Hancock Whitney: Shares Remain Cheap Despite Lackluster Volume Growth

Hancock Whitney (HWC) shares have risen approximately 12% recently, mirroring the regional bank sector, driven by strong EPS growth of 12% in Q3 and resilient credit quality with lower provisions and a low net charge-off ratio. Despite sluggish net interest income and volume growth, the bank benefited from an improved net interest margin and increased non-interest revenue, partly due to M&A. HWC maintains a robust 14.1% Common Equity Tier 1 ratio, enabling significant share repurchases and providing flexibility for increased shareholder returns or future strategic growth initiatives. The stock trades at less than 10x forward earnings and below its long-run tangible book value, suggesting an attractive valuation despite ongoing volume challenges.

Analysis

Hancock Whitney (HWC) shares have returned approximately 12%, mirroring the regional bank sector, despite recent declines. The bank reported strong Q3 EPS growth of 12% year-on-year to $1.49, contributing to a 7.5% year-to-date EPS growth of $4.17. This performance implies an attractive sub-10x price/earnings ratio and a valuation of less than 1.4x tangible book value ($41.07/share), a double-digit discount to its long-run average.

Credit quality remains robust, with a Q3 net charge-off ratio of just 0.19% and a 6% year-over-year reduction in year-to-date credit loss provisions to $38 million. While net interest income (NII) growth was lackluster, up only 3% year-on-year in Q3 to $279.7 million, the net interest margin (NIM) expanded by 10bps to 3.49%. This NIM expansion is supported by the repricing of fixed-rate assets, including its $8.4 billion securities portfolio.

Despite muted volume growth, Hancock's pre-provision earnings grew 6% year-on-year to $173 million in Q3. The bank maintains a very strong Common Equity Tier 1 (CET1) ratio of 14.1%, significantly above its 11-11.5% target, indicating approximately $700 million in surplus capital. This capital strength facilitates substantial shareholder returns, with $40 million in share repurchases last quarter, and provides flexibility for future loan growth or strategic M&A, such as the recent Sabal Trust Company acquisition.

Key Decisions for Investors

• Investors should consider HWC's attractive valuation, trading at less than 10x forward earnings and a discount to tangible book value, especially given its strong Q3 EPS growth.
• Monitor HWC's net interest income and loan volume growth, as these remain weak points despite positive NIM expansion and robust credit quality.
• Evaluate the potential for increased shareholder returns or strategic growth initiatives, given the bank's significant surplus capital (14.1% CET1 ratio) and recent M&A activity.
• Remain vigilant regarding credit risk and interest rate sensitivity, as a downturn or aggressive Fed rate cuts could impact profitability despite current strong asset quality.