
404,695
47,795
16,367
74,129
41,579
22,050
31,423
(2,985)
80,693
715,746
382,116
58,346
323,770
3.72
3.72
1.02
85,355
85,521
$
$
$
$
76,546
15,735
15,988
108,269
792,312
58,968
733,344
83,166
44,538
53,779
23,741
15,209
(2,427)
7,478
—
42,297
267,781
320,096
71,817
391,913
47,869
14,841
66,385
40,235
22,417
29,627
(2,669)
82,073
692,691
308,434
92,802
$ 215,632
2.49
$
2.48
$
$
0.96
84,695
84,963
48,934
4,065
20,052
73,051
659,116
110,659
548,457
74,187
46,589
47,427
22,978
16,282
(5,918)
7,814
1,754
39,668
250,781
287,783
66,830
354,613
41,296
13,663
58,619
29,561
19,781
23,499
(3,481)
74,764
612,315
186,923
37,627
$ 149,296
1.87
$
1.87
$
0.96
$
77,850
77,949
Hancock Whitney Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income (loss) before income taxes:
Net change in unrealized loss on available for sale securities and hedges
Reclassification of net losses realized and included in earnings
Valuation adjustment for pension plan amendment
Other valuation adjustments of employee benefit plans
Amortization of unrealized net loss on securities transferred to
held to maturity
Other comprehensive income (loss) before income taxes
Income tax expense (benefit)
Other comprehensive income (loss) net of income taxes
Comprehensive income
See accompanying notes to consolidated financial statements.
2018
323,770 $
Years Ended December 31,
2017
215,632 $
$
(52,757)
34,966
—
(45,198)
(425)
5,801
17,315
(10,929)
3,296
(59,693)
(13,386)
(46,307)
277,463 $
3,786
15,548
4,088
11,460
227,092 $
$
2016
149,296
(57,346)
4,016
—
(12,748)
3,830
(62,248)
(22,311)
(39,937)
109,359
77
Hancock Whitney Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Common Stock
Shares Issued
Amount
Capital
Surplus
Retained
Earnings
Comprehensive
Loss, net
$
87,491
—
—
—
$
291,346
—
—
—
$
1,424,448
—
—
—
777,944 $
149,296
—
149,296
$
(80,595)
—
(39,937)
(39,937)
Accumulated
Other
$
$
—
4
—
—
87,495
—
—
—
—
—
408
—
87,903
—
—
—
—
—
—
—
12
—
$
—
291,358
—
—
—
—
(76,551)
12,991
1,515
259,299
1,698,253
—
—
—
$
—
—
—
850,689 $
215,632
—
215,632
—
—
—
$
—
(120,532)
—
11,460
11,460
—
—
—
—
(83,266)
1,358
16,644
133
25,330
(25,330)
—
$
—
292,716
—
—
—
$
3,220
1,718,117
—
—
—
—
1,008,518 $
323,770
—
323,770
$
—
(134,402)
—
(46,307)
(46,307)
Total
2,413,143
149,296
(39,937)
109,359
(76,551)
13,003
1,515
259,299
2,719,768
215,632
11,460
227,092
(83,266)
18,135
3,220
2,884,949
323,770
(46,307)
277,463
(88,838)
12,624
3,409
—
—
—
—
—
—
—
—
—
(88,838)
12,482
142
3,409
—
—
$
1,243,592 $
—
87,903
$
—
292,716
$
(8,267)
1,725,741
—
(180,709)
$
(8,267)
3,081,340
(in thousands, except
share data)
Balance, December 31, 2015
Net income
Other comprehensive loss
Comprehensive income
Cash dividends declared
($0.96 per common share)
Common stock activity,
long-term incentive plan
Issuance of stock from dividend
reinvestment and stock purchase
plans
Common stock issued in public
stock offering (6,325 shares)
Balance, December 31, 2016
Net income
Other comprehensive income
Comprehensive income
Reclassification of certain tax
effects from accumulated other
comprehensive loss
Cash dividends declared
($0.96 per common share)
Common stock activity,
long-term incentive plan
Issuance of stock from dividend
reinvestment and stock purchase
plans
Balance, December 31, 2017
Net income
Other comprehensive loss
Comprehensive income
Cash dividends declared
($1.02 per common share)
Common stock activity,
long-term incentive plan
Issuance of stock from dividend
reinvestment and stock purchase
plans
Purchase of common stock under
stock buyback program (200,000
shares)
Balance, December 31, 2018
See accompanying notes to consolidated financial statements.
78
Hancock Whitney Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Provision for loan losses
Gain on other real estate owned
Deferred tax (benefit) expense
Increase in cash surrender value of life insurance contracts
Gain on sale of Visa Class B common shares
(Gain) loss on sales of securities available for sale
(Gain) loss on the sale of loans
Loss on sale of business
(Gain) loss on disposal of other assets
Net (increase) decrease in loans held for sale
Net amortization of securities premium/discount
Amortization of intangible assets
Amortization of FDIC loss share receivable
Stock-based compensation expense
Contribution to pension plan
Increase (decrease) in interest payable and other liabilities
Net payments (to) from FDIC for loss share claims
Decrease in FDIC loss share receivable
(Increase) decrease in other assets
Other, net
Net cash provided by operating activities
2018
Years Ended December 31,
2017
2016
$
323,770 $
215,632 $
149,296
26,532
36,116
(3,355)
45,214
(7,850)
(33,229)
25,480
6,991
1,145
1,897
11,986
33,161
22,050
—
19,793
(39,000)
(9,397)
—
—
(13,811)
1,691
449,184
28,142
58,968
(2,839)
49,831
(14,959)
—
—
(3,363)
—
1,587
3,317
33,244
22,417
2,427
17,633
—
2,307
2,299
8,613
(9,836)
(4,335)
411,085
28,363
110,659
(4,444)
(7,839)
(11,112)
—
(1,754)
(4,414)
—
(3,426)
(14,267)
29,048
19,781
5,918
14,266
(15,000)
10,315
(3,134)
5,667
15,197
20,795
343,915
79
Hancock Whitney Corporation and Subsidiaries
Consolidated Statements of Cash Flows—(Continued)
(in thousands)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale
Proceeds from maturities of securities available for sale
Purchases of securities available for sale
Proceeds from maturities of securities held to maturity
Purchases of securities held to maturity
Net (increase) decrease in short-term investments
Proceeds from sale of loans
Net increase in loans
Purchase of life insurance contracts
Proceeds from the sale of Visa Class B shares
Purchases of property and equipment
Proceeds from sales of property and equipment
Proceeds from sales of other real estate
Cash received in excess of cash paid for acquisitions
Proceeds from the sale of business, net of cash sold
Other, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits
Net decrease in short-term borrowings
Repayments of long-term debt
Issuance of long-term debt
Dividends paid
Payroll tax remitted on net share settlement of equity awards
Repurchase of common stock
Proceeds from exercise of stock options
Proceeds from issuance of common stock in public offering
Proceeds from dividend reinvestment and stock purchase plan
Net cash provided by financing activities
$
Years Ended December 31,
2018
2017
2016
455,162 $
327,141
(629,976)
359,312
(375,770)
(18,710)
166,462
(1,358,077)
(1,822)
42,858
(50,664)
60
17,214
141,769
77,648
491
(846,902)
213,877 $
338,843
(742,279)
373,088
(863,457)
351,087
59,483
(1,051,628)
(50,000)
—
(20,297)
1,853
24,324
476,609
—
(6,824)
(895,321)
173,215
408,311
(1,071,869)
425,453
(563,661)
487,378
177,645
(1,331,125)
(40,000)
—
(19,272)
7,445
24,624
—
—
825
(1,321,031)
679,669
(114,762)
(90,216)
20,610
(88,838)
(8,695)
(8,267)
1,232
—
3,409
394,142
(3,576)
386,948
383,372 $
900,427
(118,151)
(204,111)
165
(83,266)
(11,881)
—
12,092
—
3,220
498,495
14,259
372,689
386,948 $
1,075,370
(198,238)
(21,271)
6,838
(76,551)
(3,178)
—
2,147
259,299
1,515
1,045,931
68,815
303,874
372,689
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS
CASH AND DUE FROM BANKS, BEGINNING
CASH AND DUE FROM BANKS, ENDING
$
SUPPLEMENTAL INFORMATION
Income taxes paid
Interest paid
SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans
See accompanying notes to consolidated financial statements.
$
7,283 $
175,382
45,092 $
108,702
30,184
69,624
$
22,393 $
19,140 $
16,314
80
Note 1. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
DESCRIPTION OF BUSINESS
Hancock Whitney Corporation (the “Company”) is a financial services company that provides a comprehensive network of full-
service financial choices to the Gulf South region through its bank subsidiary, Hancock Whitney Bank (the “Bank”), a Mississippi
state bank. The Bank offers a broad range of traditional and online banking services to commercial, small business and retail
customers, providing a variety of transaction and savings deposit products, treasury management services, secured and unsecured loan
products (including revolving credit facilities), and letters of credit and similar financial guarantees. The Bank also provides trust and
investment management services to retirement plans, corporations and individuals. The Company also offers investment brokerage
services through its broker-dealer subsidiary, Hancock Whitney Investment Services, Inc., a nonbank subsidiary of the holding
company. The Company primarily operates across the Gulf South region comprised of southern Mississippi; southern and central
Alabama; southern Louisiana; the northern, central, and panhandle regions of Florida; and the Houston, Texas area. In addition, the
Company operates a loan production office in Nashville, Tennessee and trust and investment management offices in Texas, New York
and New Jersey.
The Company was organized in 1984 as a bank holding company registered under the Bank Holding Company Act of 1956, as
amended. In 2002, the Company qualified as a financial holding company, giving it broader powers. The corporate headquarters of the
Company is in Gulfport, Mississippi.
On May 25, 2018, the Company changed its name from Hancock Holding Company to Hancock Whitney Corporation, and its wholly-
owned banking subsidiary changed its name from Whitney Bank to Hancock Whitney Bank. In connection with the name change, the
Company changed its stock ticker symbol from “HBHC” to “HWC” on the NASDAQ Global Select Market. In addition, the ticker for
the Company’s exchange-traded debt (subordinated notes) changed from “HBHCL” to “HWCPL.”
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S.
(U.S. GAAP) and those generally practiced within the banking industry. Following is a summary of the more significant accounting
policies.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and all other entities in which the Company has a
controlling interest. Significant intercompany transactions and balances have been eliminated in consolidation. Certain prior period
amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The accounting principles the Company follows and the methods for applying these principles conform to U.S. GAAP and general
practices followed by the banking industry. These accounting principles and practices require management to make estimates and
assumptions about future events that affect the amounts reported in the consolidated financial statements and the accompanying notes.
Actual results could differ from those estimates.
Fair Value Accounting
U.S. GAAP requires the use of fair values in determining the carrying values of certain assets and liabilities in the financial
statements, as well as for specific disclosures about certain assets and liabilities.
Accounting guidance establishes a fair value hierarchy that prioritizes the inputs to these valuation techniques used to measure fair
value giving preference to quoted prices in active markets (level 1) and the lowest priority to unobservable inputs such as a reporting
entity’s own data or information or assumptions developed from this data (level 3). Level 2 inputs include quoted prices for similar
assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets that are not active, observable inputs
other than quoted prices, such as interest rates and yield curves, and inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
Business Combinations
Business combinations are accounted for under the purchase method of accounting. Purchased assets, including identifiable
intangibles, and assumed liabilities are recorded at their respective acquisition date fair values. If the fair value of net assets purchased
exceeds the consideration given, a bargain purchase gain is recognized. If the consideration given exceeds the fair value of the net
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assets received or if the fair value of the net liabilities assumed exceeds the consideration received, goodwill is recognized. Fair values
are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values
becomes available. Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date
with no carryover of the related allowance for loan losses.
All identifiable intangible assets that are acquired in a business combination are recognized at the acquisition date fair value.
Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are separable (i.e.,
capable of being sold, transferred, licensed, rented, or exchanged separately from the entity).
Cash and Due from Banks
The Company considers only cash on hand, cash items in process of collection and balances due from financial institutions as cash and
cash equivalents.
Securities
Securities are classified as trading, held to maturity or available for sale. Management determines the appropriate classification of debt
and equity securities at the time of purchase and reevaluates this classification periodically as conditions change that could require
reclassification.
Available for sale securities are stated at fair value. Unrealized holding gains and unrealized holding losses, other than those
determined to be other than temporary, are reported net of tax in other comprehensive income and in accumulated other
comprehensive income (“AOCI”) until realized.
Securities that the Company both positively intends and has the ability to hold to maturity are classified as securities held to maturity
and are carried at amortized cost. The intent and ability to hold are not considered satisfied when a security is available to be sold in
response to changes in interest rates, prepayment rates, liquidity needs or other reasons as part of an overall asset/liability management
strategy.
Premiums and discounts on securities, both those held to maturity and those available for sale, are amortized and accreted to income
as an adjustment to the securities’ yields using the effective interest method. Realized gains and losses on securities, including
declines in value judged to be other than temporary, are reported net as a component of noninterest income. The cost of securities sold
is specifically identified for use in calculating realized gains and losses.
Loans
Loans held for investment
Loans that the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff are considered loans
held for investment and reported as “Loans” in the Consolidated Balance Sheets and in the related footnote disclosures. Loans held
for investment include loans originated for investment and loans acquired in purchase transactions.
Originated loans are reported at the principal balance outstanding net of unearned income. Interest on loans and accretion of unearned
income, including net deferred loan fees and costs, are computed in a manner that approximates a level yield on recorded principal.
Interest on loans is recognized in income as earned.
The accrual of interest on an originated loan is discontinued (“nonaccrual status”) when, in management’s opinion, it is probable that
the borrower will be unable to meet payment obligations as they become due, as well as when required by regulatory provisions.
When accrual of interest is discontinued on a loan, all unpaid accrued interest is reversed and payments subsequently received are
applied first to recover principal. Interest income is recognized for payments received after contractual principal has been satisfied.
Loans are returned to accrual status when all the principal and interest contractually due are brought current and future payment
performance is reasonably assured.
Loans that are acquired in purchase transactions are recorded at estimated fair value at the acquisition date with no carryover of the
related allowance for loan losses. Acquired loans are segregated between those considered to be performing (“purchased credit
performing”) and those with evidence of credit deterioration (“purchased credit impaired”) based on such factors as past due status,
nonaccrual status and credit risk ratings (rated substandard or worse). Purchased credit performing loans are accounted for under
Accounting Standards Codification (ASC) 310-20 and purchased credit impaired loans are accounted for under ASC 310-30.
Purchased credit impaired loans for which the timing and amount of future cash flows cannot be reasonably projected are accounted
for using the cost recovery method.
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With the exception of those accounted for using the cost recovery method, the acquired loans are further segregated into loan pools
designed to facilitate the development of expected cash flows to be used in estimating fair value. The pools are based on common risk
characteristics such as market area, loan type, credit risk ratings, contractual interest rate, and repayment terms. Loan types can
include commercial and industrial loans not secured by real estate, construction and land development loans, commercial real estate
loans, residential mortgage loans, and consumer loans, with further segregation within certain loan types as needed. Expected cash
flows, both principal and interest, from each pool are estimated based on key assumptions covering such factors as prepayments,
default rates, and severity of loss given a default. These assumptions are developed using both historical experience and the portfolio
characteristics at acquisition as well as available market research. The fair value estimate for each pool is based on the estimate of
expected cash flows from the pool discounted at prevailing market rates.
The difference at the acquisition date between the fair value and the contractual amounts due for each purchased credit performing
loan pool (the “fair value discount”) is accreted into income over the estimated life of the pool. Purchased credit performing loans are
placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.
The excess of estimated cash flows expected to be collected from each purchased credit impaired loan pool over the pool’s carrying
value is referred to as the accretable yield and is recognized in interest income using an effective yield method over the expected life
of the pool. Each pool of purchased credit impaired loans is accounted for as a single asset with a single composite interest rate and an
aggregate expectation of cash flows. Purchased credit impaired loans in pools with an accretable yield and expected cash flows that
are reasonably estimable are considered to be accruing and performing even though collection of contractual payments on loans within
the pool may be in doubt. Purchased credit impaired loans accounted for in pools are generally not subject to individual evaluation for
impairment and are not reported with impaired loans or troubled debt restructurings even if they would otherwise qualify for such
treatment.
Loans Held for Sale
Residential mortgage loans originated for sale are classified as loans held for sale and carried at the lower of cost or market. Forward
sales commitments on a best-efforts basis are entered into with third parties concurrently with rate lock commitments made to
prospective borrowers. At times, management may decide to sell loans that were not originated for that purpose. Those loans are
reclassified as held for sale when that decision is made and also carried at the lower of cost or market.
Impaired Loans
The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable all amounts
due according to the contractual terms of the loans agreement will not be collected. A loan is not considered impaired due to a delay
in payment if all amounts due, including interest accrued at the contractual interest rate of the period of delay, is expected to be
collected. Impaired loans include loans on nonaccrual, certain purchased credit impaired loans accounted for using the cost recovery
method, and loans modified in troubled debt restructurings (defined below), both accruing and nonaccrual statuses. Purchased credit
impaired loans accounted for in pools with an accretable yield are considered performing and excluded from impaired loans as this
accounting methodology takes into consideration expected future credit losses.
Troubled Debt Restructurings
Troubled debt restructurings (TDRs) occur when a borrower is experiencing, or is expected to experience, financial difficulties in the
near-term and a modification in loan terms is granted that would otherwise not have been considered.
Troubled debt restructurings can result in loans remaining on nonaccrual, moving to nonaccrual, or continuing to accrue, depending on
the individual facts and circumstances of the borrower. All loans whose terms have been modified in a TDR, including both
commercial and retail loans, are reported as “impaired.” When measuring impairment on a TDR, the loan’s value is determined by
either the present value of expected cash flows calculated using the loan’s effective interest rate before the restructuring, or the loan’s
observable market price or the fair value of the collateral if the loan is collateral dependent. If the value as determined is less than the
recorded investment in the loan, the difference is charged off through the allowance for loan and lease losses. Modified acquired-
impaired loans are not removed from their accounting pool and accounted for as a TDR even if those loans would otherwise be
deemed TDRs.
Allowance for Loan and Lease Losses
The Allowance for Loan and Lease Losses (ALLL) is a valuation account available to absorb losses on loans. The ALLL is
established and maintained at an amount sufficient to cover estimated credit losses inherent in the loan and lease portfolios of the
Company as of the date of the determination. Credit losses arise not only from credit risk, but also from other risks inherent in the
lending process including, but not limited to, collateral risk, operational risk, concentration risk, and economic risk. As such, all
related risks of lending are considered when assessing the adequacy of the allowance for loan and lease losses. Quarterly, management
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estimates inherent losses in the portfolio based on a number of factors, including the Company’s past loan loss and delinquency
experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay, the estimated
value of any underlying collateral and current economic conditions.
The analysis and methodology for estimating the ALLL include two primary elements: A loss rate analysis, which incorporates a
historical loss rate as updated for current conditions, is used for loans collectively evaluated for impairment; and a specific reserve
analysis is used for loans individually evaluated for impairment. For the loss rate analysis, the Company segments loans into
commercial non-real estate, commercial real estate – owner occupied, commercial real estate – income producing, construction and
land development, residential mortgage and consumer, with further segmentation as deemed appropriate. Both quantitative and
qualitative factors are applied at the detailed portfolio segments. Commercial loans (commercial non-real estate, commercial real
estate – owner occupied, commercial real estate – income producing and construction and land development), are further subdivided
by risk rating, while retail loans (residential mortgage and consumer) are further subdivided by delinquency. The Company uses loss
emergence periods developed based on historical experience, which is currently 24 months for commercial loans and twelve to
eighteen months for retail and residential mortgage loans. Historical loss rates are calculated using a weighted average of the loss
emergence periods in the historical look back period. As circumstances dictate, management will make adjustments to the overall loss
rate to reflect differences in current conditions as compared to those during the historical loss period. Conditions to be considered
include problem loan trends, current business and economic conditions, credit concentrations, lending policies and procedures, lending
staff, collateral values, loan profiles and volumes, loan review quality, and changes in competition and regulations.
When a loan is determined to be impaired, the amount of impairment is recognized by creating a specific allowance for any shortfall
between the loan’s value and its recorded investment. The loan’s value is measured by either the loan’s observable market price, the
fair value of the collateral of the loan (less liquidation costs) if it is collateral dependent, or by the present value of expected future
cash flows discounted at the loan’s effective interest rate. Loans individually analyzed for impairment are not incorporated into the
pool analysis to avoid double counting. The Company limits the specific reserve analysis to include all impaired commercial and
residential mortgage loans with relationship balances of $1 million or greater and all loans classified as troubled debt restructurings.
The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of
credit, and management establishes reserves as needed for its estimate of probable losses on such commitments.
It is the policy of the Company to promptly charge off all commercial and residential mortgage loans, or portions of loans, when
available information reasonably confirms that they are wholly or partially uncollectible. Prior to recognizing a loss, asset value is
established based on an assessment of the value of the collateral securing the loan, the borrower’s and the guarantor’s ability and
willingness to pay and the status of the account in bankruptcy court, if applicable. Consumer loans are generally charged down when
the loan is 90 days past due for unsecured loans or 120 days past due for secured loans, unless the loan is clearly both well secured and
in the process of collection. Loans are charged down to the fair value of the collateral, if any, less estimated selling costs. Loans are
charged off against the allowance for loan losses with subsequent recoveries added back to the allowance.
Allowance for purchased credit performing loans is evaluated at each reporting date subsequent to acquisition. An allowance is
determined for each loan pool using a methodology similar to that described above for originated loans and then compared to the
remaining fair value discount for that pool. If the allowance is greater than the discount, the excess is recognized as an addition to the
allowance through a provision for loan losses. If the allowance is less than the discount, no additional allowance is recognized.
For purchased credit impaired loans accounted for in pools, estimated cash flows expected to be collected are recast at each reporting
date for each loan pool that is material individually or in the aggregate. These evaluations require the continued use and updating of
key assumptions and estimates such as default rates, loss severity given default and prepayment speed assumptions, similar to those
used for the initial fair value estimate. Management’s judgment must be applied in developing these assumptions. If the present value
of expected cash flows for a pool is less than its carrying value, impairment is recognized by an increase in the allowance for loan
losses and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying
value, any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield
which will be taken into interest income over the remaining life of the loan pool.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation is charged to expense
using the straight-line method over the estimated useful lives of the assets, which are up to 30 years for buildings and three to ten
years for most furniture and equipment. Amortization expense for software is generally charged over three years, or seven years for
core systems. Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter. The Company evaluates whether events and circumstances have occurred that indicate that such
long-lived assets have been impaired. Measurement of any impairment of such long-lived assets is based on their fair values.
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Property and equipment used in operations is considered held for sale when certain criteria are met, including when management has
committed to a plan to sell the asset, the asset is available for sale in its immediate condition, and the sale is probable within one year
of the reporting date. Assets held for sale are reported at the lower of cost or fair value less costs to sell. Gains and losses related to
retirement or disposition of property and equipment are recorded in other income under noninterest income on the consolidated
statements of income as realized.
Other Real Estate and Foreclosed Assets
Other real estate and foreclosed assets includes real property and other assets that have been acquired in satisfaction of loans, and real
property no longer used in the Bank’s business. These assets are recorded at the estimated fair value less the estimated cost of
disposition and carried at the lower of either cost or market. Fair value is based on independent appraisals and other relevant factors.
Any initial reduction in the carrying amount of a loan to the fair value of the collateral received less selling costs is charged to the
allowance for loan losses. Each asset is revalued on an annual basis, or more often if market conditions necessitate. Subsequent losses
on the periodic revaluation of these assets and gains or losses recognized on disposition are charged to current earnings, as are
revenues from and costs of operating and maintaining real property. Improvements made to real property are capitalized if the
expenditures are expected to be recovered upon the sale of the property.
Goodwill and Other Intangible Assets
Goodwill represents the excess of consideration paid over the fair value of net assets acquired or the excess of the fair value liabilities
assumed over consideration received in a business combination. Goodwill is not amortized but is assessed for impairment on an
annual basis, or more often if events or circumstances indicate there may be impairment. The impairment test compares the estimated
fair value of a reporting unit with its net book value. The Company has assigned all goodwill to one reporting unit that represents
overall banking operations. The fair value of the reporting unit is based on valuation techniques that market participants would use in
an acquisition of the whole unit, such as estimated discounted cash flows, the quoted market price of the Company’s stock, adjusted
for a control premium, and observable average price-to-earnings and price-to-book multiples of competitors. If the unit’s fair value is
less than its carrying value, an estimate of the implied fair value of the goodwill is compared to the goodwill’s carrying value, and any
impairment recognized.
Other identifiable intangible assets with finite lives, such as core deposit intangibles, customer lists and trade name, are initially
recorded at fair value and are generally amortized over the periods benefited. These assets are evaluated for impairment in a similar
manner to long-lived assets.
Life Insurance Contracts
Bank-owned life insurance contracts (BOLI) are comprised of long-term life insurance contracts on the lives of certain current and
past employees where the insurance policy benefits and ownership are retained by the employer. Its cash surrender value is an asset
that the Company uses to partially offset the future cost of employee benefits. The cash value accumulation on BOLI is permanently
tax deferred if the policy is held to the insured person’s death and certain other conditions are met.
Derivative Instruments and Hedging Activities
The Company records all derivatives on the balance sheet at fair value as components of other assets and other liabilities. The
accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected
to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the
criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair
value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value
hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain
or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow
hedge.
For derivatives designated as hedging the exposure to changes in the fair value of an asset or liability (fair value hedge), the gain or
loss is recognized in earnings in the period of the fair value change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. Prior to the adoption of Accounting Standards Update (“ASU”) 2017-12, “Derivatives and
Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” on January 1, 2018, the effective portion of a
derivative’s gain or loss for derivatives designated as hedging exposure to variable cash flows of a forecasted transaction (cash flow
hedge), was initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings or in certain circumstances, when the hedge is terminated. The ineffective portion of the gain or
loss was reported in earnings immediately. The provisions of ASU 2017-12 eliminated the concept of ineffectiveness for instruments
85
that qualify for hedge accounting treatment; thus, the full impact of hedge gains and losses will be recognized in the period in which
the hedged transaction impacts the entity’s earnings. For derivatives that are not designated as hedging instruments, changes in the fair
value of the derivatives are recognized in earnings immediately.
Note 10 - Derivatives describes the derivative instruments currently used by the Company and discloses how these derivatives impact
the Company’s financial position and results of operations.
Stockholders’ Equity
Common stock reflects shares issued at par value. Repurchase of the Company’s common stock (treasury stock) is recorded at cost as
a reduction of stockholders’ equity within capital surplus in the accompanying Consolidated Balance Sheets and the Statements of
Changes in Stockholders’ Equity. When treasury shares are subsequently reissued, treasury stock is reduced by the cost of such stock
using the first-in-first-out method, with the difference recorded in capital surplus or retained earnings, as applicable.
Revenue Recognition
Interest Income
Interest income is recognized on an accrual basis driven by written contracts, such as loan agreements or securities contracts. Loan
origination fees are recognized over the life of the loan as an adjustment to yield.
Service Charges on Deposit Accounts
Service charges on deposit accounts include transaction based fees for non-sufficient funds, account analysis fees, and other service
charges on deposits, including monthly account service fees. Non-sufficient funds fees are recognized at the time when the account
overdraft occurs in accordance with regulatory guidelines. Account analysis fees consist of fees charged on certain business deposit
accounts based upon account activity as well as other monthly account fees, and are recorded under the accrual method of accounting
as services are performed.
Other service charges are earned by providing depositors safeguard and remittance of funds as well as by providing other elective
services for depositors that are performed upon the depositor’s request. Charges for deposit services for the safeguard and remittance
of funds are recognized at the end of the statement cycle, after services are provided, as the customer retains funds in the account.
Revenue for other elective services is earned at the point in time the customer uses the service.
Trust Fees
Trust fee income represents revenue generated from asset management services provided to individuals, businesses, and institutions.
The Company has a fiduciary responsibility to the beneficiary of the trust to perform agreed upon services which can include investing
assets, periodic reporting, and providing tax information regarding the trust. In exchange for these trust and custodial services, the
Company collects fee income from beneficiaries as contractually determined via fee schedules. The Company’s performance
obligation is primarily satisfied over time as the services are performed and provided to the customer. These fees are recorded under
the accrual method of accounting as the services are performed. The Company generally acts as the principal in these transactions and
records revenue and expenses on a gross basis.
Bank Card and Automated Teller Machine (“ATM”) Fees
Bank card and ATM fees include credit card, debit card and ATM transaction revenue. The majority of this revenue is card
interchange fees earned through a third party network. Performance obligations are satisfied for each transaction when the card is used
and the funds are remitted. The network establishes interchange fees that the merchant remits for each transaction, and costs are
incurred from the network for facilitating the interchange with the merchant. Card fees also include merchant services fees earned for
providing merchants with card processing capabilities.
ATM income is generated from allowing customers to withdraw funds from other banks’ machines and from allowing a non-customer
cardholder to withdraw funds from the Company’s machines. The Company satisfies its performance obligations for each transaction
at the point in time that the withdrawal is processed.
Bank card and ATM fee income is recorded on accrual basis as services are provided with the related expense reflected in data
processing expense.
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Investment and Annuity Fees and Insurance Commissions
Investment and annuity services fee income represents income earned from investment and advisory services. The Company provides
its customers with access to investment products through the use of third party carriers to meet their financial needs and investment
objectives. Upon selection of an investment product, the customer enters into a policy with the carrier. The performance obligation is
satisfied by fulfilling its responsibility to acquire the investment for which a commission fee is earned from the carrier based on
agreed-upon fee percentages on a trade date basis. The Company has a contractual relationship with a third party broker dealer to
provide full service brokerage and investment advisory activities. As the agent in the arrangement, the Company recognizes the
investment services commissions on a net basis. Investment revenue also includes portfolio management fees, which represent
monthly fees charged on a contractual basis to customers for the management of their investment portfolios and are recorded under the
accrual method of accounting on a gross basis, with expenses recorded in the appropriate expense line item.
This revenue line item includes investment banking income, which includes fees for services arising from securities offerings or
placements in which the Company acts as a principal. Revenue is recognized at the time the underwriting is completed and the
revenue is reasonably determinable. Any costs associated with these transactions are reflected in the appropriate expense line item.
Insurance commission revenue is recognized on a gross basis as of the effective date of the insurance policy as the Company’s
performance obligation is connecting the customer to the insurance products. The Company also receives contingent commissions
from insurance companies as additional incentive for achieving specified premium volume goals and/or the loss experience of the
insurance placed. Contingent commissions from insurance companies are recognized when determinable, which is generally when
such commissions are received or when we receive data from the insurance companies that allows the reasonable estimation of these
amounts. Any costs associated with these transactions are reflected in the appropriate expense line item.
Secondary Mortgage Market Operations
Secondary mortgage market operations revenue is primarily comprised of service release premiums earned on the sale of closed-end
mortgage loans to other financial institutions or government agencies that are recognized in revenue as each sales transaction occurs.
Net Gain (Loss) on Sales of Assets
Net gain (loss) on sales of assets reflects the excess (deficiency) of proceeds received over the carrying amount of assets sold plus cost
to sell for various assets other than foreclosed real estate. Gain or loss on the sale of assets are recognized as each transaction occurs.
Securities Transactions
Securities transactions includes net realized gain (losses) on securities sold reflecting the excess (deficiency) of proceeds received over
the specifically identified carrying amount of the assets being sold plus cost to sell. Securities sales are recorded as each transaction
occurs on a trade-date basis. Securities transactions also include declines in fair value for both available for sale and held to maturity
securities when those declines are deemed to be other than temporary.
Income from Bank-Owned Life Insurance
Bank-owned life insurance income primarily represents income earned from the appreciation of the cash surrender value of insurance
contracts held and the proceeds of insurance benefits. Revenue from the proceeds of insurance benefits is recognized at the time a
claim is confirmed.
Credit Related Fees
Credit-related fee income includes letters of credit fees and unused commercial commitment fees. Revenue for letters of credit fees is
recognized over time. Revenue for unused commercial commitment fees are recognized based on contractual terms, generally when
collected.
Income from Derivatives
Income from derivatives consists primarily of interest rate swap fees, net of fair value adjustments for customer derivatives and the
related offsetting agreements with unrelated financial institutions for which the derivative instruments are not designated as hedges.
This line item also includes the resulting gain or loss from ineffectiveness on derivatives that are designated as hedged items.
Other Miscellaneous Income
Other miscellaneous income represents a variety of revenue streams, including safe deposit box income, wire transfer fees, syndication
fees and any other income not reflected above. Income is recorded once the performance obligation is satisfied, generally on the
accrual basis or on a cash basis if not material and/or considered constrained.
Advertising Costs
Advertising costs are expensed as incurred.
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Income Taxes
Income taxes are accounted for using the asset and liability method. Current tax liabilities or assets are recognized for the estimated
income taxes payable or refundable on tax returns to be filed with respect to the current year. Deferred tax assets and liabilities are
based on temporary differences between the financial statement carrying amounts and the tax bases of the Company’s assets and
liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be realized or settled. Valuation allowances are established against deferred tax
assets if, based on all available evidence, it is more likely than not that some or all of the assets will not be realized. The benefit of a
position taken or expected to be taken in a tax return is recognized when it is more likely than not that the position will be sustained on
its technical merits. The effects of changes in tax rates and laws upon deferred tax balances are recognized in the period in which the
legislation is enacted.
The Company makes investments that generate investment tax credits (ITC). The Company uses the deferral method of accounting
whereby the tax benefit from the investment tax credits is recognized as a reduction of the book basis of the related asset and is
amortized into income over the tax life of the underlying investment.
The Company also invests in projects that yield tax credits issued under the Qualified Zone Academy Bonds (QZAB) and Qualified
School Construction Bonds (QSCB) that are available on issuances prior to December 31, 2017, as well as Federal and State New
Market Tax Credit (NMTC) programs. Returns on these investments are generated through the receipt of federal and state tax credits.
The tax credits are recorded as a reduction to the income tax provision in the year that they are earned. Tax credits from QZAB and
QSCB bonds are generally earned over the life of the bonds in lieu of interest income. Credits on Federal NMTC investments are
earned over the seven year compliance period beginning with the year of investment. Credits on State NMTC investments are
generally earned over a three to five year period depending upon the specific state program. Tax credits are earned over a 10 year
period for Low-Income Housing investments beginning with the year in which rental activity begins. These tax credits, if not used in
the tax return for the year when the credits are first available for use, can be carried forward for 20 years. For those investments where
the return of the principal is not expected, the equity investment is amortized over the life of the tax compliance period as a component
of noninterest expense.
Retirement Benefits
The Company sponsors defined benefit pension plans and certain other defined benefit postretirement plans for eligible employees.
The amounts reported in the consolidated financial statements with respect to these plans are based on actuarial valuations that
incorporate various assumptions regarding future experience under the plans. Note 16 – Retirement Benefit Plans discusses the
actuarial assumptions and provides information about the liabilities or assets recognized for the funded status of the Company’s
obligations under these plans, the net benefit expense charged to current operations, and the amounts recognized as a component of
other comprehensive income loss and AOCI.
Share-Based Payment Arrangements
The grant date fair value of equity instruments awarded to employees and directors establishes the cost of the services received in
exchange, and the cost associated with awards that are expected to vest is recognized over the requisite service period. Share-based
compensation for service-based awards that contain a graded vesting schedule is recognized over on a straight-line basis over the
requisite service period for the entire award. Forfeitures of unvested awards are recognized in earnings in the period in which they
occur. Refer to Note 17 – Share-Based Payment Arrangements for additional information.
Earnings Per Share
The Company calculates earnings per share using the two-class method. The two-class method allocates net income to each class of
common stock and participating security according to the common dividends declared and participation rights in undistributed
earnings. Participating securities currently consist of unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents.
Basic earnings per common share is computed by dividing income applicable to common shareholders by the weighted-average
number of common shares outstanding for the applicable period. Shares outstanding exclude treasury shares and unvested share-based
payment awards under long-term incentive compensation plans and directors’ compensation plans. Diluted earnings per common
share is computed using the weighted-average number of common shares outstanding increased by the number of shares in which
employees would vest under performance-based stock awards and stock unit awards based on expected performance factors and by the
number of additional shares that would have been issued if potentially dilutive stock options were exercised, each as determined using
the treasury stock method.
88
Reportable Segment Disclosures
Accounting standards require that information be reported about a company’s operating segments using a “management approach.”
Reportable segments are identified in these standards as those revenue-producing components for which discrete financial information
is produced internally and which are subject to evaluation by the chief operating decision maker in deciding how to allocate resources
to segments. The Company’s stated strategy is to provide a consistent package of banking products and services throughout a coherent
market area; as such, the Company has identified its overall banking operations as its only reportable segment. Because the overall
banking operations comprise substantially all of the Company’s consolidated operations, no separate segment disclosures are
presented.
Other
Assets held by the Bank in a fiduciary capacity are not assets of the Bank and are not included in the Consolidated Balance Sheets.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards Adopted in 2018
In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The
amendments in this Update improve current GAAP by clarifying the requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract, which aligns with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments in this
Update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. Early adoption is permitted. The Company early adopted this standard during the third quarter of 2018. Adoption of this
standard did not have a material impact upon the Company’s financial condition or results of operations.
In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 118.” The ASU amends Topic 740 to incorporate SEC guidance issued in its Staff Bulletin No. 118 (SAB
118). SAB 118 addressed the application of GAAP in situations when a registrant does not have the necessary information available,
prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the
Tax Cuts and Jobs Act. The amendments in this update were effective upon issuance, at which time the Company adopted the
standard. The Company disclosed a benefit related to the impact of impact of the Tax Act as provisional; however, no adjustment to
this amount was required. Adoption of this standard did not have a material impact on the Company’s financial condition or results of
operations.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities,” with the objective of improving financial reporting of hedging relationships to better portray the economic results of
an entity’s risk management activities in its financial statements. The update provides changes to both the designation and measurement
guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in this update are effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim
period after issuance of the update. All transition requirements and elections are to be applied to hedging relationships existing on the
date of adoption, and the effect of the adoption should be reflected as of the beginning of the fiscal year of adoption. The Company early
adopted this standard effective January 1, 2018 and has made certain adjustments to its existing designation documentation for active
hedging relationships in order to take advantage of specific provisions in the new guidance and to fully align its documentation with the
ASU. The adoption of this standard did not have a material impact on the Company’s financial condition or results of operations. See
further discussion in Note 10 – Derivatives.
89
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Costs,” to improve the presentation of net periodic pension cost and net
periodic postretirement benefit cost. The amendments require that an employer report the service cost component in the same line item
or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components
of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal
of income from operations, if one is presented. The amendments also allow only the service cost component to be eligible for
capitalization when applicable. These amendments are effective for public business entities for annual periods beginning after December
15, 2017, including interim periods within those annual periods. Disclosures of the nature of and reason for the change in accounting
principle are required in the first interim and annual periods of adoption. The Company adopted the standard effective January 1, 2018
and the amendments were applied retrospectively for the presentation of the service cost component and the other components of net
periodic pension and postretirement benefit costs in the statement of income. Refer to Note 16 – Retirement Plans – for detail on the
components of net periodic pension and post-retirement benefit costs that were reclassified for each reporting period. The provisions of
this update apply only to presentation and therefore did not have a material impact on the Company’s financial condition or results of
operations.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” affecting any entity that enters
into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those
contracts are within the scope of other standards. The core principle of this standard is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Most revenue associated with financial instruments, including interest and loan
origination fees, were outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial
instruments were also excluded from the scope. The FASB issued several subsequent updates that deferred by one year the effective
date; clarified its guidance for performing the principal-versus-agent analysis; clarified guidance for identifying performance obligations
allowing entities to ignore immaterial promised goods and services in the context of a contract with a customer and other clarifying
guidance and technical corrections. Entities could elect to adopt the guidance either on a full or modified retrospective basis. The
standard was effective and the Company adopted this guidance on January 1, 2018, using the modified retrospective approach. The
Company inventoried and evaluated its contracts with customers for compliance with the standard and did not identify material changes
to the timing of revenue recognition as the standard was largely consistent with the existing guidance and current practices. Therefore,
the adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations and there was
no cumulative effect adjustment to opening retained earnings. However, upon adoption the Company has begun presenting certain
underwriting costs (previously offset against Investment and Annuity Fees), as well as certain subadvisor costs (previously offset against
Trust Fees) gross as noninterest expense, neither of which are material to operating results. Due to the nature of the Company’s primary
sources of revenue, there are no significant receivables, contract assets or contract liabilities not otherwise disclosed. The Company has
assessed that its current disclosures are consistent with the requirements of the standard to present revenue disaggregated into categories
that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Additional
qualitative disclosures about the Company’s noninterest income and revenue recognition policies is presented in “Revenue Recognition”
section of this note.
The following ASUs were also adopted by the Company on January 1, 2018, none of which had a significant impact on the
Company’s consolidated financial statements:
(cid:120)(cid:3) ASU 2018-03,Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities;
(cid:120)(cid:3) ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting;
(cid:120)(cid:3) ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business;
(cid:120)(cid:3) ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory;
(cid:120)(cid:3) ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments; and
(cid:120)(cid:3) ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities
90
Issued but Not Yet Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic
715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” The amendments in this Update
modify certain disclosure requirements by removing disclosures that are no longer considered cost beneficial, clarifying specific
requirements of disclosures, and adding disclosure requirements identified as relevant. The amendments in this Update are effective for
fiscal years ending after December 15, 2020 for public business entities, and early adoption is permitted. Application of the guidance
applies only to disclosure presentation and will have no impact upon the Company’s results of operations or financial condition.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement.” The amendments in this Update modify certain disclosure requirements on fair
value measurements set forth in Topic 820, Fair Value Measurements. In addition, the amendments in this Update eliminate the phrase
“an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities when considering fair value
measurement disclosures to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating
disclosure requirements. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those
fiscal years, beginning after December 31, 2019, and early adoption is permitted. Application of the guidance applies only to disclosure
presentation and will have no impact upon the Company’s results of operations or financial condition.
In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation – (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting,” to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods
and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a
grantor acquires goods and services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.
The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide financing to the issuer
or awards granted in conjunction with the selling of goods or services to customers as part of a contract accounted for under Topic
606, “Revenue from Contracts with Customers.” The amendments in this Update are effective for public business entities for fiscal
years beginning after December 15, 2018, including interim periods within that fiscal year. The Company does not expect the adoption
of this guidance to have a material impact upon its financial condition or results of operations.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments,” to improve financial reporting by requiring timelier recording of credit losses on loans and other financial
instruments held by financial institutions and other organizations. The ASU, more commonly referred to as Current Expected Credit
Losses, or CECL, requires the measurement of all expected credit losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will
now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques currently
applied will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.
Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. In
addition, the ASU amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration.
The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019,
with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early application is permitted for
all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is
not planning to early adopt this guidance. The Company has engaged third party consultants and formed cross-functional working
groups comprised of individuals from various areas including credit, finance, treasury, risk management and information technology
for implementation. Five work streams have been created to develop the expected credit loss models; execute system implementation;
complete balance sheet scoping; ensure the design of effective internal controls surrounding new processes; and provide executive
oversight of the project. The Company has substantially completed the configuration of a vendor provided software solution for
which implementation is expected to be complete in second quarter of 2019. The model development team is finalizing testing of
credit loss models developed and validation of models will begin in first quarter of 2019. While the Company has not yet quantified
the financial impact of adoption, the expectation is that application of this guidance will result in an increase in the allowance for loan
losses given the change in methodology from covering losses inherent in the portfolio to covering losses over the remaining expected
life of the portfolio, and the reclassification of nonaccretable difference on purchased credit impaired loans to allowance (offset by an
increase in the carrying value of the related loans). Application of the guidance is also expected to result in the establishment of an
allowance for credit loss on held to maturity debt securities. The amount of the increase in these allowances will be impacted by the
portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing
arrangements. With the exception of short-term leases, lessees will be required to recognize a lease liability representing the lessee’s
obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset representing the lessee’s
right to use, or control the use of, a specified asset for the lease term. Consequently, lessees will no longer be able to utilize leases as a
source of off-balance sheet financing. Lessor accounting is largely unchanged under the new guidance, except for clarification of the
91
definition of initial direct costs which may impact the timing of recognition of those costs. Subsequent to the issuance of this update, the
FASB issued three additional ASUs that provide codification improvements and certain transition elections, including ASU 2018- 11,
which permits an additional transition method whereby an entity may elect to record a cumulative-effect adjustment to the opening
balance of retained earnings in the period of adoption. Thus, the entity’s reporting for the comparative periods presented in the financial
statements in which the entity adopts the new lease requirements would continue to be in accordance with current GAAP (Topic 840),
including disclosures. Public business entities are required to apply the standard for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The Company will adopt the standard effective January 1, 2019, including the election
of the transition method permitted by ASU 2018-11. Upon adoption, the Company will record a gross-up of assets and liabilities in its
Consolidated Balance Sheet, with approximately $116 million for right of use assets and $131 million of lease payment obligations offset
by the elimination of $15 million of existing lease incentive and other deferred rent liabilities. The impact of adoption to the consolidated
results of operations is not expected to be material.
Note 2. Acquisitions and Divestiture
Acquisitions
On July 13, 2018, the Company acquired the bank-managed high net worth individual and institutional investment management and
trust business of Capital One, National Association (“Capital One”). The transaction added assets under management of $4 billion
and assets under management and administration of $10.4 billion to the Company’s existing trust and asset management business. In
addition, the Company assumed approximately $217 million of customer deposit liabilities. The net consideration received is subject
to final settlement, which is expected to occur during the first quarter of 2019. The transaction was accounted for as a business
combination. The following table sets forth the preliminary acquisition date fair value of the assets acquired and the liabilities
assumed, the consideration received, and the resulting goodwill as of December 31, 2018.
(in thousands)
ASSETS
Accounts receivable
Identifiable intangible assets
Total identifiable assets
LIABILITIES
Deposit liabilities
Other liabilities
Total liabilities
Net liabilities assumed
Consideration received
Goodwill
$
$
2,803
27,562
30,365
217,432
151
217,583
(187,218)
141,769
45,449
Identifiable intangible assets include customer relationships that are being amortized using an accelerated method based on forecasted
cash flows over a useful life of approximately 17 years. Goodwill represents the excess of the fair value of net liabilities assumed over
the consideration received. It is comprised of estimated future economic benefits arising from the transaction that cannot be
individually identified or do not qualify for separate recognition. These benefits include expanded presence in existing markets and
entry into new markets, and expected earnings streams and operational efficiencies that the Company believes will result from this
business combination. The tax basis of the goodwill is expected to be deductible for federal income tax purposes.
On March 10, 2017, the Company acquired certain assets and assumed certain liabilities, including nine branches, from First NBC
Bank (“FNBC”), referred to as the FNBC I transaction. The Company paid approximately $323 million in cash consideration ($326
million cash paid net of $3 million in branch cash acquired), including a $41.6 million transaction premium for the earnings stream
acquired.
On April 28, 2017, the Louisiana Office of Financial Institutions (“OFI”) closed FNBC and appointed the FDIC as receiver. The
Company entered into a purchase and assumption agreement with the FDIC, referred to as the FNBC II transaction. Pursuant to the
agreement, the Company acquired selected assets and assumed select liabilities of the former FNBC, including substantially all of the
transaction and savings deposits. The Company paid a premium of $35 million to the FDIC for the earnings stream acquired and
received approximately $800 million in cash ($642 million from the FDIC for the net liabilities assumed and $158 million in branch
cash acquired).
92
The FNBC transactions were accounted for as business combinations. The following table sets forth the acquisition date fair value of
the assets acquired and the liabilities assumed, the consideration paid or received, and the resulting goodwill in each of the FNBC
transactions, and in the aggregate.
(in thousands)
ASSETS
Cash and due from banks
Interest-bearing time deposits with other banks
Fed funds sold and other short-term investments
Securities
Total loans
Property and equipment
Accrued interest receivable
Identifiable intangible assets
Deferred tax asset
Other assets
Total identifiable assets
LIABILITIES
Deposits
Short-term borrowings
Long-term debt
Other liabilities
Total liabilities
Net identifiable assets acquired (liabilities assumed)
Consideration (Paid) Received
Goodwill
FNBC I
FNBC II
March 10, 2017
April 28, 2017
Total
$
$
2,856
—
—
—
1,203,092
11,946
3,143
3,900
856
63
1,225,856
398,171
510,749
93,120
1,607
1,003,647
222,209
(325,756)
103,547
$
$
$
157,932
382,622
148
213,877
165,577
8,988
885
21,400
1,364
4,150
956,943
1,530,338
85,886
—
3,079
1,619,303
(662,360)
641,577
20,783
$
160,788
382,622
148
213,877
1,368,669
20,934
4,028
25,300
2,220
4,213
2,182,799
1,928,509
596,635
93,120
4,686
2,622,950
(440,151)
315,821
124,330
The loans acquired were recorded at estimated fair value at the acquisition dates with no carryover of the related allowance for loan
losses. Substantially all of the loans acquired were considered to be performing (“purchased credit performing”) based on such factors
as past due status and nonaccrual status, and were accounted for under Accounting Standards Codification (“ASC”) 310-20. The
unpaid principal balance of the performing loans acquired totaled $1.4 billion, of which $31.7 million is not expected to be collected.
The difference at the acquisition dates between the fair value and the contractual amounts due (the “fair value discount”) of $41.0
million will be accreted into income over the estimated lives of the loan pools established in the valuation. Loans with an unpaid
principal balance of $39.9 million and a fair value of $15.0 million were considered to be purchased credit impaired and were
accounted for under ASC 310-30 using the cost recovery method; as such, the related fair value discount of $24.9 million will not be
accreted into income.
The Company assumed approximately $690 million of borrowings in the transactions, consisting of short-term and long-term Federal
Home Loan Bank (“FHLB”) borrowings and securities sold under repurchase agreements. The short-term FHLB borrowings
consisted of $460 million in variable rate term notes and $51 million in fixed rate term notes. The long-term FHLB borrowings
included $93.1 million in fixed rate term notes. Identifiable intangible assets consist of core deposit intangibles totaling $25.3 million
that are being amortized using sum of years’ digits over the asset’s life of eight years for the FNBC I transaction and eleven years for
the FNBC II transaction. Goodwill totaling $124.3 million represents the excess of the consideration paid over the fair value of the net
assets acquired, or the excess of the fair value of the net liabilities assumed over the consideration received. It is comprised of
estimated future economic benefits arising from these transactions that cannot be individually identified or do not qualify for separate
recognition. These benefits include increased market share in the Greater New Orleans and Florida Panhandle market areas, expected
earnings streams, and operational efficiencies that the Company believes will result from these business combinations. The tax basis
of the goodwill generated from these transactions is deductible for federal income tax purposes.
93
The following table illustrates the change in the Company’s goodwill for the years ended December 31, 2018 and 2017:
(in thousands)
Goodwill balance at December 31, 2016
Additions and adjustments:
Initial goodwill recorded in FNBC I transaction
Measurement period adjustments - FNBC I transaction
Initial goodwill recorded in FNBC II transaction
Measurement period adjustments - FNBC II transaction
Goodwill balance at December 31, 2017
Additions and adjustments:
Initial goodwill recorded in acquisition of trust and asset management business
Measurement period adjustments - acquisition of trust and asset management business
Goodwill balance at December 31, 2018
$
621,193
95,568
7,979
23,009
(2,226)
745,523
45,634
(185)
790,972
$
$
The operating results of the Company for the years ended December 31, 2018 and 2017 include the results from the operations
acquired in the trust and asset management and the FNBC transactions since the respective acquisition dates. The acquired trust and
asset management business added approximately $10.5 million of trust fee revenue and $7.3 million of related expense to the
Company’s result of operations for the year ended December 31, 2018. Supplemental pro forma financial information of the combined
entity for the years ended December 31, 2018 and 2017 is not presented as the results of acquired business are not material to the
Company’s results of operations. In the cases of the FNBC transactions, estimating reliable historical financial information is
impracticable as only selected components of the businesses, as historically operated, were acquired. A number of post-acquisition
events following the FNBC transactions, including the consolidation of certain branch locations and the integration of operations, cash
and investments acquired make quantifying discrete earnings contributions of the businesses acquired impracticable. As such, neither
supplemental pro forma financial information of the combined entity, nor revenue and earnings contributed by the businesses acquired
since the dates of acquisition are presented.
The Company incurred merger-related costs in connection with the trust and asset management acquisition during the year ended
December 31, 2018 and the FNBC transactions during the year ended December 31, 2017. The following table sets forth the merger-
related costs incurred during the respective years:
(in thousands)
Personnel expense
Net occupancy and equipment expense
Professional services expense
Data processing expense
Other real estate
Advertising expense
Other expense
Total merger-related expenses
Divestiture
Years Ended December 31,
2018
2017
1,257
309
2,827
1,583
-
52
159
6,187
$
$
3,662
777
9,681
974
(1,511)
1,389
4,398
19,370
$
$
On March 9, 2018, the Company sold its consumer finance subsidiary, Harrison Finance Company (“HFC”). The Company received
cash of approximately $78.9 million and recorded a loss on the sale of $1.1 million.
94
Note 3. Securities
The amortized cost and fair value of securities classified as available for sale and held to maturity at December 31, 2018 and 2017
follow.
Securities Available for Sale
(in thousands)
U.S. Treasury and
government agency
securities
Municipal obligations
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Collateralized mortgage
obligations
Corporate debt securities
Securities Held to Maturity
(in thousands)
U.S. Treasury and
government agency
securities
Municipal obligations
Residential mortgage-backed
securities
Commercial mortgage-backed
securities
Collateralized mortgage
obligations
Amortized
Cost
December 31, 2018
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair
Value
Amortized
Cost
December 31, 2017
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair
Value
$
74,339 $
246,713
— $
360
2,633 $
6,646
71,706 $
240,427
99,535 $
245,997
— $
1,135
2,263 $
3,346
97,272
243,786
1,468,912
4,284
29,794
1,443,402
1,729,989
5,611
20,387
1,715,213
799,060
1,953
30,936
770,077
704,518
480
17,863
687,135
163,282
3,500
2,755,806 $
903
—
7,500 $
2,260
—
72,269 $
161,925
3,500
2,691,037 $
165,518
3,500
2,949,057 $
4
—
7,230 $
1,559
—
45,418 $
163,963
3,500
2,910,869
$
Amortized
Cost
December 31, 2018
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair
Value
Amortized
Cost
December 31, 2017
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair
Value
$
50,000 $
688,201
— $
2,347
478 $
9,503
49,522 $
681,045
50,000 $
723,094
— $
8,323
289 $
4,245
49,711
727,172
640,393
1,461
6,117
635,737
725,748
4,175
2,690
727,233
357,175
376
10,882
346,669
317,185
40
3,915
313,310
1,243,778
2,979,547 $
$
1,598
5,782 $
22,493
49,473 $
1,222,883
2,935,856 $
1,161,484
2,977,511 $
572
13,110 $
17,472
28,611 $
1,144,584
2,962,010
The following tables present the amortized cost and fair value of debt securities at December 31, 2018 by contractual maturity. Actual
maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled
and unscheduled principal payments on mortgage-backed securities and collateral mortgage obligations.
(in thousands)
Debt Securities Available for Sale
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total available for sale debt securities
(in thousands)
Debt Securities Held to Maturity
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total held to maturity debt securities
The Company held no securities classified as trading at December 31, 2018 or 2017.
95
Amortized
Cost
Fair
Value
$
$
1,862 (cid:3) $
105,364 (cid:3)
1,200,188 (cid:3)
1,448,392 (cid:3)
2,755,806 $
1,868
106,255
1,163,870
1,419,044
2,691,037
Amortized
Cost
Fair
Value
$
$
18,654 (cid:3) $
127,861 (cid:3)
1,425,846 (cid:3)
1,407,186 (cid:3)
2,979,547 $
18,676
126,495
1,405,836
1,384,849
2,935,856
The details for securities classified as available for sale with unrealized losses as of December 31, 2018 follow.
Available for sale
(in thousands)
U.S. Treasury and government
agency securities
Municipal obligations
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
$
Losses < 12 Months
Fair
Value
Gross
Unrealized
Losses
Losses 12 Months or >
Gross
Fair
Value
Unrealized
Losses
Total
Gross
Unrealized
Losses
Fair
Value
— $
— $
71,706 $
41,203
305,090
96,226
254
591
2,485
1,851
1
170,883
762,826
570,485
111,804
2,633 $
6,054
27,309
29,085
2,259
71,706 $
212,086
1,067,916
666,711
112,058
2,633
6,645
29,794
30,936
2,260
72,268
The details for securities classified as available for sale with unrealized losses as of December 31, 2017 follow.
$
442,773 $
4,928 $ 1,687,704 $
67,340 $ 2,130,477 $
Available for sale
(in thousands)
U.S. Treasury and government
agency securities
Municipal obligations
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
$
$
Losses < 12 Months
Fair
Value
Gross
Unrealized
Losses
Losses 12 Months or >
Gross
Fair
Value
Unrealized
Losses
Total
Gross
Unrealized
Losses
Fair
Value
45,616 $
2,768
461,835
203,618
128,174
842,011 $
51,157 $
42 $
11
4,195
995
1,076
6,319 $ 1,569,320 $
173,530
898,099
411,046
35,488
2,221 $
3,335
16,192
16,868
483
96,773 $
176,298
1,359,934
614,664
163,662
39,099 $ 2,411,331 $
2,263
3,346
20,387
17,863
1,559
45,418
The details for securities classified as held to maturity with unrealized losses as of December 31, 2018 follow.
Held to maturity
(in thousands)
U.S. Treasury and government
agency securities
Municipal obligations
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
$
$
Losses < 12 Months
Losses 12 Months or >
Total
Gross
Gross
Gross
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
— $
— $
49,521 $
478 $
49,521 $
233,469
90,730
—
77,394
401,593 $
2,256
123
—
281
233,280
235,251
305,419
897,153
2,660 $ 1,720,624 $
7,247
5,994
10,882
22,212
46,813 $ 2,122,217 $
466,749
325,981
305,419
974,547
478
9,503
6,117
10,882
22,493
49,473
96
The details for securities classified as held to maturity with unrealized losses as of December 31, 2017 follow.
Held to maturity
(in thousands)
U.S. Treasury and government
agency securities
Municipal obligations
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
$
$
Losses < 12 Months
Fair
Value
Gross
Unrealized
Losses
Losses 12 Months or >
Gross
Fair
Value
Unrealized
Losses
Total
Gross
Unrealized
Losses
Fair
Value
— $
14,603
8,815
174,882
570,289
768,589 $
49,711 $
— $
19
99
744
5,653
6,515 $ 1,055,983 $
230,960
230,277
72,499
472,536
289 $
49,711 $
4,226
2,591
3,171
11,819
22,096 $ 1,824,572 $
245,563
239,092
247,381
1,042,825
289
4,245
2,690
3,915
17,472
28,611
The unrealized losses primarily relate to changes in market rates on fixed rate debt securities since the respective purchase date. In all
cases, the indicated impairment on these debt securities would be recovered no later than the security’s maturity date or possibly
earlier if the market price for the security increases with a reduction in the yield required by the market. None of the unrealized losses
relate to the marketability of the securities or the issuers’ abilities to meet contractual obligations. The Company believes it has
adequate liquidity and, therefore, does not plan to and, more likely than not, will not be required to sell these securities before
recovery of the indicated impairment. Accordingly, the unrealized losses on these securities have been determined to be temporary.
The following table presents the proceeds from and gross gains and gross losses on sales of securities during the years ended
December 31, 2018, 2017 and 2016:
(in thousands)
Proceeds
Gross gains
Gross losses
2018
$
Years Ended December 31,
2017
2016
$
455,162
—
25,480
$
213,877
—
—
173,215
1,965
211
Securities with carrying values totaling approximately $3.4 billion at December 31, 2018 and $3.3 billion at December 31, 2017 were
pledged, primarily to secure public deposits or securities sold under agreements to repurchase.
97
Note 4. Loans and Allowance for Loan Losses
The Company generally makes loans in its market areas of south Mississippi, southern and central Alabama, south Louisiana, the
Houston, Texas area, the northern, central and panhandle regions of Florida, and Nashville, Tennessee. Loans, net of unearned
income, consisted of the following at December 31, 2018 and 2017:
(in thousands)
Commercial non-real estate
Commercial real estate - owner occupied
Total commercial and industrial
Commercial real estate - income producing
Construction and land development
Residential mortgages
Consumer
Total loans
$
$
2018
2017
8,620,601
2,457,748
11,078,349
2,341,779
1,548,335
2,910,081
2,147,867
20,026,411
$
$
8,297,937
2,142,439
10,440,376
2,384,599
1,373,421
2,690,472
2,115,295
19,004,163
The Bank makes loans in the normal course of business to directors and executive officers of the Company and the Bank and to their
associates. Loans to such related parties are made on substantially the same terms, including interest rates and collateral requirements,
as those prevailing at the time for comparable transactions with unrelated parties and do not involve more than normal risk of
collectability when originated. Balances of loans to the Company’s directors, executive officers and their associates at December 31,
2018 and 2017 were approximately $37.5 million and $33.6 million, respectively. Related party loan activity for 2018 includes new
loans of $16.3 million and repayments of $12.3 million.
The Bank has a line of credit with the Federal Home Loan Bank of Dallas that is secured by blanket pledges of certain qualifying loan
types. The Bank had borrowings on this line of $1.2 billion and $1.1 billion at December 31, 2018 and 2017, respectively.
The following schedules show activity in the allowance for loan losses for the years ended December 31, 2018 and 2017 by portfolio
segment, and the corresponding recorded investment in loans as of December 31, 2018 and 2017.
(in thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Net provision for loan losses
Other
$
$
Ending balance
Ending balance:
Allowance:
Individually evaluated for
impairment
Amounts related to
purchased credit impaired
loans
Collectively evaluated for
impairment
Total allowance
Loans:
Individually evaluated for
impairment
Purchased credit impaired
loans
Collectively evaluated for
impairment
Total loans
Commercial
Non-Real
Estate
Commercial
Real Estate-
Owner
Occupied
Total
Commercial
and Industrial
Commercial
Construction
Real Estate-
and Land
Income
Producing
Development
Year Ended December 31, 2018
Residential
Mortgages
Consumer
Total
127,918 $
(40,069)
14,385
(4,482)
—
97,752 $
12,962 $
(8,059)
317
8,537
—
13,757 $
140,880 $
(48,128)
14,702
4,055
—
111,509 $
13,709 $
(1,633)
221
5,341
—
17,638 $
7,372 $
(334)
96
8,513
—
15,647 $
24,844 $
(614)
2,179
(2,627)
—
23,782 $
30,503 $
(23,913)
5,162
20,834
(6,648)
25,938 $
217,308
(74,622)
22,360
36,116
(6,648)
194,514
$
3,636 $
607 $
4,243 $
210 $
1 $
444 $
216 $
5,114
239
215
454
43
83
9,766
388
10,734
$
93,877
97,752 $
12,935
13,757 $
106,812
111,509 $
17,385
17,638 $
15,563
15,647 $
13,572
23,782 $
25,334
25,938 $
178,666
194,514
$
239,384 $
21,666 $
261,050 $
2,701 $
121 $
3,876 $
1,007 $
268,755
6,629
6,212
12,841
3,757
3,387
105,430
4,181
129,596
$
8,374,588
8,620,601 $
2,429,870
2,457,748 $
10,804,458
11,078,349 $
2,335,321
2,341,779 $
1,544,827
1,548,335 $
2,800,775
2,910,081 $
2,142,679
2,147,867 $
19,628,060
20,026,411
98
Commercial
Non-Real
Estate
Commercial
Real Estate-
Owner
Occupied
Total
Commercial
and Industrial
Commercial
Construction
Real Estate-
and Land
Income
Producing
Development
Year Ended December 31, 2017
Residential
Mortgages
Consumer
Total
147,052 $
(51,479)
7,526
24,866
(47)
127,918 $
11,083 $
(558)
848
1,589
—
12,962 $
158,135 $
(52,037)
8,374
26,455
(47)
140,880 $
13,509 $
(259)
988
(529)
—
13,709 $
6,271 $
(696)
1,603
194
—
7,372 $
25,361 $
(2,839)
1,064
3,602
(2,344)
24,844 $
26,142 $
(31,430)
6,680
29,246
(135)
30,503 $
229,418
(87,261)
18,709
58,968
(2,526)
217,308
$
16,129 $
793 $
16,922 $
1,326 $
11 $
189 $
118 $
18,566
525
465
990
41
172
12,258
646
14,107
$
111,264
127,918 $
11,704
12,962 $
122,968
140,880 $
12,342
13,709 $
7,189
7,372 $
12,397
24,844 $
29,739
30,503 $
184,635
217,308
$
267,881 $
21,491 $
289,372 $
15,530 $
363 $
10,640 $
1,292 $
317,197
5,941
7,294
13,235
2,742
5,829
119,553
6,178
147,537
$
8,024,115
8,297,937 $
2,113,654
2,142,439 $
10,137,769
10,440,376 $
2,366,327
2,384,599 $
1,367,229
1,373,421 $
2,560,279
2,690,472 $
2,107,825
2,115,295 $
18,539,429
19,004,163
(in thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Net provision for loan losses
Increase (decrease) in FDIC
loss share receivable
$
$
Ending balance
Ending balance:
Allowance:
Individually evaluated for
impairment
Amounts related to
purchased credit impaired
loans
Collectively evaluated for
impairment
Total allowance
Loans:
Individually evaluated for
impairment
Purchased credit impaired
loans
Collectively evaluated for
impairment
Total loans
Impaired Loans
The following table shows the composition of nonaccrual loans by portfolio class. Purchased credit impaired loans accounted for in
pools with an accretable yield are considered to be performing and are excluded from the table.
(in thousands)
Commercial non-real estate
Commercial real estate - owner occupied
Total commercial and industrial
Commercial real estate - income producing
Construction and land development
Residential mortgages
Consumer
Total loans
December 31,
2018
110,653 $
16,895
127,548
4,991
2,146
35,866
16,744
187,295 $
2017
152,863
25,989
178,852
14,574
3,807
40,480
15,087
252,800
$
$
Nonaccrual loans include loans modified in troubled debt restructurings (TDRs) of $85.5 million and $99.2 million, respectively, at
December 31, 2018 and 2017. Total TDRs, both accruing and nonaccruing, were $224.6 million at December 31, 2018 and
$219.7 million at December 31, 2017.
The table below details the TDRs that were modified during the years ended December 31, 2018, 2017 and 2016 by portfolio segment.
All such loans are individually evaluated for impairment.
99
($ in thousands)
Troubled Debt Restructurings:
Commercial non-real estate
Commercial real estate - owner
occupied
Total commercial and industrial
Commercial real estate - income
producing
Construction and land
development
Residential mortgages
Consumer
Total loans
2018
Outstanding
Recorded Investment
Years Ended December 31,
2017
Outstanding
Recorded Investment
2016
Outstanding
Recorded Investment
Number
of
Contracts
Pre-
Modification
29 $
85,306 $
Post-
Modification
85,306
Number
of
Contracts
Pre-
Modification
Post-
Modification
52 $ 162,909 $ 162,909
Number
of
Contracts
Pre-
Modification
Post-
Modification
38 $ 128,449 $ 128,449
2
31
6,138
91,444
6,138
91,444
5
57
5,684
168,593
5,684
168,593
1
39
148
128,597
148
128,597
1
1,564
1,564
5
5,625
5,625
1
2,943
2,943
—
14
10
56 $
—
1,297
455
94,760 $
—
1,297
455
94,760
—
15
1
—
—
2,812
2,812
40
40
78 $ 177,070 $ 177,070
—
—
—
7
694
694
—
—
—
47 $ 132,234 $ 132,234
The TDRs modified during the year ended December 31, 2018 reflected in the table above include $50.8 million of loans with
extended amortization terms or other payment concessions, $14.6 million of loans with significant covenant waivers and $29.4 million
with other modifications. The TDRs modified during the year ended December 31, 2017 include $98.1 million of loans with extended
terms or other payment concessions of $76.2 mllion of loans with significant convenant waivers, and $2.8 million with other
modifications. The TDRs modified during the year ended December 31, 2016 include $108.9 million of loans with extended terms or
other payment concessions of $22.8 million of loans with significant covenant waivers, and $0.5 million of other modifications.
At December 31, 2018 and 2017, the Company had unfunded commitments of approximately $2.1 million and $7.3 million,
respectively, to borrowers whose loan terms had been modified in TDRs.
One residential mortgage totaling $0.2 million, one owner-occupied commercial real estate loan totaling $1.8 million and one
consumer loan totaling less than $ 0.1 million defaulted within 12 months of the modification for December 31, 2018. No TDRs
modified during the year end December 31, 2017 subsequently defaulted within twelve months of modification. Four commercial non-
real estate loans modified in TDRs during the year ended December 31, 2016 defaulted within twelve months of modification. The
loans were part of a single relationship and had an aggregate carrying balance of $20.8 million at the time of default.
The tables below present loans that are individually evaluated for impairment disaggregated by class at December 31, 2018 and 2017.
Loans individually evaluated for impairment include TDRs and loans that are determined to be impaired and have aggregate
relationship balances of $1 million or more.
(in thousands)
Commercial non-real estate
Commercial real estate - owner occupied
Total commercial and industrial
Commercial real estate - income producing
Construction and land development
Residential mortgages
Consumer
Total loans
December 31, 2018
Recorded
Investment
Without an
Allowance
Recorded
Investment
With an
Allowance
Unpaid
Principal
Balance
Related
Allowance
$
$
144,625 $
13,027
157,652
1,138
100
2,058
279
161,227 $
94,759 $
8,639
103,398
1,563
21
1,818
728
107,528 $
273,290 $
25,888
299,178
3,428
121
4,421
1,253
308,401 $
3,636
607
4,243
210
1
444
216
5,114
100
(in thousands)
Commercial non-real estate
Commercial real estate - owner occupied
Total commercial and industrial
Commercial real estate - income producing
Construction and land development
Residential mortgages
Consumer
Total loans
December 31, 2017
Recorded
Investment
Without an
Allowance
Recorded
Investment
With an
Allowance
Unpaid
Principal
Balance
Related
Allowance
$
$
116,682 $
16,927
133,609
5,101
100
8,245
—
147,055 $
151,199 $
4,564
155,763
10,429
263
2,395
1,292
170,142 $
285,685 $
24,829
310,514
15,687
363
13,855
1,294
341,713 $
16,129
793
16,922
1,326
11
189
118
18,566
The tables below present the average balances and interest income for total impaired loans for the years ended December 31, 2018 and
2017. Interest income recognized represents interest on accruing loans modified in a TDR.
(in thousands)
Commercial non-real estate
Commercial real estate - owner occupied
Total commercial and industrial
Commercial real estate - income producing
Construction and land development
Residential mortgages
Consumer
Total loans
Aging Analysis
Years Ended
December 31, 2018
December 31, 2017
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
$
$
286,146 $
25,325
311,471
9,155
145
5,598
814
327,183 $
7,919 $
343
8,262
71
-
18
39
8,390 $
255,710 $
7,901
263,611
14,565
1,018
5,784
1,558
286,536 $
2,774
62
2,836
146
2
18
13
3,015
The following table presents the age analysis of past due loans at December 31, 2018 and 2017. Purchased credit impaired loans with
an accretable yield are considered to be current in the following delinquency table:
December 31, 2018
(in thousands)
Commercial non-real estate
Commercial real estate - owner occupied
$
Total commercial and industrial
Commercial real estate - income
producing
Construction and land development
Residential mortgages
Consumer
Total loans
$
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
past due
Total
Past Due
Current
Total
Loans
Recorded
Investment
> 90 Days
and Accruing
12,257 $
2,394
14,651
2,371
7,397
32,869
20,402
77,690 $
3,895 $
1,570
5,465
772
1,129
14,706
4,695
26,767 $
77,551 $
14,542
92,093
93,703 $
18,506
112,209
8,526,898 $
2,439,242
10,966,140
8,620,601 $
2,457,748
11,078,349
5,495
2,165
23,175
9,665
132,593 $
8,638
10,691
70,750
34,762
237,050 $
2,333,141
1,537,644
2,839,331
2,113,105
19,789,361 $
2,341,779
1,548,335
2,910,081
2,147,867
20,026,411 $
10,823
380
11,203
1,844
644
—
618
14,309
December 31, 2017
(in thousands)
30-59 Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
Past Due
Total
Past Due
Current
Total
Loans
Recorded
Investment
> 90 Days
and Accruing
Commercial non-real estate
Commercial real estate - owner occupied
$
Total commercial and industrial
Commercial real estate - income
producing
Construction and land development
Residential mortgages
Consumer
Total loans
$
62,766 $
8,493
71,259
5,315
4,113
33,621
22,959
137,267 $
10,761 $
648
11,409
2,165
1,056
10,554
7,816
33,000 $
92,982 $
15,517
108,499
166,509 $
24,658
191,167
8,131,428 $
2,117,781
10,249,209
8,297,937 $
2,142,439
10,440,376
6,081
3,412
30,537
8,553
157,082 $
13,561
8,581
74,712
39,328
327,349 $
2,371,038
1,364,840
2,615,760
2,075,967
18,676,814 $
2,384,599
1,373,421
2,690,472
2,115,295
19,004,163 $
21,989
2,032
24,021
489
477
2,208
571
27,766
101
Credit Quality Indicators
The following table presents the credit quality indicators of the Company’s various classes of loans at December 31, 2018 and
December 31, 2017.
(in thousands)
Grade:
Pass
Pass-Watch
Special Mention
Substandard
Doubtful
Total
(in thousands)
Grade:
Pass
Pass-Watch
Special Mention
Substandard
Doubtful
Total
(in thousands)
Performing
Nonperforming
Total
Commercial Non-
Real Estate
Commercial Real
Estate - Owner
Occupied
Total Commercial
and Industrial
Commercial Real
Estate - Income
Producing
Construction and
Land
Development
Total Commercial
December 31, 2018
$
$
7,875,588 $
260,510
75,752
408,751
—
8,620,601 $
2,274,211 $
84,271
23,149
76,117
—
2,457,748 $
10,149,799 $
344,781
98,901
484,868
—
11,078,349 $
2,265,087 $
46,535
5,510
24,647
—
2,341,779 $
1,487,599 $
49,099
816
10,821
—
1,548,335 $
13,902,485
440,415
105,227
520,336
—
14,968,463
Commercial Non-
Real Estate
Commercial Real
Estate - Owner
Occupied
Total Commercial
and Industrial
Commercial Real
Estate - Income
Producing
Construction and
Land
Development
Total Commercial
December 31, 2017
$
$
7,190,604 $
293,069
80,649
733,558
57
8,297,937 $
1,896,366 $
82,913
27,456
135,704
—
2,142,439 $
9,086,970 $
375,982
108,105
869,262
57
10,440,376 $
2,223,245 $
83,444
13,244
64,658
8
2,384,599 $
1,291,638 $
60,804
4,788
16,191
—
1,373,421 $
12,601,853
520,230
126,137
950,111
65
14,198,396
December 31, 2018
Residential
Mortgage
Consumer
$
$
2,873,669 $
36,412
2,910,081 $
2,130,395 $
17,472
2,147,867 $
Total
5,004,064 $
53,884
5,057,948 $
December 31, 2017
Residential
Mortgage
Consumer
2,647,784 $
42,688
2,690,472 $
2,099,637 $
15,658
2,115,295 $
Total
4,747,421
58,346
4,805,767
Below are the definitions of the Company’s internally assigned grades:
Commercial:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
Pass - loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk.
Pass - Watch - credits in this category are of sufficient risk to cause concern. This category is reserved for credits that
display negative performance trends. The “Watch” grade should be regarded as a transition category.
Special mention - a criticized asset category defined as having potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the
repayment prospects for the credit or the institution’s credit position. Special mention credits are not considered part of the
Classified credit categories and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard - an asset that is inadequately protected by the current sound worth and paying capacity of the obligor or of
the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the
deficiencies are not corrected.
Doubtful - an asset that has all the weaknesses inherent in one classified Substandard with the added characteristic that the
weaknesses make collection nor liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
Loss - credits classified as Loss are considered uncollectable and are charged off promptly once so classified.
Residential and Consumer:
(cid:120)(cid:3)
(cid:120)(cid:3)
Performing – accruing loans that have not been modified in a troubled debt restructuring.
Nonperforming – loans for which there are good reasons to doubt that payments will be made in full. All loans with
nonaccrual status and all loans that have been modified in a troubled debt restructuring are classified as nonperforming.
102
The Company assigns risk ratings at loan origination and reviews these ratings at minimum on annual basis, or at any point
management becomes aware of information that may affect a borrower’s ability to service its debt. Credit Review uses a risk-focused
continuous monitoring program that provides for an independent, objective and timely review of credit risk within the Company.
Purchased Credit Impaired Loans
Changes in the carrying amount of purchased credit impaired loans not individually evaluated for impairment and accretable yield are
presented in the following table for the years ended December 31, 2018 and 2017:
(in thousands)
Balance at beginning of period
Additions
Payments received, net
Accretion
Increase (decrease) in expected cash flows based on actual
cash flow and changes in cash flow assumptions
Net transfers from nonaccretable difference
$
2018
2017
Carrying
Amount
of Loans
Accretable
Yield
Carrying
Amount
of Loans
153,403 $
—
(39,556)
15,749
62,517 $
—
(5,779)
(15,749)
190,915 $
15,000
(69,591)
17,079
Accretable
Yield
113,686
—
(7,412)
(17,079)
—
(3,695)
—
(30,379)
to accretable yield
Balance at end of period
$
—
129,596 $
—
37,294 $
—
153,403 $
3,701
62,517
Certain of the Company’s purchased credit impaired loans were covered by a loss share agreement with the FDIC. The agreement was
terminated by the Company during the third quarter of 2017. Prior to termination, the Company carried a receivable from the FDIC
representing an indemnification asset arising from the agreement. The receivable was accounted for separately from the covered loans
as the agreement was not contractually part of the loans and were not transferrable should the Company have disposed of the loans.
Residential Mortgage Loans in Process of Foreclosure
Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements
of the applicable jurisdiction. Included in loans are $7.1 million and $7.5 million of consumer loans secured by single family
residential mortgage real estate that are in process of foreclosure as of December 31, 2018 and 2017, respectively. In addition to the
single family residential real estate loans in process of foreclosure, the Company also held $1.8 million and $3.4 million of foreclosed
single family residential properties in other real estate owned as of December 31, 2018 and 2017, respectively.
Loans Held for Sale
Loans held for sale totaled $28.1 million and $39.9 million, respectively, at December 31, 2018 and 2017. Substantially all loans held
for sale are residential mortgage loans originated on a best-efforts basis, whereby a commitment by a third party to purchase the loan
has been received concurrent with the Bank’s commitment to the borrower to originate the loan.
Note 5. Property and Equipment
Property and equipment consisted of the following as of December 31, 2018 and 2017:
(in thousands)
Land and land improvements
Buildings and leasehold improvements
Furniture, fixtures and equipment
Software
Assets under development
Accumulated depreciation and amortization
Property and equipment, net
December 31,
2018
70,960 $
311,409
92,805
72,721
31,742
579,637 (cid:3)
(225,969)
353,668 $
2017
71,061
305,277
92,360
70,003
9,960
548,661
(214,998)
333,663
$
$
Assets under development is comprised primarily of building and leasehold improvements and software design and implementation
costs.
103
Depreciation and amortization expense was $26.5 million, $28.1 million and $28.4 million for the years ended December 31, 2018,
2017 and 2016, respectively.
Property and Equipment Held for Sale
During the fourth quarter of 2017, the Company determined that certain property and equipment met the criteria to be classified as
assets held for sale. The sale of these assets is expected to close in the first half of 2019. The carrying value of $27.2 million has been
recorded within Other Assets in the Consolidated Balance Sheets as of December 31, 2018 and 2017. For more information on the
Company's policy on assets held for sale, refer to Note 1 – Summary of Significant Account Policies and Recent Accounting
Pronouncements.
Note 6. Goodwill and Other Intangible Assets
Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired or the excess of the fair value of
the net liabilities assumed over the consideration received in a business combination. The acquisition of the trust and asset
management business resulted in goodwill of $43.3 million during the year ended December 31, 2018, and the FNBC transactions
resulted in goodwill of $124.3 million during the year ended December 31, 2017. The carrying amount of goodwill was $791.0
million and $745.5 million at December 31, 2018 and 2017, respectively. The Company completed its annual goodwill impairment
test as of September 30, 2018 and concluded that there was no impairment of goodwill.
The Company used the discounted net present value of estimated future cash flows to measure the fair value of its goodwill at
September 30, 2018. The valuation technique used by the Company requires significant assumptions. Assumptions are made
concerning the economic environment, expected net interest margins, growth rates, and discount rates for cash flows. Changes to these
assumptions could result in significantly different results.
No goodwill impairment charges were recognized during 2018, 2017 or 2016.
Identifiable intangible assets with finite lives are amortized over the periods benefited and are evaluated for impairment similar to
other long-lived assets. The purchase and carrying values of intangible assets subject to amortization as of December 31, 2018 and
2017 were as follows:
(in thousands)
Core deposit intangibles
Customer relationships
Merchant processing relationship
(in thousands)
Core deposit intangibles
Customer relationships
Merchant processing relationship
$
$
$
$
Purchase
Value
215,955 $
49,962
10,000
275,917 $
December 31, 2018
Accumulated
Amortization
151,446 $
19,564
8,756
179,766 $
Purchase
Value
215,955 $
22,400
10,000
248,355 $
December 31, 2017
Accumulated
Amortization
132,878 $
16,882
7,955
157,715 $
Carrying
Value
64,509
30,398
1,244
96,151
Carrying
Value
83,077
5,518
2,045
90,640
Aggregate amortization expense by category of finite lived intangible assets for the years ended December 31, 2018, 2017 and 2016 is
as follows:
(in thousands)
Core deposit intangibles
Customer relationships
Merchant processing relationship
2018
Years Ended December 31,
2017
2016
18,566 $
2,682
802
22,050 $
19,442 $
1,975
1,000
22,417 $
16,411
2,172
1,198
19,781
$
$
The weighted-average remaining life of core deposit intangibles is approximately 8 years. The weighted-average remaining life of
other identifiable intangibles is approximately 15 years.
104
The following table shows estimated amortization expense of other intangible assets as of December 31, 2018 for the five succeeding
years and thereafter, calculated based on current amortization schedules.
(in thousands)
2019
2020
2021
2022
2023
Thereafter
Note 7. Time Deposits
$
$
19,859
15,924
12,953
10,599
8,401
28,415
96,151
The following table presents a detail of deposits at December 31, 2018 and 2017:
(in thousands)
Noninterest-bearing deposits
Interest-bearing retail transaction and savings deposits
Interest-bearing public fund deposits
Public fund transaction and savings deposits
Public fund time deposits
Total interest-bearing public fund deposits
Retail time deposits
Brokered time deposits
Total interest-bearing deposits
Total deposits
The maturity of time deposits at December 31, 2018 follows.
(in thousands)
2019
2020
2021
2022
2023
Thereafter
Total time deposits
December 31,
2018
8,499,027 $
8,000,092
2017
8,307,497
8,181,555
2,622,938
383,578
3,006,516
2,416,086
1,228,464
14,651,158
23,150,185 $
2,763,182
277,136
3,040,318
1,906,768
817,064
13,945,705
22,253,202
$
$
$
$
3,235,947
504,374
209,149
62,399
13,848
2,411
4,028,128
Certificates of deposit in amounts greater than $250,000 totaled approximately $1 billion at December 31, 2018.
105
Note 8. Short-Term Borrowings
The following table presents information concerning short-term borrowing at and for the years ended December 31, 2018 and 2017:
(in thousands)
Federal funds purchased:
Amount outstanding at period end
Average amount outstanding during period
Maximum amount at any month end during period
Weighted-average interest at period end
Weighted-average interest rate during period
Securities sold under agreements to repurchase:
Amount outstanding at period end
Average amount outstanding during period
Maximum amount at any month end during period
Weighted-average interest at period end
Weighted-average interest rate during period
FHLB borrowings:
Amount outstanding at period end
Average amount outstanding during period
Maximum amount at any month end during period
Weighted-average interest at period end
Weighted-average interest rate during period
December 31,
2018
2017
$
425 $
39,968
100,925
2.00%
2.11%
428,599 $
456,000
500,345
0.32%
0.23%
140,754
27,063
140,754
1.00%
1.37%
430,569
501,719
587,569
0.17%
0.12%
1,160,104 $
1,694,804
2,410,258
2.48%
2.02%
1,132,567
1,478,114
2,061,652
1.35%
1.00%
$
$
Federal funds purchased represent unsecured borrowings from other banks, generally on an overnight basis.
Securities sold under agreements to repurchase (“repurchase agreements”) are funds borrowed on a secured basis by selling securities
under agreements to repurchase, mainly in connection with treasury-management services offered to deposit customers. The customer
repurchase agreements mature daily and are secured by agency securities. As the Company maintains effective control over assets sold
under agreements to repurchase, the securities continue to be carried on the consolidated statements of financial condition. Because
the Company acts as borrower transferring assets to the counterparty, and the agreements mature daily, the Company’s risk is very
limited.
The $1.2 billion of FHLB borrowings at December 31, 2018 consists of three fixed rate notes totaling $250 million that mature in
2019, and six variable rate notes totaling $910 million maturing from 2020 to 2026. These notes reprice monthly or quarterly and may
be repaid at our option, either in whole or in part, on any monthly repricing date, subject to a two week advanced notice.
Note 9. Long-Term Debt
As of December 31, 2018 and 2017, long-term debt was comprised of the following:
(in thousands)
Subordinated notes payable, maturing June 2045
Term note payable, maturing December 2018
Other long-term debt
Less: unamortized debt issuance costs
Total long-term debt
December 31,
2018
150,000 $
—
79,598
(4,605)
224,993 $
2017
150,000
89,200
71,378
(5,065)
305,513
$
$
The following table sets forth unamortized debt issuance costs associated with the respective debt instruments as of December 31,
2018:
(in thousands)
Subordinated notes payable, maturing June 2045
Other long-term debt
Total
106
$
$
Principal
150,000 $
79,598
229,598 $
Unamortized
Debt
Issuance
Costs
4,605
—
4,605
On March 9, 2015, the Company completed the issuance of subordinated notes payable with an aggregate principal amount of
$150 million, maturing on June 15, 2045. These notes accrue interest at a fixed rate of 5.95% per annum, with quarterly interest
payments which began in June 2015. Subject to prior approval by the Federal Reserve, the Company may redeem the notes in whole
or in part on any interest payment date on or after June 15, 2020. This debt qualifies as tier 2 capital in the calculation of certain
regulatory capital ratios.
On December 18, 2015, the Company entered into a senior unsecured single-draw term loan facility totaling $125 million, which was
drawn on the closing date. Amounts borrowed under the loan facility bore variable rate interest of LIBOR plus 1.50% per annum. The
loan agreement required quarterly principal payments of $4.5 million, and allowed outstanding borrowings to be repaid in whole or in
part at any time prior to the December 18, 2018 maturity date without premium or penalty, subject to reimbursement of certain
lenders’ costs. The Company paid down a portion of the debt during the second quarter of 2018, and repaid the remaining principal
balance during the third quarter 2018.
Substantially all of the Company’s other long-term debt consists of borrowings associated with tax credit fund activities. Although
these borrowings have indicated maturities through 2053, each is expected to be satisfied at the end of the seven-year compliance
period for the related tax credit investments.
Note 10. Derivatives
On January 1, 2018, the Company adopted the provisions of Accounting Standards Update (ASU) 2017-12, “Derivatives and
Hedging,” using the modified retrospective transition approach. As a result of adoption of the update, the Company has made certain
adjustments to its existing designation documentation for active hedging relationships to take advantage of specific provisions of the
update. Adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.
Following is a discussion of the provisions of the guidance relevant to the Company:
Ineffectiveness measurement and presentation
The provisions of the update eliminate the concept of ineffectiveness from an accounting perspective. The guidance provides that, as
long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge
accounting treatment, there will be no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains
and losses will be recognized in the period in which the hedged transactions impact the entity’s earnings.
Presentation of reclassifications from Accumulated Other Comprehensive Income
The update provides that amounts in Accumulated Other Comprehensive Income that are included in the assessment of effectiveness
should be reclassified into earnings in the same period in which the hedged forecasted transactions impact earnings. As such, the
Company will recognize all reclassifications out of Other Comprehensive Income in the same statement of income line item in which
the earnings effect of the hedged item is presented.
Changes to hedged risk
The update also states that if the designated hedged risk changes during the life of the hedging relationship, an entity may continue to
apply hedge accounting as long as the hedging instrument is highly effective at achieving offsetting cash flows attributable to the
revised hedged risk. Regardless of the description of the hedged transactions contained in the initial designation documentation, the
Company intends to utilize this provision in the updated guidance to the extent possible.
Risk component hedging in fair value hedges
The update allows an entity to make a one-time transition election regarding the fair value measurement methodology applied to fair
value hedges in place at adoption. The Company did not elect either of the one-time transition options; rather, it will continue to
measure the hedged items as documented in the initial hedge documentation.
Risk Management Objective of Using Derivatives
The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of
the Company’s known or expected cash receipts and its known or expected cash payments, primarily related to select pools of variable
rate loans and obligations under brokered certificates of deposit. The Bank has also entered into interest rate and foreign currency
exchange derivative agreements as a service to certain qualifying customers. The Bank manages a matched book with respect to these
customer derivatives in order to minimize their net risk exposure resulting from such agreements. The Bank also enters into risk
participation agreements under which it may either sell or buy credit risk associated with a customer’s performance under certain
interest rate derivative contracts related to loans in which participation interests have been sold to or purchased from other banks.
107
Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the notional amounts and fair values of the Company’s derivative financial instruments as well as their
classification in the consolidated balance sheets as of December 31, 2018 and 2017.
(in thousands)
Derivatives designated
as hedging instruments:
Interest rate swaps
Interest rate swaps
Derivatives not designated
as hedging instruments:
Interest rate swaps (2)
Risk participation agreements
Forward commitments to sell
residential mortgage loans
Interest rate-lock commitments
on residential mortgage loans
Foreign exchange forward
contracts
Visa Class B derivative
contract
Total derivatives
Less: netting adjustments (3)
Total derivate assets/liabilites
December 31, 2018
(cid:3)
Derivative (1)
December 31, 2017
Derivative (1)
Type of Hedge
Notional or
Contractual
Amount
Assets
Liabilities
Notional or
Contractual
Amount
Assets
Liabilities
Cash Flow $
Fair Value
875,000 $
483,110
$ 1,358,110 $
3,954 $
—
3,954 $
9,173 $
875,000 $
2,089
483,110
11,262 $ 1,358,110 $
— $
—
— $
14,020
2,475
16,495
N/A
N/A
N/A
N/A
N/A
N/A
$ 1,277,404 $
23,670 $
24,669 $ 1,144,789 $
15,408 $
171,222
10
131
119,951
23
15,857
109
77,208
110
664
80,462
1,000
59,119
464
67
53,724
186
290
782
37,749
751
718
42,260
2,453
2,419
43,753
$ 1,666,455 $
$ 3,024,565 $
—
25,005 $
28,959 $
(11,979)
16,980
7,304
—
33,553 $ 1,441,186 $
44,815 $ 2,799,296 $
(22,588)
22,227
—
19,070 $
19,070 $
(4,913)
14,157
—
19,457
35,952
(21,563)
14,389
(1)(cid:3)
(2)(cid:3)
(3)(cid:3)
Derivative assets and liabilities are reported in other assets or other liabilities, respectively, in the consolidated balance sheets.
The notional amount represents both the customer accommodation agreements and offsetting agreements with unrelated financial institutions.
Represents balance sheet netting of derivative assets and liabilities for variation margin collateral held or placed with the same central clearing counterparty. See
offsetting assets and liabilities for further information.
Cash Flow Hedges of Interest Rate Risk
The Company is party to various interest rate swap agreements designated and qualifying as cash flow hedges of the Company’s
forecasted variable cash flows for pools of variable rate loans. For each agreement, the Company receives interest at a fixed rate and
pays at a variable rate. During the year ended December 31, 2018, the Company terminated five of its shorter-term swap agreements
with notional amounts totaling $450 million and entered into five longer-term agreements with notional amounts totaling $450
million. The Company paid termination fees of approximately $10.6 million to settle the interest rate swap liabilities. During the year
ended December 31, 2017, the Company terminated two swap agreements and paid termination fees of approximately $1.1 million.
The resulting accumulated other comprehensive loss is being amortized over the remaining maturities of the designated instruments.
Amortization of other comprehensive loss on terminated cash flow hedges totaled $6.0 million and $0.6 million for the years ended
December 31, 2018 and 2017, respectively. The notional amounts of the swap agreements in place at December 31, 2018 expire as
follows: $425 million in 2022; $350 million in 2023; $100 million in 2024.
Fair Value Hedges of Interest Rate Risk
The Company is party to interest rate swap agreements that modify the Company’s exposure to interest rate risk by effectively
converting a portion of the Company’s brokered certificates of deposit from fixed rates to variable rates. The maturities and call
features of these interest rate swaps match the features of the hedged deposits. As interest rates fall, the decline in the value of the
certificates of deposit is offset by the increase in the value of the interest rate swaps. Conversely, as interest rates rise, the value of the
underlying hedged deposits increases, but the value of the interest rate swaps decreases, resulting in no impact on earnings. Interest
expense is adjusted by the difference between the fixed and floating rates for the period the swaps are in effect. Hedge ineffectiveness
on these transactions results in an increase or decrease in noninterest income.
108
Derivatives Not Designated as Hedges
Customer interest rate derivative program
The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their
risk management strategies. The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net
risk exposure resulting from such transactions. Because the interest rate derivatives associated with this program do not meet hedge
accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized
directly in earnings.
Risk participation agreements
The Bank also enters into risk participation agreements under which it may either assume or sell credit risk associated with a
borrower’s performance under certain interest rate derivative contracts. In those instances where the Bank has assumed credit risk, it
is not a direct counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because it
is a party to the related loan agreement with the borrower. In those instances in which the Bank has sold credit risk, it is the sole
counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because other banks
participate in the related loan agreement. The Bank manages its credit risk under risk participation agreements by monitoring the
creditworthiness of the borrower, based on the Bank’s normal credit review process.
Mortgage banking derivatives
The Bank also enters into certain derivative agreements as part of its mortgage banking activities. These agreements include interest
rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best
efforts delivery basis.
Customer foreign exchange forward contract derivatives
The Bank enters into foreign exchange forward derivative agreements, primarily forward foreign currency contracts, with commercial
banking customers to facilitate their risk management strategies. The Bank manages its risk exposure from such transactions by
entering into offsetting agreements with unrelated financial institutions. Because the foreign exchange forward contract derivatives
associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives
and the offsetting derivatives are recognized directly in earnings.
Visa Class B derivative contract
As a member of Visa U.S.A. Inc. (“Visa USA”), the Company received a certain number of Visa Class B common shares following
the 2007 restructuring of Visa USA and its affiliates and the 2008 initial public offering of Visa Inc. (“Visa”). The Visa Class B
common shares are subject to certain selling restrictions until the final resolution of certain litigation related to interchange fees
involving Visa (the “covered litigation”), at which time the shares are convertible into Visa Class A common shares based on a
conversion rate dependent upon the ultimate cost of resolving the covered litigation.
During the fourth quarter of 2018, the Company sold the majority of its Visa Class B holdings, at which time it entered into a
derivative agreement with the purchaser whereby the Company will make or receive cash payments whenever the conversion ratio of
the Visa Class B shares into Visa Class A shares is adjusted. The conversion ratio changes when Visa deposits funds to a litigation
escrow established by Visa to pay settlements for certain litigation, for which Visa is indemnified by Visa USA members. The
Company is also required to make periodic financing payments to the purchaser until all of Visa’s covered litigation matters are
resolved. Thus, the derivative contract extends until the end of Visa’s Covered Litigation matters, the timing of which is uncertain.
The contract includes a contingent accelerated termination clause based on the credit ratings of the Company. As of December 31,
2018, the Company had not received or paid collateral related to this contract, and the fair value of the liability associated with this
contract was $7.3 million. Refer to Note 19 – Fair Value of Financial Instruments for discussion of the valuation inputs and process
for this derivative liability.
109
Effect of Derivative Instruments on the Statements of Income
The effects of derivative instruments on the consolidated statements of income for the years ended December 31, 2018, 2017 and 2016
are presented in the table below. For the years ended December 31, 2018 and 2017, the reduction of interest income attributable to
cash flow hedges includes amortization of accumulated other comprehensive loss that resulted from termination of certain interest rate
swap contracts.
Derivative Instruments:
Interest rate swaps - cash flow hedges
Interest rate swaps - fair value hedges
All other instruments
Total
Credit Risk-Related Contingent Features
Year Ended
December 31,
Location of Gain (Loss) Recognized in
the Statement of Income:
Interest income
Interest expense
Other noninterest income
$
$
2018
(4,497) $
(2,343)
5,368
(1,472) $
2017
2016
(280) $
829
5,870
6,419 $
2,310
-
5,196
7,506
Certain of the Bank’s derivative instruments contain provisions allowing the financial counterparty to terminate the contracts in
certain circumstances, such as the downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its
indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-
capitalized institution. These derivative agreements also contain provisions regarding the posting of collateral by each party. As of
December 31, 2018, the Company was not in violation of any such provisions.
Offsetting Assets and Liabilities
The Bank’s derivative instruments to certain counterparties contain legally enforceable netting provisions that allow for net settlement
of multiple transactions to a single amount, which may be positive, negative, or zero. Agreements with certain bilateral counterparties
require both parties to maintain collateral in the event that the fair values of derivative instruments exceed established exposure
thresholds. For centrally cleared derivatives, the Company is subject to initial margin posting and daily variation margin exchange
with the central clearinghouses. The Company reflects its derivative assets and liabilities net of the central clearing party variation
margin account in the Statements of Income. Offsetting information in regards to derivative assets and liabilities subject to these
master netting agreements at December 31, 2018 and 2017 is presented in the following tables:
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
December 31, 2018
(in thousands)
Derivative Assets
Derivative Liabilities
December 31, 2017
(in thousands)
Derivative Assets
Derivative Liabilities
Gross
Amounts
Recognized
Gross Amounts
Offset in the
Statement of
Financial
Position
Net Amounts
Presented in the
Statement of
Financial
Position
Gross Amounts Not Offset in the
Statement of Financial Position
Financial
Instruments
Cash
Collateral
Net
Amount
$
$
16,167 $
23,811 $
(12,842) $
(21,651) $
3,325 $
2,160 $
1,846 $
1,846 $
— $
2,871 $
1,479
(2,557)
Gross
Amounts
Recognized
Gross Amounts
Offset in the
Statement of
Financial
Position
Net Amounts
Presented in the
Statement of
Financial
Position
Gross Amounts Not Offset in the
Statement of Financial Position
Financial
Instruments
Cash
Collateral
Net
Amount
$
$
7,155 $
24,015 $
(5,007) $
(20,077) $
2,148 $
3,938 $
2,148 $
2,148 $
— $
4,099 $
—
(2,309)
The Company has excess collateral compared to total exposure due to initial margin requirements for day-to-day rate volatility.
110
Note 11. Stockholders’ Equity
Common Shares Outstanding
Shares outstanding exclude treasury shares of 0.9 million and 1.2 million with a first-in-first-out cost basis of $18.5 million and $25.5
million at December 31, 2018 and 2017, respectively. Shares outstanding also exclude unvested restricted share awards of 1.3 million
and 1.5 million at December 31, 2018 and 2017, respectively.
Stock Repurchase Program
On May 24, 2018, the Company’s board of directors approved a stock buyback program that authorized the repurchase of up to 5%, or
approximately 4.3 million shares of its outstanding common stock. The approved program allows the Company to repurchase its
common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as
amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company in one or more
transactions, from time to time until December 31, 2019. The Company is not obligated to purchase any shares under this program,
and the board of directors may terminate or amend the program at any time prior to the expiration date. During the fourth quarter of
2018, the Company repurchased 200,000 shares of its common stock at an average price of $41.30 per share.
Stock Issuance
On December 16, 2016, the Company completed the issuance and sale of 6.3 million shares of common stock at a purchase price of
$41.00 per share for total proceeds of $259 million, net of issuance cost. A portion of the proceeds were to support the purchase of
assets in the FNBC I transaction.
Accumulated Other Comprehensive Income (Loss)
A roll forward of the components of AOCI is included as follows:
(in thousands)
Balance, December 31, 2015
Net change in unrealized gain (loss)
Reclassification of net (gain) loss realized
and included in earnings
Valuation adjustment for employee benefit plans
Amortization of unrealized net loss on securities
transferred to held to maturity
Income tax expense (benefit)
Balance, December 31, 2016
Net change in unrealized (loss) gain
Reclassification of net loss realized
and included in earnings
Available
for Sale
Securities
HTM
Securities
Transferred
from AFS
$
4,268 $
(49,839)
(16,795) $
—
Employee
Benefit
Plans
(67,890) $
—
Cash Flow
Hedges
(178) $
(7,507)
(1,912)
—
—
—
5,928
(12,748)
—
—
Total
(80,595)
(57,346)
4,016
(12,748)
—
(18,804)
(28,679) $
6,903
3,830
1,427
(14,392) $
—
—
(2,209)
(72,501) $
—
—
(2,725)
(4,960) $
(7,328)
3,830
(22,311)
(120,532)
(425)
$
Valuation adjustment for pension plan amendment
Other valuation adjustment for employee benefit plans
Amortization of unrealized net loss on securities
transferred to held to maturity
Income tax expense (benefit)
Reclassification of certain tax effects (a)
Balance, December 31, 2017
Net change in unrealized loss
Reclassification of net loss realized
$
and included in earnings
Other valuation adjustment for employee benefit plans
Amortization of unrealized net loss on securities
transferred to held to maturity
Income tax expense (benefit)
Balance, December 31, 2018
$
—
—
—
—
—
—
5,201
17,315
(10,929)
600
—
—
5,801
17,315
(10,929)
—
1,067
6,669
(29,512) $
(52,060)
3,786
1,393
2,586
(14,585) $
—
—
4,228
13,936
(79,078) $
—
—
(2,600)
2,139
(11,227) $
(697)
3,786
4,088
25,330
(134,402)
(52,757)
25,480
—
—
—
4,989
(45,198)
4,497
—
34,966
(45,198)
—
(5,967)
(50,125) $
3,296
755
(12,044) $
—
(9,040)
(110,247) $
—
866
(8,293) $
3,296
(13,386)
(180,709)
(a)(cid:3) Represents the reclassification of stranded income tax effects to Retained Earnings upon adoption of ASU 2018-02. The adjustment is discussed in more detail
later in this footnote.
111
AOCI is reported as a component of stockholders’ equity. AOCI includes unrealized gains and losses on available for sale (“AFS”)
securities and unrealized losses on AFS securities that were transferred to held to maturity (“HTM”) securities in the third quarter of
2013. Such amounts on the transferred securities are being amortized over the estimated remaining life of the security as an
adjustment to yield, offsetting the related amortization of the net premium created in the transfer. Subject to certain thresholds,
unrealized losses on employee benefit plans will be reclassified into income as pension and post retirement costs are recognized over
the remaining service period of plan participants. Accumulated gains/losses on the cash flow hedge of the variable-rate loans
described in Note 10 - Derivatives will be reclassified into income over the life of the hedge. Gains (losses) in AOCI are net of
deferred income taxes.
The following table shows the line items in the consolidated statements of income affected by amounts reclassified from AOCI:
Amount reclassified from AOCI (a)
(in thousands)
Gain (loss) on sale of AFS securities
Tax effect
Net of tax
Amortization of unrealized net loss on
securities transferred to HTM
Tax effect
Net of tax
Amortization of defined benefit pension and
post-retirement items
Tax effect
Net of tax
Reclassification of unrealized gain on cash flow hedges
Tax effect
Net of tax
Amortization of loss on terminated cash flow hedges
Tax effect
Net of tax
Total reclassifications, net of tax
(a)(cid:3)
Amounts in parenthesis indicate reduction in net income.
$
$
$
$
$
Years Ended December 31,
2018
2017
(25,480) $
5,720
(19,760)
(cid:3) Increase (decrease) in affected line
item in the statements of income
— Securities transactions
— Income taxes
— Net income
(3,296) $
755
(2,541)
(4,989) $
1,122
(3,867)
1,072 $
(244)
828
(5,569)
1,269
(4,300)
(30,468) $
(3,786) Interest income
1,393 Income taxes
(2,393) Net income
(5,201) Other noninterest expense
1,898 Income taxes
(3,303) Net income
— Interest income
— Income taxes
— Net income
(600) Interest expense
232 Income taxes
(368) Net income
(6,064) Net income
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
The Company retrospectively adopted ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The ASU was issued by the FASB in
February 2018 to address the issue of other comprehensive income or loss that became stranded in AOCI as a result of the re-
measurement of an entity’s deferred income tax assets and liabilities following the reduction of the U.S. federal corporate tax rate
from 35% to 21%. In accordance with the guidance, the Company reclassified $25.3 million from Accumulated Other Comprehensive
Loss to Retained Earnings. Refer to Note 1 – Summary of Significant Accounting Policies and Recent Accounting Pronouncements
and Note 13 – Income Taxes for further discussion.
Regulatory Capital
Measures of regulatory capital are an important tool used by regulators to monitor the financial health of financial institutions. The
primary quantitative measures used to gauge capital adequacy are Common equity tier 1, Tier 1 and Total regulatory capital to risk-
weighted assets (risk-based capital ratios) and the Tier 1 capital to average total assets (leverage ratio). Both the Company and the
Bank subsidiary are required to maintain minimum risk-based capital ratios of 8.0% total capital, 4.5% Tier 1 Common Equity, and
6.0% Tier 1 capital. The minimum leverage ratio is 3.0% for bank holding companies and banks that meet certain specified criteria,
including having the highest supervisory rating. All others are required to maintain a leverage ratio of at least 4.0%.
To evaluate capital adequacy, regulators compare an institution’s regulatory capital ratios with their agency guidelines, as well as with
the guidelines established as part of the uniform regulatory framework for prompt corrective supervisory action toward financial
institutions. The framework for prompt corrective action categorizes capital levels into one of five classifications rating from well-
capitalized to critically under-capitalized. For an institution to be eligible to be classified as well capitalized its total risk-based capital
ratios must be at least 10.0% for total capital, 6.5% for Tier 1 Common Equity and 8.0% for Tier 1 capital, and its leverage ratio must
be at least 5.0%. In reaching an overall conclusion on capital adequacy or assigning a classification under the uniform framework,
regulators also consider other subjective and quantitative measures of risk associated with an institution. The Company and the Bank
were deemed to be well capitalized based upon the most recent notifications from their regulators. There are no conditions or events
112
since those notifications that management believes would change the classifications. At December 31, 2018 and 2017, the Company
and the Bank were in compliance with all of their respective minimum regulatory capital requirements.
Following is a summary of the actual regulatory capital amounts and ratios for the Company and the Bank together with
corresponding regulatory capital requirements at December 31, 2018 and 2017. The Company’s and Bank’s regulatory filings for
quarters ending March 31, 2018 and prior were filed in the names of Hancock Holding Company and Whitney Bank, respectively.
($ in thousands)
At December 31, 2018
Tier 1 leverage capital
Actual
Required for
Minimum Capital
Adequacy
Required
To Be Well
Capitalized
Amount
Ratio %
Amount
Ratio %
Amount
Ratio %
Hancock Whitney Corporation
Hancock Whitney Bank
$ 2,391,762
2,351,090
8.67
8.54
$ 1,103,544
1,101,372
4.00
4.00
$ 1,379,430
1,376,715
Common equity tier 1 (to risk weighted assets)
Hancock Whitney Corporation
Hancock Whitney Bank
Tier 1 capital (to risk weighted assets)
Hancock Whitney Corporation
Hancock Whitney Bank
Total capital (to risk weighted assets)
Hancock Whitney Corporation
Hancock Whitney Bank
At December 31, 2017
Tier 1 leverage capital
Common equity tier 1 (to risk weighted assets)
Hancock Whitney Corporation
Hancock Whitney Bank
Tier 1 capital (to risk weighted assets)
Hancock Whitney Corporation
Hancock Whitney Bank
Total capital (to risk weighted assets)
Hancock Whitney Corporation
Hancock Whitney Bank
Regulatory Restrictions on Dividends
$ 2,391,762
2,351,090
10.48
10.32
$ 1,026,637
1,025,355
4.50
4.50
$ 1,482,920
1,481,068
$ 2,391,762
2,351,090
10.48
10.32
$ 1,368,849
1,367,140
6.00
6.00
$ 1,825,132
1,822,853
$ 2,736,276
2,545,604
11.99
11.17
$ 1,825,132
1,822,053
8.00
8.00
$ 2,281,415
2,278,566
10.00
10.00
$ 2,214,723
2,282,485
10.21
10.54
$
976,303
974,362
4.50
4.50
$ 1,410,216
1,407,412
$ 2,214,723
2,282,485
10.21
10.54
$ 1,301,738
1,299,150
6.00
6.00
$ 1,735,650
1,732,200
$ 2,582,031
2,499,793
11.90
11.55
$ 1,735,650
1,732,200
8.00
8.00
$ 2,169,563
2,165,250
10.00
10.00
5.00
5.00
6.50
6.50
8.00
8.00
5.00
5.00
6.50
6.50
8.00
8.00
Hancock Whitney Corporation
Hancock Whitney Bank
$ 2,214,723
2,282,485
8.43
8.72
$ 1,051,025
1,046,644
4.00
4.00
$ 1,313,781
1,308,305
Regulatory policy statements provide that generally bank holding companies should pay dividends only out of current operating
earnings and that the level of dividends must be consistent with current and expected capital requirements. Dividends received from
the Bank have been the primary source of funds available to the Company for the payment of dividends to its stockholders. Federal
and state banking laws and regulations restrict the amount of dividends the Bank may distribute to the Company without prior
regulatory approval, as well as the amount of loans it may make to the Company. Dividends paid by the Bank are subject to approval
by the Commissioner of Banking and Consumer Finance of the State of Mississippi.
113
Note 12. Noninterest Income and Noninterest Expense
During the fourth quarter of 2018, the Company sold the majority of its holdings of Visa Class B common shares. The sale resulted in
a gain of approximately $33.2 million, which is included in net gain on sales of assets on the Consolidated Statement of Income. For
more information on the circumstances surrounding the sale, refer to Note 10 – Derivatives.
The components of other noninterest income and other noninterest expense are as follows:
(in thousands)
Other noninterest income:
Income from bank-owned life insurance
Credit-related fees
Other miscellaneous income
Total other noninterest income
Other noninterest expense:
Advertising
Corporate value and franchise taxes
Entertainment and contributions
Telecommunications and postage
Other retirement expense
Other miscellaneous expense
Total other noninterest expense
Note 13. Income Taxes
2018
Years Ended December 31,
2017
$
$
$
$
12,424
11,065
20,297
43,786
12,334
13,595
11,359
14,659
(18,661)
47,407
80,693
$
$
$
$
11,473
11,140
19,684
42,297
15,031
12,797
8,260
14,686
(15,249)
46,548
82,073
2016
13,596
9,926
16,146
39,668
10,938
8,741
7,122
13,146
(10,496)
45,313
74,764
$
$
$
$
Income tax expense included in net income consisted of the following components:
(in thousands)
Included in net income
Current federal
Current state
Total current provision
Deferred federal
Deferred state
Total deferred provision
Total included in net income
2018
Years Ended December 31,
2017
2016
$
$
7,594 $
5,538
13,132
41,078
4,136
45,214
58,346 $
38,859 $
4,112
42,971
48,653
1,178
49,831
92,802 $
43,777
1,689
45,466
(6,127)
(1,712)
(7,839)
37,627
During the year ended December 31, 2017, our deferred tax assets and liabilities were re-measured to reflect the lower income tax rate
as a result of the Tax Cut and Jobs Act (“Tax Act”). ASU 2018-05 provided a measurement period not to exceed one year from the
enactment date of the Tax Act to record amounts related to the impacts of the Tax Act. At December 31, 2018, the measurement
period has transpired; no adjustments were deemed necessary to the provisional amounts originally recorded.
Except for the 2017 re-measurement charge of deferred tax asset related to AOCI, income tax expense does not reflect the tax effects
of amounts recognized in other comprehensive income and in AOCI, a separate component of stockholders’ equity. These amounts
include unrealized gains and losses on securities available for sale or transferred to held to maturity, unrealized gains and losses on
derivatives and hedging transactions, and valuation adjustments of defined benefit and other post-retirement benefit plans. Refer to
Note 11 – Stockholders’ Equity for additional information.
Temporary differences arise between the tax bases of assets or liabilities and their carrying amounts for financial reporting purposes.
The expected tax effects from when these differences are resolved are recorded currently as deferred tax assets or liabilities.
114
Significant components of the Company’s deferred tax assets and liabilities were as follows:
(in thousands)
Deferred tax assets:
Allowance for loan losses
Employee compensation and benefits
Loan purchase accounting adjustments
Tax credit carryforward
Securities
State net operating loss
Other
Gross deferred tax assets
State valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Fixed assets & intangibles
Lease financing
Other
Gross deferred tax liabilities
Net deferred tax asset
December 31,
2018
2017
45,198 $
12,796
1,132
2,059
17,390
1,629
18,431
98,635
(1,629)
97,006
(44,277)
(23,605)
(6,157)
(74,039)
22,967 $
51,517
9,783
6,441
21,274
12,250
1,979
13,763
117,007
(1,979)
115,028
(42,597)
(12,285)
(6,167)
(61,049)
53,979
$
$
Reported income tax expense differed from amounts computed by applying the statutory income tax rate of 21% for the year ended
December 31, 2018 and 35% for the years ended December 31, 2017 and 2016 to earnings before income taxes. The primary
differences are due to tax-exempt income, federal and state tax credits, excess tax benefits from stock-based compensation (beginning
January 1, 2017 following the adoption of ASU 2016-09), and for 2018, a return to provision tax benefit realized from deductions
claimed on the 2017 income tax returns associated with various tax initiatives associated with fixed assets and the pension plan,
among other things. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. See the
table in the Income Taxes section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for additional information regarding federal and state tax credits. A summary of the factors that impacted income tax
expense follows.
($ in thousands)
Taxes computed at statutory rate
Increases (decreases) in taxes resulting from:
State income taxes, net of federal income
tax benefit
Tax-exempt interest
Bank owned life insurance
Tax credits
Employee share-based compensation
FDIC assessment disallowance
Return to provision adjustment
Impact of deferred tax asset re-measurement
Other, net
Income tax expense
2018
Amount
%
Years Ended December 31,
2017
Amount
%
2016
Amount
$
80,244
21.0 % $ 107,952
35.0 % $
65,423
8,770
(10,803)
(2,019)
(11,344)
(1,380)
2,818
(9,942)
—
2,002
58,346
$
2.3
(2.8)
(0.5)
(3.0)
(0.3)
0.7
(2.6)
—
0.5
15.3 % $
4,288
(18,870)
(5,360)
(9,286)
(5,824)
—
(120)
19,520
502
92,802
1.4
(6.1)
(1.7)
(3.1)
(1.9)
—
—
6.3
0.2
30.1 % $
2,104
(14,497)
(4,833)
(10,410)
—
—
(549)
—
389
37,627
%
35.0 %
1.1
(7.8)
(2.6)
(5.6)
—
—
(0.3)
—
0.3
20.1 %
As of December 31, 2018, the Company had approximately $2.1 million in state tax credit carryforwards that originated in the tax
years from 2011 through 2018 and begin expiring in 2021. These carryforwards are primarily from investments in state NMTC
projects.
The Company had approximately $27.6 million in state net operating loss carryforwards that originated in the tax years 2004 through
2017 and begin expiring in 2024. A valuation allowance has been established for the state net operating loss carryforwards. The
impact of this valuation allowance is immaterial to the financial statements.
The tax benefit of a position taken or expected to be taken in a tax return should be recognized when it is more likely than not that the
position will be sustained on its technical merits. The liability for unrecognized tax benefits was immaterial at December 31, 2018,
115
2017 and 2016. The Company does not expect the liability for unrecognized tax benefits to change significantly during 2019. The
Company recognizes interest and penalties, if any, related to income tax matters in income tax expense, and the amounts recognized
during 2018, 2017 and 2016 were insignificant.
The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. Generally,
the returns for years prior to 2015 are no longer subject to examination by taxing authorities.
Note 14. Earnings Per Share
Earnings per share is calculated using the two-class method. The two-class method allocates net income to each class of common
stock and participating security according to common dividends declared and participation rights in undistributed earnings.
Participating securities consist of unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents.
A summary of the information used in the computation of earnings per common share follows:
($ in thousands, except per share data)
(cid:49)(cid:88)(cid:80)(cid:72)(cid:85)(cid:68)(cid:87)(cid:82)(cid:85)(cid:29)(cid:3)
Net income to common shareholders
Net income allocated to participating securities -- basic and diluted
Net income allocated to common shareholders - basic and diluted
(cid:39)(cid:72)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:82)(cid:85)(cid:29)(cid:3)
Weighted-average common shares - basic
Dilutive potential common shares
Weighted average common shares - diluted
Earnings per common share:
Basic
Diluted
(cid:3)
(cid:3)
$
$
(cid:3)
(cid:3)
2018
Years Ended December 31,
2017
2016
323,770 $
5,930
317,840 $
215,632 $
4,670
210,962 $
149,296
3,598
145,698
(cid:3)
(cid:3)
85,355
166
85,521
84,695
268
84,963
$
$
3.72 $
3.72 $
2.49 $
2.48 $
77,850
99
77,949
1.87
1.87
Potential common shares consist of employee and director stock options, unvested performance share awards, and deferred restricted
units. These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be anti-
dilutive, i.e., increase earnings per share or reduce a loss per share. Weighted-average anti-dilutive potential common shares totaled
5,129 for the year ended December 31, 2018, 10,551 for the year ended December 31, 2017, and 572,512 for the year ended
December 31, 2016.
Note 15. Segment Reporting
Accounting standards require that information be reported about a company’s operating segments using a “management approach.”
Reportable segments are identified in these standards as those revenue-producing components for which discrete financial information
is produced internally and which are subject to evaluation by the chief operating decision maker in deciding how to allocate resources
to segments. Consistent with the Company’s strategy that is focused on providing a consistent package of banking products and
services across all markets, the Company has identified its overall banking operations as its only reportable segment. Because the
overall banking operations comprise substantially all of the consolidated operations, no separate segment disclosures are presented.
116
Note 16. Retirement Benefit Plans
The Company offers a qualified defined benefit pension plan, the Hancock Whitney Corporation Pension Plan and Trust Agreement
(“Pension Plan”), covering certain eligible associates. Eligibility is based on minimum age and service-related requirements. During
the second quarter of 2017, the Pension Plan was amended to exclude any individual hired or rehired by the Company after June 30,
2017 from eligibility to participate. The Pension Plan amendment further provided that the accrued benefits of each participant in the
Pension Plan whose combined age plus years of service as of January 1, 2018 totals less than 55 were to be frozen as of January 1,
2018 and not thereafter increase. As a result of the plan amendments, pension assets and the benefit obligations were re-measured as
of June 30, 2017. The impact of the amendment to the benefit obligation was a reduction of $17.3 million. The Company makes
contributions to this pension plan in amounts sufficient to meet funding requirements set forth in federal employee benefit and tax
laws, plus such additional amounts as the Company may determine to be appropriate. The Company was not required to make a
contribution to the Pension Plan during 2018 or 2017. During 2018, the Company made a discretionary contribution of $39 million
designated to the 2017 plan year as part of its income tax initiatives. Market conditions during the latter part of 2018 resulted in a
decline in the Pension Plan’s asset value. The Company made a $100 million discretionary contribution to the Pension Plan during the
first quarter of 2019, the timing and amount of which was determined with the intent to optimize investment return. The Company
does not anticipate being required to make a contribution, nor does it anticipate making further discretionary contributions to the
Pension Plan during 2019.
The Company also offers a defined contribution retirement benefit plan (401(k) plan), the Hancock Whitney Corporation 401(k)
Savings Plan and Trust Agreement (“401(k) Plan”), that covers substantially all associates who have been employed 60 days and meet
a minimum age requirement and employment classification criteria. The Company matches 100% of the first 1% of compensation
saved by a participant, and 50% of the next 5% of compensation saved. Newly eligible associates are automatically enrolled at an
initial 3% savings rate unless the associate actively opts out of participation in the plan. The 401(k) Plan was also amended during the
second quarter of 2017 for participants whose benefits are frozen under the Pension Plan to add an enhanced Company contribution
beginning January 1, 2018, in the amount of 2%, 4% or 6% of such participant’s eligible compensation, based on the participant’s age
and years of service with the Company. The 401(k) Plan’s amendment further provided that the Company will contribute to the
benefit of those associates of the Company hired or rehired after June 30, 2017 and those associates of the Company never enrolled in
the Pension Plan an additional basic contribution in an amount equal to 2% of the associate’s eligible compensation beginning January
1, 2018. Participants will vest in the new basic and enhanced Company contributions upon completion of three years of service.
The Company’s 401(k) plan matching expense totaled $14.6 million, $8.4 million and $7.7 million for the years ended December 31,
2018, 2017 and 2016, respectively.
Certain associates who were designated executive officers of Whitney Holding Company and/or Whitney National Bank before the
acquisition by the Company are also covered by an unfunded nonqualified defined benefit pension plan. The benefits under this
nonqualified plan were designed to supplement amounts to be paid under the defined benefit plan previously maintained for
employees of Whitney Holding Company and/or Whitney National Bank (the “Whitney Pension Plan”), and are calculated using the
Whitney Pension Plan’s formula, but without applying the restrictions imposed on qualified plans by certain provisions of the Internal
Revenue Code. Accrued benefits under this plan were frozen as of December 31, 2012 in connection with the merger of the Whitney
Pension Plan into the Company’s qualified defined benefit pension plan, and no future benefits will be accrued under this plan.
The Company also sponsors defined benefit postretirement plans for certain associates. The Hancock postretirement plans are
available only to associates hired by the Company prior to January 1, 2000. The Hancock plans provide health care and life insurance
benefits to retiring associates who participate in medical and/or group life insurance benefit plans for active associates and have
reached 55 years of age with ten years of service, at the time of retirement. The postretirement health care plan is contributory, with
retiree contributions adjusted annually and subject to certain employer contribution maximums.
The Whitney postretirement plans are available only to former employees of Whitney Holding Company and/or Whitney National
Bank who meet the eligibility requirements, and offer health care and life insurance benefits for eligible retirees and their eligible
dependents. Participant contributions are required under the health plan. These plans restrict eligibility for postretirement health
benefits to retirees already receiving benefits as of the date of the plan amendments in 2007 and to those active participants who were
eligible to receive benefits as of December 31, 2007 (i.e., were age 55 with ten years of credited service). Life insurance benefits are
currently only available to associates who retired before December 31, 2007.
The Company assumed certain trends in health care costs in the determination of the benefit obligations. At December 31, 2018, the
plans assumed a 7.5% increase in health costs for 2018, declining to 6.75% uniformly over a four year period, and then following the
Getzen model thereafter. At December 31, 2018, the mortality assumption was based on Revised RP-2014 Employee and Healthy
Annuitants Bottom Quartile Generational Mortality Table for Males and Females - Projected with Improvement Scale MP-2018. At
December 31, 2017, the mortality assumption was based on the Revised RP-2014 Employee Health Annuitants Bottom Quartile Table
for Males and Females, with projected improvement MP-2017.
117
The following tables detail the changes in the benefit obligations and plan assets of the defined benefit plans for the years ended
December 31, 2018 and 2017 as well as the funded status of the plans at each year end and the amounts recognized in the Company’s
consolidated balance sheets. The Company uses a December 31 measurement date for all defined benefit pension plans and other
postretirement benefit plans.
(in thousands)
Change in benefit obligation
Benefit obligation:
at beginning of year
Service cost
Interest cost
Plan participants' contributions
Plan amendments
Net actuarial gain (loss)
Benefits paid
Benefit obligation, end of year
Change in plan assets
Fair value of plan assets:
at beginning of year
Actual return on plan assets
Employer contributions
Plan participants' contributions
Benefit payments
Expenses
Fair value of plan assets, end of
year
Funded status at end of year - net
asset (liability)
Amounts recognized in
accumulated other
comprehensive loss
Unrecognized loss:
at beginning of year
Net actuarial loss (gain)
Unrecognized (gain) loss at end of
year
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
(cid:3)
(cid:3)
2018
2017
Pension Benefits
2018
2017
Other Post-
Retirement Benefits
(cid:3)
(cid:3)
513,844 (cid:3) $
(cid:3)
(cid:3)
$
479,281 $
12,414 (cid:3)
16,762 (cid:3)
— (cid:3)
— (cid:3)
(30,796) (cid:3)
(20,207) (cid:3)
492,017
564,365
(40,491)
40,138
—
(20,207)
(1,187)
15,381
16,514
—
(17,315)
39,419
(19,436)
513,844
515,555
68,307
1,132
—
(19,436)
(1,193)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
23,036 (cid:3) $
120 (cid:3)
621 (cid:3)
628 (cid:3)
— (cid:3)
(6,717) (cid:3)
(1,405) (cid:3)
16,283
(cid:3)
(cid:3)
— (cid:3)
— (cid:3)
777 (cid:3)
628 (cid:3)
(1,405) (cid:3)
— (cid:3)
22,481
129
668
636
—
993
(1,871)
23,036
—
—
1,235
636
(1,871)
—
542,618
564,365
—
—
$
50,601 $
50,521 $
(16,283) $
(23,036)
$
$
$
102,978 (cid:3) $
115,910 $
46,492
(12,932)
(732) (cid:3) $
(6,283) (cid:3)
(2,078)
1,346
149,470 $
102,978 $
(7,015) $
(732)
(cid:3)
(cid:3)
492,017 $
467,300
542,618
513,844
489,075
564,365
The net funded status of $50.6 million for pension benefits plans includes an excess of plan assets over the benefit obligation of
$65.1 million on the defined benefit pension plan, offset by an unfunded benefit obligation of $14.5 million for the nonqualified
retirement plan.
118
The following table shows net periodic benefit cost included in expense and the changes in the amounts recognized in AOCI during
2018, 2017, and 2016.
Years Ended December 31,
($ in thousands)
Net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss/ prior service cost
Net periodic benefit cost
Other changes in plan assets and benefit obligations
recognized in other comprehensive income, before
taxes
Net (loss) gain recognized during the year
Net actuarial loss (gain)
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and
other comprehensive income
2018
2017
Pension Benefits
2016
2018
2017
Other Post-Retirement Benefits
2016
$
12,414 $
16,762
(41,033)
5,423
(6,434)
15,381 $
16,514
(37,632)
5,554
(183)
14,098 $
16,907
(34,554)
5,783
2,234
120 $
621
—
(434)
307
129 $
668
—
(353)
444
170
773
—
145
1,088
(5,423)
51,915
46,492
(5,554)
(7,378)
(12,932)
(5,783)
12,128
6,345
434
(6,717)
(6,283)
353
993
1,346
(145)
620
475
$
40,058
$
(13,115) $
8,579
$
(5,976)
$
1,790 $
1,563
Discount rate for benefit obligations
Discount rate for net periodic benefit cost
Expected long-term return on plan assets
Rate of compensation increase
4.14%
3.57%
7.25%
scaled *
3.57%
4.10%
7.25%
4.10%
4.40%
7.25%
scaled *
scaled *
4.10%
3.52%
n/a
n/a
3.52%
3.95%
n/a
n/a
3.95%
4.32%
n/a
n/a
* Graded scale, declining from 7.00% at age 20 to 2.00% at age 60
The long term rate of return on plan assets is determined by using the weighted-average of historical real returns for major asset
classes based on target asset allocations. The discount rates for the benefit obligation were calculated by matching expected future
cash flows to the Findley Pension Discount Curve (AA) in 2018 and the BPSM-AA Only Pension Discount Curve in 2017.
The following table presents expected plan benefit payments over the ten years succeeding December 31, 2018:
(in thousands)
2019
2020
2021
2022
2023
2024-2028
Pension
21,885
23,009
24,077
25,168
26,085
148,547
268,771
$
$
Post-
Retirement
1,036
$
1,037
1,098
1,030
1,029
4,958
10,188
$
Total
22,921
24,046
25,175
26,198
27,114
153,505
278,959
$
$
The expected benefit payments are estimated based on the same assumptions used to measure the Company’s benefit obligations at
December 31, 2018.
The estimated amounts of actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit
cost over the next year is $8.9 million.
The following table illustrates the effect on the annual periodic postretirement benefit costs and postretirement benefit obligation of a
1% increase or 1% decrease in the assumed health care cost trend rates from the rates assumed at December 31, 2018:
(in thousands)
Aggregated service and interest cost
Postretirement benefit obligation
1% Decrease
in Rates
Assumed
Rates
1% Increase
in Rates
$
666 $
741 $
14,949
16,281
834
17,894
119
The fair values of pension plan assets at December 31, 2018 and 2017, by asset category, are shown in the following tables. The fair
value is presented based on the Financial Accounting Standards Board’s fair value hierarchy that prioritizes inputs into the valuation
techniques used to measure fair value. Level 1 uses quoted prices in active markets for identical assets, Level 2 uses significant
observable inputs, and Level 3 uses significant unobservable inputs. In accordance with Subtopic 820-10 common trust funds are
reported at fair value using net asset value per share (or its equivalent) as a practical expedient and are not classified in the fair value
hierarchy.
For all investments, the plan attempts to use quoted market prices of identical assets on active exchanges, or Level 1 measurements.
Where such quoted market prices are not available, the plan will use quoted prices for similar instruments or discounted cash flows to
estimate the value, reported as Level 2.
Fair Value Measurements by Asset Category / Fund
(in thousands)
Cash and equivalents
Total cash and cash equivalents
Fixed income securities
Mutual fund-fixed income
Total fixed income
Domestic and foreign stock
Mutual funds-equity
Total equity
Total assets at fair value
Common trust funds (fixed income)
Common trust fund (real assets)
Total
Fair Value Measurements by Asset Category / Fund
(in thousands)
Cash and equivalents
Total cash and cash equivalents
Fixed income securities
Mutual fund-fixed income
Total fixed income
Domestic and foreign stock
Mutual funds-equity
Total equity
Total assets at fair value
Common trust funds (fixed income)
Common trust fund (real assets)
Total
Level 1
December 31, 2018
Level 2
Level 3
Total
$
8,643 $
8,643
— $
—
$
—
—
8,643
8,643
19,856
31,556
51,412
97,025
—
97,025
80,813
150,466
231,279
291,334
—
—
291,334 $
6
—
6
97,031
—
—
97,031 $
$
—
145
145
—
—
—
145
—
—
145 $
116,881
31,701
148,582
80,819
150,466
231,285
388,510
125,706
28,402
542,619
Level 1
December 31, 2017
Level 2
Level 3
Total
$
5,496 $
5,496
— $
—
$
—
—
5,496
5,496
—
31,839
31,839
113,169
—
113,169
102,416
168,299
270,715
308,050
—
—
308,050 $
6
—
6
113,175
—
—
113,175 $
$
162
—
162
—
—
—
162
—
—
— $
113,331
31,839
145,170
102,422
168,299
270,721
421,387
114,068
28,910
564,365
120
The following table presents the percentage allocation of the plan assets by asset category and corresponding target allocations at
December 31, 2018 and 2017.
Asset category
Cash and equivalents
Fixed income securities
Equity securities
Real assets
Plan Assets
at December 31,
2018
2017
1 %
51
43
5
100 %
1 %
46
48
5
100 %
Target Allocation
at December 31,
2018
0 - 5%
35 - 63%
35 - 51%
0 - 12%
2017
0 - 5%
35 - 63%
35 - 51%
0 - 12%
Plan assets are invested in long-term strategies and evaluated within the context of a long-term investment horizon. Plan assets will be
diversified across multiple asset classes so as to minimize the risk of large losses. Short-term fluctuations in value will be considered
secondary to long-term results. The Company employs a total return approach whereby a diversified mix of asset class investments are
used to maximize the long-term return of plan assets for an acceptable level of risk. Risk tolerance is established through careful
consideration of the plan liabilities, plan funded status and the Company’s financial condition. The investment performance of the plan
is regularly monitored to ensure that appropriate risk levels are being taken and to evaluate returns versus a suitable market
benchmark. The benefits investment committee meets periodically to review the policy, strategy, and performance of the plans.
Note 17. Share-Based Payment Arrangements
The Company maintains incentive compensation plans that incorporate share-based payment arrangements for associates and
directors. The current plan under which share-based awards may be granted, the 2014 Long Term Incentive Plan (the “2014 Plan”),
was approved by the Company’s stockholders at the 2014 annual meeting as a successor to the Company’s 2005 Long-Term Incentive
Plan (the “2005 Plan”). Certain share-based awards remain outstanding under the 2005 Plan and prior equity incentive compensation
plans, but no future awards may be granted thereunder.
The Compensation Committee of the Company’s Board of Directors administers the equity incentive plans, makes determinations
with respect to participation by employees or directors and authorizes the share-based awards. Under the 2014 Plan, participants may
be awarded stock options (including incentive stock options for associates), restricted shares, performance stock awards and stock
appreciation rights, all on a stand-alone, combination or tandem basis. To date, the Committee has awarded stock options, tenure-
based restricted shares and performance stock awards under the 2014 Plan and the prior equity incentive plans.
During the year ended December 31, 2017, the Company’s shareholders approved a 1,200,000 increase in the aggregate number of
awards that may be granted under the 2014 Plan. Future awards may be granted for the issuance of an aggregate of 2,996,357 shares of
the Company’s common stock, plus the number of any shares of the Company’s common stock for which awards under the 2005 Plan
are cancelled, expired, forfeited or settled in cash. The 2014 Plan limits the number of shares for which awards may be granted to any
participant during any calendar year to 100,000 shares. The Company may use authorized unissued shares or shares held in treasury to
satisfy awards under the 2014 Plan.
As of December 31, 2018 there were 1.1 million shares available for future issuance under the 2014 equity compensation plan.
For the years ended December 31, 2018, 2017 and 2016, total share-based compensation recognized in income was $19.8 million,
$17.6 million and $14.3 million, respectively. The total recognized tax benefit related to the share-based compensation was
$5.8 million, $13.3 million and $5.2 million for 2018, 2017 and 2016, respectively.
A summary of stock option activity for 2018 is presented below:
Options
Outstanding at January 1, 2018
Exercised
Expired
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Number of
Shares
88,301 $
(35,317)
(6,119)
46,865 $
46,685 $
Weighted-
Average
Exercise
Price ($)
34.84
37.39
42.82
31.88
31.88
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value ($000)
2.8 $
2.6 $
2.6 $
1,294
592
10
164
164
121
The exercise price for stock options is set at the closing market price of the Company’s stock on the date immediately preceding the
date of grant, except for the exercise price of certain options granted to major stockholders which is set at 110% of the market price.
Option awards generally vest equally over five years of continuous service and have ten-year contractual terms.
The total intrinsic value of options exercised during 2018 was $0.6 million. The total intrinsic value of options exercised during 2017
and 2016 was $4.3 million, and $0.5 million, respectively.
A summary of the Company’s nonvested restricted and performance shares for the year ended December 31, 2018 is presented below:
Nonvested at January 1, 2018
Granted
Vested
Cancelled/Forfeited
Nonvested at December 31, 2018
Number of
Shares
1,708,942 $
647,376
(792,084)
(70,193)
1,494,041 $
Weighted-
Average
Grant-Date
Fair Value ($)
37.05
39.70
33.94
36.13
39.89
As of December 31, 2018, there was $54.3 million of total unrecognized compensation expense related to nonvested restricted and
performance shares expected to vest. This compensation is expected to be recognized in expense over a weighted-average period of
3.5 years. The total fair value of shares which vested during 2018 and 2017 was $26.2 million and $26.3 million, respectively.
In 2018, the Company granted 26,147 performance shares subject to a total shareholder return (“TSR”) performance metric with a
grant date fair value of $51.13 per share and 26,147 performance shares subject to a core earnings per share performance metric with a
grant date fair value of $44.84 per share to key members of executive management. The number of performance shares subject to TSR
that ultimately vest at the end of the three-year performance period, if any, will be based on the relative rank of the Company’s three-
year TSR among the TSRs of a peer group of 43 regional banks. The fair value of the performance shares subject to TSR at the grant
date was determined using a Monte Carlo simulated method. The number of performance shares subject to core earnings per share
that ultimately vest will be based on the Company’s attainment of certain core earnings per share goals over the two-year performance
period. The maximum number of performance shares that could vest is 200% of the target award. Compensation expense for these
performance shares will be recognized on a straight-line basis over the three-year service period.
Note 18. Commitments and Contingencies
Credit Related
In the normal course of business, the Bank enters into financial instruments, such as commitments to extend credit and letters of credit,
to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements
until they are funded, although they expose the Bank to varying degrees of credit risk and interest rate risk in much the same way as
funded loans.
Commitments to extend credit include revolving commercial credit lines, nonrevolving loan commitments issued mainly to finance
the acquisition and development or construction of real property or equipment, and credit card and personal credit lines. The
availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower continues to
meet credit standards established in the underlying contract and has not violated other contractual conditions. Loan commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower. Credit card and
personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates. A number of commercial and
personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do not
necessarily represent future cash requirements of the Company.
A substantial majority of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial
commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit
enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to
vendors of essential goods and services.
122
The contract amounts of these instruments reflect the Company’s exposure to credit risk. The Company undertakes the same credit
evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may
require collateral or other credit support. These off-balance sheet financial instruments are summarized below:
(in thousands)
Commitments to extend credit
Letters of credit
Legal Proceedings
December 31,
$
2018
7,234,528 $
365,498
2017
6,689,033
348,377
The Company is party to various legal proceedings arising in the ordinary course of business. Management does not believe that loss
contingencies, if any, arising from pending litigation and regulatory matters will have a material adverse effect on the consolidated
financial position or liquidity of the Company.
Lease Commitments
The Company currently is obligated under a number of non-cancelable operating leases for buildings and equipment. Certain of these
leases have escalation clauses and renewal options. Future minimum lease payments for non-cancelable operating leases with initial
terms in excess of one year were as follows at December 31, 2018:
(in thousands)
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Operating
Leases
18,476
17,059
15,780
15,506
14,373
101,402
182,596
$
$
Rental expense approximated $18.2 million, $17.0 million and $11.7 million for the years ended December 31, 2018, 2017, and 2016,
respectively.
123
Note 19. Fair Value of Financial Instruments
The FASB defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The FASB’s guidance also establishes a fair value hierarchy that prioritizes the inputs to these valuation techniques used to measure
fair value, giving preference to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to
unobservable inputs such as a reporting entity’s own data (level 3). Level 2 inputs include quoted prices for similar assets or liabilities
in active markets, quoted prices for identical assets or liabilities in markets that are not active, observable inputs other than quoted
prices, such as interest rates and yield curves, and inputs that are derived principally from or corroborated by observable market data
by correlation or other means.
Fair Value of Assets Measured on a Recurring Basis
The following tables present for each of the fair value hierarchy levels the Company’s financial assets and liabilities that are measured
at fair value on a recurring basis in the consolidated balance sheets.
(in thousands)
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities
Municipal obligations
Corporate debt securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
Total available for sale securities
Derivative assets (1)
Total recurring fair value measurements - assets
Liabilities
Derivative liabilities (1)
Total recurring fair value measurements - liabilities
Level 1
December 31, 2018
Level 2
Level 3
Total
$
$
$
$
— $
—
—
—
—
—
—
—
— $
—
— $
— $
71,706 $
240,427
3,500
1,443,402
770,077
161,925
2,691,037
16,980
2,708,017 $
14,923 $
14,923 $
— $
—
—
—
—
—
—
—
— $
—
7,304 $
7,304 $
71,706
240,427
3,500
1,443,402
770,077
161,925
2,691,037
16,980
2,708,017
22,227
22,227
(1)(cid:3)
For further disaggregation of derivative assets and liabilities, see Note 10 – Derivatives.
(in thousands)
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities
Municipal obligations
Corporate debt securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
Total available for sale securities
Derivative assets (1)
Total recurring fair value measurements - assets
Liabilities
Derivative liabilities (1)
Total recurring fair value measurements - liabilities
Level 1
Level 2
Level 3
Total
December 31, 2017
$
$
$
$
— $
—
—
—
—
—
—
—
—
— $
— $
97,272 $
243,786
3,500
1,715,213
687,135
163,963
2,910,869
14,157
2,925,026 $
14,389 $
14,389 $
— $
—
—
—
—
—
—
—
—
—
— $
— $
97,272
243,786
3,500
1,715,213
687,135
163,963
2,910,869
14,157
2,925,026
14,389
14,389
(1)(cid:3) For further disaggregation of derivative assets and liabilities, see Note 10 – Derivatives.
The fair value measurements for investment securities are obtained quarterly from a third-party pricing service that uses industry-
standard pricing models. Substantially all of the model inputs are observable in the marketplace or can be supported by observable
data. The Company invests only in securities of investment grade quality with a targeted duration, for the overall portfolio, generally
between two and five years. Company policies generally limit investments to agency securities and municipal securities determined to
124
be investment grade according to an internally generated score which generally includes a rating of not less than “Baa” or its
equivalent by a nationally recognized statistical rating agency.
For the Company’s derivative financial instruments designated as hedges and those under the customer interest rate program, the fair
value is obtained from a third-party pricing service that uses an industry-standard discounted cash flow model that relies on inputs,
LIBOR swap curves, Overnight Index swap rate curves, observable in the marketplace. To comply with the accounting guidance,
credit valuation adjustments are incorporated in the fair values to appropriately reflect nonperformance risk for both the Company and
the counterparties. Although the Company has determined that the majority of the inputs used to value these derivative instruments
fall within level 2 of the fair value hierarchy, the credit value adjustments utilize level 3 inputs, such as estimates of current credit
spreads. The Company has determined that the impact of the credit valuation adjustments is not significant to the overall valuation of
these derivatives. As a result, the Company has classified its derivative valuations for these instruments in level 2 of the fair value
hierarchy. The Company’s policy is to measure counterparty credit risk quarterly for all derivative instruments subject to master
netting arrangements consistent with how market participants would price the net risk exposure at the measurement date.
The Company also has certain derivative instruments associated with the Bank’s mortgage-banking activities. These derivative
instruments include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these
loans to investors on a best efforts delivery basis. The fair value of these derivative instruments is measured using observable market
prices for similar instruments and is classified as a level 2 measurement.
The Company’s Level 3 liability consists of a derivative contract with the purchaser of 192,163 shares of Visa Class B common stock.
Pursuant to the agreement, the Company retains the risks associated with the ultimate conversion of the Visa Class B common shares
into shares of Visa Inc. Class A common stock, such that the counterparty will be compensated for any dilutive adjustments to the
conversion ratio and the Company will be compensated for any anti-dilutive adjustments to the ratio. The agreement also requires
periodic payments by the Company to the counterparty calculated by reference to the market price of Visa Class A common shares at
the time of sale and a fixed rate of interest that steps up once after the eighth scheduled quarterly payment. The fair value of the
liability is determined using a discounted cash flow methodology. The significant unobservable inputs used in the fair value
measurement are the Company’s own assumptions about estimated changes in the conversion rate of the Visa Class B common shares
into Visa Class A common shares, the date on which such conversion is expected to occur and the estimated growth rate of the Visa
Class A common share price. Refer to Note 10 – Derivatives for information about the derivative contract with the counterparty.
The Company believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however, the use of
different methodologies or assumptions, particularly as applied to Level 3 assets and liabilities, could have a material effect on the
computation of their estimated fair values.
Changes in Level 3 Fair Value Measurements and Quantitative Information about Level 3 Fair Value Measurements
The table below presents a rollforward of the amounts on the consolidated balance sheet for the year ended December 31, 2018 for
financial instruments of a material nature that are classified within Level 3 of the fair value hierarchy and are measured at fair value on
a recurring basis:
(in thousands)
Beginning balance
Entry into derivative contract
Ending balance
$
$
-
7,304
7,304
The table below provides an overview of the valuation techniques and significant unobservable inputs used in those techniques to
measure the financial instrument measured on a recurring basis and classified within Level 3 of the valuation. The range of
sensitivities that management utilized in its fair value calculations is deemed acceptable in the industry with respect to the identified
financial instrument.
(in thousands)
Level 3 Class
Fair Value at
December 31,
2018
Valuation Technique Unobservable Input
Values Utilized
Other derivative liability
$
7,304
Discounted cash
flow
VISA Class A
Appreciation
6.0% - 18.0%
Conversion rate
1.62x - 1.59x
Time until resolution
24 - 48 months
125
The Company’s policy is to recognize transfers between valuation hierarchy levels as of the end of a reporting period. There were no
transfers between levels during the periods presented.
Fair Value of Assets Measured on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis. Collateral-dependent impaired loans are level 2 assets
measured at the fair value of the underlying collateral based on independent third-party appraisals that take into consideration market-
based information such as recent sales activity for similar assets in the property’s market.
Other real estate owned, including both foreclosed property and surplus banking property, are level 3 assets that are adjusted to fair
value, less estimated selling costs, upon transfer to other real estate owned. Subsequently, other real estate owned is carried at the
lower of carrying value or fair value less estimated selling costs. Fair values are determined by sales agreement or third-party
appraisals as discounted for estimated selling costs, information from comparable sales, and marketability of the property.
The following table presents for each of the fair value hierarchy levels the Company’s financial assets that are measured at fair value
on a nonrecurring basis:
(in thousands)
Collateral dependent impaired loans
Other real estate and foreclosed assets, net
Total nonrecurring fair value measurements
(in thousands)
Collateral dependent impaired loans
Other real estate and foreclosed assets, net
Total nonrecurring fair value measurements
December 31, 2018
Level 1
— $
—
— $
Level 2
170,918 $
—
170,918 $
Level 3
— $
14,594
14,594 $
Total
170,918
14,594
185,512
December 31, 2017
Level 1
— $
—
— $
Level 2
184,205 $
—
184,205 $
Level 3
— $
19,608
19,608 $
Total
184,205
19,608
203,813
$
$
$
$
Accounting guidance from the FASB requires the disclosure of estimated fair value information about certain on- and off-balance
sheet financial instruments, including those financial instruments that are not measured and reported at fair value on a recurring basis.
The significant methods and assumptions used by the Company to estimate the fair value of financial instruments are discussed below.
Cash, Short-Term Investments and Federal Funds Sold – For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Securities – The fair value measurement for securities available for sale was discussed earlier in the note. The same measurement
techniques were applied to the valuation of securities held to maturity.
Loans, Net – The fair value measurement for certain impaired loans was discussed earlier in the note. For the remaining portfolio, fair
values were generally determined by discounting scheduled cash flows using discount rates determined with reference to current
market rates at which loans with similar terms would be made to borrowers with similar credit quality.
Loans Held For Sale – These loans are recorded at fair value and carried at the lower of cost or market. The carrying amount is
considered a reasonable estimate of fair value.
Deposits – The accounting guidance requires that the fair value of deposits with no stated maturity, such as noninterest-bearing
demand deposits and interest-bearing checking and savings accounts, be assigned fair values equal to amounts payable upon demand
(carrying amounts). The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of
similar remaining maturities.
Securities Sold under Agreements to Repurchase, Federal Funds Purchased and Short-Term FHLB Borrowings – For these
short-term liabilities, the carrying amount is a reasonable estimate of fair value.
Long-Term Debt – The fair value is estimated by discounting the future contractual cash flows using current market rates at which
debt with similar terms could be obtained.
Derivative Financial Instruments – The fair value measurements for derivative financial instruments were discussed earlier in the
note.
126
The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the
corresponding carrying amount at December 31, 2018 and 2017.
(in thousands)
Financial assets:
Cash, interest-bearing bank
deposits, and federal funds sold
Available for sale securities
Held to maturity securities
Loans, net
Loans held for sale
Derivative financial instruments
Financial liabilities:
Deposits
Federal funds purchased
Securities sold under agreements
to repurchase
Short-term FHLB Borrowings
Long-term debt
Derivative financial instruments
(in thousands)
Financial assets:
Cash, interest-bearing bank
deposits, and federal funds sold
Available for sale securities
Held to maturity securities
Loans, net
Loans held for sale
Derivative financial instruments
Financial liabilities:
Deposits
Federal funds purchased
Securities sold under agreements
to repurchase
FHLB Borrowings
Long-term debt
Derivative financial instruments
December 31, 2018
Level 1
Level 2
Level 3
Total
Fair Value
Carrying
Amount
$
494,466 $
—
—
—
—
—
— $
2,691,037
2,935,856
170,918
28,150
16,980
— $
—
—
19,555,969
—
—
494,466 $
2,691,037
2,935,856
19,726,887
28,150
16,980
$
— $
425
— $
—
23,129,574 $
23,129,574 $
—
425
428,599
1,160,104
—
—
—
—
223,135
14,923
—
—
—
7,304
428,599
1,160,104
223,135
22,227
494,466
2,691,037
2,979,547
19,831,897
28,150
16,980
23,150,185
425
428,599
1,160,104
224,993
22,227
December 31, 2017
Level 1
Level 2
Level 3
Total
Fair Value
Carrying
Amount
$
479,332 $
—
—
—
—
—
— $
2,910,869
2,962,010
184,205
39,865
14,157
$
— $
140,754
— $
—
430,569
1,132,567
—
—
—
—
303,631
14,389
— $
—
—
18,403,303
—
—
22,238,847 $
—
—
—
—
—
479,332 $
2,910,869
2,962,010
18,587,508
39,865
14,157
479,332
2,910,869
2,977,511
18,786,855
39,865
14,157
22,238,847 $
140,754
22,253,202
140,754
430,569
1,132,567
303,631
14,389
430,569
1,132,567
305,513
14,389
127
Note 20. Condensed Parent Company Information
The following condensed financial statements reflect the accounts and transactions of Hancock Whitney Corporation only:
Condensed Balance Sheets
(in thousands)
Assets:
Cash
Securities available for sale
Investment in bank subsidiaries
Investment in non-bank subsidiaries
Due from subsidiaries and other assets
Liabilities and Stockholders' Equity:
Long term debt
Other liabilities
Stockholders' equity
December 31,
2018
2017
$
$
$
$
153,939 $
—
3,040,186
26,274
6,868
3,227,267 $
71,328
58,521
2,953,032
22,670
14,010
3,119,561
145,396 $
531
3,081,340
3,227,267 $
234,135
477
2,884,949
3,119,561
Condensed Statements of Income
(in thousands)
Operating Income
From subsidiaries
Cash dividends received from bank subsidiaries
Noncash dividend from bank subsidiaries
Equity in earnings of subsidiaries greater than
dividends received
Total operating income
Other expense, net
Income tax benefit
Net income
Other comprehensive income (loss), net of tax
Comprehensive income
2018
Years Ended December 31,
2017
2016
$
200,000 $
—
90,000 $
11,708
120,000
—
137,914
337,914
(18,728)
(4,584)
323,770 $
(46,307)
277,463 $
124,531
226,239
(16,931)
(6,324)
215,632 $
11,460
227,092 $
39,293
159,293
(16,614)
(6,617)
149,296
(39,937)
109,359
$
$
128
Condensed Statements of Cash Flows
(in thousands)
Cash flows from operating activities - principally
dividends received from subsidiaries
Net cash provided by operating activities
Cash flows from investing activities
Contribution of capital to subsidiary
Proceeds from sale of securities available for sale
Proceeds from principal paydowns of securities available for sale
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayment of long term debt
Dividends paid to stockholders
Repurchase of common stock
Proceeds from issuance of common stock
Payroll tax remitted on net share settlement of equity awards
Other, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
Note 21. Subsequent Event
2018
Years Ended December 31,
2017
2016
$
216,270 $
216,270
111,591 $
111,591
122,528
122,528
—
47,557
9,091
56,648
(89,200)
(88,838)
(8,267)
4,693
(8,695)
—
(190,307)
82,611
71,328
153,939 $
(270,000)
—
11,015
(258,985)
(17,900)
(83,266)
—
15,312
(11,881)
—
(97,735)
(245,129)
316,457
71,328 $
(21,000)
—
13,827
(7,173)
(17,900)
(77,012)
—
262,961
(3,178)
(133)
164,738
280,093
36,364
316,457
$
The Company has a lease financing facility to a borrower, DC Solar, that sold and managed mobile solar generators. The borrower
filed for Chapter 11 bankruptcy protection in February 2019. Also in February 2019, the Company became aware of an affidavit from
a Federal Bureau of Investigation special agent that alleged this borrower was operating a potentially fraudulent Ponzi-type scheme
and that the majority of mobile solar generators sold to investors and managed by the borrower and the majority of the related lease
revenues claimed to have been received by the borrower may not have existed. The Company has potential loss exposure of up to $11
million that could result in a charge to the allowance for loan and lease losses.
129
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended (the Exchange Act). The rules refer to our controls and other procedures that are designed to ensure that information required
to be disclosed in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to
our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
Management, including our principal executive officer and principal financial officer, has performed an evaluation of the effectiveness
of our disclosure controls and procedures and based on that evaluation, our principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures were effective as of December 31, 2018.
Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) under the Exchange Act, designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. The Company’s management, with the participation of its principal executive and principal financial officers, evaluated the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 based on the framework set forth in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management also conducted an assessment of requirements pertaining to Section 112 of the Federal Deposit Insurance Corporation
Improvement Act. This section relates to management’s evaluation of internal control over financial reporting, including controls over
the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions to the Consolidated
Financial Statements for Bank Holding Companies (Form Y-9 C) and compliance with specific laws and regulations. Our evaluation
included a review of the documentation of controls, evaluations of the design of the internal control system and tests of the
effectiveness of internal controls.
PricewaterhouseCoopers, LLP, the independent registered public accounting firm that audited the Company’s financial statements
included in Item 8. “Financial Statements and Supplementary Data,” has issued an attestation report on the Company’s internal control
over financial reporting, which is also included in Item 8.
Based on the foregoing evaluation, management concluded that the Company’s internal control over financial reporting was effective
as of December 31, 2018.
There was no change in the Company’s internal control over financial reporting that occurred during the fourth quarter of 2018 that
has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Hancock Whitney Corporation will hold its Annual Meeting of Shareholders of common stock on Wednesday, April 24, 2019, at
10:30 a.m. Central Daylight Time at Hancock Whitney Plaza, 2510 14th Street, Gulfport, Mississippi.
130
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning our directors will appear in our definitive proxy statement to be filed with the Securities and Exchange
Commission for our 2019 annual meeting of shareholders under the caption “Information About Directors.” Information concerning
compliance with Section 16(a) of the Exchange Act will appear in our proxy statement under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance.” Information concerning our code of business ethics for officers and associates, our code of ethics
for financial officers, and our code of ethics for directors will appear in our proxy statement under the caption “Transactions with
Related Persons.” Information concerning our audit committee will appear in our proxy statement under the caption “Board of
Directors and Corporate Governance – Board Committees – Audit Committee.” The information set forth under each such caption is
incorporated herein by reference. The information required by Item 10 of this Report regarding our executive officers appears in a
separately captioned heading in Item 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning our executive and director compensation will appear in our definitive proxy statement relating to our 2019
annual meeting of shareholders under the caption “Executive Compensation,” “Compensation of Directors,” “Compensation
Discussion and Analysis,” “Compensation Committee Report,” “Potential Payments Upon Termination or Change in Control” and
“Shareholder Proposals for the 2020 Annual Meeting.” Information concerning our compensation committee interlocks and insider
participation and our compensation committee report will appear in our proxy statement under the caption “Compensation Committee
Interlocks and Insider Participation” and “Compensation Committee Report,” respectively. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information concerning ownership of certain beneficial owners and management will appear in our definitive proxy statement relating
to our 2019 annual meeting of shareholders under the caption “Security Ownership of Certain Beneficial Owners and Management.”
The information set forth under each such caption is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information concerning certain relationships and related transactions will appear in our definitive proxy statement relating to our 2019
annual meeting of shareholders under the caption “Transactions with Related Persons.” Information concerning director independence
will appear in our proxy statement under the caption “Board of Directors and Corporate Governance.” The information set forth under
each such caption is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning principal accountant fees and services will appear in our definitive proxy statement relating to our 2019
annual meeting of shareholders under the caption “Independent Registered Public Accounting Firm.” Such information is incorporated
herein by reference.
131
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report:
1. The following consolidated financial statements of Hancock Whitney Corporation and subsidiaries are filed as part of this
Report under Item 8. “Financial Statements and Supplementary Data”:
Consolidated Balance Sheets – December 31, 2018 and 2017
Consolidated Statements of Income – Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Other Comprehensive Income – Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Stockholders’ Equity– Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows –Years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements – December 31, 2018
2.
Financial schedules required to be filed by Item 8 of this Report, and by Item 15(d) below:
The schedules to the consolidated financial statements set forth by Article 9 of Regulation S-X are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
3. Exhibits required to be filed by Item 601 of Regulation S-K, and by Item 15(b) below.
All other financial statements and schedules are omitted as the required information is inapplicable or the required information is
presented in the consolidated financial statements or related notes.
EXHIBIT INDEX
Exhibit
Number
Description
2.1
2.2
3.1
3.2
4.1
4.2
Purchase Agreement by and between Whitney Bank and First NBC Bank, dated as of December 30, 2016 (filed
as Exhibit 1.1 to the Company’s Form 8-K (File No. 001-36872) filed with the Commission on January 6, 2017
and incorporated herein by reference).
Purchase Agreement by and between Whitney Bank and the FDIC, dated as of April 28, 2017 (filed as Exhibit
1.1 to the Company’s 8-K (File No. 001-36872) filed with the Commission on May 3, 2017 and incorporated
herein by reference).
Composite Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s 8-K (File No. 001-
36872) filed with the Commission on May 24, 2018 and incorporated herein by reference).
Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the Company’s 8-K (File No. 001-36872)
filed with the Commission on May 24, 2018 and incorporated herein by reference).
Specimen stock certificate of the Company (reflecting change in par value from $10.00 to $3.33, effective March
6, 1989) (filed as Exhibit 4 to the Company’s registration statement on Form S-8 (File No. 333-11831) filed with
the Commission on September 12, 1996 and incorporated herein by reference).
By executing this Form 10-K, the Company hereby agrees to deliver to the Commission upon request copies of
instruments defining the rights of holders of long-term debt of the Company or its consolidated subsidiaries or its
unconsolidated subsidiaries for which financial statements are required to be filed, where the total amount of
such securities authorized thereunder does not exceed 10 percent of the total assets of the Company and its
subsidiaries on a consolidated basis.
*10.2
Amended and Restated 2005 Long-Term Incentive Plan dated December 18, 2008 and effective January 1, 2009
(filed as Exhibit 10.2 to the Company’s Form 10-K for the year ended December 31, 2012 (File No. 0-13089)
filed with the Commission and incorporated herein by reference).
132
*10.3
*10.4
*10.5
*10.6
*10.9
*10.10
*10.11
*10.13
*10.18
*10.19
*10.20
*10.25
*10.26
*10.27
*10.28
*10.29
Amendment to Amended and Restated 2005 Long-Term Incentive Plan dated May 24, 2012 and effective
January 1, 2012 (filed as Exhibit 10.3 to the Company’s Form 10-K for the year ended December 31, 2012 (File
No. 0-13089) filed with the Commission and incorporated herein by reference).
2014 Long Term Incentive Plan (filed as Exhibit 10.1 to the Company’s Form 8-K (File No. 0-13089) filed with
the Commission on April 21, 2014 and incorporated herein by reference).
Amendment to the Hancock Holding Company 2014 Long Term Incentive Plan (filed as Appendix A of the
Company’s definitive Proxy Statement on Schedule 14A (filed with the Commission on March 17, 2017 (File
Number 001-36872) and incorporated herein by reference).
Form of Incentive Stock Option Agreement for Section 16 individuals (filed as Exhibit 10.5 to the Company’s
Form 10-K for the year ended December 31, 2012 (File No. 0-13089) filed with the Commission and
incorporated herein by reference).
Form of Performance Stock Award Agreement for 2014 (filed as Exhibit 10.3 to the Company’s Form 8-K (File No.
0-13089) filed with the Commission on February 14, 2013 and incorporated herein by reference).
Nonqualified Deferred Compensation Plan, amended and restated effective January 1, 2015 (filed as Exhibit 10.11 to
the Company’s Form 10-K for the year ended December 31, 2014 (File No. 0-13089) filed with the Commission on
February 27, 2015 and incorporated herein by reference).
Addendum to Nonqualified Deferred Compensation Plan describing SERP benefit (filed as Exhibit 10.3 to the
Company’s Form 10-Q (File No. 001-36827) filed with the Commission on August 8, 2014 and incorporated herein by
reference).
Amended and Restated Hancock Whitney Corporation 2010 Employee Stock Purchase Plan, effective July 1, 2018
(filed as Exhibit 10.1 to the Company’s Form 10-Q (File No. 001-36872) filed with the Commission on November 2,
2018 and incorporated herein by reference).
Form of Change in Control Employment Agreement between the Company and certain named executive officers
effective June 16, 2014 (filed as Exhibit 10.1 to the Company’s Form 8-K (File No. 0-13089) filed with the
Commission on June 20, 2014 and incorporated herein by reference).
Form of Change in Control Employment Agreement between the Company and Functional and Line of Business
Leaders effective June 16, 2014 (filed as Exhibit 10.19 to the Company’s Form 10-K (File No. 001-36872) filed with
the Commission on February 24, 2017).
Insurance Plan and Summary Plan Description, adopted by the Company effective July 1, 2014 (filed as Exhibit 10.20
to the Company’s Form 10-K for the year ended December 31, 2014 (File No. 0-13089) filed with the Commission on
February 27, 2015 and incorporated herein by reference).
Form of Restricted Stock Award Agreement (approved in 2015) (filed as Exhibit 10.24 to the Company’s Form 10-K
(File No. 0-13089) filed with the Commission on February 26, 2016 and incorporated herein by reference
Form of Amended Restricted Stock Award Agreement (amending awards approved in 2016) (filed as Exhibit 10.2 to
the Company’s Form 10-Q (File No. 001-36827) filed with the Commission on May 9, 2016 and incorporated herein
by reference).
Form of Performance Stock Award Agreement (TSR) (approved in 2015) (filed as Exhibit 10.25 to the Company’s
Form 10-K (File No. 0-13089, filed with the Commission on February 26, 2016 and incorporated herein by reference).
Form of Performance Stock Award Agreement (EPS) (approved in 2015) (filed as Exhibit 10.25 to the Company’s
Form 10-K (File No. 0-13089, filed with the Commission on February 26, 2016 and incorporated herein by reference).
Separation and Restrictive Covenant Agreement, between the Company and Edward G. Francis, dated April 7, 2016
(filed as Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on May 9, 2016 and incorporated herein
by reference).
*10.31
Executive Incentive Plan (2016) (filed as Exhibit 10.3 to the Company’s Form 10-Q (File No. 001-36827) filed with
the Commission on May 9, 2016 and incorporated herein by reference).
133
**21.1
Subsidiaries of the Company.
**23.1
Consent of PricewaterhouseCoopers, LLP.
**31.1
**31.2
**32.1
**32.2
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended.
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended.
Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
**101.INS
XBRL Instance Document.
**101.SCH
XBRL Schema Document.
**101.CAL
XBRL Calculation Document.
**101.LAB
XBRL Label Link Document.
**101.PRE
XBRL Presentation Linkbase Document.
**101.DEF
XBRL Definition Linkbase Document.
*
**
Compensatory plan or arrangement.
Filed with this Form 10-K.
134
ITEM 16. FORM 10-K SUMMARY
Not applicable.
135
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
HANCOCK WHITNEY CORPORATION
Registrant
February 28, 2019
Date
By: /s/ John M. Hairston
John M. Hairston
President & Chief Executive Officer
(Principal Executive Officer)
February 28, 2019
Date
By: /s/ Michael M. Achary
Michael M. Achary
Senior Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
February 28, 2019
Date
By: /s/ Stephen E. Barker
Stephen E. Barker
Executive Vice President & Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
/s/ James B. Estabrook, Jr.
James B. Estabrook, Jr.
/s/ Frank E. Bertucci
Frank E. Bertucci
/s/ Hardy B. Fowler
Hardy B. Fowler
/s/ Randall W. Hanna
Randall W. Hanna
/s/ James H. Horne
James H. Horne
/s/ Jerry L. Levens
Jerry L. Levens
/s/ Constantine S. Liollio
Constantine S. Liollio
Chairman of the Board, Director
February 28, 2019
Director
Director
Director
Director
Director
Director
136
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
(signatures continued)
/s/ Sonya C. Little
Sonya C. Little
/s/ Eric J. Nickelsen
Eric J. Nickelsen
/s/ Thomas H. Olinde
Thomas H. Olinde
/s/ Christine L. Pickering
Christine L. Pickering
/s/ Robert W. Roseberry
Robert W. Roseberry
/s/ Joan C. Teofilo
Joan C. Teofilo
/s/ C. Richard Wilkins
C. Richard Wilkins
Director
Director
Director
Director
Director
Director
Director
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
137
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Corporate Information
Annual Meeting
The annual meeting of stockholders will be held at 10:30 a.m. Central Time,
Financial Information
Copies of Hancock Whitney Corporation financial reports, including the
Wednesday, April 24, 2019, Hancock Whitney Plaza, Gulfport, Mississippi.
Annual Report to the Securities and Exchange Commission on Form 10-K,
Corporate Offices
Hancock Whitney Plaza
2510 14th Street
Gulfport, MS 39501
228-868-4000
800-522-6542
Affiliate Companies
Hancock Whitney Investment Services, Inc.
Hancock Whitney Bank
Hancock Whitney Equipment Finance, LLC
Hancock Whitney Equipment Finance and Leasing, LLC
Common Stock
The company’s Common Stock is traded on the NASDAQ Global Select
Market under the symbol HWC.
Stockholder Information
Stockholders seeking information may call the Transfer Agent at
888-490-1239, email help@astfinancial.com, access on the website
www.astfinancial.com, or write:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
are available without charge upon request to:
Trisha Voltz Carlson
Executive Vice President
Investor Relations Manager
Hancock Whitney Corporation
Post Office Box 4019
Gulfport, MS 39502-4019
trisha.carlson@hancockwhitney.com
Earnings releases and other financial information about the company are
available on the company’s IR website, www.hancockwhitney.com/investors.
Board of Directors
James B. Estabrook, Jr.*
Jerry L. Levens**
Frank E. Bertucci
Hardy B. Fowler
John M. Hairston
Randall W. Hanna
James H. Horne
Constantine “Dean” S. Liollio
Sonya C. Little
Eric J. Nickelsen
Thomas H. Olinde
Christine L. Pickering
Robert W. Roseberry
Joan C. Teofilo
C. Richard Wilkins
Stockholders may also contact the company directly by emailing
shareholderservices@hancockwhitney.com.
Corporate & Affiliate Bank Officers
Dividend Reinvestment and Stock Purchase Plan
Stockholders seeking full details about the plan may call 888-490-1239,
email help@astfinancial.com, access on the website www.astfinancial.com,
or write:
John M. Hairston
President & CEO
Michael M. Achary
Chief Financial Officer
Samuel B. Kendricks
Chief Credit Risk Officer
Cecil “Chip” W. Knight, Jr.
Chief Banking Officer
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Joseph S. Exnicios
President, Hancock Whitney Bank
Miles S. Milton
Chief Wealth Management Officer
Cash Dividend Direct Deposit
Stockholders may elect to have their Hancock Whitney Corporation dividends
D. Shane Loper
Chief Operating Officer
directly deposited into a checking, savings, or money market account. This
service provides a safe, convenient method of receiving dividends and
is offered at no cost to stockholders. To obtain more information and an
enrollment form, call 888-490-1239, email help@astfinancial.com, access
on the website www.astfinancial.com, or write:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Stephen E. Barker
Chief Accounting Officer
Joshua R. Caldwell
Chief Internal Auditor
Cindy S. Collins
Chief Compliance Officer
Michael K. Dickerson
Subsidiary Business Lines
Executive
Alan M. Ganucheau
Treasurer
Joy Lambert Phillips
General Counsel &
Corporate Secretary
Joseph S. Schwertz, Jr.
Chief Risk Officer
Suzanne C. Thomas
Chief Credit Approval Officer
Rudi Hall Wetzel
Chief Human Resources Officer
Christopher S. Ziluca
Chief Credit Officer
*Independent Chairman of the Board
**Independent Vice Chairman of the Board
Honor & Integrity
Strength & Stability
Commitment to Service
Teamwork
Personal Responsibility
hancockwhitney.com
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