Honor & Integrity
Strength & Stability
Commitment to Service
Teamwork
Personal Responsibility
Hancock Whitney Corporation
2019 Annual Report
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hancockwhitney.com
Your Dream. Our Mission.
Earnings Per Share – Diluted
$3.72 $3.72
$2.48
$1.87
$1.64
2015
2016
2017
2018
2019
Total Loans
PPNR(TE)(a)
Earnings Per Share – Diluted
(in billions)
(in millions)
$455.2
$3.72 $3.72
$21.2
$434.4
$20.0
$401.8
$19.0
$2.48
$15.7
$16.8
$323.4
$256.4
$1.64
$1.87
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
2019
2019
2019
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
25
500
4.0
3.5
20
400
3.0
15
300
2.5
2.0
10
200
1.5
5
1.0
100
0.5
0
0
0.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
Earnings Per Share – Diluted
$3.72 $3.72
$2.48
$1.87
$1.64
2015
2016
2017
2018
2019
Earnings Per Share – Diluted
Total Loans
(in billions)
PPNR(TE)(a)
Total Loans
Total Deposits
(in millions)
(in billions)
(in billions)
$3.72 $3.72
$21.2
$20.0
$19.0
500
25
25
400
20
20
$22.3
$434.4
$20.0
$401.8
$19.0
$19.4
$23.2 $23.8
$455.2
$21.2
500
400
300
200
100
0
25
500
20
400
15
300
5
100
0
0
25
$18.3
$16.8
$323.4
$15.7
300
15
15
$256.4
PPNR(TE)(a)
(in millions)
Hancock Whitney Corporation
Financial Highlights
$434.4
$455.2
$401.8
$323.4
(Dollars in thousands, except per share amounts)
$256.4
INCOME STATEMENT DATA
Net income
Net interest income (TE)*
Pre-provision net revenue (PPNR) (TE) (a)
2018
2019
2016
2017
2015
COMMON SHARE DATA
Earnings per share – diluted
Book value per share (period-end)
Tangible book value per share (period-end)
Total Deposits
PPNR(TE)(a)
(in billions)
(in millions)
$23.2 $23.8
Cash dividends per share
Earnings Per Share
$22.3
$455.2
$434.4
(Operating)*
Market data
$19.4
$401.8
$18.3
4.5
4.0
$256.4
3.5
High sales price
$323.4
Up 127%
Low sales price
$3.99
10
200
3.0
Period-end closing price
$2.89
2.5
PERIOD-END BALANCE SHEET DATA
2.0
1.5
Securities
$1.77
$1.91
Loans
1.0
2015
2015
2017
2016
Earning assets
2016
2015
Total assets
2017
2016
Total deposits
2018
2018
2017
2019
2019
2018
Common stockholders’ equity
Total Deposits
Return on Average Assets
(in billions)
(Operating)*
Earnings Per Share
(Operating)*
$23.2 $23.8
$22.3
1.25%
Return on average assets
PERFORMANCE RATIOS
$19.4
$18.3
Return on average common equity
$3.99
Up 127%
0.96%
Net interest margin (TE)*
Efficiency ratio (b)
$2.89
+54 bps
1.3
1.2
1.1
1.0
4.5
20
4.0
15
3.5
0.9
0.8
3.0
10
2.5
0.7
0.6
1.3
1.2
4.5
1.1
1.0
$4.01
4.0
0.9
3.5
0.8
3.0
0.7
0.6
2.5
0.5
2.0
0.4
1.5
1.0
2019
1.3
1.21%
1.2
$4.01
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.67%
Allowance for loan losses as percent of period-end loans
0.66%
0.67%
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
2019
2019
2019
2.0
5
0.5
1.5
0.4
0
1.0
$1.91
Tangible common equity ratio (c)
$1.77
Return on average tangible common equity
2015
Leverage (Tier 1) ratio
2016
2017
2018
2019
2018
2017
2018
2016
2016
2017
2015
2015
2019
2019
2015
$16.8
$15.7
$2.48
$1.87
$1.64
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
Total Loans
(in billions)
$20.0
$19.0
$21.2
$16.8
$15.7
200
10
10
100
5
0
0
5
0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
25
20
15
10
5
0
Total Deposits
(in billions)
$23.2 $23.8
$22.3
$19.4
$18.3
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
Return on Average Assets
(Operating)*
1.25%
1.21%
*Taxable equivalent (TE) amounts are calculated using a federal income tax rate of 21% for years ended
December 31, 2018 and December 31, 2019 and 35% for all other years presented.
0.96%
(a) Pre-provision net revenue is net interest income (TE)* and noninterest income less noninterest expense.
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.
+54 bps
0.67%
0.66%
(b) The efficiency ratio is noninterest expense to total net interest income (TE)* and noninterest income,
excluding amortization of purchased intangibles and nonoperating items.
2015
2016
2017
2018
2019
(c) The tangible common equity ratio is common stockholders’ equity less intangible assets divided by total
assets less intangible assets.
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
Earnings Per Share
(Operating)*
Up 127%
2019
$3.99
$4.01
2018
$2.89
$1.77
$327,380
$1.91
$909,991
$323,770
$865,015
$455,221
$434,409
2015
2016
2017
2018
2019
$3.72
$39.62
$3.72
$35.98
$28.63
Return on Average Assets
(Operating)*
Earnings Per Share
(Operating)*
$1.02
1.25%
$25.62
$1.08
$44.74
Up 127%
0.96%
$33.63
0.67%
$43.88
0.66%
$2.89
$56.40
$3.99
$32.59
$34.65
+54 bps
1.21%
$4.01
Hancock Whitney New Markets Fund, LLC
Board of Directors
$1.77
$1.91
$6,243,313
$5,670,584
2015
$21,212,755
2016
2017
$20,026,411
2018
2019
2015
$27,622,161
2016
$30,600,757
2017
$25,836,239
2018
$28,235,907
2019
$23,803,575
$23,150,185
$3,467,685
Return on Average Assets
(Operating)*
$3,081,340
1.12%
9.91%
0.96%
3.44%
58.50%
0.66%
0.90%
8.45%
13.66%
2016
8.76%
1.25%
1.17%
1.21%
Stockholders may also contact the company directly by emailing
shareholderservices@hancockwhitney.com.
11.04%
3.38%
57.77%
+54 bps
0.97%
8.02%
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:
American Stock Transfer & Trust Company, LLC
2017
15.62%
2018
8.67%
2019
6201 15th Avenue
Brooklyn, NY 11219
Corporate Information
Annual Meeting
Financial Information
The annual meeting of stockholders will be held at 10:30 a.m. Central Time,
Copies of Hancock Whitney Corporation financial reports, including the
Wednesday, April 29, 2020, 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
Subsidiaries of Hancock Whitney Corporation
Hancock Whitney Investment Services, Inc.
Hancock Whitney Bank
Hancock Whitney Equipment Finance, LLC
Hancock Whitney Equipment Finance and Leasing, LLC
The company’s Common Stock is traded on the NASDAQ Global Select
Common Stock
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.
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
Thomas H. Olinde
Christine L. Pickering
Robert W. Roseberry
Joan C. Teofilo
C. Richard Wilkins
Corporate & Affiliate Bank Officers
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
Joseph S. Exnicios
Miles S. Milton
President, Hancock Whitney Bank
Chief Wealth Management Officer
Cash Dividend Direct Deposit
Stockholders may elect to have their Hancock Whitney Corporation dividends
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
Joshua R. Caldwell
Chief Internal Auditor
D. Shane Loper
Chief Operating Officer
Stephen E. Barker
Sr. Accounting & Finance
Executive
Joy Lambert Phillips
General Counsel &
Corporate Secretary
Joseph S. Schwertz, Jr.
Chief Risk Officer
Suzanne C. Thomas
Chief Credit Approval Officer
on the website www.astfinancial.com, or write:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Cindy S. Collins
Rudi Hall Wetzel
Chief Compliance Officer
Chief Human Resources Officer
Michael K. Dickerson
Christopher S. Ziluca
Subsidiary Business Lines
Chief Credit Officer
Executive
Alan M. Ganucheau
Treasurer
*Independent Chairman of the Board
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
25
4.0
3.5
3.0
20
2.5
15
2.0
10
1.5
5
1.0
0.5
0.0
0
25
20
15
10
5
0
2019 Financial Highlights
We completed 2019 on a positive note, surpassing expectations
with solid results. For the year, EPS was $3.72 and included almost
$33 million of merger costs related to the acquisition of MidSouth
Bancorp, Inc. in Lafayette, Louisiana. Excluding those costs,
operating EPS* for the year was $4.01.
Operating leverage* increased $24 million compared to 2018,
loans grew $1.2 billion, criticized and nonperforming loans both
declined year-over-year, and our tangible common equity (TCE)
ratio was up 43 basis points.
Loan growth was in line with our guidance of mid-single-digit
average growth year-over-year, with the annual results coming in
as expected. MidSouth added approximately $785 million of loans
in the third quarter; however, we also saw a decrease in legacy
energy loans of $164 million over the course of 2019. We expect
to continue reducing our energy portfolio in 2020 and offsetting
that reduction with more granular production across our footprint
and in other specialty lines of business.
We achieved our energy concentration goal of below 5 percent
during 2019; and with a de-emphasis in that sector, we are
updating our strategic goal to 2-4 percent of our loan portfolio.
Going forward, we expect to see continued improvement on an
annual basis in our asset quality metrics, although quarter-over-
quarter progress will not always be linear. As previously mentioned,
we do expect to see continued charge-off activity as we resolve
our remaining problem loans, particularly from the energy cycle.
Our net interest margin (NIM) was a bright spot for both the fourth
quarter and the year, with expansion reported linked-quarter, same
quarter a year ago, and year-over-year. Proactive NIM management
included a focus on improving loan yields and reducing deposit
costs. These were significant focus points in 2019 and will continue
to be in 2020.
Capital remained strong, with TCE ending the year at 8.45 percent.
In October, we announced that we entered into an agreement to
repurchase approximately 5 million shares of our common stock
through an accelerated share repurchase program (ASR). The ASR
allows us to buy back a number of shares similar to the number of
shares issued for the MidSouth acquisition, effectively transforming
the acquisition from a stock to cash transaction and improving the
profitability of the deal.
To Our Shareholders:
Growth. Innovation. Excellence. Those words embody the
accomplishments your company achieved in 2019, our 120th year.
With growth in 2019, Hancock Whitney has new locations in Louisiana,
Texas, and Alabama and serves clients and communities in eight states.
Through an acquisition and new construction, Hancock Whitney
became a bright new banking option for more people in more
hometowns across our footprint, and we surpassed the $30
billion mark in assets. As associates across the eight states where
we do business delivered the Commitment to Service central to
who we are, we continued a wide-ranging technology initiative to
bring about better, easier and more effective ways to help clients
achieve their financial goals. Our strength, stability, and service
once again earned accolades, affirming us among America’s top-
rated institutions.
Our success in 2019 came from your confidence in Hancock
Whitney, the clients who trust us, the communities that look to us
as an advocate for opportunity, and the 4,000-plus associates who
carry on the core values that define what we believe and how we
work together to help people and businesses prosper.
Earnings Per Share
(Operating)*
Up 127%
$3.99
$4.01
$2.89
$1.77
$1.91
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
2015
2016
2017
2018
2019
* Non-GAAP measure. A reconciliation is included in the following 10-K.
Earnings Per Share – Diluted
$3.72 $3.72
$2.48
$1.87
$1.64
PPNR(TE)(a)
(in millions)
$455.2
$434.4
$401.8
$323.4
$256.4
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Total Loans
(in billions)
Total Deposits
(in billions)
$23.2 $23.8
$22.3
Return on Average Assets
(Operating)*
1.25%
1.21%
$20.0
$19.0
$21.2
$19.4
$18.3
$16.8
$15.7
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.96%
0.67%
0.66%
+54 bps
Return on Tangible Common Equity
(Operating)*
16.76%
14.74%
12.54%
+641 bps
8.33%
8.74%
1
18.00
14.00
10.00
6.00
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
25
20
15
10
5
0
500
400
300
200
100
0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
25
20
15
10
5
0
A Look Back
The charts below show a five-year recap, indicating marked
improvement the company has made over those years. We charted
a new course in 2015 designed to return us to target profitability
levels. Challenging rate and credit environments caused us to
re-evaluate certain strategies and make appropriate adjustments
along the way.
During the same period, we benefited from a growing U.S. economy
and strategic acquisitions. We completed five transactions in
the past five years that were financial in nature and accretive to
earnings. Along with a deliberate remix in lending growth, the
transactions helped grow the company to more than $30 billion
in assets and strengthened our position in existing markets and
facilitated entry into new ones.
Our capital has remained strong, and we have managed it, we believe,
in the best interest of our shareholders through organic growth,
increasing dividends, stock repurchases, and profitable M&A.
With profitability back to peer levels and stable, despite a falling
rate environment, we worked vigorously to bring our net interest
margin and credit metrics back to, or better than, peer averages.
We have made progress on both—actually moving above average
on NIM.
In the first quarter of 2019, we achieved peer levels in NIM. For
the next three quarters we reported a better-than-peer average
Earnings Per Share
net interest margin. While we have attained the NIM goal, we will
(Operating)*
not lose sight on what it takes to keep it there and will work hard
to maintain it.
4.5
Earnings Per Share
(Operating)*
4.5
$455.2
3.5
3.0
3.5
3.0
2.5
The other focus point is related to asset quality. We have made
meaningful progress on both, but still have work to do, especially
$2.89
on nonperforming loans (NPLs) and TDRs. The gap to peers on
commercial criticized loans has diminished from 375 basis points
$1.91
in the first quarter of 2018 to 44 basis points at year-end 2019,
while the gap on NPLs has narrowed from 145 basis points to 72
basis points.
1.0
$1.91
$1.77
$2.89
$1.77
2.0
1.5
1.5
2.0
2.5
2016
2015
2017
2016
2018
2017
2019
2018
2019
1.0
2015
Looking to the future—as we do each January —we’ve updated our
corporate strategic objectives (CSOs). Our CSOs are based on the
results of our annual budget and multiyear business plan.
With achievement of profitability metrics, we opted to take a more
conventional approach to discussing longer-term goals. Instead
of specifying a particular quarterly target, we’re sharing our
expectations for our three-year annualized outlook represented
by the business plan. If interest rates change for the better, or
we find an attractive acquisition, we expect to accomplish
the goals early. If the environment changes and presents
more challenges, it may take us longer to achieve our goals. Our
CSOs are meant to convey where we believe the company is
headed based on our focus and outlook today—all designed to
enhance long-term shareholder value.
As we begin 2020, our Hancock Whitney team remains focused
on building upon positive momentum and capitalizing on available
opportunities in our markets.
Growing Places
In third quarter 2019, Lafayette,
Louisiana-based MidSouth Bank joined
Hancock Whitney through a low-risk,
high-return acquisition that aligned with
our strategic goals for continued growth.
MidSouth Bank and Hancock Whitney
were neighbors for many years, with
similar cultures and a shared focus
on growing relationships across the
region. The MidSouth acquisition
boosted convenience for clients in the
Louisiana and Texas communities we
already served and introduced Hancock
Whitney’s warm 5-star service to new
clients in thriving neighboring cities
and towns such as Shreveport and
Natchitoches in Louisiana, and College
Station, Conroe, Dallas, Longview,
Marshall, and Tyler in Texas.
Workers raise the Hancock
Whitney badge at a
former MidSouth Bank
location following the 2019
acquisition that expanded
Hancock Whitney in
existing and new Louisiana
and Texas markets.
Return on Average Assets
Return on Average Assets
(Operating)*
(Operating)*
Return on Tangible Common Equity
(Operating)*
Return on Tangible Common Equity
(Operating)*
1.25%
1.25%
1.21%
1.21%
18.00
18.00
16.76%
16.76%
0.96%
0.96%
14.00
14.00
12.54%
12.54%
14.74%
14.74%
0.67%
0.66%
0.66%
+54 bps
+54 bps
10.00
10.00
8.33%
8.74%
8.33%
8.74%
+641 bps
+641 bps
2015
2016
2016
2017
2017
2018
2018
2019
2019
6.00
6.00
2015
2016
2015
2017
2016
2018
2017
2019
2018
2019
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
1.3
1.2
1.1
1.0
0.9
0.8
0.67%
0.7
0.6
0.5
0.4
2015
$323.4
$323.4
4.0
4.0
Up 127%
Up 127%
$3.99
$4.01
$3.99
$4.01
2015
2016
2015
2017
2016
2018
2017
2019
2018
2019
2015
2016
2015
2017
2016
2018
2017
2019
2018
2019
$455.2
$434.4
Earnings Per Share – Diluted
Earnings Per Share – Diluted
PPNR(TE)(a)
(in millions)
PPNR(TE)(a)
(in millions)
400
400
$401.8
$401.8
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
25
20
15
10
5
0
4.0
3.5
3.0
2.5
1.5
1.0
0.5
0.0
25
20
15
10
5
0
$3.72 $3.72
$3.72 $3.72
500
500
$434.4
$2.48
$2.48
300
300
$256.4
$256.4
2.0
$1.64
$1.87
$1.64
$1.87
Total Loans
Total Loans
(in billions)
(in billions)
Total Deposits
(in billions)
$22.3
$20.0
$19.0
$19.0
$16.8
$15.7
$16.8
$15.7
$21.2
$20.0
$21.2
$18.3
20
$19.4
$18.3
$19.4
200
200
100
100
0
0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
25
20
15
10
5
0
25
15
10
5
0
Total Deposits
(in billions)
$23.2 $23.8
$22.3
$23.2 $23.8
2015
2016
2015
2017
2016
2018
2017
2019
2018
2019
2015
2016
2015
2017
2016
2018
2017
2019
2018
2019
* Non-GAAP measure. A reconciliation is included in the following 10-K.
2
A new Hancock Whitney financial center in downtown Fairhope,
Alabama now serves clients living and doing business in that thriving
Alabama Eastern Shore community.
New financial centers in flagship locales such as Fairhope,
Alabama; Houma, Lafayette, and New Orleans in Louisiana;
and Beaumont and Houston in Texas, bring local bankers,
clients, and communities together for partnerships focused
on strong, solid futures for people and the places we call home.
In the Bay County, Florida region where Category 5 Hurricane
Michael wreaked havoc in 2018, opening a new Lynn Haven
financial center created new jobs, helped refurbish local tree-
scapes, and reinforced our commitment to helping the city’s
resilient citizens rebuild. Additionally, a Panama City location under
reconstruction on the highly traveled Highway 77 rises in tribute to
the community’s undaunted spirit following Michael’s devastation.
Building Community
We continue our longstanding tradition of volunteering with
and contributing to countless organizations and activities that
align with our corporate mission and purpose as well as our
community engagement and business
strategies. By doing and giving, we
promote economic and community
development; education and research;
financial literacy; conservation and
environmental sustainability; family
entertainment; high school, college,
and professional sports; health and
wellness; fine arts and culture; history
and heritage; community tradition; and
quality of life for all people.
At the ribbon cutting for a new financial center to help Bay County,
Florida continue rebuilding from 2018’s Hurricane Michael,
Hancock Whitney donated four live oaks to the city of Lynn Haven
to honor the region’s strong spirit and symbolize new jobs created
by opening the location.
In 2019, reported associate volunteerism rose 21 percent,
with associates recording almost 7,000 community service
volunteer hours. Hancock Whitney associates also participated in
more than 940 financial education activities with 190 organizations,
impacting the lives of thousands of students and adults. Hancock
Whitney Financial Cents, our comprehensive online and in-person
financial education program, helped thousands of students and
adults learn critical money management skills to create more
secure financial futures.
Your company invested more than $5.8 million in charitable
contributions, empowering local communities in 2019. More than
$1.3 million of that amount supported Community Reinvestment
Act (CRA) eligible activities benefiting low-to moderate-income
individuals and neighborhoods. In its second year, our competitive
grant partnership with the Greater New Orleans Foundation
provided $200,000 to 16 nonprofits in five Gulf South states
focused on affordable housing construction or rehabilitation,
programs supporting expansion of existing businesses with $1
million or less in revenues, and youth programs providing job and
entrepreneurship training and internships.
Since 2017, our Hancock Whitney Community Development
Advisory Council has offered insights and advice on ways to create
even more opportunities for our communities and underserved
populations. The council is composed of accomplished leaders
in housing, economic development, small business development,
health and human services, and other fields essential to community
success. These leaders regularly confer with company executives and
our CRA team about how to make the biggest differences for the
most people.
In 2019, the Hancock Whitney competitive grant program provided a
total of $200,000 to nonprofits focused on affordable housing, small
business, and youth job training for low- to moderate-income individuals
and communities.
3
Our associates are the faces, voices, and collective spirit of the
company throughout the communities we serve. A recently
established Hancock Whitney Diversity Council includes a cross-
section of associates advising and advocating key considerations
and best practices for an inclusive corporate community with an
associate population reflecting the demographics and diversity of
the clients and communities we serve.
quarters—more than 30 years in a row—
as of December 31, 2019. No financial
institution can pay for or opt out of a
BauerFinancial, Inc., rating.
Our Hancock Whitney mobile banking
app rated almost 5 stars on the App Store
based on user opinions.
Advancing Technology
BauerFinancial, Inc.,
has recommended
Hancock Whitney as
one of America’s most
financially sound banks
for more than 30 years
in a row.
The financial services industry is evolving
rapidly as technology improves and
clients’ needs change. Hancock Whitney
is already technologically competitive and scalable. As a company
that never knows completion, we’re investing in and deploying sales
technology during the next several quarters as part of a prioritized
strategy to differentiate Hancock Whitney as the financial partner
of choice across the Gulf South.
We’ll empower our associates with the best capabilities to
complement relationships and grow their business. We’ll engage
the most accomplished professionals by becoming the preferred
financial services employer in our region. We’ll implement
streamlined processes designed to ensure a warm 5-star client
experience marked by simplified operations, improved accuracy,
and accelerated fulfillment. To fortify and move us forward, we’ll
leverage multifaceted technology enhancements to enable us
to serve clients better, which will help us grow our market share
across the communities we serve.
Succeeding Together
Hancock Whitney was founded to help people achieve their
dreams. We know that mission means never settling for status
quo. Instead, we continue to change and grow together with the
people and the communities we serve by understanding our clients
and what their dreams may be.
Together, we pursue the choices that help make those dreams real.
We’ve done that for 120-plus years, and your faith in us further
inspires and strengthens our commitment to growth, innovation,
and excellence for generations to come.
We thank you for investing in the Hancock Whitney organization
and the future we share together.
The Hancock Whitney Diversity Council comprises associates
from throughout the organization who foster best practices for an
inclusive corporate community to serve diverse communities across
the Gulf South.
Earning Honors and Recognition
Because our associates demonstrate the
ideals at the heart of our organization,
we’re able to perpetuate the culture of
core values our founders put forth 120
years ago. This past year, national media
recognized our efforts to be a best-in-
class workplace. Forbes listed Hancock
Whitney as one of America’s Best Mid-
Size Employers in 2019, an accolade
based on associate feedback.
Based on associate
feedback, Hancock
Whitney earned Forbes’
recognition as one of the
nation’s best mid-size
employers.
Greenwich Associates—respected
for lauding banks that deliver
the best quality to clients—once again recognized
Hancock Whitney, with 23 Excellence and Best Brand awards
for middle market and small business banking in 2019. With
these most recent honors, Hancock Whitney has received a
grand total of 184 Greenwich Awards, with 17 Best Brand
Awards since 2013 and 167 Excellence Awards since 2005.
The country’s leading independent bank rating and analysis
firm, BauerFinancial, Inc., has recommended Hancock Whitney
as one of America’s strongest, safest banks for 121 consecutive
With gratitude,
John M. Hairston
President & CEO
4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(cid:1409)(cid:1409)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
(cid:1407)(cid:1407)
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:
Tit
Title of Each Class
COMMON STOCK, $3.33 PAR VALUE
Trading
Symbol
HWC
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:1409) No (cid:1407)
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:1407) No (cid:1409)
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:1409) No (cid:1407)
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:1409) No (cid:1407)
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
Non-accelerated filer
(cid:1409)
(cid:1407)
(cid:3)
Emerging growth company (cid:1407)(cid:3)
Accelerated filer
Smaller reporting company
(cid:1407)
(cid:1407)
(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:1407) No (cid:1409)
The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 14, 2020 was $3.5 billion based upon the closing
market price on NASDAQ on June 30, 2019. 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, 2020, the registrant had 87,236,434 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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.
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Hancock Whitney Corporation
Form 10-K
Index
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. 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. EXECUTIVE COMPENSATION
ITEM 12. 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. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16 FORM 10-K SUMMARY
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30
30
30
30
31
33
37
67
68
131
131
131
131
132
132
132
132
133
136
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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 consolidated subsidiaries
Parent – Hancock Whitney Corporation, exclusive of its subsidiaries
Bank – Hancock Whitney Bank
Other terms:
ACL – Allowance for credit losses
AFS – Available for sale securities
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
ASR- Accelerated Share Repurchase
ASU- Accounting standard 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
BOLI- Bank-owned life insurance
BSA – Bank Secrecy Act
bp(s) – basis point(s)
C&I – commercial and industrial loans
Capital One - Capital One, National Association, from which the Company acquired a trust and asset management business in 2018
CD – certificate of deposit
CDE – Community Development Entity
CECL – Current Expected Credit Losses
CEO – Chief Executive Officer
CET1 – common equity tier 1 capital as defined by Basel III capital rules
CFO – Chief Financial Officer
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
FASB – Financial Accounting Standards Board
FDIC – Federal Deposit Insurance Corporation
FDICIA – Federal Deposit Insurance Corporation Improvement Act of 1991
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. They implement the policies of the Federal Reserve Board and also conduct economic research.
1
FFIEC – Federal Financial Institutions Examination Council
FHA – Federal Housing Administration
FHLB – Federal Home Loan Bank
GAAP – Generally Accepted Accounting Principles in the United States of America
IRS – Internal Revenue Service
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
MidSouth - MidSouth Bancorp, Inc., an entity the Company acquired on September 21, 2019
MDBCF – Mississippi Department of Banking and Consumer Finance
NAICS – North American Industry Classification System
n/m – not meaningful
NSF – non-sufficient funds
OCI – other comprehensive income
OD - Overdraft
ORE – other real estate
PCI – Purchased credit impaired
PPNR – pre-provision net revenue
SEC – U.S. Securities and Exchange Commission
Securities Act – Securities Act of 1933, as amended
SOFR – Secured Overnight Financing Rate
Tax Act – Tax Cuts and Jobs Act of 2017
TDR – troubled debt restructuring (as defined in ASC 310-40)
TSR – Total shareholder return
te – taxable equivalent, or a 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
2
FORWARD-LOOKING STATEMENTS
PART I
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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(cid:120)(cid:3)
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;
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 MidSouth transaction, the trust and asset management transaction or future business combinations on
our performance and financial condition including our ability to successfully integrate the businesses;
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;
3
(cid:120)(cid:3)
(cid:120)(cid:3)
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.
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,”
“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.
4
ITEM 1. BUSINESS
ORGANIZATION
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. The Company, headquartered in Gulfport, Mississippi, provides comprehensive financial
services through its bank subsidiary, Hancock Whitney Bank (the “Bank”), a Mississippi state bank, and other bank and nonbank
affiliates.
At December 31, 2019, our balance sheet had grown to $30.6 billion, with loans totaling $21.2 billion and deposits totaling
$23.8 billion, and we had 4,136 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 of the holding company, Hancock Whitney
Investment Services, Inc., provides 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’s 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 have other subsidiaries of the bank
for purposes such as facilitating investments in new market tax credit activities and holding certain foreclosed assets.
We operate primarily in the Gulf South region of the U.S., comprised of southern Mississippi; southern and central Alabama;
southern, central and northwest Louisiana; the northern, central, and panhandle regions of Florida; and certain areas of east and
northeast Texas, including the Houston, Beaumont and Dallas areas, among others. 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 and other areas we serve 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 September 2019 acquisition of MidSouth Bancorp, Inc. strengthened our footprint in some of our existing markets and provided
entry into new markets in Louisiana and Texas. 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.
5
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, 2019 are as follows:
Portfolio Segment Concentrations
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Commercial non-real estate — 451%
Commercial real estate - owner occupied — 118%
Commercial real estate-income producing and construction — 166%
Residential mortgage — 122%
Consumer real estate secured — 80%
Consumer other — 64%
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, 2019:
Significant Industry Concentrations
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Manufacturing — 56%
Healthcare and social service — 49%
Construction — 48%
Real estate — 47%
Mining, oil and gas — 46%
Finance and insurance — 43%
(cid:120)(cid:3) Wholesale trade – 42%
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Retail trade – 40%
Transportation and warehousing — 36%
Professional, scientific and technology services — 30%
Government and public administration – 26%
6
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, 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.
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
7
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 commercial real estate – income producing 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. Consideration is also
given to whether the borrower is located 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
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. We
limit the percentage of securities that can be pledged in order to keep a portion of securities available to support liquidity. 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
8
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 strategies 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 large 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 $166 million at December 31, 2019 represent less than 1% 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. At December 31, 2019, the trust department of the Bank had approximately $24.1 billion of
assets under administration, comprised of investment management and investment advisory agency accounts of $5.9 billion and other
custody and safekeeping accounts of $9.0 billion, corporate trust accounts of $3.9 billion, and personal, employee benefit, estate and
other trust accounts totaling $5.2 billion.
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,
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.
9
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 and insurance agency operations. These include,
but are not limited to, the SEC, the Financial Industry Regulatory Authority (“FINRA”), 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
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.
10
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 that has not elected to be a financial holding company. Financial holding companies may also engage in
activities that are considered to be financial in nature, as well as those incidental or, if determined by the Federal Reserve,
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 under
applicable regulatory standards as of December 31, 2019, 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
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. 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
11
implement a compliance program. On October 8, 2019, the federal banking agencies issued changes to the Volcker Rule intended to
simplify compliance with the Rule’s “proprietary trading” restrictions. Under the revised rules, firms that do not have significant
trading activities will have simplified and streamlined compliance requirements, while firms with significant trading activity will have
more stringent compliance requirements. The revisions continue to prohibit proprietary trading, while providing greater clarity and
certainty for activities allowed under the law. With the changes, the agencies expect that the universe of trades that are considered
prohibited proprietary trading will remain generally the same as under the agencies' 2013 rule. The rules will be effective on January
1, 2020, with a compliance date of January 1, 2021.
Capital Requirements
The Company and the Bank 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.
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, effective January 1, 2019, the capital rules required a capital conservation buffer of CET1 capital of 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.
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. 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
12
adopted regulations establishing relevant capital measures and relevant capital levels for federally insured depository institutions. The
Bank was well capitalized at December 31, 2019, 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, 2019 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.
In 2019, the Company’s and the Bank’s regulatory capital ratios are above the applicable well-capitalized standards and met the
capital conservation buffer requirements. 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 in 2020. Risk-based capital
ratios and the leverage capital ratio at December 31, 2019 under currently applicable capital adequacy rules for the Company and the
Bank were as follows:
Minimum Capital
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*
Plus Capital
Conservation
4.00 %
4.50 %
6.00 %
5.00
6.50
8.00
Buffer
Company
Bank
N/A %
8.76 %
8.96 %
7.00 %
8.50 %
10.50 %
10.50 %
10.74 %
10.74 %
8.00 %
10.00
10.50 %
11.90 %
11.53 %
In December 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to address the
implementation of Accounting Standards Update No. 2016-13, “Current Expected Credit Losses,” commonly referred to as CECL,
effective January 1, 2020 for the Bank and Company. The final rule allows for 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. The Company has
elected to use the optional three-year phase in method and has sufficient capital to cover the day one impact of CECL. See further
discussion of CECL and the impact of adoption in Note 1 – Summary of Significant Accounting Policies and Recent Accounting
Pronouncements in Item 8 – “Financial Statements and Supplementary Data” of this document.
13
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.
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 (“CAMELS”), 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
14
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. The assessment rate schedule can change from time to time, at the discretion of the FDIC,
subject to certain limits.
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, federal banking agencies have broad authority to prevent the development or
continuance of unsafe or unsound banking practices. Pursuant to this authority, the Federal Reserve 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,
15
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.
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)
(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
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 communities 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
16
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.
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, 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, 2019, these
rules had not been implemented. We have instituted measures 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, 2019 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.
17
Corporate Governance
The Dodd-Frank Act addresses many investor protection, corporate governance, and executive compensation matters that 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.
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.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The names, ages, positions and business experience of our executive officers as of February 24, 2020:
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
56
59
64
54
63
56
64
58
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; Chief Risk
Officer from 2012 to 2013; Chief Risk and Administrative Officer from 2010 to 2012.
Executive Vice President since 2016; Senior Accounting and Finance Executive since 2019;
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
We may be vulnerable to certain sectors of the economy and to economic conditions both generally and locally across the specific
markets in which we operate.
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.
We are subject to lending concentration risk.
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 exposure in these concentrations, disruptions in markets, economic conditions, changes in
laws or regulations or other events could cause a significant impact on 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 credit 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, 2019, energy or energy-related loans comprised approximately 4.5% of our loan portfolio. Weakness in the oil and
gas sector continues to impact many energy-related entities’ profitability, liquidity and/or enterprise value. Global markets for oil and
gas have and may continue to be impacted by the coronavirus pandemic and/or other events beyond our control. Further 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.
Certain changes in interest rates, mortgage origination, inflation, deflation, or the financial markets could affect our results of
operations, demand for our products and our ability to deliver products efficiently.
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.
In addition, loan originations, and potentially loan revenues, could be adversely impacted by sharply rising interest rates. If market
rates of interest increase, it would increase debt service requirements for some of our borrowers; adversely affect those 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.
19
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.
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. 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.
Changes in the policies of monetary authorities and other government action could adversely affect our profitability.
Interest rates and our financial performance are 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.
The Federal Reserve raised rates nine times during 2015-2018, and reduced rates three times in 2019. Further rate changes reportedly
are dependent on the Federal Reserve’s assessment of economic data as it becomes available. If interest rates continue to decline, our
net interest income may decrease. In addition, a decrease in interest rates could negatively impact our margins and profitability. 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.
Changes in U.S. trade policies and other factors beyond the Company's control, including the imposition of tariffs and retaliatory
tariffs, may adversely impact its business, financial condition and results of operations.
In recent years, there has been discussion and dialogue regarding potential changes to U.S. trade policies, legislation, treaties and
tariffs, including trade policies and tariffs affecting other countries, including China, the European Union, Canada and Mexico and
retaliatory tariffs by such countries. Tariffs and retaliatory tariffs have been imposed, and additional tariffs and retaliation tariffs have
been proposed. Such tariffs, retaliatory tariffs or other trade restrictions on products and materials that the Company's customers
import or export, including among others, agricultural products, could cause the prices of its customers' products to increase, which
could reduce demand for such products, or reduce its customer margins, and adversely impact their revenues, financial results and
ability to service debt. This, in turn, could adversely affect the Company's financial condition and results of operations.
In addition, to the extent changes in the political environment have a negative impact on the Company or on the markets in which the
Company operates its business, results of operations and financial condition could be materially and adversely impacted in the future.
It remains unclear what the U.S. Administration or foreign governments will or will not do with respect to tariffs already imposed,
additional tariffs that may be imposed, or international trade agreements and policies. A trade war or other governmental action related
to tariffs or international trade agreements or policies has the potential to negatively impact the Company's and/or its customers' costs,
demand for its customers' products, and/or the U.S. economy or certain sectors thereof and, thus, adversely impact the Company's
business, financial condition and results of operations.
United Kingdom’s exit from the European Union (“Brexit”) could adversely affect financial markets generally.
The uncertainty regarding Brexit could adversely affect financial markets generally. While the Company has limited direct loans to or
deposits from foreign entities, the uncertain impact of Brexit on British and European businesses, financial markets, and related
businesses in the United States could also adversely affect financial markets generally. The commercial soundness of many financial
institutions may be closely interrelated as a result of relationships between the institutions. As a result, concerns about, or a default or
threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other
20
institutions. The Company’s business could be adversely affected directly by the default of another institution or if the financial
services industry experiences significant market-wide liquidity and credit problems.
The financial soundness and stability of other financial institutions could adversely affect us.
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.
We may be adversely impacted by the transition from LIBOR
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.
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
unavailable, not all of our loans, derivatives or financial instruments contain such provisions, and the existing provisions and/or recent
modifications to our documents to address transition 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 and may impact our ability to
maintain hedge accounting treatment on certain cash flow hedges. 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.
Tax law and regulatory changes could adversely affect our financial condition and results of operations.
The Tax Cuts and Jobs Act enacted in 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.
Governmental responses to market disruptions and other events may be inadequate and may have unintended consequences.
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.
We may need to rely on the financial markets to provide needed capital.
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
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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.
Risks Related to the Financial Services Industry
We must maintain adequate sources of funding and liquidity.
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.
We may rely on the mortgage secondary market from time to time to provide liquidity.
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.
Greater loan losses than expected may adversely affect our earnings.
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 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 credit losses may not be sufficient to cover actual credit 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, to
adjust for changes in resolution strategies, or as a result of any deterioration in the quality of our loan and lease 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
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materially adversely affect our financial condition and results of operations. Future provisions for loan losses may vary materially
from the amounts of past provisions.
Effective January 1, 2020, the Company was required to and has adopted Accounting Standards Update 2016-13, “Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (commonly referred to as Current
Expected Credit Losses, or CECL) that changed the approach to recognizing credit losses from an “incurred loss” methodology. Under
the incurred loss methodology, credit losses were recognized only when the losses were probable or had 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. While the standard does not impact actual losses, it does
accelerate the timing of the recognition of losses and adds additional uncertainty and potential volatility with added length of forecast
period and additional assumptions such as prepayment speeds and funding of lending commitments not previously impacting the
allowance. Changes in forecast assumptions may result in an unfavorable impact to our results of operations and our capital level.
We depend on the accuracy and completeness of information about clients and counterparties.
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.
We are subject to a variety of risks in connection with any sale of loans we may conduct.
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
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
A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses,
result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses.
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. We have recently and plan to continue to make investments in new technologies for sales
and service, including mobile and online banking, as well as teller, customer service and loan origination platforms. These new
technologies and/or operational changes may lead to increased operational risk. 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
to be appropriate 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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Our operational and communications systems and infrastructure may fail or may be the subject of a breach or cyber-attack that, if
successful, could adversely affect our business and disrupt business continuity.
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
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.
We, or third-parties from whom we license critical information technology systems, may be alleged to have infringed upon
intellectual property rights owned by others.
Competitors or other third parties may allege that we, or consultants or other third parties retained or indemnified by us or from whom
we license critical information technology systems, infringe on their intellectual property rights. Given the complex, rapidly changing
and competitive technological and business environment in which we operate, and the potential risks and uncertainties of intellectual
property-related litigation, an assertion of an infringement claim against us or our vendors may cause us to spend significant amounts
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to defend the claim (even if we ultimately prevail); to pay significant money damages; to lose significant revenues; to be prohibited
from using the relevant systems, processes, technologies or other intellectual property; to cease offering certain products or services or
to incur significant license, royalty or technology development expenses. Moreover, it has become common in recent years for
individuals and groups to purchase intellectual property assets for the sole purpose of making claims of infringement and attempting to
extract settlements from companies like ours. Even in instances where we believe that claims and allegations of intellectual property
infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the
diversion of time and attention of our management and employees. In addition, although in some cases a third party may have agreed
to indemnify us for such costs, such indemnifying party may refuse, or be unable, to uphold its contractual obligations.
We must attract and retain skilled personnel.
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.
Natural and man-made disasters could affect our ability to operate.
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. Climate change may be
increasing the nature, severity and frequency of adverse weather conditions, making the impact from these types of natural disasters
on us or our customers worse.
We rely on the existence of, and ability of private and public insurance programs to provide coverage for these types of events. The
unavailability of these types of coverage or the inability of these entities to perform could have a materially adverse impact on our
operations.
Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on
our customers.
Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to
mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. The
Company and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting
from climate change concerns. We and our customers may face cost increases, asset value reductions, operating process changes, and
the like. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon
intensive activities. Among the impacts to the Company could be a drop in demand for our products and services, particularly in
certain sectors. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets
securing loans. Our efforts to take these risks into account may not be effective in protecting us from the negative impact of new laws
and regulations or changes in consumer or business behavior.
We are exposed to reputational risk.
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. Negative public opinion can
also result from action or inaction related to environmental, social and corporate governance matters. 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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Employee misconduct could expose us to significant legal liability and reputational harm.
We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our customers are
of critical importance. Our employees could engage in fraudulent, illegal, wrongful or suspicious activities, and/or activities resulting
in consumer harm that adversely affects our customers and/or our business. The precautions we take to detect and prevent such
misconduct may not always be effective and regulatory sanctions and/or penalties, serious harm to our reputation, financial condition,
customer relationships and ability to attract new customers. In addition, improper use or disclosure of confidential information by our
employees, even if inadvertent, could result in serious harm to our reputation, financial condition and current and future business
relationships. The precautions we take to detect and prevent such misconduct may not always be effective.
Returns on pension plan assets may not be adequate to cover future funding requirements.
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.
The value of our goodwill and other intangible assets may decline in the future.
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 significant loss of core deposits,
customer relationships acquired in our trust and asset management transaction, losses of acquired 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. While an impairment charge does not impact regulatory capital, it could have a material
adverse effect on our results of operations.
Risks Related to Our Business Strategy
We are subject to industry competition which may have an impact upon our success.
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,
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 has and will continue to 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.
The implementation of other new lines of business or new products and services may subject us to additional risk.
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
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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.
Our future growth and financial performance may be negatively affected if we are unable to successfully execute our growth
plans, which may include acquisitions and de novo branching.
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.
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, in order execute most acquisition
transactions. 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 may explore 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:
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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.
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We have experienced, to some extent, many of these risks with our de novo branching to date.
Changes in retail distribution strategies and consumer behavior may adversely impact our investments in bank premises,
equipment, technology and other assets and may lead to increased expenditures to change our retail distribution channel.
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
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
We are subject to regulation by various federal and state entities.
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.
Changes in accounting policies or in accounting standards could materially affect how we report our financial condition and
results of operations.
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 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.
We and other financial institutions have been the subject of litigation, investigations and other proceedings which could result in
legal liability and damage to our reputation.
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
28
disclosure controls and procedures or other relief. 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
Future issuances of equity securities could dilute the interests of holders of our common stock, and our common stock ranks
junior to indebtedness.
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.
Our ability to deliver and pay dividends depends primarily upon the results of operations of our subsidiary Bank, and we may not
pay, or be permitted to pay, dividends in the future.
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.
Mississippi law, and anti-takeover provisions in our amended articles of incorporation and bylaws could make a third-party
acquisition of us difficult and may adversely affect share value.
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.
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.
29
Shares of our common stock are not insured deposits and may lose value.
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.
Securities analysts might not continue coverage on our common stock, which could adversely affect the market for our common
stock.
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.
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 217 full service banking and financial services offices and 288 automated teller machines across our market,
primarily in the Gulf south corridor, including southern Mississippi; southern and central Alabama; southern, central and northwest
Louisiana; the northern, central, and panhandle regions of Florida; and certain areas of east Texas, including Houston, Beaumont and
Dallas, among others. 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 $0.1 million in our operating results in 2019.
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
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
PART II
Market Information
The Company’s common stock trades on the NASDAQ Global Select Market under the ticker symbol “HWC.” There were 8,754
active holders of record of the Company’s common stock at January 31, 2020 and 87,236,434 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, 2014 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.
(cid:21)(cid:24)(cid:19)
(cid:21)(cid:19)(cid:19)
(cid:20)(cid:24)(cid:19)
(cid:20)(cid:19)(cid:19)
(cid:24)(cid:19)
(cid:19)
(cid:21)(cid:19)(cid:20)(cid:23)
(cid:21)(cid:19)(cid:20)(cid:24)
(cid:21)(cid:19)(cid:20)(cid:25)
(cid:21)(cid:19)(cid:20)(cid:26)
(cid:21)(cid:19)(cid:20)(cid:27)
(cid:21)(cid:19)(cid:20)(cid:28)
Hancock Whitney Corporation
KBW Regional Banks Index
NASDAQ Composite-Total Return
31
Equity Compensation Plan Information
The following table provides information as of December 31, 2019 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
Equity compensation plans not approved by
security holders
Total
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)
214,006 (1) $
6,891 (3)
220,897
30.84 (2)
46.04 (3)
399,831
—
399,831
(1)(cid:3)
(2)(cid:3)
(3)(cid:3)
Includes 67,426 shares potentially issuable upon the vesting of outstanding restricted share units and 11,826 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 113,100
performance share awards at 100% of target. If the highest level of performance conditions is met, the total performance shares issued would be 220,700 and the
total performance share units issued would be 23,652.
The weighted average exercise price relates only to the exercise of outstanding options included in column (a)
Represents securities to be issued upon the exercise of options that were assumed by the Company in the acquisition of MidSouth Bancorp, Inc.
Issuer Purchases of Equity Securities
On September 23, 2019, the Company’s board of directors approved a new stock buyback program that authorizes the Company to
repurchase up to 5.5 million shares of our common stock through the expiration date of December 31, 2020. The program allows the
Company to repurchase its common shares in the open market, by block purchase, through accelerated share repurchase programs, in
privately negotiated transactions, or as otherwise determined by the Company in one or more transactions. 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.
On October 18, 2019, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC
(“Morgan Stanley”) to repurchase $185 million of the Company’s common stock. Pursuant to the ASR agreement, the Company made
a $185 million payment to Morgan Stanley on October 21, 2019, and received from Morgan Stanley an initial delivery of
approximately 3.6 million shares of our common stock, which represented 75% of the estimated total number of shares to be
repurchased based on the October 18, 2019 closing price of our common stock. The final number of shares to be repurchased will be
based generally on the volume-weighted average price per share of common stock during the term of the ASR agreement, less a
discount, and subject to possible adjustments in accordance with the terms of the ASR agreement. Final settlement of the ASR
agreement is scheduled to occur no later than the third quarter of 2020.
Under a prior Board approved stock buyback program in place from May 2018 to September 2019, the Company repurchased 200,000
shares of its common stock at an average price of $41.30 per share.
Common stock repurchase activity during the fourth quarter of 2019 was as follows:
Oct 1, 2019 - Oct 31, 2019
Nov 1, 2019 - Nov 30, 2019
Dec 1, 2019 - Dec 31, 2019
Total
Total Number of
Shares of Units
Purchased
Average Price Paid
Per Share
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
3,611,870 $
—
—
3,611,870 $
38.42
—
—
38.42
3,611,870
—
—
3,611,870
1,888,130
1,888,130
1,888,130
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. “Reconciliation of non-GAAP measures.”
Appear later in this item.
(in thousands, except per share data)
Income Statement:
Interest income
Interest income (te) (a) (b)
Interest expense
Net interest income (te) (a) (b)
Provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
For informational purposes only:
Nonoperating items, pretax
2019
Years Ended December 31,
2017
2016
2018
2015
47,708
$ 1,125,782 $ 1,028,268 $ 900,581 $ 732,167 $ 679,646
1,140,556 1,044,445 934,971 758,006 693,234
230,565 179,430 108,269
54,472
909,991 865,015 826,702 684,955 638,762
73,038
315,907 285,140 267,781 250,781 237,284
770,677 715,746 692,691 612,315 619,655
392,739 382,116 308,434 186,923 169,765
38,304
$ 327,380 $ 323,770 $ 215,632 $ 149,296 $ 131,461
58,968 110,659
36,116
37,627
73,051
58,346
65,359
92,802
Nonoperating noninterest (income)
Merger-related costs
Other nonoperating expense
Impact of re-measurement of deferred tax asset (c)
$
— $
32,666
—
—
541 $
6,187
22,756
—
(4,352 ) $
19,370
9,103
19,520
— $
—
4,978
—
(333 )
—
16,241
—
Common Share Data:
Earnings per share:
Basic earnings per share
Diluted earnings per share
Cash dividends paid
Book value per share (period-end)
Tangible book value per share (period-end)
$
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
3.72 $
3.72
1.08 (cid:3)(cid:3)
39.62
28.63
3.72 $
3.72
1.02 (cid:3)(cid:3)
35.98
25.62 (cid:3)(cid:3)
2.49 $
2.48
0.96 (cid:3)(cid:3)
33.86
24.05 (cid:3)(cid:3)
1.87 $
1.87
0.96
32.29
23.87
1.64
1.64
0.96
31.14
21.74
(a)(cid:3)
(b)(cid:3)
Interest income includes the net impact of discount accretion and premium amortization arising from business combinations totaling $23.2 million, $23.1
million, $28.3 million, $19.3 million and $35.1 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.
For analytical purposes, management adjusts interest income and net interest income for tax-exempt items to a taxable equivalent basis using a federal income
tax rate of 21% for the years 2019 and 2018 and 35% for all other periods presented.
(c)(cid:3)
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
2019
At and For the Years Ended December 31,
2016
2017
2018
2015
55,864
28,150
34,064
78,177
39,865
92,384
110,229
111,094
(191,251 )
962,260
(194,514 )
887,123
(229,418 )
708,950
(217,308 )
836,163
$ 21,212,755 $ 20,026,411 $ 19,004,163 $ 16,752,151 $ 15,703,314
20,434
6,243,313 5,670,584 5,888,380 5,017,128 4,463,792
565,555
27,622,161 25,836,239 25,024,792 21,881,520 20,753,095
(181,179 )
728,731
2,207,587 1,707,059 1,692,439 1,614,250 1,532,958
$ 30,600,757 $ 28,235,907 $ 27,336,086 $ 23,975,302 $ 22,833,605
$ 8,775,632 $ 8,499,027 $ 8,307,497 $ 7,658,203 $ 7,276,127
8,845,097 8,000,093 8,181,554 6,910,466 6,767,881
3,364,416 3,006,516 3,040,318 2,563,758 2,253,645
2,818,430 3,644,549 2,723,833 2,291,839 2,051,259
15,027,943 14,651,158 13,945,705 11,766,063 11,072,785
23,803,575 23,150,185 22,253,202 19,424,266 18,348,912
2,714,872 1,589,128 1,703,890 1,225,406 1,423,644
490,145
157,761
3,467,685 3,081,340 2,884,949 2,719,768 2,413,143
$ 30,600,757 $ 28,235,907 $ 27,336,086 $ 23,975,302 $ 22,833,605
436,280
169,582
305,513
188,532
224,993
190,261
233,462
381,163
41,680
25,710
28,777
21,920
190,965
163,287
363,077
380,294
(196,125 )
906,775
(214,452 )
859,498
(217,550 )
718,592
(223,416 )
806,900
$ 20,380,027 $ 19,378,428 $ 18,280,885 $ 16,064,593 $ 14,433,367
18,101
5,864,228 6,020,947 5,442,829 4,706,482 4,208,195
513,659
26,476,900 25,588,372 24,108,711 21,180,146 19,173,322
(133,470 )
740,666
1,937,899 1,522,390 1,548,556 1,497,445 1,464,502
$ 29,125,449 $ 27,755,808 $ 26,240,751 $ 23,178,633 $ 21,245,020
$ 8,255,859 $ 8,095,256 $ 7,777,652 $ 7,232,221 $ 6,195,234
8,274,604 7,946,765 7,746,220 6,772,364 6,877,394
3,078,073 2,849,297 2,664,929 2,261,659 1,844,802
3,690,768 3,275,680 2,642,781 2,390,081 2,207,359
15,043,445 14,071,742 13,053,930 11,424,104 10,929,555
23,299,304 22,166,998 20,831,582 18,656,325 17,124,789
1,942,144 2,190,772 2,006,896 1,412,194 1,025,133
478,078
174,233
3,302,696 2,932,263 2,806,868 2,463,067 2,442,787
$ 29,125,449 $ 27,755,808 $ 26,240,751 $ 23,178,633 $ 21,245,020
469,064
177,983
384,127
211,278
266,870
198,905
233,539
347,766
(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
Asset Quality Information:
Nonaccrual loans (c)
Restructured loans – still accruing
Total nonperforming loans
Other real estate (ORE) and foreclosed assets
Total nonperforming assets
Accruing loans 90 days past due (d)
Net charge-offs
Allowance for loan losses
Reserve for unfunded commitments
Allowance for credit losses
Total provision for credit 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 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
2019
Years Ended December 31,
2017
2016
2018
2015
1.12 %
9.91 %
13.66 %
4.31 %
0.87 %
3.44 %
25.77 %
58.50 %
87.47 %
4,136
11.33 %
8.45 %
8.76 %
10.50 %
11.90 %
1.17 %
11.04 %
15.62 %
4.08 %
0.70 %
3.38 %
24.79 %
57.77 %
87.42 %
3,933
10.91 %
8.02 %
8.67 %
10.48 %
11.99 %
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 %
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 %
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 %
39,818
26,270
30,405
61,265 139,042 120,493
$ 245,833 $ 187,295 $ 252,800 $ 317,970 $ 159,713
4,297
307,098 326,337 373,293 357,788 164,010
27,133
$ 337,503 $ 352,607 $ 400,835 $ 376,731 $ 191,143
6,582
7,653
$
$
$
$
17,821
46,997
$ 181,179
$ 191,251
—
3,974
$ 181,179
$ 195,225
73,038
$
3,039
$
$
58,463
$ 229,418
—
$ 229,418
5,589
$
$
52,262
$ 194,514
—
$ 194,514
27,766
$
$
68,552
$ 217,308
—
$ 217,308
58,968 $ 110,659 $
27,542
36,116 $
47,708 $
18,943
1.59 %
1.76 %
2.11 %
2.25 %
1.22 %
0.03 %
0.03 %
0.15 %
0.02 %
0.05 %
1.62 %
0.23 %
0.90 %
1.79 %
0.27 %
0.97 %
2.25 %
0.38 %
1.14 %
2.26 %
0.37 %
1.37 %
1.26 %
0.11 %
1.15 %
60.97 %
58.60 %
54.18 %
63.58 %
105.54 %
(a)(cid:3)
(b)(cid:3)
(c)(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 $132.5 million, $85.5 million, $99.2 million, $81.9 million and $8.8 million of nonaccruing restructured loans at December 31,
2019, 2018, 2017, 2016 and 2015, respectively. Nonaccrual loans and accruing loans past due 90 days or more do not include purchased credit impaired loans,
which were written down to fair value upon acquisition and accrete interest income over the remaining life of the loan.
(d)(cid:3)
Excludes 90+ accruing troubled debt restructured loans already reflected in total nonperforming loans of $8.7 million at December 31, 2018.
35
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)
$
$
$
$
2019
2018
Years Ended December 31,
2017
2016
2015
895,217 $
315,907
1,211,124 $
14,774
—
1,225,898 $
(770,677 )
32,666
848,838 $
285,140
1,133,978 $
16,177
541
1,150,696 $
(715,746 )
28,943
792,312 $
267,781
1,060,093 $
34,390
(4,352 )
1,090,131 $
(692,691 )
28,473
659,116 $
250,781
909,897 $
25,839
—
935,736 $
(612,315 )
4,978
625,174
237,284
862,458
13,588
—
876,046
(619,655 )
15,908
487,887
$
463,893 $
425,913 $
328,399 $
272,299
Operating earnings per share - diluted
(in thousands, expect per share amounts)
Net Income
Net income allocated to
participating securities
Net income available to
common shareholders
Nonoperating items, net of
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
$
$
$
$
$
2019
2018
Years Ended December 31
2017
2016
2015
327,380 $
323,770 $
215,632 $
149,296 $
131,461
(5,546 )
(5,930 )
(4,670 )
(3,598 )
(3,128 )
321,834
$
317,840 $
210,962 $
145,698 $
128,333
25,806
—
(435 )
23,546
15,679
3,236
10,340
—
19,520
—
(439 )
(731 )
(82 )
—
(233 )
347,205
$
340,947 $
245,430 $
148,852 $
138,440
86,599
3.72 $
85,521
3.72 $
84,963
2.48 $
77,949
1.87 $
78,307
1.64
4.01
$
3.99 $
2.89 $
1.91 $
1.77
(a) Taxable equivalent (te) amounts are calculated using a federal income tax rate of 21% for 2019 and 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, 2019 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 2019 and 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
Our 2019 results reflect another year of growth and strong performance as year-over-year earnings increased, assets exceeded $30
billion, and both commercial criticized and total nonperforming loans declined. Capital remains strong with our tangible common
equity ratio up 43 bps for the year to 8.45%. Loans at December 31, 2019 totaled $21.2 billion, up $1.2 billion or 6%, in line with
guidance and net of a strategic reduction in energy lending. Deposits totaled $23.8 billion, up $653.4 million or 3% for the year. Our
net interest margin for 2019 was up 6 bps to 3.44%, as management focused on improving loan yields and reducing deposit costs. We
have invested in technology that enhanced digital platforms for both online and mobile banking, aimed at improving client retention
and sales efficiencies. We remain focused on building upon the positive momentum from 2019 while also looking to capitalize on
opportunities in our markets.
Acquisitions and Divestiture
On September 21, 2019, we completed the acquisition of MidSouth Bancorp, Inc. (“MidSouth”) (NYSE: MSL), parent company of
MidSouth Bank, N.A, with simultaneous operational conversion. We acquired net assets of approximately $130 million, including
loans totaling $788 million, net of a $42 million discount; cash, short-term investments and securities available for sale totaling $581
million; and deposits of $1.3 billion, which includes $390 million of noninterest-bearing deposits.
In consideration for the net assets acquired, each outstanding share of MidSouth common stock converted to 0.2952 shares of our
common stock. As such, we issued approximately 5.0 million shares resulting in a transaction value of approximately $194 million.
37
The transaction resulted in goodwill of $63 million. Upon acquisition, we closed or consolidated 20 MidSouth branches. The
Company incurred acquisition-related expenses of $33 million, or $0.29 per diluted share. The transaction was accretive to income
beginning in the fourth quarter of 2019. The transaction provides the opportunity for both enhanced growth in several of our current
markets, such as MidSouth’s home market of Lafayette, Louisiana, as well as opportunities for expansion into new markets in
Louisiana and Texas.
On July 13, 2018, we completed the acquisition of the trust and asset management business from Capital One, National Association
(“Capital One”). The combination increased our assets under administration at the merger date to $26 billion and our assets under
management to $10 billion. In addition, we assumed approximately $217 million of customer deposit liabilities.
On March 9, 2018, we sold our consumer finance subsidiary, Harrison Finance Company, due to a change in corporate strategy. We
received cash of approximately $79 million and recorded a loss on the sale of $1 million.
For additional information on these transactions, refer to Note 2 – Acquisitions and Divestitures in Item 8. “Financial Statements and
Supplementary Data.”
Current Economic Environment and Near Term Outlook
Most of our market areas experienced a modest to moderate expansion in economic activity during 2019, according to the Federal
Reserve’s Summary of Commentary on Current Economic Conditions (“Beige Book”).
Manufacturing reported moderate to decelerating demand, however, optimism for the future increased. The demand for commercial
real estate was strong to steady during 2019 in most of our footprint. Most of our sectors experienced positive metrics as rents
continued to grow and vacancies trended downward at a modest pace, however, activity in the office market in Houston was mixed.
Activity in the energy sector expanded at the beginning of the year, began to slow during the year, and ended the year with a slight
uptick. The industry remains distressed, and access to capital is limited, especially for smaller firms, and bankruptcies are likely to
rise. However, U.S. crude oil production is projected to grow in 2020. The Company continues to proactively reduce its energy
exposure in light of current conditions.
The residential real estate market experienced growth during 2019, with lower mortgage rates during the year driving increases in
demand, firm price appreciation, and higher single-family sales than the previous year.
Retail sales and consumer spending activity for 2019 ended somewhat positive in most of our footprint, with an increase in retail sales
and flat to improving auto sales. Online sales continue to dominate overall sales activity. Tourism was strong over the holiday season
and the outlook remains positive with healthy advance bookings. Overall, the retail outlook improved towards the end of the year.
Financial services in our markets reported healthy loan demand and overall improving asset quality, consistent with trends in most of
our portfolios. Reduced uncertainty related to tariffs and trade generally increased optimism for the future. We believe we are
positioned for continued growth in 2020.
Highlights of 2019 Financial Results
Net income for the year ended December 31, 2019 was $327.4 million compared to $323.8 million in 2018, with earnings per diluted
common share unchanged at $3.72. Following are financial highlights for the year ended December 31, 2019:
(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)
(cid:120)(cid:3)
(cid:120)(cid:3)
Net income increased $3.6 million, or 1% over 2018, to $327.4 million and included $32.7 million of merger-related
expenses; net income of $323.8 million for 2018 included merger related expenses of $6.2 million and $23.3 of other
nonoperating items
Earnings per diluted common share was $3.72 for 2019, unchanged from 2018; excluding nonoperating items, earnings
per diluted common share was $4.01 for 2019 and $3.99 for 2018
Operating pre-provision net revenue was up $24 million, with an increase in operating revenue (te) of $75 million,
partially offset by an increase in operating expense of $51 million, compared to 2018
Net interest margin for 2019 was 3.44%, an increase of 6 bps from 2018
Tangible common equity ratio was up 43 bps to 8.45%, compared to 8.02% at year-end 2018
Loans totaled $21.2 billion, up $1.2 billion, 6%, and in line with guidance; deposits totaled $23.8 billion, up $653 million,
or 3%
Criticized commercial loans declined $45 million, or 7%; nonperforming loans declined by $19 million, or 6%
Total assets at December 31, 2019 were $30.6 billion, up $2.4 billion, or 8%, from December 31, 2018
Completed the acquisition of Midsouth Bancorp, Inc. (“MSL”) on September 21, 2019, with a simultaneous systems
conversion
38
(cid:120)(cid:3)
Board approved increased buyback authorization to 5.5 million shares and executed an accelerated share repurchase
agreement in October 2019
RESULTS OF OPERATIONS
The following is a discussion of results from operations for the year ended December 31, 2019 compared to December 31, 2018.
Refer to previously filed Annual Reports on Form 10-K Item 7: Management’s Discussion and Analysis of Financial Condition and
Results of Operations for discussion of prior year variances.
Net Interest Income
Net interest income was $895 million for the year ended December 31, 2019, up from $849 million in 2018. Net interest income 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 (te) using the statutory federal tax rate (21% for both 2019 and 2018, and 35% for 2017) on tax exempt items (primarily interest
on municipal securities and loans).
Net interest income (te) for 2019 totaled $910 million, a $45 million, or 5%, increase from 2018. The increase in 2019 net interest
income was largely volume driven, with a $0.9 billion, or 3%, increase in average earning assets partially offset by a $0.7 billion, or
4%, increase in interest-bearing liabilities, and also reflects an improved net interest margin.
The net interest margin is the ratio of net interest income (te) to average earning assets. The net interest margin increased 6 basis
points (bps) to 3.44% in 2019 from 3.38% in 2018, primarily due to an improving mix in average earning assets, with a higher level of
loans to earnings assets and a proactive strategy to remix our loan book towards more granular higher-yielding production, as well as
the late 2018 sale of lower-yielding securities available for sale as part of an investment portfolio restructure. The improving margin
also reflects our efforts to control deposit costs. Further, net interest recoveries increased $2.2 million in 2019, improving the net
interest margin by 1 bp. 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 4.31% in 2019, up 23 bps from 2018, driven primarily by a 23 bps increase in loan yield to
4.81% in 2019. The tax-equivalent yield on the investment securities portfolio increased 9 bps from 2018 to 2.62%. 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 $1.6 billion for the year ended December 31, 2019
compared to $1.1 billion in 2018.
The cost of funding earning assets increased 17 bps to 0.87% in 2019 from 0.70% in 2018 due largely to the Federal Reserve interest
rate increases during 2018, and to a lesser extent, promotional pricing campaigns aimed at attracting and retaining deposits. However,
the cost of funding earning assets began to decrease during the second half of 2019 as the Federal Reserve lowered rates three times
during that period. Total borrowing costs decreased 2 bps to 1.96% in 2019 with increased use of promotional rate federal home loan
bank borrowings. Interest-free funding sources, including noninterest-bearing deposits, funded 35% of average earning assets in 2019,
down from 36% in 2018.
39
TABLE 1. Summary of Average Balances, Interest and Rates (te) (a)
($ in millions)
Assets
Interest-Earnings Assets:
Commercial & real estate loans (te)
(a)
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 (te)
Other securities
Total investment
securities (te) (c)
Short-term investments
2019
Years Ended December 31,
2018
2017
Average
Balance
Interest
(d)
Rate
Average
Balance
Interest
(d)
Rate
Average
Balance
Interest
(d)
Rate
$ 15,289.6 $ 739.0 4.83 % $ 14,487.3 $ 655.0 4.52 % $ 13,751.0 $ 584.6 4.25 %
2,974.1 121.7 4.09 2,794.8 114.5 4.10 2,445.8 95.0 3.89
2,116.3 121.5 5.74 2,096.3 117.4 5.60 2,084.1 115.1 5.52
— (0.4 ) 0.0
20,380.0 981.0 4.81 19,378.4 888.2 4.58 18,280.9 794.3 4.35
21.9 0.9 3.88
(1.2 ) 0.0
1.3 0.0
1.9 4.50
0.9 3.68
41.7
25.7
—
—
134.1
3.1 2.30
142.6
3.2 2.22
128.1 2.7 2.11
4,821.6 122.3 2.54 4,927.2 119.1 2.42 4,327.8 96.2 2.22
968.1 37.0 3.82
18.8 0.4 1.92
28.2 3.12
0.1 3.79
30.1 3.18
0.1 2.62
904.4
4.1
947.6
3.6
5,864.2 153.7 2.62 6,021.0 152.5 2.53 5,442.8 136.3 2.50
363.1 3.5 0.95
4.0 2.07
2.8 1.70
191.0
163.3
Total earning assets (te)
26,476.9 1,140.6 4.31 % 25,588.4 1,044.4 4.08 % 24,108.7 935.0 3.88 %
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
2,844.6
(196.1 )
$ 29,125.4
2,381.9
(214.5 )
$ 27,755.8
2,355.5
(223.4 )
$ 26,240.8
60.1 0.73 % $ 7,946.8 $
73.7 2.00 3,275.7
54.2 1.76 2,849.3
$ 8,274.6 $
41.7 0.52 % $ 7,746.2 $ 29.4 0.38 %
3,690.8
51.9 1.59 2,642.8 28.0 1.06
37.1 1.30 2,664.9 19.2 0.72
3,078.0
15,043.4 188.0 1.25 14,071.8 130.7 0.93 13,053.9 76.6 0.59
501.7 0.6 0.12
35.0 2.02 1,505.2 15.1 1.01
384.1 16.0 4.16
12.6 4.73
456.0
28.6 1.98 1,734.8
266.9
11.4 4.87
493.3
1,448.9
233.5
2.6 0.52
1.1 0.23
Total interest-bearing liabilities
17,219.1 230.6 1.34 % 16,529.5 179.4 1.09 % 15,444.9 108.3 0.70 %
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
8,255.9
347.8
3,302.6
8,095.2
198.9
2,932.2
7,777.7
211.3
2,806.9
$ 29,125.4
$ 27,755.8
$ 26,240.8
$ 910.0 3.44
$ 865.0 3.38
$ 9,257.8
2.97 $ 9,058.9
0.87 %
3.00 $ 8,663.8
0.70 %
$ 826.7 3.43
3.18
0.45 %
(a)(cid:3)
(b)(cid:3)
(c)(cid:3)
(d)(cid:3)
Taxable equivalent (te) amounts are calculated using federal income tax rate of 21% for 2019 and 2018 and 35% for 2017.
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 $23.2 million, $23.1 million and $28.3 million for the years December 31, 2019, 2018, and
2017, respectively.
40
TABLE 2. Summary of Changes in Net Interest Income (te) (a) (b)
(in thousands)
Interest Income (te)
Commercial & real estate loans (te) (a)
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
Other securities
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
Total investment in securities (te) (d)
2019 Compared to 2018
Due to
Change in
Total
Increase
(Decrease)
2018 Compared to 2017
Due to
Change in
Total
Increase
(Decrease)
Volume
Rate
Volume
Rate
$ 37,389 $ 46,643 $ 84,032 $ 32,215 $ 38,107 $ 70,322
19,531
2,285
1,626
93,764
95
5,430
17,108
1,626
62,271
(47 )
(197 )
4,292
(2,502 )
48,236
247
7,337
(174 )
—
44,552
683
14,101
(14,823 )
—
31,493
142
7,140
4,118
(2,502 )
92,788
930
(59 )
(20 )
(79 )
318
152
470
(1,628 )
(1,357 )
16
(3,028 )
515
42,722
4,806
(590 )
46
4,242
664
53,389
3,178
(1,947 )
62
1,214
1,179
96,111
14,010
(676 )
(367 )
13,285
(2,515 )
42,405
8,906
(6,150 )
98
3,006
1,838
67,068
22,916
(6,826 )
(269 )
16,291
(677 )
109,473
1,784
7,142
3,173
12,099
95
(5,610 )
(1,615 )
4,969
16,587
14,683
13,904
45,174
1,405
(790 )
378
46,167
18,371
21,825
17,077
57,273
1,500
(6,400 )
(1,237 )
51,136
778
7,785
1,414
9,977
(59 )
2,665
(5,339 )
7,244
$ 37,753 $
7,222 $ 44,975 $ 35,161 $
11,565
16,165
16,462
44,192
539
17,215
1,971
63,917
12,343
23,950
17,876
54,169
480
19,880
(3,368 )
71,161
3,151 $ 38,312
(a)(cid:3)
(b)(cid:3)
(c)(cid:3)
(d)(cid:3)
Taxable equivalent (te) amounts are calculated using a federal income tax rate of 21% for 2019 and 2018 and 35% for 2017.
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 Credit Losses
The provision for credit losses was $48 million in 2019 compared to $36 million in 2018. The 2019 provision includes net charge-offs
of $47 million, or 0.23% of average loans outstanding, and a build of a $4 million reserve for unfunded lending commitments,
partially offset by a $3 million release of the allowance for funded loan losses. The provision in 2018 was comprised of net charge-
offs of $52 million, or 0.27% of average loans outstanding, partially offset by a reduction in the allowance for loan losses, primarily
related to the reserve for energy-related loans. The $5 million year over year decrease in net charge-offs is primarily attributable to an
$8 million decrease in energy net charge-offs. Non-energy net charge-offs increased $3 million from the prior period, including a $9
million fraud-related net charge-off of a lease financing facility in 2019.
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—
Allowance for Credit Losses” provides additional information on changes in the allowance for credit losses and general credit quality.
41
Noninterest Income
Noninterest income for 2019 totaled $316 million, a $31 million, or 11%, increase from 2018. Nearly all noninterest income
categories experienced increases in 2019, with significant increases in income from derivatives, bank card fees, trust fees, and
secondary mortgage fees. There was no nonoperating income in 2019. 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 $4.4 million gain on the sale of selected Hancock Horizon funds.
Table 3 presents, for each of the three years ended December 31, 2019, 2018 and 2017, the components of noninterest income, along
with the percentage changes between years. Table 4 presents nonoperating income by component for the years ended December 31,
2018 and 2017.
TABLE 3. Noninterest Income
($ 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
Net gains on sale of assets
Securities transactions
Income from bank-owned life insurance
Credit-related fees
Income from derivatives
Other miscellaneous 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 on sale of loans
Total net gain on portfolio restructure
Gain (loss) on sale of assets
Total nonoperating noninterest income
% Change
2018
% Change
2017
2019
$ 86,364
61,609
66,976
26,574
19,853
593
—
14,946
11,399
12,958
14,635
315,907
1 % $ 85,272
55,488
11
60,440
11
25,348
5
15,632
27
24,654
(98 )
(25,480 )
100
12,424
20
11,065
3
5,368
141
14,929
(2 )
285,140
11
3 % $ 83,166
44,538
25
53,779
12
23,741
7
15,209
3
7,478
230
—
n/m
11,473
8
11,140
(1 )
5,870
(9 )
11,387
31
267,781
6
2019
2018
2017
$
$
—
—
—
—
—
—
33,229
(25,480)
(7,145)
604
(1,145)
(541)
—
—
—
—
4,352
4,352
Service charges on deposit accounts were up $1.1 million, or 1%, from 2018 with increases in both business service charges and
consumer overdrafts, primarily due to the impact of MidSouth.
Trust fees totaled $61.6 million in 2019, a $6.1 million, or 11%, increase from 2018. The increase in trust fees is primarily due to the
acquisition of the trust and asset management business on July 13, 2018, partially offset by changes in market conditions. Trust assets
under management totaled $9.4 billion at December 31, 2019, compared to $8.6 billion at December 31, 2018.
Bank card and ATM fees totaled $67.0 million in 2019, up $6.5 million, or 11%, compared to 2018. Bank card and ATM fees include
income from credit card, debit card and ATM transactions, and merchant service fees. The growth over 2018 is the result of increased
card activity during 2019, due in part to the MidSouth acquisition late in the third quarter.
Investment and annuity fees and insurance commissions totaled $26.6 million in 2019 compared to $25.3 million in 2018. The $1.2
million, or 5%, increase is primarily due to increased investment sales, partially offset by a decrease in annuity sales.
Income from secondary mortgage operations totaled $19.9 million in 2019, up $4.2 million, or 27%, from a year earlier. Mortgage
loan production increased by approximately 7% in 2019 compared to 2018, and the percentage of loan production sold in the
secondary market increased 28%. We offer a full range of mortgage products to our customers and sell those that do not fit the rate
and liquidity risk profile of our held for investment portfolio. We typically sell longer-term fixed rate loans while retaining the
42
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.
Net gains on sales of assets were $0.6 million in 2019 compared to net gains of $24.7 million in 2018. Gains on sales of assets in
2018 included a gain of $33.2 million on the sale of Visa B shares, partially offset by a loss of $7.1 million on the sale of lower-
yielding loans. We had no net losses on securities transactions in 2019 compared to a loss of $25.5 million in 2018 on the sale of
lower-yielding securities as part of our securities portfolio restructure.
Income from bank-owned life insurance (“BOLI”) increased $2.5 million, or 20%, to $14.9 million. The increase was mainly due to
the income earned from a $37.9 million year-over-year increase in the average balance of insurance contracts outstanding, as well as
an increase in mortality benefits.
Income from our customer interest rate derivative program totaled $13.0 million in 2019, compared to $5.4 million in 2018. Increased
derivative income reflects increased customer interest rate swap sales due to the low rate environment. Derivative income can be
volatile and is dependent upon the composition of the portfolio, customer sales activity and market value adjustments due to market
interest rate movement.
Other miscellaneous income was $14.6 million in 2019, down $0.3 million, or 2%, compared to 2018. Other miscellaneous income is
comprised of various items, including $4.7 million of income from small business investment companies and FHLB stock dividends,
and syndication fees of $1.4 million.
Noninterest Expense
Noninterest expense for 2019 totaled $771 million, up $55 million, or 8%, compared to 2018. The largest individual components of
the increase in operating expense were personnel expense, data processing and other miscellaneous expense. These increases were
partially offset by a decrease in deposit insurance and regulatory fees. Explanations of the variances are discussed in more detail
below. Noninterest expense for 2019 includes $32.7 million in nonoperating expenses associated with the MidSouth acquisition.
Noninterest expense for 2018 includes $28.9 million in nonoperating expenses, including $12.0 million in brand consolidation
expenses, $6.2 million related to the trust and asset management acquisition, $3.3 million related to a bank-owned life insurance
restructure and a $3.5 million one-time incentive bonus.
Table 5 presents, for each of the three years ended December 31, 2019, 2018 and 2017, noninterest expense, along with the percentage
changes between years. Table 6 presents nonoperating expenses, included in noninterest expense (Table 5) by component for the same
periods.
TABLE 5. Noninterest Expense
($ 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 and foreclosed assets (income) expense
Advertising
Corporate value and franchise taxes
Entertainment and contributions
Telecommunications and postage
Printing and supplies
Travel expenses
Tax credit investment amortization
Other retirement expense
Other miscellaneous expense
Total noninterest expense
% Change
2018
% Change
2017
9 % $ 330,968
73,727
6
404,695
9
47,795
7
16,367
12
74,129
12
41,579
8
22,050
(5 )
31,423
(38 )
(2,985 )
(122 )
12,334
24
13,595
17
11,359
(5 )
14,659
—
5,548
(11 )
5,338
(1 )
5,166
(4 )
(18,661 )
(11 )
31,355
19
$ 715,746
8
3 % $ 320,096
71,817
3
391,913
3
47,869
(0 )
14,841
10
66,385
12
40,235
3
22,417
(2 )
29,627
6
(2,669 )
12
15,031
(18 )
12,797
6
8,260
38
14,686
—
5,138
8
5,043
6
4,850
7
(15,249 )
22
31,517
(1 )
$ 692,691
3
2019
$ 362,083
77,796
439,879
50,936
18,393
82,981
45,007
20,844
19,512
671
15,251
15,949
10,777
14,588
4,947
5,278
4,943
(16,561 )
37,282
$ 770,677
43
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
Printing and supplies
Other expense:
Loss on restructuring of bank-owned life insurance contracts
Write-down related to termination of FDIC loss share agreement
Other miscellaneous
Total other expenses
Total nonoperating expense
2019
2018
2017
7,506 $
789
675
1,092
7,075
130
2,581
538
5,413 $
1,172
1,782
3,572
7,236
2
756
1,184
—
—
12,280
12,280
32,666
$
3,302
—
4,523
7,825
28,943
$
3,662
452
325
974
9,681
(1,511 )
1,389
183
—
6,603
6,715
13,318
28,473
$
$
(cid:3)(cid:3) (cid:3)(cid:3)
Total personnel expense was up $35.2 million, or 9%, in 2019 compared to 2018 primarily due to merit increases, higher production
incentives, and additional operating and nonoperating personnel expense from the MidSouth acquisition and a full year of the trust and
asset management business that was acquired on July 13, 2018.
Total occupancy and equipment expenses increased $5.2 million, or 8%, in 2019 compared to 2018. This increase was primarily due
to higher costs in 2019 related to the MidSouth acquisition.
Data processing expense in 2019 was up $8.9 million, or 12%, from 2018. Excluding nonoperating items, data processing expense was
up $11.3 million, or 16%, primarily related to cost associated with new technology investments and higher card transaction processing
costs resulting from increased card activity and expenses related to MidSouth.
Professional services expense increased $3.4 million, or 8%, from 2018, primarily due to consulting and other professional fees related
to the implementation of new technology aimed at becoming more scalable, effective and efficient as well as additional expenses
related to MidSouth including transaction expenses and costs associated with integration.
Amortization of intangibles in 2019 totaled $20.8 million, a $1.2 million, or 5%, decrease from 2018 as a result of the accelerated
amortization methods used, offset by $1.0 million of core deposit intangible amortization related to the MidSouth acquisition and $0.9
million of customer intangibles related to a full year of the wealth and asset management business acquired July 13, 2018.
Deposit insurance and regulatory fees decreased $11.9 million, or 38%, from 2018 mainly due to a reduction in the risk-based deposit
insurance assessment fees and the elimination of the quarterly deposit insurance fund surcharge fees beginning with the fourth quarter
of 2018.
Other real estate and foreclosed asset expense was $0.7 million in 2019, compared to net gains on other real estate dispositions of $3.0
million in 2018. The 2018 gain was primarily related to the sale of one property.
Business development-related expenses (including advertising, travel, entertainment and contributions) were up $2.3 million, or 8%
from 2018. The increase was primarily related to the MidSouth acquisition.
Corporate value and franchise taxes were up $2.4 million, or 17%, to $15.9 million in 2019, also due to asset growth.
Noninterest expense in both 2019 and 2018 was reduced by a net credit in other retirement expense. The net credit was $2.1 million,
or 11%, lower in 2019, based on performance of pension plan assets.
All other expenses increased $5.0 million, or 9%, from 2018 primarily due to costs associated with the acquisition of MidSouth,
partially offset by higher 2018 losses of $3.3 million associated with the restructure of bank-owned life insurance contracts.
44
Income Taxes
We recorded income tax expense at an effective rate of 16.6% in 2019 and 15.3% in 2018. The effective tax rate in 2019 compared to
2018 was higher because 2018 included a $9.9 million income tax benefit from return to provision adjustments associated with various
tax reform related initiatives. We are currently forecasting an effective tax rate for both the first quarter and full year 2020 of
approximately 18%-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 years ended December 31,
2019 and 2018, and 35% for the year ended December 31, 2017.
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
2019
Years Ended December 31,
2018
2017
$
82,475
$
80,244
$
107,952
(2,840 )
(6,953 )
(500 )
(10,293 )
7,204
(10,435 )
(3,901 )
(842 )
1,895
(1,459 )
—
715
65,359
$
(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
$
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”) and Low-Income Housing
Tax Credit (“LIHTC”) programs. The investments generate tax 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 CDEs, 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 through 2019, we expect to realize benefits from federal and state tax
credits over the next three years totaling $7.5 million, $7.8 million and $8.6 million for 2020, 2021 and 2022, 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, 2019, we had a net deferred tax liability of $38 million, which is comprised of $148 million of deferred tax liabilities
offset against $110 million in deferred tax assets (net of state valuation allowance). Several factors are considered in determining the
recoverability of the deferred tax asset components, 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 $1.4 million valuation
allowance for state net operating losses.
45
BALANCE SHEET ANALYSIS
Investment Securities
Our investment in securities was $6.2 billion at December 31, 2019, compared to $5.7 billion at December 31, 2018. The investment
securities 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, 2019, the amortized cost of securities available for sale totaled $4.6 billion and securities held to
maturity totaled $1.6 billion, compared to $2.8 billion and $3.0 billion, respectively, at December 31, 2018. During the fourth quarter
of 2019, we adopted Accounting Standards Update 2019-04 which permits, among other things, a one-time reclassification of debt
securities eligible to be hedged under the last-of-layer-method from held to maturity to available for sale. Upon adoption, we
transferred investment securities with an amortized cost of approximately $1.2 billion from the held to maturity portfolio to available
for sale portfolio. With this change, the investment portfolio allocation is 75% available for sale and 25% held to maturity.
Our securities portfolio consists mainly of residential and commercial mortgage-backed securities and collateralized mortgage-backed
securities that are issued or guaranteed by U.S. government agencies. We invest only in high quality investment grade securities and
manage the investment portfolio duration generally between two and five and a half years. At December 31, 2019, the average
expected maturity of the portfolio was 5.47 years with an effective duration of 4.16 years and a nominal weighted-average yield of
2.49%. Management simulations indicate that the effective duration would increase to 4.32 years with a 100 bp increase in the yield
curve and increase to 4.47 years with a 200 bp increase. 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%. The change in expected maturity,
effective duration, and nominal weighted-average yield is primarily related to reinvestment of securities portfolio cash flow and
growth during 2019. During 2019, we invested approximately $470 million in fixed rate commercial mortgage backed securities and
simultaneously entered into last-of-layer swaps on these assets.
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.
The amortized cost of securities at December 31, 2019 and 2018 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,
2019
2018
98,320
242,016
1,910,909
1,570,765
807,600
8,000
4,637,610
50,000
641,019
29,687
539,371
307,932
1,568,009
$
$
$
$
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
$
$
$
$
The amortized cost, fair value and yield of debt securities at December 31, 2019, 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.
46
The following table presents debt securities maturities by type at December 31, 2019:
TABLE 9. Debt Securities Maturities by Type
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
Contractual Maturity
$ — (cid:3)$
— (cid:3)$
— (cid:3)$
—
1,817
33,168
98,320 (cid:3)$
207,031
98,320 (cid:3)$
242,016
98,672
249,805
2.54 %
3.09 %
6.6
6.0
356
48,155
470,631
1,391,767
1,910,909
1,924,157
2.50 %
4.9
—
98,399
1,222,068
250,298
1,570,765
1,586,467
2.58 %
7.5
—
3,500
33,908
4,500
—
808,215
—
7,988
356 (cid:3)$ 151,871 (cid:3)$ 1,764,275 (cid:3)$ 2,721,108 (cid:3)$ 4,637,610 (cid:3)$ 4,675,304
363 (cid:3)$ 154,646 (cid:3)$ 1,778,398 (cid:3)$ 2,741,897 (cid:3)$ 4,675,304
2.41 %
3.65 %
773,692
—
807,600
8,000
2.48 %
2.51 %
2.79 %
$
$
2.01 %
4.32 %
2.48 %
2.7
3.4
5.5
$ 50,000 $
— $
— $
— $
50,000 $
—
37,908
221,556
381,555
641,019
50,003
668,096
1.68 %
3.15 %
0.1
5.8
—
—
—
29,687
29,687
30,570
3.22 %
4.7
—
102,101
437,270
—
539,371
551,264
2.70 %
7.2
—
—
311,071
$ 50,000 $ 140,009 $ 672,094 $ 705,906 $ 1,568,009 $ 1,611,004
$ 50,003 (cid:3) 141,929 (cid:3) 694,992 (cid:3) 724,080 (cid:3)$ 1,611,004
294,664
307,932
13,268
2.86 %
2.89 %
2.8
5.5
1.68 %
2.67 %
2.87 %
3.04 %
2.89 %
(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
Weighted Average Yield
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
Loan Portfolio
Total loans at December 31, 2019 were $21.2 billion, compared to $20.0 billion at December 31, 2018. The $1.2 billion, or 6%,
increase is primarily attributable to the MidSouth transaction, as well as organic growth. We saw a $164 million decrease in legacy
energy loans during 2019 and have targeted a continued reduction of our energy portfolio to a range of 2% to 4% of our total loan
portfolio, with a focus on retaining our full relationship clients. Management expects full year end of period growth percentage for
2020 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
2019
2018
December 31,
2017
2016
2015
$ 9,166,947 $ 8,620,601 $ 8,297,937 $ 7,613,917 $ 6,995,824
1,859,469
8,855,293
1,553,082
1,151,950
2,049,524
2,093,465
$ 21,212,755 $ 20,026,411 $ 19,004,163 $ 16,752,151 $ 15,703,314
2,738,460
11,905,407
2,994,448
1,157,451
2,990,631
2,164,818
2,457,748
11,078,349
2,341,779
1,548,335
2,910,081
2,147,867
2,142,439
10,440,376
2,384,599
1,373,421
2,690,472
2,115,295
1,906,821
9,520,738
2,013,890
1,010,879
2,146,713
2,059,931
47
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 $11.9 billion, or 56% of the total loan portfolio, at December 31, 2019, an increase of $0.8 billion
from December 31, 2018. Approximately half of the growth is related to the MidSouth transaction, with the remaining growth across
the entire footprint and in most specialty lines.
Our commercial and industrial customer base is diversified over a range of industries, including wholesale and retail trade in various
durable and nondurable products and the manufacture of such products, marine transportation and maritime construction, energy,
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, 2019 totaled approximately $2.2 billion, or
10% of total loans. Approximately $475 million of our shared national credits at December 31, 2019 were with energy-related
borrowers.
Loans outstanding to customers in energy-related industries totaled $1.0 billion at December 31, 2019, or 4.5% of total loans, down
$96 million compared to $1.1 billion at December 31, 2018. The decrease in energy-related loans resulted from net payoffs and
charge-offs, partially offset by new originations and $69 million of MidSouth acquired loans that are mostly comprised of customers
in the support service sector. At December 31, 2019, approximately $467 million, or 48%, of the energy portfolio was comprised of
customers engaged in exploration and production, transportation and storage activities. The remaining $496 million, or 52%, of the
portfolio was comprised of customers engaged in onshore and offshore services and products to support exploration and production
activities. As noted previously, we expect to continue to reduce our energy portfolio and have targeted a concentration level between
2% and 4% of the total loan portfolio. The reduction in the energy portfolio is expected to be offset with organic growth across our
entire footprint and in other specialty lines of business.
Commercial real estate – income producing loans totaled $3.0 billion at December 31, 2019, an increase of $652.7 million, or 28%,
from December 31, 2018. The increase reflects construction loans converting to permanent financing, coupled with $171 million
loans from the MidSouth acquisition, as well as organic growth. The increase was partially offset by approximately $595 million in
paydowns.
Construction and land development loans totaled approximately $1.2 billion at December 31, 2019, compared to $1.5 billion at
December 31, 2018, a decrease of $390.9 million, or 25%. The decrease was primarily due to construction and land development
loans converting to permanent financing.
Residential mortgages were up $80.6 million, or 3%, from December 31, 2018. The increase in mortgage loans is due primarily to the
transfer of loans from construction and land development, as well as the addition of approximately $35 million in MidSouth loans.
The increase was partially offset by increased paydowns and $45 million in loan sales during second quarter of 2019. Consumer loans
totaled $2.2 billion at December 31, 2019, an increase of $17.0 million, or 1%, compared to December 31, 2018.
48
The following tables provide detail of the more significant industry concentrations for our commercial and industrial loan portfolio,
which is based on NAICS codes, and property type concentrations of our commercial real estate - income producing portfolios.
TABLE 11. Commercial & Industrial Loans by Industry Concentration
($ in thousands)
Commercial & industrial loans:
Real estate and rental and leasing
Health care and social assistance
Retail trade (a)
Manufacturing (a)
Mining, quarrying, and oil and gas extraction (a)
Transportation and warehousing (a)
Public administration
Wholesale trade (a)
Construction
Finance and insurance
Professional, scientific, and technical services (a)
Accommodation and food services
Other services (except public administration)
Educational services
Other (a)
Total commercial & industrial loans
December 31,
2019
2018
Balance
Pct of
Total
Balance
Pct of
Total
$
1,420,736
1,144,369
1,098,787
1,008,904
842,644
833,739
774,401
754,547
724,646
677,500
520,990
456,141
452,702
342,544
852,757
$ 11,905,407
12 % $
10
9
8
7
7
7
6
6
6
4
4
4
3
7
1,326,146
1,120,799
937,971
877,950
1,016,870
717,746
814,442
602,052
643,932
605,663
462,984
385,958
436,390
359,997
769,449
100 % $ 11,078,349
12 %
10
8
8
9
7
7
6
6
6
4
3
4
3
7
100 %
(a)(cid:3)
The Company’s energy-related lending portfolio includes loans within each of these selected industry categories as the definition is based on source of revenue.
The energy-related lending portfolio totaled $1.0 billion and $1.1 billion at December 31, 2019 and 2018, respectively.
TABLE 12. Commercial Real Estate – Income Producing by Property Type Concentration
($ in thousands)
Commercial real estate - income producing loans:
Retail
Office
Industrial
Multifamily
Hotel/motel
Other
Total commercial real estate - income producing loans
December 31,
2019
2018
Balance
Pct of
Total
Balance
Pct of
Total
$
670,042
533,569
430,517
407,068
374,350
578,902
$ 2,994,448
22 % $
18
14
14
13
19
507,129
444,973
311,933
332,145
374,430
371,169
100 % $ 2,341,779
22 %
19
13
14
16
16
100 %
49
The following table shows average loans by category for each of the prior three years and the effective taxable equivalent yield the
percentage of total loans:
TABLE 13. Average Loans
($ in thousands)
Total loans:
Commercial & real estate loans
Residential mortgages
Consumer
Total loans
2019
Years Ended December 31,
2018
2017
Balance
Yield
(te)
Pct of
Total
Balance
Yield
(te)
Pct of
Total
Balance
Yield
(te)
Pct of
Total
$ 15,289,645 4.83 %
2,974,094 4.09
2,116,288 5.74
75 % $ 14,487,335 4.52 %
15
10
2,794,804 4.10
2,096,289 5.60
75 % $ 13,751,022 4.25 % 75 %
2,445,787 3.89
14
2,084,076 5.52
11
13
12
$ 20,380,027 4.81 % 100 % $ 19,378,428 4.58 % 100 % $ 18,280,885 4.35 % 100 %
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, 2019
(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
$ 2,341,282 $ 4,816,513 $ 2,009,152 $
991,857
5,808,370
1,741,356
409,377
43,613
643,938
9,166,947
2,738,460
11,905,407
2,994,448
1,157,451
2,990,631
2,164,818
$ 3,511,906 $ 8,646,654 $ 9,054,195 $ 21,212,755
1,547,980
3,557,132
750,979
473,717
2,883,319
1,389,048
198,623
2,539,905
502,113
274,357
63,699
131,832
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
Fixed Rate
December 31, 2019
Floating Rate
Total
$
$
3,018,102 $
1,751,380
4,769,482
940,142
470,121
1,855,098
811,633
8,846,476 $
3,807,563 $
6,825,665
788,457
2,539,837
4,596,020
9,365,502
1,552,193
2,492,335
412,973
883,094
1,071,834
2,926,932
2,032,986
1,221,353
8,854,373 $ 17,700,849
50
Nonperforming Assets
The following table sets forth nonperforming assets by type for the periods indicated, consisting of nonaccrual loans, troubled debt
restructurings 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 loans
Commercial non-real estate loans - restructured
Total commercial non-real estate loans
Commercial real estate - owner occupied
Commercial real estate - owner occupied -
restructured
Total commercial real estate - owner occupied loans
Commercial real estate - income producing loans
Commercial real estate - income producing loans -
restructured
Total commercial real estate - income producing
loans
Construction and land development loans
Construction and land development loans -
restructured
Total construction and land development loans
Residential mortgage loans
Residential mortgage loans - restructured
Total residential mortgage loans
Consumer loans
Consumer loans -restructured
Total consumer loans
Total nonaccrual loans
Restructured loans - still accruing:
Commercial non-real estate loans
Commercial real estate loans - owner occupied
Commercial real estate loans - income producing
Construction and land development loans
Residential mortgage loans
Consumer loans
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
2019
2018
December 31,
2017
2016
2015
$ 49,628
129,050
178,678
7,413
$ 26,617
84,036
110,653
16,682
$ 63,387
89,476
152,863
23,549
$ 170,703
78,334
249,037
13,433
$ 83,677
5,066
88,743
8,841
295
7,708
2,489
213
16,895
4,991
2,440
25,989
9,054
981
14,414
13,147
1,160
10,001
10,225
105
—
5,520
807
590
2,594
1,051
4,991
2,134
14,574
3,791
13,954
3,651
10,815
15,993
166
1,217
36,638
2,624
39,262
16,159
215
16,374
$ 245,833
$ 59,136
—
373
111
514
1,131
61,265
307,098
30,405
$ 337,503
$ 6,582
$ 193,720
12
2,146
34,594
1,272
35,866
16,744
—
16,744
$ 187,295
$ 130,075
7,286
398
9
546
728
139,042
326,337
26,270
$ 352,607
$ 5,589
$ 224,575
16
3,807
38,703
1,777
40,480
15,087
—
15,087
$ 252,800
$ 114,224
1,578
3,827
—
480
384
120,493
373,293
27,542
$ 400,835
$ 27,766
$ 219,722
898
4,549
22,815
851
23,666
12,350
—
12,350
$ 317,970
$ 32,887
493
5,939
—
259
240
39,818
357,788
18,943
$ 376,731
$ 3,039
$ 121,689
1,301
17,294
23,082
717
23,799
9,061
—
9,061
$ 159,713
$
—
1,638
2,473
20
106
60
4,297
164,010
27,133
$ 191,143
$ 7,653
$ 13,131
1.59 %
1.76 %
2.11 %
2.25 %
1.22 %
60.97 %
0.03 %
58.60 %
0.03 %
54.18 %
0.15 %
63.58 %
0.02 %
105.54 %
0.05 %
(a)(cid:3)
(b)(cid:3)
(c)(cid:3)
Nonaccrual loans and accruing loans past due 90 days or more do not include purchased 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 90+ accruing troubled debt restructured loans already reflected in total nonperforming loans of $8.7 million at December 31, 2018.
51
Nonperforming assets decreased $15.1 million, or 4%, in 2019 to $337.5 million at December 31, 2019. Nonperforming loans, which
include nonaccrual loans and TDRs still accruing, decreased $19.2 million from December 31, 2018. The decrease was primarily due
to a reduction in restructured accruing loans as a result of several paydowns of energy-related loans, partially offset by the downgrades
of few large energy-related and other non-energy C&I loans to nonaccrual status.
Loans modified in TDRs totaled $193.7 million at December 31, 2019 compared to $224.6 million at December 31, 2018, including
$132.5 million and $85.5 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 $61.3 million, or 20% of
nonperforming loans at December 31, 2019, down from $139.0 million, or 43% of nonperforming loans at December 31, 2018. The
$77.8 million decrease is mainly attributable to paydowns of energy-related loans.
Nonenergy-related nonperforming loans totaling $149.2 million at December 31, 2019 are spread across industries and geographies
and do not indicate any systemic risk in our portfolios. Our energy-related nonperforming loans totaled $157.9 million at December
31, 2019. 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 2020, assuming no significant changes in economic conditions.
Allowance for Credit Losses
The allowance for credit losses represents management’s estimate of probable credit losses inherent in the loan and lease portfolios
and related unfunded lending exposures 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, 2019, the allowance for credit losses was $195.2 million, consisting of $191.3 million in funded allowance for loan
losses and a $4.0 million reserve for unfunded lending commitments, compared to $194.5 million at December 31, 2018. The $0.7
million increase compared to December 31, 2019 is attributable to a $4.0 million increase in the reserve for unfunded lending
commitments in 2019 related to impaired reserves on letter of credit exposures, largely offset by a decrease in the funded allowance
for loan losses. The energy-related allowance for credit losses increased $5.9 million to $39.1 million at December 31, 2019, with the
allowance for loan losses comprising 3.3% of energy loans outstanding up from 3.1% at the prior year end. The increase in energy
reserves is due largely to impaired reserves on a few reserve-based lending credits. The non-energy allowance for credit losses
decreased $5.2 million to $156.1 million in 2019. The decline in the non-energy allowance is due in part to improving credit metrics
and continued strong credit performance in the construction and residential mortgage portfolios.
Criticized commercial loans totaled $580.7 million at December 31, 2019, down $44.9 million, or 7%, compared to December 31,
2018, which is net of a $29.8 million of the increase attributable to MidSouth loans which are covered by the purchased discount. The
decrease in commercial criticized loans includes $25.5 million attributable to the commercial nonenergy portfolio (net of $28.9
million increase from MidSouth), and $19.4 million attributable to the energy portfolio (net of $0.9 million increase from MidSouth).
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. Our commercial nonenergy criticized portfolio,
totaling $320.6 million at December 31, 2019 is comprised of loans that are diversified as to both industry and geography.
Commercial nonenergy criticized loans comprised 2.12% of that portfolio at December 31, 2019, down from 2.49% at December 31,
2018. At December 31, 2019, criticized loans in the energy portfolio were $260 million, or approximately 27% of that portfolio.
Energy-related loans delinquent for more than 30 days, including accrual and nonaccrual loans, totaled $60.1 million, or 6%, of the
energy portfolio at December 31, 2019.
The ratio of the allowance for loan losses as a percentage of period-end loans was 0.90% at December 31, 2019, compared to 0.97% at
December 31, 2018. The reduction in coverage is due in part to the addition of the acquired MidSouth loans with no carryover
allowance. The allowance coverage excluding the impact of MidSouth loans totaled 0.93% at December 31, 2019. The remaining
decline in coverage year-over-year is due largely to the sizable reduction in energy loan levels that are carried at a higher coverage
than the nonenergy portfolio along with overall improving credit metrics across both portfolios. Management believes the coverage
levels are consistent with the risk inherent in the portfolios. Should economic conditions and/or our resolution strategies change, the
level of reserves may need to be adjusted accordingly.
Net charge-offs during 2019 were $47.0 million, or 0.23%, of average total loans down from charge-offs of $52.3 million, or 0.27% of
average total loans, for the year ended December 31, 2018. Net charge-offs in 2019 included a $9.0 million net fraud related charge
for an equipment finance credit. Energy net charge-offs contributed $10.1 million, and $18.2 million to total losses for the years ended
December 31, 2019 and 2018, respectively. Commercial nonenergy net charge-offs increased $4.9 million during 2019 to $21.7
million, due primarily to the fraud-related equipment finance charge. Residential mortgage net charge-offs were $0.4 million
52
compared to a net recovery in 2018 of $1.6 million. Consumer net charge-offs were down $3.9 million in 2019 to $14.8 million. Net
losses from the consumer finance subsidiary sold in 2018 contributed $1.5 million to the reduction compared to the prior year.
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 Credit Losses
(in thousands)
Provision and Allowance for Credit Losses
Allowance for Loan Losses:
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
Reserve for Unfunded Lending Commitments:
Reserve for unfunded lending commitments at beginning
of period
Provision for losses on unfunded lending commitments
Reserve for unfunded lending commitments at end of
period
Total Allowance for Credit Losses
Total Provision for Credit Losses
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
2019
2018
December 31,
2017
2016
2015
$ 194,514
$ 217,308
$ 229,418
$ 181,179
$ 128,762
39,600
137
39,737
32
7
39,776
846
18,455
59,077
40,069
8,059
48,128
1,633
334
50,095
614
23,913
74,622
51,479
558
52,037
259
696
52,992
2,839
31,430
87,261
42,620
1,847
44,467
347
982
45,796
1,363
26,107
73,266
8,361
1,392
9,753
2,833
2,834
15,420
2,407
16,831
34,658
6,940
306
7,246
569
140
7,955
480
3,645
12,080
46,997
43,734
—
—
$ 191,251
14,385
317
14,702
221
96
15,019
2,179
5,162
22,360
52,262
36,116
(6,648 )
—
$ 194,514
7,526
848
8,374
988
1,603
10,965
1,064
6,680
18,709
68,552
58,968
—
(2,526 )
$ 217,308
4,084
749
4,833
991
2,086
7,910
895
5,998
14,803
58,463
110,659
—
(3,957 )
$ 229,418
5,046
2,634
7,680
763
3,089
11,532
771
4,534
16,837
17,821
73,038
—
(2,800 )
$ 181,179
—
3,974
—
—
—
—
—
—
—
—
$ 3,974
$ 195,225
$ 47,708
$
—
$ 194,514
$ 36,116
$
—
$ 217,308
$ 58,968
$
—
$ 229,418
$ 110,659
$
—
$ 181,179
$ 73,038
0.29 %
0.06 %
0.23 %
0.90 %
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 %
An allocation of the loan loss allowance by major loan category is set forth in the following table.
53
TABLE 18. Allocation of Allowance for Loan Losses by Category
2019
2018
December 31,
2017
2016
2015
($ in thousands)
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
Allowance
for Loan
Losses
$ 106,432
% 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
55 $ 97,752
50 $ 127,918
59 $ 147,052
64 $ 109,428
% of Total
Allowance
60
10,977
6
13,757
7
12,962
6
11,083
5
9,858
117,409
61 111,509
57 140,880
65 158,135
69 119,286
20,869
11
17,638
9
13,709
6
13,509
6
6,041
9,350
20,331
23,292
$ 191,251
5
11
12
15,647
23,782
25,938
100 $ 194,514
8
12
14
7,372
24,844
30,503
100 $ 217,308
4
11
14
6,271
25,361
26,142
100 $ 229,418
3
11
11
5,642
25,353
24,857
100 $ 181,179
6
66
3
3
14
14
100
Effective January 1, 2020, the Company was required to and has adopted Accounting Standards Update 2016-13, “Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” commonly referred to as Current
Expected Credit Losses or CECL, that changed the approach to recognizing credit losses from an incurred loss methodology to one
that recognizes 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. We expect the adoption of this guidance, pending final approval through our
governance process, to result in a $76.7 million increase in allowance for credit losses on January 1, 2020, comprised of increases in
the ALLL of $49.4 million and the reserve for unfunded lending commitments of $27.3 million, with $19.8 million of the ALLL
increase reclassified from the fair value mark for acquired impaired loans considered purchased credit deteriorated under the new
guidance, and resulting in a cumulative-effect adjustment to retained earnings (net of tax) of $44.1 million. For further discussion on
the standard and our methodology, see Note 1 – Summary of Significant Accounting Policies and Recent Accounting Pronouncements
in Item 8 – “Financial Statements and Supplementary Data” of this document.
Short-Term Investments
Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, decreased $0.9 million from
December 31, 2018 to a total of $110.2 million at December 31, 2019. Average short-term investments for 2019 totaled $191.0
million, a $27.7 million, or 17%, increase from 2018. 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 were $23.8 billion at December 31, 2019, up $653.4 million, or 3%, from December 31, 2018, which included the
impact of approximately $1.3 billion of deposits assumed from the MidSouth acquisition. Average deposits in 2019 of $23.3 billion
were up $1.1 billion, or 5% over 2018.
At December 31, 2019, noninterest-bearing demand deposits were $8.8 billion, up $276.6 million, or 3%, from December 31, 2018
which includes $390 million of noninterest-bearing demand deposits assumed in the MidSouth acquisition. Noninterest-bearing
demand deposits comprised 37% of total deposits at December 31, 2019 and 2018.
Interest-bearing transaction and savings accounts of $8.8 billion at December 31, 2019 increased $845.0 million, or 11%, from
December 31, 2018, with increase mainly attributable to deposits from the MidSouth acquisition.
Interest-bearing public fund deposits totaled $3.4 billion at December 31, 2019, up $357.9 million, or 12%, from December 31, 2018.
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 other than public funds totaled $2.8 billion at December 31, 2019, down $826.1 million, or 23%, from December 31,
2018. The decrease is driven primarily by a $1.1 billion decrease in brokered certificates of deposit, partially offset by an increase in
retail certificates of deposits. As part of our portfolio management, we replaced higher cost brokered certificates of deposit with lower
cost FHLB advances.
54
Table 19 sets forth average balances and weighted-average rates paid on deposits for each year in the three-year period ended
December 31, 2019, as well as the percentage of total deposits for each category. Table 20 sets forth the maturities of time certificates
of deposit greater than $250,000 at December 31, 2019.
TABLE 19. Average Deposits
($ 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
Balance
2019
Rate
Mix
Balance
2018
Rate
Mix
Balance
2017
Rate
Mix
$ 1,999.5 0.62 %
4,487.8 1.05
1,796.1 0.02
3,682.0 2.00
3,078.1 1.76
15,043.5 1.25 %
8.6 % $ 1,666.4 0.38 %
7.5 % $ 1,651.4 0.25 %
7.9 %
19.3
7.7
15.8
13.2
64.6
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 %
20.4
8.0
14.7
12.9
63.5
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 %
20.8
8.6
12.6
12.8
62.7
8,255.9
$ 23,299.4
35.4
8,095.2
100.0 % $ 22,167.0
36.5
7,777.7
100.0 % $ 20,831.6
37.3
100.0 %
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,
2019
382,665
427,192
428,645
133,024
1,371,526
$
$
Short-term borrowings totaled $2.7 billion at December 31, 2019, up $1.1 billion from December 31, 2018. Average short-term
borrowings for 2019 totaled $1.9 billion, down $248.6 million compared to 2018. Short-term borrowings are a core portion of the
Company’s funding strategy and can fluctuate depending on our funding needs and the sources utilized.
Table 21 sets forth balances of short-term borrowings for each of the past three years. Short-term borrowings consist of federal funds
purchased, securities sold under agreements to repurchase and borrowings from the FHLB. Customer repurchase agreements are a
source of customer funding. These agreements are offered mainly to commercial customers to assist them with their ongoing cash
management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for corporate or
investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, the amounts available
over time will vary.
55
TABLE 21. Short-Term Borrowings
($ 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
2019
Years Ended December 31,
2018
2017
$
$
$
$
195,450
49,297
202,933
1.60 %
2.30 %
484,422
493,344
518,042
0.54 %
0.52 %
$
$
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 %
$ 2,035,000
1,399,503
1,941,774
$ 1,160,104
1,694,804
2,410,258
$ 1,132,567
1,478,114
2,061,652
1.17 %
1.96 %
2.48 %
2.02 %
1.35 %
1.00 %
The $2.0 billion of FHLB borrowings at December 31, 2019 consists of two notes, one fixed and one variable rate, totaling
$775 million that mature in 2020; three fixed rate non-amortizing puttable notes totaling $800 million that mature in 2034 which are
classified as short-term as the FHLB has the option to put (terminate) the advance prior to maturity; and four variable rate notes
totaling $460 million that mature in 2025 to 2026. These four variable rate notes reset either monthly or quarterly and may be repaid at
our option either in whole or in part at par on any reset date, subject to advanced notice of no less than two days before the reset date
and therefore are included in short-term borrowings.
Long-Term Debt
Long-term debt at December 31, 2019 includes $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. 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.
Operating Leases
Effective January 1, 2019, the Company adopted the amended provisions of Financial Accounting Standards Codification Topic 842,
“Leases,” using the modified retrospective approach, impacting the reporting and disclosures for operating leases. The core principle
of Topic 842 is that a lessee should recognize in the statement of financial position a liability representing the present value of future
lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset over the lease term, as well
as the disclosure of key information about operating leasing arrangements. Upon adoption, the Company recorded 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. At
December 31, 2019, the right of use assets was $110.0 million, net of $12.2 million in accumulated amortization, and the lease
liability was $127.7 million. Accounting for leases in accordance with Topic 842 has not had a material impact upon our consolidated
results of operations, and is not expected to in future periods. Refer to Note 6 – Operating Leases for further information related to the
operating lease accounting policy, practical expedient elections for adoption and operating leasing information at adoption.
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.
56
Commitments to extend credit totaled $7.5 billion at December 31, 2019, of which $458.8 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.
Letters of credit totaled $393.3 million at December 31, 2019, of which approximately $62.0 million are to energy-related borrowers.
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. As of December 31, 2019, the Company has a reserve for unfunded lending commitments of $4.0 million.
The following table shows the commitments to extend credit and letters of credit at December 31, 2019 and 2018 according to
expiration date.
TABLE 22. Loan Commitments and Letters of Credit
(in thousands)
December 31, 2019
Commitments to extend credit
Letters of credit
Total
(in thousands)
December 31, 2018
Commitments to extend credit
Letters of credit
Total
ENTERPRISE RISK MANAGEMENT
Total
Less Than
1 Year
1-3
Years
3-5
Years
More Than
5 Years
Expiration Date
$ 7,530,143 $ 3,316,431 $ 1,811,564 $ 1,491,367 $
393,284
314,425
35,086
43,773
$ 7,923,427 $ 3,630,856 $ 1,846,650 $ 1,535,140 $
910,781
—
910,781
Total
Less Than
1 Year
1-3
Years
3-5
Years
More Than
5 Years
Expiration Date
$ 7,234,528 $ 3,297,301 $ 1,485,363 $ 1,542,817 $
365,498
280,114
36,633
48,751
$ 7,600,026 $ 3,577,415 $ 1,521,996 $ 1,591,568 $
909,047
—
909,047
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.
57
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.
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.
58
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 4.5% 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.
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 changes to 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.
59
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
promote 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 promote 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, 2019. Shifts are measured in 100 basis point increments in
a range from -500 to +500 basis points from base case, with -100 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
on the change in net interest income under a variety of interest rate scenarios are approved by the Board of Directors. 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)
- 100
+ 100
+ 200
+ 300
Estimated Increase
(Decrease) in NII
Year 1
Year 2
(3.22 ) %
3.13 %
5.92 %
8.58 %
(4.50 ) %
3.98 %
7.35 %
10.48 %
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
60
borrowers to service their debt may decrease in the event of an interest rate increase. All of these factors are considered in monitoring
exposure to interest rate risk.
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. At December 31, 2019, approximately 31% of our loan
portfolio consisted of variable rate loans tied to LIBOR, along with related derivatives and other financial instruments. During the
third quarter of 2019, the Company began transition activities by modifying documents to include pre-cessation fallback trigger
language in all new and renewed loan and derivative transactions that reference LIBOR. Our LIBOR transition team is continuing to
monitor developments and is taking steps to ensure readiness when the LIBOR benchmark rate is discontinued.
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.
As part of the overall asset and liability management process, liquidity management strategies and measurements have been developed
to manage and monitor liquidity risk.
TABLE 24. Liquidity Metrics
Free securities / total securities
Core deposits / total deposits
Wholesale funds / core deposits
Average loans / average deposits
2019
2018
2017
47.27 %
93.54 %
13.99 %
87.47 %
41.39 %
90.47 %
14.53 %
87.42 %
44.15 %
93.03 %
13.76 %
87.76 %
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 47.27% and 41.39%, respectively, at December 31,
2019 and 2018. Securities and FHLB letters of credit are pledged as collateral related to public funds and repurchase agreements. The
total pledged securities at December 31, 2019 were down $13 million compared to December 31, 2018.
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, 2019, deposits totaled
$23.8 billion, an increase of $0.7 billion, or 3%, from December 31, 2018. This increase was due largely to $1.3 billion in deposits
from the MidSouth transaction. 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 93.54% at December 31, 2019, compared to 90.47% to
December 31, 2018. Core deposits totaled $22.3 billion at December 31, 2019, an increase of $1.3 billion from December 31, 2018.
Brokered deposits totaled $0.2 billion as of December 31, 2019 compared to $1.2 billion at December 31, 2018. Maturing brokered
deposits in the fourth quarter of 2019 were replaced with lower cost, short-term FHLB advances. 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, 2019, the Bank had
borrowed $2.0 billion from the FHLB and had approximately $2.2 billion remaining available under this line. The Bank also has
unused borrowing capacity at the Federal Reserve’s discount window of approximately $2.6 billion. There were no outstanding
borrowings with the Federal Reserve at December 31, 2019 and December 31, 2018.
Wholesale funds, comprised of short-term borrowings, long-term debt and brokered deposits were 13.99% of core deposits at
December 31, 2019 and 14.53% at December 31, 2018. Wholesale funds totaled $3.1 billion at December 31, 2019, an increase of
$71.2 million from December 31, 2018. As previously discussed, core deposits at December 31, 2019 increased $1.3 billion
compared to December 31, 2018. 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 for each dollar of deposits on hand. Our average loan-to-deposit ratio was 87.47% for 2019 compared to 87.42% in 2018.
Management has established a target range for the loan to deposit ratio of 87% to 89%, which could be exceeded under certain
circumstances.
61
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 12 to the
consolidated financial statements, “Stockholders’ Equity.” The Parent targets cash and other liquid assets to provide liquidity in an
amount sufficient to fund approximately four quarters of anticipated common stockholder dividends, but will temporarily operate
below that level if a return to the target can be achieved in the near-term. On September 23, 2019, the Bank declared a special
dividend of $150 million to the Parent to assist in the completion of the MidSouth acquisition and provide additional liquidity for
approved share buyback program and other activity of the Parent.
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
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. 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, 2019, 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.
62
TABLE 25. Contractual Obligations
(in thousands)
Long-term debt obligations
Operating lease obligations
Purchase obligations
Total
CAPITAL RESOURCES
Payment due by period
1-3
Years
Total
Less Than
1 Year
More Than
5 Years
375,025
89,677
—
$ 764,590 $ 129,155 $ 106,588 $ 64,145 $ 464,702
$ 472,554 $ 35,286
16,382
77,487
35,367
31,498
39,723
26,876
25,850
11,419
163,407
128,629
3-5
Years
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 $3.5 billion at December 31, 2019 compared to $3.1 billion at December 31, 2018. The $386 million increase resulted
primarily from net income for the year of $327.4 million and a $126.0 million decrease in other comprehensive loss largely related to
the market adjustment on the available for sale securities portfolio and cash flow hedges, partially offset by $94.9 million in dividends
paid. On September 21, 2019, the Company issued approximately 5.0 million shares of common stock at $38.42 per share as
consideration in its acquisition of MidSouth. Refer to Note 2 – Acquisitions and Divestiture for more information regarding this
transaction. Shares issued as a part of the MidSouth acquisition were largely offset by shares repurchased through the accelerated
share repurchase agreement discussed below.
Our tangible common equity ratio was 8.45% at December 31, 2019, compared to 8.02% at December 31, 2018. The increase in the
tangible common equity ratio primarily due to net tangible retained earnings and net gains included in other accumulated
comprehensive loss, partially offset by growth in tangible assets. Management has established an internal target for the tangible equity
ratio of at least 8.00%; however, management will allow 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 with a short timeframe.
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
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 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 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, 2019 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.
At December 31, 2019, 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 12 – Stockholders’ Equity to the consolidated financial statements provides
additional information about the Bank’s regulatory capital ratios.
63
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
2019
2016
2017
$ 2,584,162 $ 2,391,762 $ 2,214,723 $ 2,184,812 $ 1,844,992
—
1,844,992
350,921
$ 2,929,387 $ 2,736,276 $ 2,582,031 $ 2,564,230 $ 2,195,913
$ 24,611,706 $ 22,814,154 $ 21,695,628 $ 19,404,265 $ 18,515,904
—
2,184,812
379,418
—
2,391,762
344,514
—
2,214,723
367,308
—
2,584,162
345,225
2015
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
8.76 %
8.67 %
8.43 %
9.56 %
8.55 %
10.50 %
10.50 %
11.90 %
11.33 %
8.45 %
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 %
In December 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to address the
implementation of CECL, which was effective January 1, 2020 for the Bank and Company. The final rule allows for 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. The Company has elected to use the optional three-year phase in method and has sufficient capital to cover the day
one impact of CECL. Based on the current expected impact of CECL as of January 1, 2020, and using the phase-in, the Company’s
day one leverage and common tier 1 equity capital ratios are reduced by 4 bps, with no impact to total risk-based capital as the
increased allowance for credit loss available for Tier 2 covers the reduction in equity. The Company’s tangible common equity ratio is
reduced by 14 bps. See further discussion of CECL and the impact of adoption in Note 1 – Summary of Significant Accounting
Policies and Recent Accounting Pronouncements in Item 8 – “Financial Statements and Supplementary Data” of this document.
The Company paid quarterly dividends $0.27 per share during 2019 for an annual cash dividend rate of $1.08 per share, up from $1.02
per share in 2018. The Company has paid uninterrupted quarterly dividends to shareholders since 1967.
STOCK REPURCHASE PROGRAM
On September 23, 2019, the Company’s board of directors approved a stock buyback program that authorizes the Company to
repurchase up to 5.5 million shares of its common stock through the expiration date of December 31, 2020. The program allows the
Company to repurchase its common shares in the open market, by block purchase, through accelerated share repurchase programs, in
privately negotiated transactions, or as otherwise determined by the Company in one or more transactions. 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.
On October 18, 2019, the company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC
(“Morgan Stanley”) to repurchase $185 million of the Company’s common stock. Pursuant to the ASR agreement, the Company made
a $185 million payment to Morgan Stanley on October 21, 2019, and received from Morgan Stanley on the same day an initial
delivery of approximately 3.6 million shares of the Company’s common stock, which represents approximately 75% of the estimated
total number of shares to be repurchased under the ASR agreement based on the October 18, 2019 closing price of the Company’s
common stock. The final number of shares to be repurchased will be based generally on the volume-weighted average price per share
of the Company’s common stock during the term of the ASR agreement, less a discount, and subject to possible adjustments in
accordance with the terms of the ASR agreement. Final settlement of the ASR agreement is scheduled to occur not later than the third
quarter of 2020.
Subsequent to December 31, 2019, the Company repurchased 315,851 shares of its common stock at a price of $40.26.(cid:3)
The Company had a prior Board-approved stock buyback program in place from May 2018 to September 2019. 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.
64
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 2019 was $92.1 million, or $1.03 per diluted common share, compared to $67.8 million, or $0.77,
in the third quarter of 2019 and $96.2 million, or $1.10, in the fourth quarter of 2018. The fourth quarter of 2019 included $3.9 million
($.03 per share after-tax impact) of nonoperating expenses related to the MidSouth acquisition. The third quarter of 2019 included
$28.8 million ($.26 per share impact) of nonoperating merger related costs and the fourth quarter of 2018 included $1.9 million ($.02
per share impact) of nonoperating items.
Highlights of our fourth quarter of 2019 results (compared to third quarter 2019):
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
•(cid:3)
Net income increased $24.3 million, or $0.26 per share
Excluding nonoperating merger costs of $3.9 million and $28.8 million in the fourth and third quarters of 2019,
respectively, earnings per share were up $.03 to $1.06 per share
Pre-tax pre-provision net revenue increased $0.6 million, with revenue up $9.8 million and operating expense up $9.2
million
Energy loans decreased $71 million to $963 million, or 4.5% of total loans
Criticized commercial loans declined $79 million, or 12%, with energy down $21 million and nonenergy down $58
million
Net interest margin (te) improved by 2 bps to 3.43%
Tangible common equity ratio was down 37 bps to 8.45%, with the decrease related to the accelerated share repurchase
agreement announced October 21, 2019
Total loans at December 31, 2019 were $21.2 billion, an increase of $177 million, or 1%, from September 30, 2019. Included in net
growth was a reduction of $71 million in energy credits. The Company’s net loan growth during the quarter was diversified across
most of the footprint and also in our specialty lines of business such as healthcare and equipment finance.
Total deposits at December 31, 2019 were $23.8 billion, down $398 million, or 2%, from September 30, 2019. The primary driver of
the fourth quarter decrease is a paydown of brokered deposits.
Noninterest-bearing deposits totaled $8.8 billion at December 31, 2019, up $89 million, or 1%, from September 30, 2019 and
comprised 37% of total deposits at December 31, 2019. Interest-bearing transaction and savings deposits totaled $8.8 billion at year-
end 2019, up $86 million, or 1%, compared to September 30, 2019.
Time deposits of $2.8 billion decreased $983 million, or 26%, from September 30, 2019. The decrease in time deposits reflects a
decrease in brokered time deposits of $876 million and a decrease in retail CDs of $106 million. As part of our portfolio management,
we replaced brokered time deposits at a rate of 2.40% with FHLB advances at a cost of 1.68%. Interest-bearing public fund deposits
increased $409 million, or 14%, to $3.4 billion at December 31, 2019. The increase in public funds is seasonal and primarily related to
year-end tax payments collected by local municipalities. Typically, these balances begin to runoff in the first quarter of each year.
The provision for loan losses recorded in the fourth quarter of 2019 was $9.2 million, down from $12.4 million in the third quarter of
2019. Net charge-offs were $9.5 million, or 0.18% of average total loans on an annualized basis in the fourth quarter of 2019,
compared to $12.5 million, or 0.25% of average total loans, for the third quarter of 2019.
Net interest income (te) for the fourth quarter of 2019 was $236.7 million, up $10.1 million from the third quarter of 2019. The
increase is a result of a higher level of average earning assets in the quarter, mainly due to the MidSouth acquisition, and a lower cost
of funds. The net interest margin (te) improved by 2 bps to 3.43% for the fourth quarter, driven by a full quarter of MidSouth and a
change in the borrowing mix, partially offset by lower interest recoveries and a change in the earning asset mix.
Noninterest income totaled $82.9 million for the fourth quarter of 2019, down $0.3 million, or less than 1%, from the third quarter of
2019. Service charges and bank card and ATM fees were up primarily due to the impact of MidSouth. Fees from secondary mortgage
operations were up, primarily from the low rate environment. Trust fees were up $0.4 million, or 3%, while insurance and investment
commissions and annuity fees were down $0.6 million, or 9%. Other noninterest income was down from the third quarter, primarily
due to declines in specialty income.
65
Noninterest expense of $197.9 million, declined $15.7 million from the third quarter of 2019. Total expense for the fourth quarter of
2019 included $3.9 million of merger costs related to the acquisition of MidSouth, compared to $28.8 million of merger costs in the
third quarter of 2019. Excluding merger costs, operating expense totaled $194.0 million, up $9.3 million, or 5%, from the third quarter
of 2019. The increase was primarily related to the impact of MidSouth operations.
The effective income tax rate for the fourth quarter of 2018 was 16%. Management expects the tax rate in the first quarter of 2020 to
approximate 18-19%. 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 2019 and 2018.
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 thereto.
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 valuation of other identifiable assets, including core deposit and customer list intangibles,
requires significant assumptions such as projected attrition rates, expected revenue and costs, discount rates and other forward-looking
factors. The purchase date valuations and any subsequent adjustments also determine the amount of 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 Credit Losses
The allowance for credit losses (“ACL”) is comprised of allowance for loan and lease losses (ALLL), a valuation account available to
absorb losses on loans and leases, and the reserve for unfunded lending commitments, a liability established to absorb credit losses on
off-balance sheet exposure. The ACL 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 and off-balance sheet exposures 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 ACL for the originated and acquired performing portfolios include two primary
elements. A loss rate analysis that incorporates a historical loss rate as updated for current conditions is used for credits collectively
evaluated for impairment, and a specific reserve analysis is used for credits 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
66
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 24% of the total ACL as of December 31, 2019. The qualitative component of the ACL
continues to reflect 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 impaired credits that are individually evaluated, a specific allowance is calculated as the shortfall between the credit’s value and
the bank’s exposure. 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 credits are highly subjective and based on information available at the time of valuation and
the current resolution strategy. Actual results could differ from these estimates.
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 17” 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.
67
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s unaudited quarterly results for 2019 and 2018 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) (a)
Taxable equivalent adjustment
Net interest income
Provision for credit 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) (a)
Common Shares Data:
Earnings per share:
Basic
Diluted
Cash dividends per common share
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
2019
$
$
$
$
$
$
$
$
$
$
$
280,107
(57,029 )
223,078
3,824
219,254
(18,043 )
70,503
(175,700 )
96,014
16,850
79,164
28,490,231
25,881,559
20,112,838
23,380,294
3,190,575
28,451,548
26,020,447
20,126,948
23,114,139
3,118,051
1.13 %
10.30 %
3.46 %
0.91
0.91
0.27
219,254
70,503
289,757
3,824
—
293,581
(175,700 )
—
117,881
$
$
$
$
$
$
$
$
$
$
$
284,096
(60,510 )
223,586
3,718
219,868
(8,088 )
79,250
(183,567 )
107,463
19,186
88,277
28,761,863
26,088,759
20,175,812
23,236,042
3,318,915
28,537,810
25,992,894
20,150,104
23,137,563
3,230,503
1.24 %
10.96 %
3.45 %
1.01
1.01
0.27
219,868
79,250
299,118
3,718
—
302,836
(183,567 )
—
119,269
$
$
$
$
$
$
$
$
$
$
$
286,816
(60,225 )
226,591
3,652
222,939
(12,421 )
83,230
(213,554 )
80,194
12,387
67,807
30,543,549
27,565,973
21,035,952
24,201,299
3,586,380
29,148,106
26,437,613
20,197,114
23,091,355
3,383,738
0.92 %
7.95 %
3.41 %
0.77
0.77
0.27
222,939
83,230
306,169
3,652
—
309,821
(213,554 )
28,810
125,077
$
$
$
$
$
$
$
$
$
$
$
289,537
(52,801 )
236,736
3,580
233,156
(9,156 )
82,924
(197,856 )
109,068
16,936
92,132
30,600,757
27,622,161
21,212,755
23,803,575
3,467,685
30,343,293
27,441,459
21,037,942
23,848,374
3,473,693
1.20 %
10.52 %
3.43 %
1.03
1.03
0.27
233,156
82,924
316,080
3,580
—
319,660
(197,856 )
3,856
125,660
(a)(cid:3)
(b)(cid:3)
Taxable equivalent (te) amounts are calculated using a marginal federal income tax rate of 21%.
For discussion of non-GAAP measures, refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
68
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) (a)
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) (a)
Common Shares Data:
Earnings per share
Basic
Diluted
Cash dividends per common share
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
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
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
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
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
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 non-GAAP measures, refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
69
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 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, 2019 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, 2019.
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, 2019.
John M. Hairston
President & Chief Executive Officer
(Principal Executive Officer)
February 24, 2020
Michael M. Achary
Senior Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
February 24, 2020
70
Report(cid:3)of(cid:3)Independent(cid:3)Registered(cid:3)Public(cid:3)Accounting(cid:3)Firm(cid:3)
To the Board of Directors and Stockholders of Hancock Whitney Corporation
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 Decemberr 31, 2019 nd 2018, and the related consolidated statements of income, of comprehensive
income, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31,
2019, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2019 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, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Basis(cid:3)for(cid:3)Opinions(cid:3)
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 Reporting. 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 the Company'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
(iii) rovide 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.
71
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.
Critical(cid:3)Audit(cid:3)Matters(cid:3)
(cid:3)
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to
accounts or disclosures that are material to the(cid:3)consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated(cid:3)financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.re
Allowance for Credit Losses – Qualitative Component
As described in Notes 1 and 4 to the consolidated financial statements, the allowance for credit losses is comprised of
allowance for loan and lease losses, a valuation account available to absorb losses on loans and leases, and the reserve for
unfunded lending commitments, a liability established to absorb credit losses on off-balance sheet exposure. As of
December 31, 2019, the total allowance for credit losses was $195.2 million on total loans of $21.2 billion. Management’s
analysis and methodology for estimating the allowance for credit losses include two primary elements; a loss rate analysis,
which incorporates a historical loss rate as updated for current conditions, is used for credits collectively evaluated for
impairment; and a specific reserve analysis is used for loans individually evaluated for impairment. As disclosed by
management, the loss rate analysis includes several subjective inputs including portfolio segmentation, portfolio risk
ratings, historical look-back and loss emergence periods. As circumstances dictate, the loss rate analysis is supplemented
by management’s 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. As disclosed by management, while qualitative data for these factors is used where available, there is a high
level of judgment applied to these assumptions that are susceptible to significant change. The qualitative component
comprised 24% of the total allowance for credit losses as of December 31, 2019.
The principal considerations for our determination that performing procedures relating to the qualitative component of the
allowance for credit losses is a critical audit matter are there was significant judgment by management in determining the
qualitative component, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing
procedures and evaluating audit evidence relating to the assumptions used in the qualitative component.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming an
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to the Company’s allowance estimation process, which included controls over the assumptions used in the
qualitative component. These procedures also included, among others, (i) testing management’s process for determining
the qualitative component of the allowance for credit losses, including evaluating the appropriateness of management’s
methodology for determining the qualitative component; (ii) testing the data used in the estimate; and (iii) evaluating the
reasonableness of the assumptions. Evaluating the assumptions used in the qualitative component included evaluating the
reasonableness of the qualitative factors considering the current conditions and portfolio characteristics relative to the
historical loss period.
Acquisition of MidSouth Bancorp, Inc. - Discount Rate Assumptions used in the Valuation of Acquired Loans and Core
Deposit Intangible Asset
As described in Notes 1 and 2 to the consolidated financial statements, the Company completed the acquisition of MidSouth
Bancorp, Inc. for net consideration of $193.8 million during 2019, including MidSouth’s loan and deposit portfolios. The
transaction was accounted for as a business combination under the purchase method of accounting. Purchased assets,
including identifiable intangibles, and assumed liabilities are recorded at their respective acquisition date fair values. As
disclosed by management, management applied 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.
The loans acquired were recorded at an estimated fair value of $788 million as of the acquisition date. Additionally, a core
deposit intangible asset of $31.5 million representing the value of the relationships with deposit customers was recorded as
of the acquisition date. Management uses significant estimates and assumptions to value acquired loans, including, among
others, projected cash flows, repayment rates, default rates and losses assuming default, discount rates, and realizable
collateral values. The valuation of other identifiable assets, including core deposit and customer list intangibles, requires
significant assumptions such as projected attrition rates, expected revenue and costs, discount rates and other forward-
looking factors.
72
The principal considerations for our determination that performing procedures relating to the valuation of acquired loans
and the core deposit intangible asset in the acquisition of MidSouth Bancorp, Inc. is a critical audit matter are (i) there was
a high degree of auditor judgment and subjectivity in applying procedures relating to the discount rate assumptions used
in the fair value measurement of the acquired loans and core deposit intangible asset due to the significant amount of
judgment by management when developing the estimates; (ii) there was significant audit effort in evaluating the discount
rate assumptions relating to the estimates; and (iii) the audit effort involved the use of professionals with specialized skill
and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to management’s valuation of the acquired loans and core deposit intangible asset, including controls over
development of the discount rate assumptions used in the estimates. These procedures also included, among others, (i)
reading the purchase agreement; (ii) testing management’s process for estimating the fair value of the acquired loans and
core deposit intangible asset; (iii) testing the completeness and accuracy of data provided by management relating to the
acquired loans and core deposit intangible asset; and (iv) evaluating the appropriateness of the valuation methods and the
reasonableness of discount rate assumptions used to estimate the fair value of the acquired loans and core deposit
intangible asset, using professionals with specialized skill and knowledge to assist in doing so. Evaluating the
reasonableness of the discount rate assumptions involved considering the methodology and assumptions used, including
the risk-free rate, equity risk premium, company beta and risk premiums applied in deriving the discount rate
assumptions.
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 24, 2020
We have served as the Company’s auditor since 2009.
73
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 $4,637,610(cid:3)
and $2,755,806)
Securities held to maturity (fair value of $1,611,004 and $2,935,856)(cid:3)
Loans held for sale
Loans
Less: allowance for loan losses
Loans, net
Property and equipment, net of accumulated depreciation of $249,527
and $225,969
Right of use assets, net of accumulated amortization of $12,194
Prepaid expense
Other real estate and foreclosed assets, net
Accrued interest receivable
Goodwill
Other intangible assets, net
Life insurance contracts
Deferred tax asset, net
Funded pension assets, 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
Lease liabilities
Deferred tax liability, net
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.
74
December 31,
2019
2018
$
432,104 $
109,961
268
4,675,304
1,568,009
55,864
21,212,755
(191,251 )
21,021,504
380,209
110,023
40,178
30,405
92,037
855,453
106,807
608,063
—
185,791
328,777
30,600,757 $
8,775,632 $
15,027,943
23,803,575
2,714,872
233,462
10,200
127,703
37,721
205,539
27,133,072
309,513
1,736,664
1,476,232
(54,724 )
3,467,685
30,600,757 $
50,000
—
350,000
92,947
87,515
$
$
$
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
65,125
184,629
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
Hancock Whitney Corporation and Subsidiaries
Consolidated Statements of Income
2019
Years Ended December 31,
2018
2017
(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 credit losses
Net interest income after provision for credit 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
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) expense
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.
75
$
$
971,735
1,876
127,459
20,757
3,955
1,125,782
$
877,875
946
124,720
21,951
2,776
1,028,268
187,988
30,766
11,811
230,565
895,217
47,708
847,509
86,364
61,609
66,976
26,574
19,853
593
—
53,938
315,907
362,083
77,796
439,879
50,936
18,393
82,981
45,007
20,844
19,512
671
92,454
770,677
392,739
65,359
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
$
$
$
$
327,380 $
3.72 $
3.72 $
1.08 $
86,488
86,599
323,770 $
3.72 $
3.72 $
1.02 $
85,355
85,521
772,030
851
102,013
22,235
3,452
900,581
76,546
15,735
15,988
108,269
792,312
58,968
733,344
83,166
44,538
53,779
23,741
15,209
7,478
—
39,870
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
Hancock Whitney Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
2019
Years Ended December 31,
2018
2017
$
327,380
$
323,770 $
215,632
143,922
13,429
—
2,398
3,153
162,902
36,917
125,985
453,365
$
(52,757 )
34,966
—
(45,198 )
3,296
(59,693 )
(13,386 )
(46,307 )
277,463 $
(425 )
5,801
17,315
(10,929 )
3,786
15,548
4,088
11,460
227,092
(in thousands)
Net income
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain/loss on available for sale securities and cash
flow 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.
76
Hancock Whitney Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Accumulated
Other
Common Stock
Capital
Amount Surplus
Shares
87,495 $ 291,358 $ 1,698,253 $ 850,689 $
Retained Comprehensive
Earnings
Loss, net
—
—
—
—
—
—
215,632
—
215,632
Total
(120,532 ) $ 2,719,768
215,632
11,460
227,092
—
11,460
11,460
—
—
1,358
—
—
16,644
25,330
(83,266 )
133
(25,330 )
—
—
—
(83,266 )
18,135
(in thousands, except parenthetical share data)
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
Net income
Other comprehensive income
Comprehensive income
—
—
—
—
—
408
—
—
—
—
—
Cash dividends declared ($1.08 per common share)
Common stock issued as consideration in business
combination
Common stock activity, long-term incentive plan
Issuance of stock from dividend reinvestment
and stock purchase plan
Initial delivery of shares under accelerated share
repurchase agreement (3,611,870 shares)
Forward contract for accelerated share repurchase
agreement
Balance, December 31, 2019
See accompanying notes to consolidated financial statements.
5,044
—
—
—
—
—
3,220
—
87,903 $ 292,716 $ 1,718,117 $ 1,008,518 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,482
3,409
(8,267 )
323,770
—
323,770
(88,838 )
142
—
—
87,903 $ 292,716 $ 1,725,741 $ 1,243,592 $
—
—
—
—
—
—
—
—
327,380
—
327,380
(94,871 )
16,797
—
177,052
15,257
—
3,614
—
(138,768 )
—
(46,232 )
—
131
—
—
—
92,947 $ 309,513 $ 1,736,664 $ 1,476,232 $
—
3,220
(134,402 ) $ 2,884,949
323,770
(46,307 )
277,463
(88,838 )
12,624
—
(46,307 )
(46,307 )
—
—
—
3,409
—
(8,267 )
(180,709 ) $ 3,081,340
327,380
125,985
453,365
(94,871 )
—
125,985
125,985
—
—
—
—
193,849
15,388
3,614
—
(138,768 )
—
(46,232 )
(54,724 ) $ 3,467,685
77
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 credit losses
(Gain) loss on sale other real estate and foreclosed assets
Deferred tax expense
Increase in cash surrender value of life insurance contracts
Gain on sale of Visa Class B common shares
Loss on sale of securities available for sale
(Gain) loss on the sale of loans
Loss on sale of business
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 from FDIC for loss share claims
Decrease in FDIC loss share receivable
Increase in other assets
Other, net
Net cash provided by operating activities
2019
Years Ended December 31,
2018
2017
$
327,380 $
323,770 $
215,632
30,902
47,708
626
47,100
(16,158 )
—
—
(619 )
—
1,109
(27,773 )
32,166
20,844
—
20,902
(100,000 )
(1,753 )
—
—
(22,556 )
(7,929 )
351,949
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
78
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 other real estate
Cash acquired in stock-based business combination
Consideration (paid) received in business combinations
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 (decrease) in deposits
Net increase (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 dividend reinvestment and stock purchase plan
Net cash provided by financing activities
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.
2019
Years Ended December 31,
2018
2017
268,413 $
294,681
(1,010,805 )
417,520
(183,626 )
281,251
112,048
(555,008 )
(32,788 )
—
(42,716 )
30,658
28,059
(1,112 )
—
(65,597 )
(459,022 )
(627,557 )
1,058,748
(14,222 )
20,846
(94,871 )
(6,295 )
(185,000 )
542
3,614
155,805
48,732
383,372
432,104 $
455,162 $
327,141
(629,976 )
359,312
(375,770 )
(18,710 )
166,462
(1,358,077 )
(1,822 )
42,858
(50,664 )
17,214
—
141,769
77,648
551
(846,902 )
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 $
213,877
338,843
(742,279 )
373,088
(863,457 )
351,087
59,483
(1,051,628 )
(50,000 )
—
(20,297 )
24,324
—
476,609
—
(4,971 )
(895,321 )
900,427
(118,151 )
(204,111 )
165
(83,266 )
(11,881 )
—
12,092
3,220
498,495
14,259
372,689
386,948
28,288 $
232,456
7,283 $
175,382
45,092
108,702
$
$
$
$
21,285 $
22,393 $
19,140
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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 customers primarily in 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, including southern Mississippi; southern and
central Alabama; southern, central and northwest Louisiana; the northern, central, and panhandle regions of Florida; and the certain
areas of east and northeast Texas including Houston, Beaumont and Dallas, among others. 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 and qualified as a financial holding company in 2002. The corporate headquarters of the Company is in Gulfport,
Mississippi.
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.
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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
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 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 interest rate lock commitments made to
prospective borrowers. Held for sale loans also includes residential construction loans that are anticipated to be sold upon completion
of the construction term. 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.
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.
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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. 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.
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.
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.
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Allowance for Credit Losses
The Allowance for Credit Losses (ACL) is comprised of the Allowance for Loan and Lease Losses (ALLL), a valuation account
available to absorb losses on loans and the Reserve for Unfunded Lending Commitments, a liability established to absorb credit losses
on off-balance sheet exposures. The ACL is established and maintained at an amount sufficient to cover estimated credit losses
inherent in the loan and lease portfolios and off balance sheet exposures 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 and unfunded
exposures 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 ACL include two primary elements: A loss rate analysis, which incorporates a
historical loss rate as updated for current conditions, is used for credits collectively evaluated for impairment; and a specific reserve
analysis is used for credits 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. Similar to funded
loans, the methodology for estimating losses for the reserve for unfunded lending commitments includes a collective review as well as
individual evaluations of impaired borrowers. The reserve for unfunded lending commitments is reflected in other liabilities in the
consolidated balance sheets.
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 120 days past due for most secured and unsecured loans and 150 days past due for consumer credit card 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
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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.
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.
Operating Leases
Effective January 1, 2019, the Company adopted the amended provisions of Financial Accounting Standards Codification Topic 842,
“Leases,” using the modified retrospective approach, impacting the reporting and disclosures for operating leases. Under the revised
standard, the Company recognizes a liability representing the present value of future lease payments (the lease liability) and a right-of-
use asset representing its right to use the underlying asset over the lease term in the statement of financial position.
The Company determines if an arrangement is a lease at inception of the contract and assesses the appropriate classification as finance
or operating. Operating leases with terms greater than one year are included in right-of-use lease assets and lease obligations on the
Company’s balance sheets. The lease term includes payments to be made in optional or renewal periods only if the lessee is
reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Operating lease right-
of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term
using the interest rate implicit in the contract, when available, or the Company’s incremental collateralized borrowing rate with similar
terms. Agreements with both lease and non-lease components are accounted for separately, with only the lease component capitalized.
The right-of-use asset is the amount of the lease liability adjusted for prepaid or accrued lease payments, remaining balance of any
lease incentives received, unamortized initial direct costs, and impairment. Lease expense is recorded on a straight-line basis over the
lease term through amortization of the right-of-use asset plus implicit interest accreted on the operating lease liability obligation, and
is reflected in Net Occupancy Expense in the Consolidated Statement of Income.
The Company evaluates whether events and circumstances have occurred that indicate right-of-use assets have been impaired.
Measurement of any impairment of such assets is based on their fair values. Once a right-of-use asset for an operating lease is
impaired, the carrying amount of the right-of-use asset is reduced through expense and the remaining balance is subsequently
amortized on a straight-line basis.
Some of the Company’s leases contain variable components, such as annual changes to rent based on the consumer price index.
Operating lease liabilities are not re-measured as a result of changes to variable components unless the lease must be re-measured for
some other reason such as a renewal that was not reasonably certain of being exercised. Changes to the variable components are
treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.
The Company elected to use the standard’s “package of practical expedients,” which allows the use of previous conclusions about
lease identification, lease classification and the accounting treatment for initial direct costs. The Company also elected the short-term
lease recognition exemption for all leases with lease terms of one year or less; as such, the Company will not recognize right-of-use
assets or lease liabilities on the consolidated balance sheet for such leases.
For periods prior to January 1, 2019, lease accounting was in accordance with the previously effective guidance of Financial
Accounting Standard Codification Topic 840, “Leases,” where operating lease cost were expensed as incurred and non-cancellable
future minimum operating lease payments were presented for disclosure only.
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
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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; with the resulting net (income) expense reflected in noninterest
expense in the Consolidated Statements of Income. 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, and may include analysis 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. Derivatives designated as hedging exposure to variable cash flows of a forecasted transaction
(cash flow hedge), are 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, with the full impact of hedge gains
and losses 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 11 -
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.
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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 and costs 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 income from interest rate swaps, 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.
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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 and recorded as a component of noninterest expense.
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 made investments in projects that yield tax credits issued under the Qualified Zone Academy Bonds (QZAB) and
Qualified School Construction Bonds (QSCB) 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. For 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.
The Company also invests in affordable housing projects that generate low-income tax credits (LIHTC) that are earned over a 10-year
period, beginning with the year the rental activity begins. The proportional amortization method is used for investments in affordable
housing projects that qualify for LIHTC when the Company, as the investor, does not have significant influence over such projects.
For such projects, the investment is proportionally amortized over the same period as the expected tax benefits from the underlying
projects as a component of the income tax provision. If needed, write-downs of LIHTC investments are also presented as a component
of the income tax provision, on a net basis with the amortization. Should the Company have significant influence over projects, the
cost or equity method of accounting is used and investment amortization is a component of noninterest expense. The significant
influence criteria that enables use of the proportional amortization method is reevaluated if events occur that change the Company’s
influence on the project. The Company currently only has LIHTC investments accounted for under the proportional method of
accounting.
With the exception of QZAB and QSCB tax credits, all of the tax credits described above can be carried back one-year and carried
forward 20 years if the credit cannot be fully used in the year the credits first become available for use. QZAB and QSCB tax credits
generally can be carried forward indefinitely if they cannot be fully used in the year the credits are generated.
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 17 – 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.
88
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 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 18 – 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.
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 2019
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 are
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
upon adoption. Lessor accounting was largely unchanged under the new guidance, except for clarification of the definition of initial
direct costs which provided additional guidance on 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. The Company was required to and did adopt the standard effective January 1,
2019, using the modified retrospective transition method permitted by ASU 2018-11. Thus, the Company’s reporting for the
comparative periods presented in the financial statements and disclosures continues to be in accordance with GAAP Topic 840. Upon
adoption, the Company recorded a gross-up of assets and liabilities in its Consolidated Balance Sheet, with $116.3 million for right of
use assets and $131.1 million of lease payment obligations offset by the elimination of $14.8 million of existing lease incentive and
other deferred rent liabilities. Accounting for leases in accordance with Topic 842 has not had a material impact upon the Company’s
consolidated results of operations, and is not expected to in future periods. Refer to the “Operating Lease” section of this note for
information regarding accounting policy and operating lease practical expedient elections at adoption, and Note 6 – Operating Leases
for further information related to the Company’s lease contracts and assets at December 31, 2019.
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The Update provides clarification and correction to
certain areas of previously issued ASUs concerning financial instruments (2016-01, 2016-13 and 2017-12). Effective dates for
89
adoption of this Update’s provisions vary in accordance with the effective dates and adoption status of the amended ASUs. Clarifying
guidance includes an amendment to update transition provisions related to a one-time election to reclassify debt securities from held to
maturity to available for sale where the debt securities are eligible to be hedged under the last-of-layer method in accordance with
Topic 815, Derivatives and Hedging. The clarification included the following related to the transfer election and reclassified
securities: (1) the transfer does not call into question an entity’s assertion to hold to maturity those debt securities that continue to be
classified as held-to-maturity (2) the securities are not required to be designated in a last-of-layer hedging relationship (3) the
securities may be sold by an entity after reclassification. During the fourth quarter of 2019, the Company exercised the one-time
election to transfer securities with an amortized cost of approximately $1.2 billion from its held to maturity portfolio to its available
for sale portfolio. Refer to Note 3 – Securities for further information about the Company’s investment securities.
Issued but Not Yet Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740).” The amendments in
this Update are meant to simplify the accounting for income taxes by removing certain exceptions to GAAP. The amendments also
improve consistent application of and simplify GAAP by modifying and/or revising the accounting for certain income tax transactions
and by clarifying certain existing codification. The amendments in the update are effective for public business entities for fiscal years
and interim periods within those fiscal years beginning after December 15, 2020. The Company is currently assessing the impact of
adoption of this guidance, but does not expect the update to have a material impact upon its financial position and results of
operations.
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. The Company
will modify its pension and postretirement plan disclosures upon adoption of this guidance. Adoption of this guidance 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. The Company will modify its fair value
measurements disclosures upon adoption of this guidance. Adoption of this guidance will have no impact upon the Company’s results
of operations or financial condition.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments.” 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 are required to use forward-looking information to
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 public business entities for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with a cumulative-effect adjustment to
retained earnings for non-purchased credit impaired loans as of the beginning of the year of adoption. For purchased credit impaired
loans, there is no impact to retained earnings upon adoption; rather, the entity will reclassify a portion of the purchase accounting fair
value mark to allowance for credit losses as of the beginning of the year of adoption.
The Company expects adoption of this guidance, pending final approval through our governance process, to result in a $76.7 million
increase in allowance for credit losses on January 1, 2020, comprised of increases in the ALLL of $49.4 million and the reserve for
unfunded lending commitments of $27.3 million, with $19.8 million of the ALLL increase reclassified from the fair value mark for
acquired impaired loans considered purchased credit deteriorated under the new guidance, and resulting in a cumulative-effect
adjustment to retained earnings (net of tax) of $44.1 million. Calculated credit losses on held to maturity debt securities were not
material and there was no impact to the Company’s available for sale portfolio or other financial instruments.
The Company’s CECL allowance for credit losses estimates loan and unfunded exposures over a two-year reasonable and supportable
forecast period utilizing the weighted average of a range of macroeconomic scenarios, and then reverts to longer historical loss
90
experience to estimate losses for the remaining life. The Company utilizes internally developed credit models and third party
economic forecasts for the calculation of the reasonable supportable forecast for the majority of the portfolio and other methods,
generally historical loss based, for select portfolios. The credit models consist primarily of multivariate regression and autoregressive
models that correlate historical net charge-off rates to select macroeconomic variables at a collective-level, using similar portfolio and
regional aggregation as the incurred methodology. Forward-looking macroeconomic forecasts are applied as inputs to the regression
equations to estimate quarterly pooled net charge-off rates over the reasonable and supportable period. The net charge-off rates from
the credit models or, for the post reasonable supportable period, the portfolios’ long-term average loss rates are applied to the balance
run-off forecasts. The balance run-off forecast incorporates prepayment assumptions developed using historical experience using the
same macroeconomic forecasts as the credit models. Forecasted net charge-off rates are also applied to forecasted draws and
subsequent run-off of unfunded commitments that are also based on historical experience. Qualitative adjustments to the output of
quantitative results are made using the same factors for consideration as under the current incurred methodology. The Company also
continues to establish specific reserves on individually evaluated nonaccrual and loans modified in troubled debt restructures as these
loans are deemed to not share risk characteristics with other financial assets, largely unchanged from the incurred process.
Note 2. Acquisitions and Divestiture
Acquisitions
MidSouth Bancorp, Inc.
On September 21, 2019, the Company completed the acquisition of all of the outstanding common stock of MidSouth Bancorp, Inc.
(“MidSouth”) (NYSE: MSL), parent company of MidSouth Bank, N.A. The acquisition provides the Company opportunity for both
enhanced growth in several of its current markets, such as MidSouth’s home market of Lafayette, Louisiana, as well as opportunities
for expansion into new markets in Louisiana and Texas. The transaction was accounted for as a business combination whereby the
Company acquired net assets with an estimated fair value of $130.5 million and recorded goodwill of $63.4 million. In consideration
for the net assets acquired, the Company issued approximately 5.0 million shares of common stock, resulting in a transaction value of
$193.8 million.
Due to the close proximity to the acquisition date, certain acquisition-date fair value measurements have not been finalized and are
subject to change. As the Company obtains the information related to facts and circumstances that existed as of the acquisition date,
provisional measurements will be finalized, and any adjustments, if necessary, will be included in the allocation in the reporting period
in which the final amounts are determined, not to exceed one year from the acquisition date. The following table sets forth the
preliminary acquisition date fair value of the assets acquired and liabilities assumed, and the resulting goodwill. The goodwill is not
deductible for federal income tax purposes.
(in thousands)
ASSETS
Cash and due from banks
Interest bearing bank deposits
Federal funds sold
Securities available for sale
Loans
Property and equipment
Other real estate
Identifiable intangible assets
Other assets
Total identifiable assets
LIABILITIES
Deposit liabilities
Short term borrowings
Long term debt
Other liabilities
Total liabilities
Net assets acquired
Value of stock-based consideration
Goodwill
91
$
$
28,059
276,911
3,475
272,240
787,628
34,288
343
31,500
79,888
1,514,332
1,280,947
66,996
13,919
21,990
1,383,852
130,480
193,849
63,369
The loans acquired were recorded at an estimated fair value at the acquisition date using a loss adjusted cash flow method, with no
carryover of the related allowance for loan losses. Acquired loans are classified as either purchased credit performing or purchased
credit impaired based on such factors as past due status, nonaccrual status and internal risk rating. Loans considered to be purchased
credit performing were accounted for under Accounting Standards Codification (“ASC”) 310-20. The purchased credit performing
loans had a book balance of $686.0 million, of which $18.8 million is not expected to be collected, and an estimated fair value of
$667.1 million. Loans considered to be purchased credit impaired were accounted for under ASC 310-30 using the expected cash flow
method. The purchased credit impaired loans had a book balance of $143.9 million and an estimated fair value of $120.5 million.
The securities available for sale portfolio consisted primarily of collateralized mortgage obligations and mortgaged backed securities.
Substantially all of the portfolio acquired was sold prior to December 31, 2019.
The core deposit intangible asset of $31.5 million represents the value of the relationships with deposit customers based on the
favorable source of funds method. The core deposit intangible will be amortized using sum of years’ digits over the asset’s estimated
life of 15 years.
Short-term borrowings consisted of customer repurchase agreements of $39.5 million and two FHLB advances totaling $27.5 million.
The FHLB advances had 30 day maturities with fixed interest rates of 2.16%.
Long-term debt consisted of three trust preferred debentures with maturities through 2037; however, each was callable and were
eligible for redemption at the Company’s election. The Company redeemed each debenture in full prior to December 31, 2019.
The operating results of the Company for the year ended December 31, 2019 includes the results from the operations of the acquired
business from the date of acquisition. The results of the acquired business are not material to the Company’s consolidated results of
operations and, as such, neither supplemental pro forma information of the combined entity nor revenue and earnings contributed by
the acquired business since the date of acquisition are presented.
During the year ended December 31, 2019, the Company incurred acquisition related costs of approximately $32.7 million. The
following table presents the acquisition related costs by component:
(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
$
$
7,506
1,464
7,075
1,092
130
2,581
12,818
32,666
Personnel expense includes severance and change in control costs. Professional services expense includes legal and consulting costs,
including costs associated with systems conversion. Other expense includes contract and lease termination fees and other transaction-
related costs.
92
Trust and Asset Management Business
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 following table sets forth the
acquisition date fair value of the assets acquired and the liabilities assumed, the consideration received, and the resulting goodwill.
The goodwill is deductible for federal income tax purposes.
(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 )
140,657
46,561
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.
The operating results of the Company for the years ended December 31, 2019 and 2018 includes the results from the operations of the
acquired trust and asset management business from the date of acquisition. The results are not material to the Company’s results of
operations and, as such, supplemental proforma financial information for the years ended December 31, 2019 and 2018 is not
presented. During year ended December 31, 2018, the Company incurred acquisition related costs of approximately $6.2 million.
Goodwill Resulting from Business Combinations
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired or 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 these business combinations.
The following table illustrates the change in the Company’s goodwill for the years ended December 31, 2019 and 2018:
(in thousands)
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
Additions and adjustments:
Final settlement of cash consideration - acquisition of trust and asset management business
Initial goodwill recorded in acquisition of MidSouth Bancorp, Inc.
Measurement period adjustments - acquisition of MidSouth Bancorp, Inc.
Goodwill balance at December 31, 2019
$
$
$
$
745,523
45,634
(185 )
790,972
1,112
69,207
(5,838 )
855,453
93
Divestiture
On March 9, 2018, the Company sold its consumer finance subsidiary, Harrison Finance Company. The Company received cash of
approximately $78.9 million and recorded a loss on the sale of $1.1 million.
Note 3. Securities
The amortized cost and fair value of securities classified as available for sale and held to maturity at December 31, 2019 and 2018
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
December 31, 2019
Gross
Gross
Amortized Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
December 31, 2018
Gross
Gross
Amortized Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
$
652 $
98,672 $
98,320 $
300 $
—
71,706
240,427
6,646
4,284 29,794 1,443,402
770,077
1,953 30,936
161,925
2,260
3,500
—
$ 4,637,610 $ 52,367 $ 14,673 $ 4,675,304 $ 2,755,806 $ 7,500 $ 72,269 $ 2,691,037
246,713
7,020 1,924,157 1,468,912
799,060
4,178 1,586,467
163,282
808,215
3,142
3,500
7,988
33
242,016
1,910,909
1,570,765
807,600
8,000
74,339 $ — $ 2,633 $
360
7,789
20,268
19,880
3,757
21
903
—
249,805
December 31, 2019
Gross
Gross
Amortized
Cost
Unrealized Unrealized
Gains
Losses
Fair
Value
December 31, 2018
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
Fair
Value
$
50,003 $
50,000 $
3 $ — $
49,522
681,045
9,503
635,737
6,117
10,882
346,669
22,493 1,222,883
$ 1,568,009 $ 44,103 $ 1,108 $ 1,611,004 $ 2,979,547 $ 5,782 $ 49,473 $ 2,935,856
688,201
668,096
640,393
30,570
551,264
357,175
311,071 1,243,778
27,146
883
12,474
3,597
641,019
29,687
539,371
307,932
2,347
1,461
376
1,598
69
—
581
458
50,000 $ — $
478 $
The Company held no securities classified as trading at December 31, 2019 or 2018.
Under the provisions ASU 2019-04, the Company made a one-time election to transfer securities with an amortized cost of $1.2
billion from the held to maturity portfolio to the available for sale portfolio. The securities transferred are eligible to be hedged under
the last of layer method; as such, the reclassification allows the Company to take advantage of the amended fair value hedging rules in
the future, should it meet the Company’s investment strategy.
The following tables present the amortized cost and fair value of debt securities at December 31, 2019 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
Amortized
Cost
Fair
Value
$
$
356 (cid:3)(cid:3) $
151,871 (cid:3)(cid:3)
1,764,275 (cid:3)(cid:3)
2,721,108 (cid:3)(cid:3)
4,637,610 $
363
154,646
1,778,398
2,741,897
4,675,304
94
(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
Amortized
Cost
Fair
Value
$
$
50,000 (cid:3)(cid:3) $
140,009 (cid:3)(cid:3)
672,094 (cid:3)(cid:3)
705,906 (cid:3)(cid:3)
1,568,009 $
50,003
141,929
694,992
724,080
1,611,004
The details for securities classified as available for sale with unrealized losses at December 31, 2019 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
Corporate debt securities
.
Losses < 12 Months
Gross
Unrealized
Losses
Fair
Value
Losses 12 Months or >
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
300 $
$ 28,235 $
300
—
7,020
4,178
3,142
33
$ 998,312 $ 10,661 $ 599,072 $ 4,012 $ 1,597,384 $ 14,673
— $
—
399,787
14,896
184,389
—
28,235 $
—
819,853
473,751
274,078
1,467
— $
—
1,978
207
1,827
—
—
420,066
458,855
89,689
1,467
—
5,042
3,971
1,315
33
The details for securities classified as available for sale with unrealized losses at 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
Gross
Unrealized
Losses
Fair
Value
Losses 12 Months or >
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
$
— $
— $
71,706 $ 2,633 $
71,706 $ 2,633
6,645
29,794
30,936
2,260
$ 442,773 $ 4,928 $ 1,687,704 $ 67,340 $ 2,130,477 $ 72,268
212,086
1,067,916
666,711
112,058
41,203
305,090
96,226
254
170,883
762,826
570,485
111,804
6,054
27,309
29,085
2,259
591
2,485
1,851
1
The details for securities classified as held to maturity with unrealized losses at December 31, 2019 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
Gross
Unrealized
Losses
Fair
Value
Losses 12 Months or >
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
— $
— $
31
—
—
458
489 $ 85,414 $
7,878
—
28,426
49,110
—
69
—
581
458
1,108
$
— $
4,735
—
28,426
—
— $
38
—
581
—
— $
3,143
—
—
49,110
$ 33,161 $
619 $ 52,253 $
95
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
Gross
Unrealized
Losses
Fair
Value
Losses 12 Months or >
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
$
— $
— $
49,521 $
478
9,503
6,117
10,882
22,493
$ 401,593 $ 2,660 $ 1,720,624 $ 46,813 $ 2,122,217 $ 49,473
233,469
90,730
—
77,394
466,749
325,981
305,419
974,547
233,280
235,251
305,419
897,153
7,247
5,994
10,882
22,212
2,256
123
—
281
49,521 $
478 $
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, gross gains on, and gross losses on sales of securities during the years ended
December 31, 2019, 2018 and 2017:
(in thousands)
Proceeds
Gross gains
Gross losses
2019
Years Ended December 31,
2018
2017
$
268,413 $
—
—
455,162 $
—
25,480
213,877
—
—
Securities with carrying values totaling approximately $3.3 billion at December 31, 2019 and $3.4 billion at December 31, 2018 were
pledged, primarily to secure public deposits or securities sold under agreements to repurchase.
Note 4. Loans and Allowance for Credit Losses
The Company generally makes loans in its market areas of south Mississippi; southern and central Alabama; northwest, central and
south Louisiana; the northern, central and panhandle regions of Florida; and certain areas of east and northeast Texas, including
Houston, Beaumont and Dallas; and Nashville, Tennessee. The following table presents loans, net of unearned income, by portfolio
class at December 31, 2019 and 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
2019
9,166,947
2,738,460
11,905,407
2,994,448
1,157,451
2,990,631
2,164,818
21,212,755
$
$
2018
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 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,
2019 and 2018 were approximately $13.4 million and $37.5 million, respectively. Included in such loans at December 31, 2018 was
$22.4 million to directors that retired in 2019. Related party loan activity in 2019 includes new loans of $7.1 million and repayments
of $8.8 million.
96
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 $2.0 billion and $1.2 billion at December 31, 2019 and 2018, respectively.
The following schedules show activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2019
and the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2018, as well as the
corresponding recorded investment in loans at December 31, 2019 and 2018.
(in thousands)
Allowance for credit losses
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Net provision for loan losses
Ending balance - allowance for loan losses
Reserve for unfunded lending commitments:
Beginning balance
Provision for losses on unfunded commitments
Ending balance - reserve for unfunded lending
commitments
Total allowance for credit losses
Allowance for loan losses:
Individually evaluated for impairment
Amounts related to purchased credit
impaired loans
Collectively evaluated for impairment
Allowance for loan losses
Reserve for unfunded lending commitments:
Individually evaluated for impairment
Total allowance for credit losses
Loans:
Individually evaluated for impairment
Purchased credit impaired loans
Collectively evaluated for impairment
Total loans
(in thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Net provision for loan losses
Other
Ending balance - allowance for loan losses
$
Allowance for loan losses:
Individually evaluated for impairment
Amounts related to purchased credit
impaired loans
Collectively evaluated for impairment
Total allowance for loan losses
$
Commercial
Non-Real
Estate
Commercial
Real Estate-
Owner
Occupied
Total
Commercial
and Industrial
Commercial
Real Estate-
Income
Producing
Construction
and Land
Development
Residential
Mortgages
Year Ended December 31, 2019
Consumer
Total
$
97,752 $
(39,600 )
6,940
41,340
$ 106,432 $
13,757 $
(137 )
306
(2,949 )
10,977 $
111,509 $
(39,737 )
7,246
38,391
117,409 $
17,638 $
(32 )
569
2,694
20,869 $
15,647 $
(7 )
140
(6,430 )
9,350 $
23,782 $
(846 )
480
(3,085 )
20,331 $
25,938 $
(18,455 )
3,645
12,164
23,292 $
194,514
(59,077 )
12,080
43,734
191,251
$
— $
3,974
— $
—
— $
3,974
— $
—
— $
—
— $
—
— $
—
—
3,974
$
3,974 $
$ 110,406 $
— $
10,977 $
3,974 $
121,383 $
— $
20,869 $
— $
9,350 $
— $
20,331 $
— $
23,292 $
3,974
195,225
$
21,733 $
104 $
21,837 $
18 $
21 $
217 $
292 $
22,385
164
84,535
$ 106,432 $
169
10,704
10,977 $
333
95,239
117,409 $
39
20,812
20,869 $
136
9,193
9,350 $
7,474
12,640
20,331 $
275
22,725
23,292 $
8,257
160,609
191,251
$
3,974 $
$ 110,406 $
— $
10,977 $
3,974 $
121,383 $
— $
20,869 $
— $
9,350 $
— $
20,331 $
— $
23,292 $
3,974
195,225
$ 232,438 $
245,651
215,245
20,751,859
$ 9,166,947 $ 2,738,460 $ 11,905,407 $ 2,994,448 $ 1,157,451 $ 2,990,631 $ 2,164,818 $ 21,212,755
236,819 $
67,273
11,601,315
1,898 $
35,353
2,957,197
1,483 $
5,346
2,157,989
5,174 $
86,757
2,898,700
4,381 $
36,200
2,697,879
20,516
1,136,658
31,073
8,903,436
277 $
Commercial
Non-Real
Estate
Commercial
Real Estate-
Owner
Occupied
Total
Commercial
and
Industrial
Commercial
Real Estate-
Income
Producing
Construction
and Land
Development
Residential
Mortgages
Year Ended December 31, 2018
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
93,877
97,752 $
215
12,935
13,757 $
454
106,812
111,509 $
43
17,385
17,638 $
83
15,563
15,647 $
9,766
13,572
23,782 $
388
25,334
25,938 $
10,734
178,666
194,514
Loans:
Individually evaluated for impairment
Purchased credit impaired loans
Collectively evaluated for impairment
Total loans
$ 239,384 $
268,755
129,596
19,628,060
$ 8,620,601 $ 2,457,748 $ 11,078,349 $ 2,341,779 $ 1,548,335 $ 2,910,081 $ 2,147,867 $ 20,026,411
261,050 $
12,841
10,804,458
2,701 $
3,757
2,335,321
1,007 $
4,181
2,142,679
21,666 $
6,212
2,429,870
3,387
1,544,827
105,430
2,800,775
6,629
8,374,588
3,876 $
121 $
97
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,
2019
2018
$
$
178,678
7,708
186,386
2,594
1,217
39,262
16,374
245,833
$
$
110,653
16,895
127,548
4,991
2,146
35,866
16,744
187,295
For the years ended December 31, 2019, 2018 and 2017, the estimated amount of interest income from nonaccrual loans that would
have been recorded had the loans not been assigned nonaccrual status was $13.9 million, $13.7 million and $14.7 million,
respectively.
Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (TDRs) of $132.5 million and $85.5 million, at
December 31, 2019 and 2018, respectively. Total TDRs, both accruing and nonaccruing, were $193.7 million at December 31, 2019
and $224.6 million at December 31, 2018.
The table below details TDRs that were modified during the years ended December 31, 2019, 2018 and 2017 by portfolio segment. All
such loans are individually evaluated for impairment.
($ 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
2019
Outstanding
Recorded Investment
Years Ended
2018
Outstanding
Recorded Investment
2017
Outstanding
Recorded Investment
Number
of
Contracts
Pre-
Modification
Post-
Modification
13 $ 64,051 $ 57,240
Pre-
Modification
Post-
Modification
29 $ 85,306 $ 85,306
Pre-
Modification
Post-
Modification
52 $ 162,909 $ 162,909
Number
of
Contracts
Number
of
Contracts
1
167
167
2
6,138
6,138
5
5,684
5,684
14
64,218
57,407
31
91,444
91,444
57
168,593
168,593
1
123
123
1
1,564
1,564
5
5,625
5,625
323
323
3
3,286
3,286
21
10
168
168
49 $ 68,118 $ 61,307
—
—
—
1,297
1,297
14
10
455
455
56 $ 94,760 $ 94,760
—
—
—
2,812
2,812
15
40
40
1
78 $ 177,070 $ 177,070
The TDRs modified during the year ended December 31, 2019 reflected in the table above include $18.7 million of loans with
extended amortization terms or other payment concessions, $41.3 million of loans with significant covenant waivers and $8.1 million
with other modifications. In addition, the Company received approximately $6.8 million of equity securities of one commercial non-
real estate borrower in satisfaction of a portion of its debt. The TDRs modified during the year ended December 31, 2018 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, $76.2 million of loans with significant covenant waivers,
and $2.8 million of other modifications.
At December 31, 2019 and 2018, the Company had unfunded commitments of approximately $2.4 million and $2.1 million,
respectively, to borrowers whose loan terms had been modified in TDRs.
98
No TDRs modified during the years ended December 31, 2019 and 2017 subsequently defaulted within twelve month of modification.
Of the TDRs modified during the year ended December 31, 2018, 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.
The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at December 31, 2019
and 2018. 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
December 31, 2019
Recorded
Investment
Without an
Allowance
Recorded
Investment
With an
Allowance
Unpaid
Principal
Balance
Related
Allowance
$
134,191 $
2,665
136,856
373
—
3,383
479
98,247 $
1,716
99,963
1,525
277
1,791
1,004
270,078 $
7,793
277,871
1,959
322
5,709
1,906
21,733
104
21,837
18
21
217
292
Total loans
$
141,091 $
104,560 $
287,767 $
22,385
(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
The tables below present the average balances and interest income for total impaired loans for the years ended December 31, 2019 and
2018. 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
Years Ended
December 31, 2019
December 31, 2018
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
4,917 $
196
5,113
27
4
11
77
5,232 $
286,146 $
25,325
311,471
9,155
145
5,598
814
327,183 $
7,919
343
8,262
71
—
18
39
8,390
$
223,500 $
14,719
238,219
2,407
906
4,578
1,464
247,574 $
$
99
Aging Analysis
The tables below present the age analysis of past due loans by portfolio class at December 31, 2019 and 2018. Purchased credit
impaired loans with an accretable yield are considered to be current:
December 31, 2019
(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
(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
Credit Quality Indicators
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
$ 20,893 $ 13,445 $ 100,806 $ 135,144 $ 9,031,803 $ 9,166,947 $ 1,537
830
2,367
450
2,042
85
1,638
$ 83,693 $ 30,183 $ 146,942 $ 260,818 $ 20,951,937 $ 21,212,755 $ 6,582
2,738,460
11,905,407
2,994,448
1,157,451
2,990,631
2,164,818
2,725,774
11,757,577
2,990,097
1,148,544
2,925,603
2,130,116
7,268
108,074
2,910
2,480
23,577
9,901
12,686
147,830
4,351
8,907
65,028
34,702
4,862
25,755
738
5,747
32,867
18,586
556
14,001
703
680
8,584
6,215
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 $ 3,895 $ 77,551 $ 93,703 $ 8,526,898 $ 8,620,601 $ 10,823
380
11,203
1,844
644
—
618
$ 77,690 $ 26,767 $ 132,593 $ 237,050 $ 19,789,361 $ 20,026,411 $ 14,309
2,457,748
11,078,349
2,341,779
1,548,335
2,910,081
2,147,867
2,439,242
10,966,140
2,333,141
1,537,644
2,839,331
2,113,105
18,506
112,209
8,638
10,691
70,750
34,762
2,394
14,651
2,371
7,397
32,869
20,402
1,570
5,465
772
1,129
14,706
4,695
14,542
92,093
5,495
2,165
23,175
9,665
The tables below present the credit quality indicators classes by segments and portfolio class of loans at December 31, 2019 and
December 31, 2018.
(in thousands)
Grade:
Pass
Pass-Watch
Special Mention
Substandard
Doubtful
Total
December 31, 2019
Commercial
Non-
Real Estate
Commercial
Real
Estate - Owner
Occupied
Total
Commercial
and Industrial
Commercial
Real
Estate -
Income
Producing
Construction
and
Land
Development
Total
Commercial
$ 8,492,113 $ 2,517,448 $ 11,009,561 $ 2,883,553 $ 1,120,997 $ 15,014,111
462,502
101,583
479,110
—
$ 9,166,947 $ 2,738,460 $ 11,905,407 $ 2,994,448 $ 1,157,451 $ 16,057,306
220,850
71,654
382,330
—
367,116
86,305
442,425
—
146,266
14,651
60,095
—
69,765
14,995
26,135
—
25,621
283
10,550
—
100
(in thousands)
Grade:
Pass
Pass-Watch
Special Mention
Substandard
Doubtful
Total
(in thousands)
Performing
Nonperforming
Total
December 31, 2018
Commercial
Non-
Real Estate
Commercial
Real
Estate - Owner
Occupied
Total
Commercial
& Industrial
Commercial
Real
Estate -
Income
Producing
Construction
and
Land
Development
Total
Commercial
$ 7,875,588 $ 2,274,211 $ 10,149,799 $ 2,265,087 $ 1,487,599 $ 13,902,485
440,415
105,227
520,336
—
$ 8,620,601 $ 2,457,748 $ 11,078,349 $ 2,341,779 $ 1,548,335 $ 14,968,463
260,510
75,752
408,751
—
344,781
98,901
484,868
—
46,535
5,510
24,647
—
49,099
816
10,821
—
84,271
23,149
76,117
—
December 31, 2019
December 31, 2018
Residential
Mortgage
Consumer
Total
Residential
Mortgage
Consumer
Total
$ 2,950,854 $ 2,147,312 $ 5,098,166 $ 2,873,669 $ 2,130,395 $ 5,004,064
53,884
$ 2,990,631 $ 2,164,818 $ 5,155,449 $ 2,910,081 $ 2,147,867 $ 5,057,948
36,412
57,283
17,472
39,777
17,506
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 or 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.
101
Purchased Credit Impaired Loans
Changes in the carrying amount of purchased credit impaired loans and related accretable yield are presented in the following table for
the years ended December 31, 2019 and 2018:
(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
Balance at end of period
Residential Mortgage Loans in Process of Foreclosure
2019
2018
Carrying
Amount
of Loans
Accretable
Yield
Carrying
Amount
of Loans
Accretable
Yield
$
$
129,596
120,562
(48,076 )
13,163
$
37,294
6,246
(4,601 )
(13,163 )
153,403
—
(39,556 )
15,749
$
62,517
—
(5,779 )
(15,749 )
—
215,245
$
4,170
29,946
$
—
129,596
$
(3,695 )
37,294
$
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 $8.6 million and $7.1 million of consumer loans secured by single family
residential mortgage real estate that are in process of foreclosure as of December 31, 2019 and 2018, respectively. In addition to the
single family residential real estate loans in process of foreclosure, the Company also held $6.3 million and $1.8 million of foreclosed
single family residential properties in other real estate owned as of December 31, 2019 and 2018, respectively.
Loans Held for Sale
Loans held for sale totaled $55.9 million and $28.1 million, respectively, at December 31, 2019 and 2018. Substantially all loans held
for sale are residential mortgage loans originated for sale. Concurrent with the commitment to lend, the Company enters into a forward
commitment to sell these loans on a best efforts delivery basis.
102
Note 5. Property and Equipment
Property and equipment consisted of the following at December 31, 2019 and 2018:
(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,
2019
2018
$
$
79,720
339,503
115,051
75,448
20,014
629,736
(249,527 )
380,209
$
(cid:3)
$
70,960
311,409
92,805
72,721
31,742
579,637
(225,969 )
353,668
Assets under development is comprised primarily of software design and implementation costs.
Depreciation and amortization expense was $30.9 million, $26.5 million and $28.1 million for the years ended December 31, 2019,
2018 and 2017, respectively.
Property and Equipment Held for Sale
Certain of the Company’s property and equipment meet the criteria to be classified as assets held for sale. The carrying values of such
assets were $0.3 million and $27.0 million at December 31, 2019 and 2018, respectively, and were reported within Other Assets in the
consolidated balance sheets. For more information on the Company’s policy for accounting for assets held for sale, refer to Note 1 –
Summary of Significant Accounting Policies and Recent Accounting Pronouncements.
Note 6. Operating Leases
Effective January 1, 2019, the Company adopted the amended provisions of Financial Accounting Standards Codification Topic 842,
“Leases,” using the modified retrospective approach, impacting the reporting and disclosures for operating leases. The core principle of
Topic 842 is that a lessee should recognize in the statement of financial position a liability representing the present value of future lease
payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset over the lease term, as well as the
disclosure of key information about operating leasing arrangements. Refer to Note 1 – Summary of Significant Accounting Policies for
a description of the Company’s policy and transition elections.
The Company has operating leases on a number of its branches, certain regional headquarters and other properties to limit its exposure
to ownership risks such as fluctuations in real estate prices and obsolescence. The Company leases real estate with lease terms
generally from five to 20 years, some of which have renewal options from one to 20 years. As these extension options are not
generally considered reasonably certain of renewal, they are not included in the lease term. The Company is not a lessee in any
contracts classified as finance leases.
The following tables present supplemental information pertaining to operating leases at and for the year ended December 31, 2019.
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities for
operating leases
Right of use assets obtained in exchange for lease liabilities
Weighted average remaining lease term (in years)
Weighted average discount rate
Year Ended
December 31,
2019
$
16,027
121,066
December 31,
2019
12.95
3.53 %
103
The following table sets forth the maturities of the Company’s lease liabilities and the present value discount at December 31, 2019.
(dollars in thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Present value discount
Lease liability
$
$
16,382
15,947
15,551
13,973
11,877
89,677
163,407
(35,704 )
127,703
The following table sets forth the components of the Company’s lease expense for the year ended December 31, 2019.
(in thousands)
Operating lease expense
Short-term lease expense
Variable lease expense
Sublease income
Total
December 31,
2019
$
$
18,075
462
46
(322 )
18,261
The Company elected the optional transition method to not restate prior periods. Rental expense under ASC 840 approximated
$18.2 million and $17.0 million for the years ended December 31, 2018 and 2017, respectively.
Note 7. 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 2019 acquisition of MidSouth resulted in
goodwill of $63.4 million and the 2018 acquisition of the trust and asset management business resulted in goodwill of $46.6 million.
The carrying amount of goodwill was $855.5 million and $791.0 million at December 31, 2019 and 2018, respectively. For additional
information regarding changes to the Company’s carrying amount of goodwill, refer to Note 2 – Business Combinations.
The Company completed its annual impairment test of goodwill as of September 30, 2019 by performing a qualitative (“Step Zero”)
assessment. The qualitative assessment involved the examination of changes in macroeconomic conditions, industry and market
conditions, overall financial performance, cost factors and other relevant entity-specific events, including changes in management and
other key personnel and changes in the share price of the Company’s common stock. As a result of the assessment, the Company
concluded that its goodwill was not impaired.
No goodwill impairment charges were recognized during 2019, 2018 or 2017.
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 at December 31, 2019 and 2018
were as follows:
(in thousands)
Core deposit intangibles
Credit card and trust relationships
Merchant processing relationships
Purchase
Value
December 31, 2019
Accumulated
Amortization
Carrying
Value
$
$
247,455
49,962
10,000
307,417
$
$
168,577
22,448
9,585
200,610
$
$
78,878
27,514
415
106,807
104
(in thousands)
Core deposit intangibles
Credit card and trust relationships
Merchant processing relationships
Purchase
Value
December 31, 2018
Accumulated
Amortization
Carrying
Value
$
$
215,955
49,962
10,000
275,917
$
$
151,446
19,564
8,756
179,766
$
$
64,509
30,398
1,244
96,151
Aggregate amortization expense by category of finite lived intangible assets for the years ended December 31, 2019, 2018 and 2017 is
as follows:
(in thousands)
Core deposit intangibles
Credit card and trust relationships
Merchant processing relationships
2019
Years Ended December 31,
2018
2017
$
$
17,132
2,883
829
20,844
$
$
18,566
2,682
802
22,050
$
$
19,442
1,975
1,000
22,417
At December 31, 2019, the weighted-average remaining life of core deposit intangibles was approximately 10 years, and the
weighted-average remaining life of other identifiable intangibles was approximately 15 years.
The following table shows estimated amortization expense of other intangible assets at December 31, 2019 for the five succeeding
years and all years thereafter, calculated based on current amortization schedules.
(in thousands)
2020
2021
2022
2023
2024
Thereafter
$
$
19,916
16,665
14,033
11,557
9,413
35,223
106,807
Note 8. Time Deposits
The following table presents a detail of deposits at December 31, 2019 and 2018:
(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
$
$
2019
2018
8,775,632
8,845,097
$
8,499,027
8,000,092
2,803,912
560,503
3,364,415
2,652,842
165,589
15,027,943
23,803,575
$
2,622,938
383,578
3,006,516
2,416,086
1,228,464
14,651,158
23,150,185
105
The maturity of time deposits at December 31, 2019 follows.
(in thousands)
2020
2021
2022
2023
2024
Thereafter
Total time deposits
$
$
2,841,291
405,102
87,059
20,106
10,212
1,402
3,365,172
Certificates of deposit in amounts greater than or equal to $250,000 totaled approximately $1.4 billion at December 31, 2019.
Note 9. Short-Term Borrowings
The following table presents information concerning short-term borrowing at and for the years ended December 31, 2019 and 2018:
(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,
2019
2018
$
$
$
195,450
49,297
202,933
1.60 %
2.30 %
484,422
493,344
518,042
0.54 %
0.52 %
2,035,000
1,399,503
1,941,774
1.17 %
1.96 %
425
39,968
100,925
2.00 %
2.11 %
428,599
456,000
500,345
0.32 %
0.23 %
1,160,104
1,694,804
2,410,258
2.48 %
2.02 %
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 presented in the consolidated balance sheets. Because the Company acts
as a borrower transferring assets to the counterparty, and the agreements mature daily, the Company’s risk is limited.
The $2.0 billion of FHLB borrowings at December 31, 2019 consists of two notes, one fixed and one variable rate, totaling
$775 million that mature in 2020; three fixed rate non-amortizing puttable notes totaling $800 million that mature in 2034 that are
classified as short-term as the FHLB has the option to put (terminate) the advance prior to maturity; and four variable rate notes
totaling $460 million maturing from 2025 to 2026. These four variable rate notes reset monthly or quarterly and may be repaid at our
option, either in whole or in part at par, on any reset date, subject to advanced notice of no less than two days before the reset date and,
therefore, are classified as short-term borrowings.
106
Note 10. Long-Term Debt
As of December 31, 2019 and 2018, long-term debt was comprised of the following:
(in thousands)
Subordinated notes payable, maturing June 2045
Other long-term debt
Less: unamortized debt issuance costs
Total long-term debt
December 31,
2019
2018
$
$
150,000
87,890
(4,428 )
233,462
$
$
150,000
79,598
(4,605 )
224,993
The following table sets forth unamortized debt issuance costs associated with the respective debt instruments as of December 31,
2019:
(in thousands)
Subordinated notes payable, maturing June 2045
Other long-term debt
Total
Principal
150,000
87,890
237,890
$
$
$
$
Unamortized
Debt
Issuance
Costs
4,428
—
4,428
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.
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 11. Derivatives
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, currently associated with fixed rate
brokered deposits and certain investment securities and select pools of variable rate loans. The Bank also entered into interest rate
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 its 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 or contractual amounts and fair values of the Company’s derivative financial instruments as well
as their classification on the consolidated balance sheets at December 31, 2019 and 2018.
(in thousands)
Derivatives designated
as hedging instruments:
Interest rate swaps -
variable rate loans
Interest rate swaps -
securities
Interest rate swaps -
brokered deposits
Derivatives not designated
as hedging instruments:
Interest rate swaps
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
(2)
Total derivate
assets/liabilities
December 31, 2019
(cid:3)(cid:3)
Derivative (1)(cid:3)
(cid:3)(cid:3)
December 31, 2018
Derivative (1)(cid:3)
(cid:3)(cid:3)
Type
of
Hedge
Notional or
Contractual
Amount
Assets
Liabilities
Notional or
Contractual
Amount
Assets
Liabilities
Cash
Flow
Fair
Value
Fair
Value
$ 1,175,000
$ 24,172
$
337 $ 875,000
$ 3,954
$ 9,173
441,400
1,474
1,759
—
—
—
43,000
$ 1,659,400
—
$ 25,646
9
483,110
$ 2,105 $ 1,358,110
—
$ 3,954
2,089
$ 11,262
N/A
$ 3,759,232
$ 54,512
$ 55,664 $ 2,554,808
$ 23,670
$ 24,669
N/A
254,825
21
45
171,222
10
131
N/A
145,623
651
744
77,208
110
664
N/A
N/A
N/A
83,224
64,632
369
303
375
59,119
366
37,749
464
751
67
718
43,753
$ 4,351,289
$ 6,010,689
—
$ 55,856
$ 81,502
5,704
43,753
$ 62,898 $ 2,943,859
$ 65,003 $ 4,301,969
—
$ 25,005
$ 28,959
7,304
$ 33,553
$ 44,815
(27,056 )
(43,914 )
(11,979 )
(22,588 )
$ 54,446
$ 21,089
$ 16,980
$ 22,227
(1)
(2)
Derivative assets and liabilities are reported in other assets or other liabilities, respectively, in the consolidated balance sheets.
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 swap agreements and paid
termination fees of approximately $10.6 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
$4.1 million and $6.0 million for the years ended December 31, 2019 and 2018, respectively. The notional amounts of the swap
agreements in place at December 31, 2019 expire as follows: $50 million in 2021; $475 million in 2022; $550 million in 2023; $100
million in 2024.
108
Fair Value Hedges of Interest Rate Risk
Interest rate swaps on brokered deposits
The Company enters into 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.
Interest rate swaps on securities available for sale
During the third quarter of 2019, the Company executed multiple forward starting fixed payer swaps to convert the latter portion of
pools of available for sale securities to a floating rate. These instruments were designated as last-of-layer fair value hedges against the
select closed pools of prepayable commercial mortgage backed securities. This strategy provides the Company with a fixed rate
coupon during the front end unhedged tenor of the bonds and results in a floating rate security during the back end hedged tenor, with
hedged start dates between August 2023 through August 2024 and maturity dates from January 2028 through January 2029. In
accordance with ASC 815, an entity may exclude prepayment risk when measuring the change in fair value of the hedged item
attributable to interest rate risk under the last-of-layer approach. The fair value of the hedged item attributable to interest rate risk will
be presented in interest income along with the change in the fair value of the hedging instrument.
At December 31, 2019, the amortized cost basis of the closed portfolio of prepayable commercial mortgage backed securities totaled
$498.3 million. The amount that represents the hedged items was $441.4 million and the basis adjustment associated with the hedged
items totaled $0.3 million.
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. The Bank has not elected to designate these foreign exchange
forward contract derivatives as hedges; as such, changes in the fair value of both the customer derivatives and the offsetting
derivatives are recognized directly in earnings.
109
Visa Class B derivative contract
The Company is a member of Visa USA. 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. At December 31, 2019
and 2018, the fair value of the liability associated with this contract was $5.7 million and $7.3 million respectively. Refer to Note 20 –
Fair Value of Financial Instruments for discussion of the valuation inputs and process for this derivative liability.
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, 2019, 2018 and 2017
are presented in the table below. For the years ended December 31, 2019 and 2018, 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:
Fair value hedges- securities
Cash flow hedges - variable rate loans
Fair value hedges - brokered deposits
All other instruments
Total
Credit Risk-Related Contingent Features
Location of Gain (Loss)
Recognized in the Statement of
Income:
Interest income
Interest income
Interest expense
Other noninterest income
Year Ended December 31,
2019
2018
2017
$
$
1 $
(4,255)
(1,752)
12,958
6,952 $
— $
(4,497)
(2,343)
5,368
(1,472) $
—
(280)
829
5,870
6,419
Certain of the Bank’s derivative instruments contain provisions allowing the financial institution 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. The
Company is not in violation of any such provisions. The aggregate fair value of derivative instruments with credit risk-related
contingent features that were in a net liability position at December 31, 2019 and 2018 was $12.9 million and $0.4 million,
respectively, for which the Company had posted collateral of $12.4 million and $0.3 million, respectively.
Offsetting Assets and Liabilities
The Bank’s derivative instruments with 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. Offsetting information in regards to all derivative assets and liabilities, including accrued
interest subject to these master netting agreements at December 31, 2019 and 2018 is presented in the following tables:
As of December 31, 2019
(in thousands)
Derivative Assets
Derivative Liabilities
Gross
Amounts
Offset in the
Statement of
Financial
Position
Net Amounts
Presented in
the
Statement of
Financial
Position
Gross
Amounts
Recognized
$
$
27,938
56,523
$
$
(27,915 ) $
(44,570 ) $
23
11,953
Gross Amounts Not Offset in the
Statement of Financial Position
Financial
Instruments
$
$
23
23
Cash
Collateral
Net
Amount
$
$
-
35,113
$
$
-
(23,183 )
110
As of December 31, 2018
(in thousands)
Derivative Assets
Derivative Liabilities
Gross
Amounts
Offset in the
Statement of
Financial
Position
Net Amounts
Presented in
the
Statement of
Financial
Position
Gross
Amounts
Recognized
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 )
The Company has excess collateral compared to total exposure due to initial margin requirements for day-to-day rate volatility.
Note 12. Stockholders’ Equity
Common Shares Outstanding
Common shares outstanding exclude treasury shares of 4.0 million and 0.9 million with a first-in-first-out cost basis of $135.8 million
and $18.5 million at December 31, 2019 and 2018, respectively. Shares outstanding also exclude unvested restricted share awards of
1.4 million and 1.3 million at December 31, 2019 and 2018, respectively.
Shares Issued as Consideration in Business Combination
On September 21, 2019, the Company issued 5,044,332 million shares of common stock valued at $193.8 million as consideration in
its acquisition of MidSouth. Refer to Note 2 – Acquisitions and Divestiture for further information.
Stock Buyback Program
On September 23, 2019, the Company’s board of directors approved an amended stock buyback program that authorizes the Company
to repurchase up to 5.5 million shares of its common stock through the expiration date of December 31, 2020. The program, as
amended, allows the Company to repurchase its common shares in the open market, by block purchase, through accelerated share
repurchase programs, in privately negotiated transactions, or as otherwise determined by the Company in one or more transactions.
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.
On October 18, 2019, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC
(“Morgan Stanley”) to repurchase $185 million of the Company’s common stock. Pursuant to the ASR agreement, the Company made
a $185 million payment to Morgan Stanley on October 21, 2019, and received from Morgan Stanley day an initial delivery of
3,611,870 shares of the Company’s common stock, which represented 75% of the estimated total number of shares to be repurchased
based on the October 18, 2019 closing price of the Company’s common stock. The Company is accounting for the ASR as two
separate transactions. The initial delivery of shares totaling $138.8 million were accounted for as treasury shares, and the value of the
remaining shares to be exchanged upon final settlement totaling $46.2 million is being treated as a forward contract. The Company
determined the forward contract meets scope exception provided for in ASC 815-10-15-74(a) and, as such, qualifies for equity
classification.
The final number of shares to be repurchased will be based generally on the volume-weighted average price per share of the
Company’s common stock during the term of the ASR agreement, less a discount, and subject to possible adjustments in accordance
with the terms of the ASR agreement. Because the ASR is uncollared, the Company may be obligated to return a portion of the initial
shares should the average share price increase over the remaining term of the contract. Final settlement of the ASR agreement is
scheduled to occur no later than the third quarter of 2020.
In 2018, under a previous Board-approved stock buyback program in place from May 2018 to September 2019, the Company
repurchased 200,000 shares of its common stock at an average price of $41.30 per share.
111
Accumulated Other Comprehensive Income (Loss)
A roll forward of the components of AOCI is included as follows:
(in thousands)
Balance, December 31, 2016
Net change in unrealized gain (loss)
Reclassification of net loss realized and included in
earnings
Valuation adjustment for employee benefit 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) gain
Reclassification of net 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, 2018
Net change in unrealized gain or loss
Reclassification of net (gain) loss realized and
included in earnings
Valuation adjustment for employee benefit plans
Unrealized loss on securities transferred to available
for sale
Amortization of unrealized net loss on securities
transferred to held to maturity
Income tax expense
Balance, December 31, 2019
Available
for Sale
Securities
HTM
Securities
Transferred
from AFS
Employee
Benefit
Plans
Cash Flow
Hedges
Equity
Method
Investment
$ (28,679 ) $ (14,392 ) $ (72,501 ) $ (4,960 ) $
Total
$ (120,532 )
(425 )
5,801
17,315
—
—
—
—
(10,929 )
3,786
—
4,088
—
25,330
—
— $ (134,402 )
(52,757 )
—
6,903
—
—
—
—
(7,328 )
5,201
600
17,315
—
(10,929 )
—
—
—
1,067
6,669
3,786
1,393
2,586
—
4,228
13,936
—
(2,600 )
2,139
$ (29,512 ) $ (14,585 ) $ (79,078 ) $ (11,227 ) $
—
(697 )
—
—
—
—
—
—
(52,060 )
25,480
—
—
(5,967 )
4,989
(45,198 )
4,497
—
—
—
34,966
(45,198 )
3,296
755
—
(9,040 )
—
866
$ (50,125 ) $ (12,044 ) $ (110,247 ) $ (8,293 ) $
115,413
—
—
—
—
—
—
28,943
9,174
2,398
4,255
—
(13,236 )
13,236
—
—
3,296
—
—
(13,386 )
— $ (180,709 )
143,922
(434 )
—
—
—
13,429
2,398
—
—
23,102
$ 28,950 $
3,153
3,706
—
2,603
—
7,506
639 $ (101,278 ) $ 17,399 $
—
—
3,153
36,917
(434 ) $ (54,724 )
(a)(cid:3)
Represents the reclassification of stranded income tax effects to Retained Earnings upon adoption of ASU 2018-02.
Accumulated Other Comprehensive Income or Loss (“AOCI”) is reported as a component of stockholders’ equity. AOCI can include,
among other items, unrealized holding gains and losses on securities available for sale (“AFS”), including the Company’s share of
unrealized gains and losses reported by a partnership accounted for under the equity method, gains and losses associated with pension
or other post-retirement benefits that are not recognized immediately as a component of net periodic benefit cost, and gains and losses
on derivative instruments that are designated as, and qualify as, cash flow hedges. Net unrealized gains and losses on AFS securities
reclassified as securities held to maturity (“HTM”) also continue to be reported as a component of AOCI and will be amortized over
the estimated remaining life of the securities as an adjustment to interest income. 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 or losses on the cash flow hedge of the variable rate loans described in Note 11 will be
reclassified into income over the life of the hedge. Accumulated other comprehensive loss resulting from the terminated interest rate
swaps will be amortized over the remaining maturities of the designated instruments. Gains and losses within AOCI are net of
deferred income taxes, where applicable.
112
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)
Amortization of unrealized net loss on
securities transferred to HTM
Tax effect
Net of tax
Gain (loss) on sale of AFS securities
Tax effect
Net of tax
Amortization of defined benefit pension and
post-retirement items (b)
Tax effect
Net of tax
Reclassification of unrealized gain (loss) 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.
Regulatory Capital
Year Ended December 31,
2019
2018
Increase (decrease) in affected line
item in the income statement
$
$
(3,153 ) $
713
(2,440 )
—
—
—
(9,174 ) $
2,074
(7,100 )
(110 ) $
25
(85 )
(4,145 )
937
(3,208 )
$
(12,833 ) $
(3,296 ) Interest income
755 Income taxes
(2,541 ) Net income
(25,480 ) Securities transactions
5,720 Income taxes
(19,760 ) Net income
(4,989 ) Other noninterest expense
1,122 Income taxes
(3,867 ) Net income
1,072 Interest income
(244 ) Income taxes
828 Net Income
(5,569 ) Interest income
1,269 Income taxes
(4,300 ) Net income
(30,468 ) Net income
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
since those notifications that management believes would change the classifications. At December 31, 2019 and 2018, the Company
and the Bank were in compliance with all of their respective minimum regulatory capital requirements.
113
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, 2019 and 2018.
($ in thousands)
At December 31, 2019
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
$ 2,584,162
2,640,913
8.76 $ 1,180,163
1,179,194
8.96
4.00 $ 1,475,204
1,473,992
4.00
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, 2018
Tier 1 leverage capital
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
$ 2,584,162
2,640,913
10.50
10.74
$ 1,107,527
1,106,558
4.50 $ 1,599,761
1,598,362
4.50
$ 2,584,162
2,640,913
10.50 $ 1,476,702
1,475,411
10.74
6.00 $ 1,968,936
1,967,214
6.00
$ 2,929,387
2,836,138
11.90
11.53
$ 1,968,936
1,967,214
8.00 $ 2,461,171
2,459,018
8.00
10.00
10.00
$ 2,391,762
2,351,090
10.48 $ 1,026,637
1,025,355
10.32
4.50 $ 1,482,920
1,481,068
4.50
$ 2,391,762
2,351,090
10.48 $ 1,368,849
1,367,140
10.32
6.00 $ 1,825,132
1,822,853
6.00
$ 2,736,276
2,545,604
11.99 $ 1,825,132
1,822,053
11.17
8.00 $ 2,281,415
2,278,566
8.00
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
$ 2,391,762
2,351,090
8.67 $ 1,103,544
1,101,372
8.54
4.00 $ 1,379,430
1,376,715
4.00
Common equity tier 1 (to risk weighted assets)
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. Further, beginning January 1, 2019, a capital
conservation buffer of 2.5% above each of the minimum capital ratio requirements (common equity tier 1, Tier 1, and total risk-based
capital) must be met for a bank or bank holding company to be able to pay dividends.
114
Note 13. 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 11 – 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
Income from derivatives
Other miscellaneous income
Total other noninterest income
Other noninterest expense:
Advertising
Corporate value and franchise taxes
Entertainment and contributions
Telecommunication and postage
Printing and supplies
Travel expenses
Tax credit investment amortization
Other retirement expense
Other miscellaneous expense
Total other noninterest expense
Note 14. Income Taxes
2019
Years Ended December 31,
2018
2017
$
$
$
$
14,946
11,399
12,958
14,635
53,938
15,251
15,949
10,777
14,588
4,947
5,278
4,943
(16,561 )
37,282
92,454
$
$
$
$
12,424
11,065
5,368
14,929
43,786
12,334
13,595
11,359
14,659
5,548
5,338
5,166
(18,661 )
31,355
80,693
$
$
$
$
11,473
11,140
5,870
11,387
39,870
15,031
12,797
8,260
14,686
5,138
5,043
4,850
(15,249 )
31,517
82,073
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
2019
Years Ended December 31,
2018
2017
$
$
12,172 $
6,087
18,259
46,290
810
47,100
65,359 $
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
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 12 – 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.
115
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
Federal/State net operating loss
Lease liability
Other
Gross deferred tax assets
State valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Employee compensation and benefits
Securities
Fixed assets & intangibles
Lease Financing
Right-of-use asset
Other
Gross deferred tax liabilities
Net deferred tax asset (liability)
December 31,
2019
2018
$
$
$
$
$
47,008 $
—
18,717
2,025
—
7,295
29,003
7,893
111,941
(1,415 )
110,526 $
(9,662 ) $
(9,589 )
(48,144 )
(41,565 )
(24,887 )
(14,400 )
(148,247 ) $
(37,721 ) $
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
Reported income tax expense differed from amounts computed by applying the statutory income tax rate of 21% for the years ended
December 31, 2019 and 2018 and 35% for the year ended December 31, 2017 to earnings before income taxes. The primary
differences are due to tax-exempt income, federal and state tax credits, and excess tax benefits from stock-based compensation in
2019. The main source of tax credits has been investments in tax-advantaged 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”) and Low-Income
Housing Tax Credit (“LIHTC”) programs. A summary of the factors that impacted income tax expense follows.
2019
Amount
%
Years Ended December 31,
2018
Amount
%
2017
Amount
%
$
82,475
21.0 % $
80,244
21.0 % $ 107,952
35.0 %
($ 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
Life insurance contracts
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
$
7,204
(10,435 )
(3,901 )
(10,293 )
(842 )
1,895
(1,459 )
—
715
65,359
1.8
(2.7 )
(1.0 )
(2.6 )
(0.2 )
0.5
(0.4 )
—
0.2
16.6 % $
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 %
As of December 31, 2019, the Company had approximately $2.0 million in state tax credit carryforwards that originated in the tax
years from 2015 through 2019 and begin expiring in 2022. These carryforwards are primarily from investments in state NMTC
projects.
In 2019, the Company invested in certain affordable housing project limited partnerships that are qualified low-income housing tax
credit developments. These investments are considered variable interest entities for which the Company is not the primary beneficiary
116
and, therefore, are not consolidated. The tax credits, when realized, will be reflected in the consolidated statement of income as a
reduction of income tax expense. The unamortized portion of the investment is reflected within other assets in the consolidated
balance sheets. The Company’s investments in affordable housing limited partnerships totaled $37.3 million at December 31, 2019.
There were no such investments at December 31, 2018.
The Company had approximately $22.9 million in state net operating loss carryforwards that originated in the tax years 2004 through
2019 and begin expiring in 2024. A valuation allowance has been established for the state net operating loss carryforwards. The
impact of this valuation allowance is immaterial to the financial statements.
The tax benefit of a position taken or expected to be taken in a tax return should be recognized when it is more likely than not that the
position will be sustained on its technical merits. The liability for unrecognized tax benefits was immaterial as of December 31, 2019,
2018 and 2017. The Company does not expect the liability for unrecognized tax benefits to change significantly during 2020. The
Company recognizes interest and penalties, if any, related to income tax matters in income tax expense, and the amounts recognized
during 2019, 2018 and 2017 were insignificant.
The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. Generally,
the returns for years prior to 2016 are no longer subject to examination by taxing authorities.
Note 15. Earnings Per Share
The Company calculates earnings per share using the two-class method. The two-class method allocates net income to each class of
common stock and participating security according to common dividends declared and participation rights in undistributed earnings.
Participating securities consist of nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents
A summary of the information used in the computation of earnings per common share follows.
($ in thousands, except per share data)
Numerator:
Net income to common shareholders
Net income allocated to participating securities -- basic and diluted
Net income allocated to common shareholders - basic and diluted
Denominator:
Weighted-average common shares - basic
Dilutive potential common shares
Weighted average common shares - diluted
Earnings per common share:
Basic
Diluted
2019
Years Ended December 31,
2018
2017
$
$
$
$
327,380
5,546
321,834
$
$
323,770 $
5,930
317,840 $
215,632
4,670
210,962
86,488
111
86,599
85,355
166
85,521
3.72
3.72
$
$
3.72
$
3.72 $
84,695
268
84,963
2.49
2.48
Potential common shares are excluded from the computation of diluted earnings per share when their inclusion would have had an
anti-dilutive effect. Potential common shares can consist of, among other forms, employee and director stock options, unvested
performance share awards, and deferred restricted units. Weighted-average anti-dilutive potential common shares of this nature totaled
15,815 for the year ended December 31, 2019, 5,129 for the year ended December 31, 2018, and 10,551 for the year ended
December 31, 2017.
The diluted earnings per share computation for the year ended December 31, 2019 also excludes the impact of the forward contract
related to the October 21, 2019 accelerated share repurchase transaction. Based upon the average daily volume weighted-average price
of the Company’s common stock at December 31, 2019, the counterparty to the transaction is expected to deliver additional shares for
the settlement of the forward contract upon settlement; as such, the impact of the forward contract related to the accelerated share
repurchase transaction would have been anti-dilutive to earnings per share.
117
Note 16. 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.
118
Note 17. 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 totaled less than 55 were to be frozen as of January 1,
2018 and not thereafter increase.
The Company makes contributions to this 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 2019 or 2018. 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 a discretionary contribution to the Pension
Plan in 2020.
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 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 $15.7 million, $14.6 million and $8.4 million for the years ended December 31,
2019, 2018 and 2017, 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. The plans assumed a 7.25%
and(cid:3)7.5% increase in health costs for 2019 and 2018 respectively, declining to 6.25% in 2019 and(cid:3)6.75% in 2018 uniformly over a(cid:3)
four year(cid:3)period, and then following the Getzen model thereafter. At December 31, 2019, 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-2019. 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.
119
The following tables detail the changes in the benefit obligations and plan assets of the defined benefit plans for the years ended
December 31, 2019 and 2018 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
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
$
$
$
$
2019
2018
2019
2018
Pension Benefits
Other Post-
Retirement Benefits
(cid:3)(cid:3) (cid:3)(cid:3)
492,017 (cid:3)(cid:3) $
10,981 (cid:3)(cid:3)
18,843 (cid:3)(cid:3)
— (cid:3)(cid:3)
81,166 (cid:3)(cid:3)
(21,141 ) (cid:3)(cid:3)
581,866
542,618
130,745
101,165
—
(21,141 )
(1,249 )
752,138
170,272 $
513,844 $
12,414
16,762
—
(30,796 )
(20,207 )
492,017
564,365
(40,491 )
40,138
—
(20,207 )
(1,187 )
542,618
50,601 $
149,470 (cid:3)(cid:3) $
(13,218 )
136,252 $
581,866 $
550,005
752,138
102,978 $
46,492
149,470 $
492,017
467,300
542,618
(cid:3)(cid:3) (cid:3)(cid:3)
16,283 (cid:3)(cid:3) $
95 (cid:3)(cid:3)
621 (cid:3)(cid:3)
547 (cid:3)(cid:3)
733 (cid:3)(cid:3)
(1,566 ) (cid:3)(cid:3)
16,713
(cid:3)(cid:3)(cid:3)(cid:3)
— (cid:3)(cid:3)
— (cid:3)(cid:3)
1,019 (cid:3)(cid:3)
547 (cid:3)(cid:3)
(1,566 ) (cid:3)(cid:3)
— (cid:3)(cid:3)
—
(16,713 ) $
(cid:3)(cid:3)(cid:3)(cid:3)
(7,015 ) (cid:3)(cid:3) $
1,646 (cid:3)(cid:3)
(5,369 ) $
23,036
120
621
628
(6,717 )
(1,405 )
16,283
(cid:3)(cid:3)
—
—
777
628
(1,405 )
—
—
(16,283 )
(cid:3)(cid:3)
(732 )
(6,283 )
(7,015 )
The net funded status of $170.3 million for pension benefits plans includes an excess of plan assets over the benefit obligation of
$185.8 million on the defined benefit pension plan, offset by an unfunded benefit obligation of $15.5 million for the nonqualified
retirement plan.
120
The following table shows net periodic benefit cost included in expense and the changes in the amounts recognized in AOCI during
2019, 2018, and 2017.
Years Ended December 31,
($ 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
Discount rate for benefit obligations
Discount rate for net periodic benefit cost
Expected long-term return on plan assets
Rate of compensation increase
2019
2018
Pension Benefits
2017
2019
2018
Other Post-Retirement Benefits
2017
$ 10,981 $ 12,414 $ 15,381 $
16,762
(41,033 )
5,423
(6,434 )
16,514
(37,632 )
5,554
(183 )
18,843
(45,199 )
10,087
(5,288 )
95 $
621
—
(913 )
(197 )
120 $
621
—
(434 )
307
129
668
—
(353 )
444
(10,087 )
(3,131 )
(5,423 )
51,915
(5,554 )
(7,378 )
913
733
434
(6,717 )
353
993
(13,218 )
46,492
(12,932 )
1,646
(6,283 )
1,346
$ (18,506 ) $ 40,058 $ (13,115 ) $ 1,449 $ (5,976 ) $ 1,790
3.14 %
4.14 %
7.25 %
4.14 %
3.57 %
7.25 %
3.57 %
4.10 %
7.25 %
scaled *
scaled **
scaled **
3.11 %
4.10 %
n/a
n/a
4.10 %
3.52 %
n/a
n/a
3.52 %
3.95 %
n/a
n/a
*
**
Graded scale, declining from 7.25% at age 20 to 2.25% at age 60
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 2019 and 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, 2019:
(in thousands)
2020
2021
2022
2023
2024
2025-2029
.
Pension
$
22,974
Post-Retirement
$
849
$
24,016
25,163
26,130
27,414
156,055
281,752 $
$
888
855
876
855
4,376
8,699 $
Total
23,823
24,904
26,018
27,006
28,269
160,431
290,451
The expected benefit payments are estimated based on the same assumptions used to measure the Company’s benefit obligations at
December 31, 2019.
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 $5.1 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, 2019:
(in thousands)
Aggregated service and interest cost
Postretirement benefit obligation
1% Decrease
in Rates
Assumed
Rates
1% Increase
in Rates
$
642 $
15,031
715 $
16,712
806
18,780
121
The fair values of pension plan assets at December 31, 2019 and 2018, 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
Exchange Traded Fund (ETF)-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
Level 2
Level 3
Total
December 31, 2019
2,574 $
2,574
23,450
34,652
3,134
61,236
88,174
236,436
324,610
388,420
—
—
388,420 $
— $
—
45,951
—
45,951
—
45,951
—
—
45,951 $
— $
—
—
—
—
—
—
—
—
—
— $
2,574
2,574
69,401
34,652
3,134
107,187
88,174
236,436
324,610
434,371
258,572
59,195
752,138
Level 1
Level 2
Level 3
Total
December 31, 2018
8,643 $
8,643
19,856
31,556
51,412
80,813
150,466
231,279
291,334
—
—
291,334 $
— $
—
97,025
—
97,025
6
—
6
97,031
—
—
97,031 $
— $
—
—
145
145
—
—
—
145
—
—
145 $
8,643
8,643
116,881
31,701
148,582
80,819
150,466
231,285
388,510
125,706
28,402
542,618
$
$
$
$
The following table presents the percentage allocation of the plan assets by asset category and corresponding target allocations at
December 31, 2019 and 2018.
Asset category
2019
2018
2019
2018
Plan Assets
at December 31,
Target Allocation
at December 31,
Cash and equivalents
Fixed income securities
Equity securities
Real assets
0 %
49
43
8
100 %
1 %
51
43
5
100 %
0 - 5%
41 - 57%
35 - 51%
0 - 12%
0 - 5%
35 - 63%
35 - 51%
0 - 12%
122
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 18. 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.
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, 2019 there were 0.4 million shares available for future issuance under the 2014 equity compensation plan.
For the years ended December 31, 2019, 2018 and 2017, total share-based compensation recognized in income was $20.9 million,
$19.8 million and $17.6 million, respectively. The total recognized tax benefit related to the share-based compensation was
$5.5 million, $5.8 million and $13.3 million for 2019, 2018 and 2017, respectively.
A summary of stock option activity for 2019 is presented below:
Options
Outstanding at January 1, 2019
Former MidSouth options converted at acquisition
Exercised/Released
Cancelled/Forfeited
Expired
Outstanding at December 31, 2019
Exercisable at December 31, 2019
Number of
Shares
Weighted-
Average
Exercise
Price ($)
46,685 $
20,530
(23,365 )
—
(15,305 )
28,545 $
28,545 $
31.88
46.76
33.06
—
45.85
34.11
34.11
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value ($000)
2.6 $
2.2 $
2.2 $
164
—
180
—
6
296
296
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 the years ended December 31, 2019, 2018 and 2017 was $0.2 million,
$0.6 million and $4.3 million, respectively.
123
A summary of the Company’s nonvested restricted and performance shares for the year ended December 31, 2019 is presented below:
Nonvested at January 1, 2019
Granted
Vested
Cancelled/Forfeited
Nonvested at December 31, 2019
Number of
Shares
$
1,494,041
694,377
(525,166 )
(66,994 )
1,596,258
$
Weighted-
Average
Grant-Date
Fair Value ($)
39.89
39.85
38.20
39.88
40.43
As of December 31, 2018, there was $58.6 million of total unrecognized compensation expense related to nonvested restricted and
performance shares expected to vest in future periods. 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 2019 and 2018 was $20.1 million and $26.2 million,
respectively.
In 2019, the Company granted 33,691 performance shares subject to a total shareholder return (“TSR”) performance metric with a
grant date fair value of $35.27 per share and 33,691 performance shares subject to an operating earnings per share performance metric
with a grant date fair value of $32.15 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 42 regional banks. The fair value of the performance shares subject to TSR at the
grant date was determined using a Monte Carlo simulation method. The number of performance shares subject to operating earnings
per share that ultimately vest will be based on the Company’s attainment of certain operating 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 is recognized on a straight-line basis over the three-year service period.
Note 19. 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.
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. At December 31, 2019, the Company had a reserve for unfunded lending commitments
totaling $4.0 million. The Company’s off-balance sheet financial instruments are summarized below:
(in thousands)
Commitments to extend credit
Letters of credit
$
December 31,
2019
7,530,143 $
393,284
2018
7,234,528
365,498
124
Legal Proceedings
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.
Note 20. Fair Value Measurements
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 and Liabilities 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.
Total recurring fair value measurements - liabilities
(1)
For further disaggregation of derivative assets and liabilities, see Note 11 – 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)
(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)
Level 1
Level 2
Level 3
Total
December 31, 2019
$
$
$
$
98,672 $
249,805
7,988
1,924,157
1,586,467
808,215
4,675,304
54,446
— $
—
—
—
—
—
—
—
— $ 4,729,750 $
—
— $
$
—
15,385 $
15,385 $
98,672
— $
249,805
—
7,988
—
1,924,157
—
1,586,467
—
808,215
—
4,675,304
—
—
54,446
— $ 4,729,750
—
5,704 $
$
5,704
21,089
21,089
Level 1
Level 2
Level 3
Total
December 31, 2018
$
$
$
$
— $
—
—
—
—
—
—
—
—
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
Total recurring fair value measurements - liabilities
(1)
For further disaggregation of derivative assets and liabilities, see Note 11 – Derivatives.
125
Securities classified as level 2 include obligations of U.S. Government agencies and U.S. Government-sponsored agencies, residential
and commercial mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government
agencies, and state and municipal bonds. The level 2 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 and a half years. Company policies generally limit U.S.
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 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, all 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. 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 11 – 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, 2019 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)
Balance at December 31, 2017
Entry into derivative contract
Balance at December 31, 2018
Cash settlements
Losses included in earnings
Balance at December 31, 2019
$
$
—
7,304
7,304
(1,900 )
300
5,704
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.
126
Level 3 Class
Fair Value at
December 31, 2019
Fair Value at
December 31, 2018
Valuation
Techniques
Other Derivative Liability
$
5,704 $
7,304
Discounted cash
flow
Unobservable
Input
VISA Class A
Appreciation
Conversion rate
Time until resolution
Values
Utilized
6.0% - 18.0%
1.62x - 1.59x
24 - 48 months
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 and foreclosed assets, including both foreclosed property and surplus banking property, are level 3 assets that
are adjusted to fair value, less estimated selling costs, upon transfer from loans or property and equipment. Subsequently, other real
estate owned and foreclosed assets 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 assets.
The fair value information presented below is not as of the period end, rather it was as of the date the fair value adjustment was
recorded during the twelve months for each of the dates presented below, and excludes nonrecurring fair value measurements of assets
no longer on the balance sheet.
The following table presents the Company’s financial assets that are measured at fair value on a nonrecurring basis for each of the fair
value hierarchy levels:
(in thousands)
Collateral dependent impaired loans
Other real estate owned and foreclosed assets
Total nonrecurring fair value measurements
(in thousands)
Collateral dependent impaired loans
Other real estate owned
Total nonrecurring fair value measurements
Level 1
December 31, 2019
Level 2
182,377 $
—
182,377 $
— $
—
— $
Level 3
— $
24,422
24,422 $
Total
182,377
24,422
206,799
Level 1
December 31, 2018
Level 2
170,918 $
—
170,918 $
— $
—
— $
Level 3
— $
14,594
14,594 $
Total
170,918
14,594
185,512
$
$
$
$
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 these 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
127
(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 was discussed earlier in the
note.
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, 2019 and 2018.
(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 short-term borrowings
Long-term debt
Derivative financial instruments
Level 1
Level 2
Level 3
Total
Fair Value
Carrying
Amount
December 31, 2019
$ 542,333 $
— $
—
—
—
—
—
4,675,304
1,611,004
182,377
55,864
54,446
542,333 $
— $
—
—
20,861,702
—
—
4,675,304
1,611,004
21,044,079
55,864
54,446
542,333
4,675,304
1,568,009
21,021,504
55,864
54,446
$
— $
195,450
484,422
2,035,000
—
—
— $ 23,786,775 $ 23,786,775 $ 23,803,575
195,450
—
484,422
—
2,035,000
—
233,462
226,098
21,089
15,385
195,450
484,422
2,035,000
226,098
21,089
—
—
—
—
5,704
December 31, 2018
Level 1
Level 2
Level 3
Total
Fair Value
Carrying
Amount
$ 494,466 $
— $
494,466 $
—
—
—
—
—
2,961,037
2,935,856
170,918
28,150
16,980
— $
—
—
19,555,969
—
—
2,961,037
2,935,856
19,726,887
28,150
16,980
—
494,466
2,691,037
2,979,547
19,831,897
28,150
16,980
— $ 23,129,574 $ 23,129,574 $ 23,150,185
425
—
428,599
—
1,160,104
—
224,993
223,135
22,227
14,923
425
428,599
1,160,104
223,135
22,227
—
—
—
—
7,304
$
— $
425
428,599
1,160,104
—
—
128
Note 21. 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
Investment in bank subsidiaries
Investment in non-bank subsidiaries
Due from subsidiaries and other assets
Total sssets
Liabilities and Stockholders' Equity:
Long term debt
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
December 31,
2019
2018
$
$
$
$
57,943 $
3,524,029
23,498
9,101
3,614,571 $
145,572 $
1,314
3,467,685
3,614,571 $
153,939
3,040,186
26,274
6,868
3,227,267
145,396
531
3,081,340
3,227,267
Condensed Statements of Income
(in thousands)
Operating Income
From subsidiaries
Cash dividends received from bank subsidiaries
Cash dividend from nonbank Subsidiary
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
2019
Years Ended December 31,
2018
2017
$
$
$
240,000 $
5,000
—
94,185
339,185
(15,635 )
(3,830 )
327,380 $
125,985
453,365 $
200,000 $
—
—
137,914
337,914
(18,728 )
(4,584 )
323,770 $
(46,307 )
277,463 $
90,000
—
11,708
124,531
226,239
(16,931 )
(6,324 )
215,632
11,460
227,092
129
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
Net cash received in acquisition
Proceeds from sale of securities available for sale
Proceeds from principal paydowns of securities available for sale
Other, net
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
Payment accelerated share repurchase agreement
Other, net
Net cash used in financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
2019
Years Ended December 31,
2018
2017
$
255,322 $
255,322
216,270 $
216,270
111,591
111,591
(50,000 )
38,505
—
—
(1,874 )
(13,369 )
(13,919 )
(94,871 )
—
4,265
(6,295 )
(185,000 )
(42,129 )
(337,949 )
(95,996 )
153,939
$
57,943 $
—
—
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
130
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, 2019.
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, 2019 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, 2019.
There was no change in the Company’s internal control over financial reporting that occurred during the fourth quarter of 2019 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 29, 2020, at
10:30 a.m. Central Daylight Time at Hancock Whitney Plaza, 2510 14th Street, Gulfport, Mississippi.
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 2020 annual meeting of the shareholders under the caption, “Information about Our Directors.” Information
concerning compliance with Section 16(a) of the Exchange Act will appear in our proxy statement under the caption, “Delinquent
Section 16(a) Reports.” 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.
131
ITEM 11. EXECUTIVE COMPENSATION
Information concerning our executive and director compensation will appear in our definitive proxy statement relating to our 2020
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 2021 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 2020 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 2020
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 2020
annual meeting of shareholders under the caption “Independent Registered Public Accounting Firm.” Such information is incorporated
herein by reference.
132
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, 2019 and 2018
Consolidated Statements of Income – Years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Other Comprehensive Income – Years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Changes in Stockholders’ Equity– Years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows –Years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements – December 31, 2019
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.
133
Exhibit
Number
2.1
2.2
3.1
3.2
4.1
4.2
*10.4
*10.5
*10.10
*10.11
*10.13
*10.14
*10.18
*10.20
*10.25
*10.26
*10.27
*10.28
*10.31
EXHIBIT INDEX
Description
Purchase agreement by and between Hancock Whitney Corporation and MidSouth Bancorp, Inc., dated as of April 30,
2019 (filed as exhibit 2.1 to the Company’s form 8-K (File No. 001-36872) filed with the Commission on May 2, 2019
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.
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).
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 filed with the Commission on November 2, 2018 (File No.001-
36872) and incorporated herein by reference).
Amendment to 2010 Employee Stock Purchase Plan, dated December 15, 2011 and effective January 1, 2011 (filed as
Exhibit 10.15 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 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).
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).
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).
134
**21.1
Subsidiaries of the Company.
**23.1
Consent of PricewaterhouseCoopers, LLP.
**31.1
**31.2
**32.1
**32.2
101
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.
The following financial information from Hancock Whitney Corporation's Annual Report on Form 10-K for the year
ended December 31, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) the
Cover Page (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Income, (iv) the Consolidated
Statements of Comprehensive Income, (v) the Consolidated Statements of Changes in Stockholders’ Equity, (vi) the
Consolidated Statements of Cash Flows, and (vii) the Notes to Consolidated Financial Statements, tagged in summary
and detail..
104
Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).
*
**
Compensatory plan or arrangement.
Filed with this Form 10-K.
135
ITEM 16. FORM 10-K SUMMARY
Not applicable.
136
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
February 24, 2020
Date
February 24, 2020
Date
February 24, 2020
Date
HANCOCK WHITNEY CORPORATION
Registrant
By: /s/ John M. Hairston
John M. Hairston
President & Chief Executive Officer
(Principal Executive Officer)
By: /s/ Michael M. Achary
Michael M. Achary
Senior Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
By: /s/ Stephen E. Barker
Stephen E. Barker
Executive Vice President, Senior Accounting and Finance
Executive
(Principal Accounting Officer)
137
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/ Jerry L. Levens
Jerry L. Levens
/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/ Constantine S. Liollio
Constantine S. Liollio
/s/ Sonya C. Little
Sonya C. Little
/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/ Richard Wilkins
C. Richard Wilkins
Chairman of the Board, Director
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
138
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Earnings Per Share – Diluted
$3.72 $3.72
$2.48
$1.87
$1.64
PPNR(TE)(a)
Hancock Whitney Corporation
(in millions)
Financial Highlights
$434.4
$455.2
$401.8
$323.4
(Dollars in thousands, except per share amounts)
$256.4
INCOME STATEMENT DATA
Net income
Net interest income (TE)*
2015
2016
2017
2018
2019
COMMON SHARE DATA
Earnings per share – diluted
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Pre-provision net revenue (PPNR) (TE) (a)
$455,221
$434,409
Earnings Per Share
(Operating)*
Up 127%
2019
$3.99
$4.01
2018
$2.89
$1.77
$327,380
$1.91
$909,991
$323,770
$865,015
$3.72
$39.62
$3.72
$35.98
Return on Average Assets
$28.63
$25.62
(Operating)*
Earnings Per Share
$1.08
$1.02
1.25%
(Operating)*
1.21%
$4.01
$1.77
$1.91
$6,243,313
$5,670,584
2015
$21,212,755
2016
2017
$20,026,411
2018
2019
$30,600,757
$28,235,907
$23,803,575
$23,150,185
$3,467,685
$3,081,340
Return on Average Assets
(Operating)*
1.12%
9.91%
3.44%
0.96%
11.04%
3.38%
57.77%
+54 bps
0.97%
8.02%
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
1.3
1.2
4.5
1.1
0.9
3.5
0.8
3.0
0.7
0.6
2.5
0.5
2.0
0.4
1.5
1.0
1.3
1.21%
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
Earnings Per Share – Diluted
PPNR(TE)(a)
Total Loans
(in billions)
(in millions)
$3.72 $3.72
$21.2
$434.4
$455.2
$20.0
25
500
Book value per share (period-end)
Tangible book value per share (period-end)
Total Deposits
PPNR(TE)(a)
(in billions)
(in millions)
Cash dividends per share
Earnings Per Share
$23.2 $23.8
$22.3
$455.2
Market data
$19.4
$401.8
$434.4
(Operating)*
Earnings Per Share – Diluted
$3.72 $3.72
$2.48
$1.87
$1.64
$401.8
$19.0
$2.48
$15.7
$16.8
$323.4
$256.4
$1.64
$1.87
20
400
$18.3
4.5
4.0
High sales price
$323.4
Up 127%
15
300
Low sales price
$256.4
3.5
Period-end closing price
$2.89
$3.99
$4.01
1.0
4.0
$44.74
Up 127%
0.96%
$33.63
$43.88
$56.40
$3.99
$32.59
+54 bps
$34.65
0.67%
0.66%
$2.89
2.5
PERIOD-END BALANCE SHEET DATA
2015
2016
2017
2018
2019
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
2019
2019
2019
1.0
2015
2015
Earning assets
2016
2017
2016
2017
2015
2016
2018
2018
2017
2019
2019
2018
2019
2015
$27,622,161
2016
$25,836,239
2018
2017
2019
10
200
3.0
5
100
0
0
2.0
1.5
Securities
$1.77
$1.91
Loans
Total assets
Total deposits
Earnings Per Share – Diluted
Total Loans
(in billions)
$3.72 $3.72
$21.2
$20.0
$19.0
$16.8
$15.7
$2.48
$1.87
$1.64
PPNR(TE)(a)
Total Loans
Total Deposits
(in millions)
(in billions)
(in billions)
$22.3
$434.4
$20.0
$401.8
$19.4
$19.0
$23.2 $23.8
$455.2
$21.2
$18.3
$323.4
$16.8
$15.7
300
15
15
$256.4
Common stockholders’ equity
Total Deposits
Return on Average Assets
(in billions)
PERFORMANCE RATIOS
Earnings Per Share
(Operating)*
$23.2 $23.8
Return on average assets
(Operating)*
$22.3
1.25%
$19.4
$18.3
Return on average common equity
Up 127%
$3.99
$4.01
Net interest margin (TE)*
0.96%
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
2019
2019
2019
Total Loans
(in billions)
Total Deposits
(in billions)
$23.2 $23.8
$22.3
Return on Average Assets
(Operating)*
1.25%
1.21%
$20.0
$19.0
$21.2
$19.4
$18.3
$16.8
$15.7
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
*Taxable equivalent (TE) amounts are calculated using a federal income tax rate of 21% for years ended
December 31, 2018 and December 31, 2019 and 35% for all other years presented.
0.96%
(a) Pre-provision net revenue is net interest income (TE)* and noninterest income less noninterest expense.
+54 bps
Management believes that PPNR is a useful financial measure because it enables investors to assess the
0.67%
0.66%
company’s ability to generate capital to cover credit losses through a credit cycle.
(b) The efficiency ratio is noninterest expense to total net interest income (TE)* and noninterest income,
excluding amortization of purchased intangibles and nonoperating items.
2015
2016
2017
2018
2019
(c) The tangible common equity ratio is common stockholders’ equity less intangible assets divided by total
assets less intangible assets.
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
25
4.0
3.5
3.0
20
2.5
15
2.0
10
1.5
5
1.0
0.5
0.0
0
25
20
15
10
5
0
500
400
300
200
100
0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
25
1.3
1.2
1.1
1.0
4.5
20
4.0
15
3.5
0.9
10
0.8
3.0
2.5
0.7
0.6
2.0
5
0.5
1.5
0.4
0
1.0
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
25
500
4.0
20
3.5
400
3.0
15
300
2.5
2.0
10
200
1.5
5
1.0
100
0.5
0
0
0.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
500
25
25
400
20
20
200
10
10
100
5
0
0
5
0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
25
20
15
10
5
0
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 29, 2020, 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
Subsidiaries of Hancock Whitney Corporation
Hancock Whitney Investment Services, Inc.
Hancock Whitney Bank
Hancock Whitney Equipment Finance, LLC
Hancock Whitney Equipment Finance and Leasing, LLC
Hancock Whitney New Markets Fund, 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
Efficiency ratio (b)
$2.89
+54 bps
0.67%
Allowance for loan losses as percent of period-end loans
0.66%
0.67%
Tangible common equity ratio (c)
$1.91
$1.77
Return on average tangible common equity
2015
2016
2017
2018
2019
2015
Leverage (Tier 1) ratio
2015
2015
2016
2016
2017
2018
2017
2019
2018
2019
58.50%
0.66%
0.90%
8.45%
13.66%
2016
8.76%
1.25%
1.17%
1.21%
Stockholders may also contact the company directly by emailing
shareholderservices@hancockwhitney.com.
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:
2017
15.62%
2018
8.67%
2019
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Cash Dividend Direct Deposit
Stockholders may elect to have their Hancock Whitney Corporation dividends
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
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
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
Thomas H. Olinde
Christine L. Pickering
Robert W. Roseberry
Joan C. Teofilo
C. Richard Wilkins
Corporate & Affiliate Bank Officers
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
Joseph S. Exnicios
President, Hancock Whitney Bank
Miles S. Milton
Chief Wealth Management Officer
D. Shane Loper
Chief Operating Officer
Stephen E. Barker
Sr. Accounting & Finance
Executive
Joy Lambert Phillips
General Counsel &
Corporate Secretary
Joseph S. Schwertz, Jr.
Chief Risk Officer
Joshua R. Caldwell
Chief Internal Auditor
Suzanne C. Thomas
Chief Credit Approval Officer
Cindy S. Collins
Chief Compliance Officer
Rudi Hall Wetzel
Chief Human Resources Officer
Michael K. Dickerson
Subsidiary Business Lines
Executive
Alan M. Ganucheau
Treasurer
Christopher S. Ziluca
Chief Credit Officer
*Independent Chairman of the Board
Honor & Integrity
Strength & Stability
Commitment to Service
Teamwork
Personal Responsibility
Hancock Whitney Corporation
2019 Annual Report
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hancockwhitney.com
Your Dream. Our Mission.