# HANCOCK WHITNEY CORP (HWC) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HANCOCK WHITNEY CORP's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/750577/000156459022007023/hwc-10k_20211231.htm
Accession: 0001564590-22-007023
Filing date: 2022-02-25
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/HWC/
All MD&A years: /company/HWC/mda/
Next year: /company/HWC/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The objective of this discussion and analysis is to provide material information relevant to the assessment of the financial condition and results of operations of Hancock Whitney Corporation and subsidiaries during the year ended December 31, 2021 and selected prior periods, including an evaluation of the amounts and certainty of cash flows from operations and outside sources. 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 Table 1. “Consolidated Financial Results” and Table 28. “Quarterly Consolidated Financial Results” of this section. 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 included below.

Consistent with the provisions of Subpart 229.1400 of Regulation S-K, “Disclosures by Bank and Savings and Loan Registrants,” 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 interest income from certain loans and investments using the statutory federal tax rate (21% for all periods presented) to increase tax-exempt interest income to a taxable-equivalent basis. This measure is 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 revenue and pre-provision net revenue are useful financial measures because it enables investors and others to assess the Company’s performance period over period and management’s success in executing its strategic initiatives, as well as measuring the ability to generate capital to cover credit losses through a credit cycle.

EXECUTIVE OVERVIEW

We are pleased to report that 2021 was a record year for our company despite the ongoing challenges of the pandemic. Our associates were steadfast and resilient in in their service to clients and to each other as we worked to gain efficiency and build momentum through the year. At December 31, 2021, our assets grew to $36.5 billion and our capital remained strong. We ended the year with loans and deposits totaling $21.1 billion and $30.5 billion, respectively. Our credit metrics improved greatly and are now among the best in class relative to our peers. The work we started pre-pandemic and continue today to improve technology, grow revenues and control expenses, coupled with de-risking efforts from 2020, have helped us achieve strong operating results for 2021 and we believe sets a path for a strong 2022.  

Current Economic Environment

During the past year, the COVID-19 pandemic continued to have a profound effect upon the cycle of commerce, as individuals, businesses and governments continue to grapple with economic disruption. While there were no widespread or pervasive restrictions on social or business practices in place similar to those instituted in early 2020, the emergence of two notable variants of the virus, Delta and Omicron, resulted in mid and late year surges in illness. These surges strained healthcare delivery in many areas in the U.S. and prompted certain localized mandated mitigation measures and other voluntary responses, such as quarantines/new virus containment protocols, leisure and business event cancellations and vaccine-for-entry requirements. Supply chain disruption and labor shortages intensified during the period, leading to inflationary conditions, with the U.S. experiencing a 7% annual increase in the consumer price index during 2021.

Following the largest contraction in nearly a century brought on by the pandemic, the U.S. economy experienced the strongest annual growth in almost four decades in 2021. The efficacy of vaccines at preventing serious illness and death from the coronavirus

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allowed for the return of many social/leisure and business practices, and, coupled with ongoing and new stimulus initiatives, spurred meaningful growth in economic activity. According to the U.S. Bureau of Labor Statistics, the rate of unemployment fell to 3.9% at December 31, 2021, from 6.7% a year earlier. Based on advanced estimates of the Bureau of Economic Analysis, Real Gross Domestic Product (“GDP”) increased 5.7% in 2021, compared to a decrease of 3.4% in 2020. GDP increased at an annual rate of 6.9% in the fourth quarter of 2021, following an increase of 2.3% in the third quarter. The acceleration in the fourth quarter was led by an upturn in exports as well as increases in inventory investment and consumer spending. However, surges in COVID-19 cases resulting from variants created disruptions in the operations of establishments in some parts of the country, and government assistance in the forms of forgivable loans to business, grants to state and local governments and social benefits to households have decreased as provisions of several federal aid programs have expired or tapered off.

While we have seen promising signs of economic recovery, challenges, some unique to the financial services industry, remain. Customer deposit balances remain elevated and with the cash inflows from the forgiveness of the Small Business Administration’s Paycheck Protection Program (PPP) loans, excess liquidity remains on our balance sheet. Amid the prolonged low interest rate environment, the deployment of excess liquidity into lower-yielding investments resulted in the compression of our net interest margin in 2021. We saw improvement in demand in 2021 in our core loan portfolio, which excludes PPP loans, especially in the fourth quarter. Although loan pricing pressure continued, core loan growth was across most regions and in our equipment finance and healthcare specialty business lines.

Parts of our footprint were further affected by Hurricane Ida, a major hurricane that made landfall in late August in Southeast Louisiana. Along with personal and commercial property damage in some hard-hit areas, extensive damage to the region’s energy grid resulted in extended power outages for a portion of our market. The effects of the storm prompted temporary evacuation for many residents and unplanned closures of businesses, schools, and other essential services. As a result, supply chain and labor constraints already present were exacerbated, and many events that foster leisure and business tourism were canceled or postponed. Certain of our fee income categories, such as ATM fees and secondary mortgage market operations, were temporarily impacted by Hurricane Ida’s disruption. Our hurricane impacted markets generally experience increased economic activity as the communities rebuild and recover from the damage.  

Economic Outlook

We utilize economic forecasts produced by Moody’s Analytics (Moody’s) that provide various scenarios to assist in the development of our economic outlook. This outlook discussion utilizes the December 2021 Moody’s forecast, the most current available at December 31, 2021. The forecasts are anchored on a baseline forecast scenario, which Moody’s defines as the “most likely outcome” of where the economy is headed based on current conditions. Several upside and downside scenarios are produced that are derived from the baseline scenario and have varying degrees of positive and negative severity of the outcome of the economic downturn stemming from the coronavirus pandemic, as well as varying shapes and length of recovery. The outlook reflected in the December 2021 economic scenarios has improved significantly from the comparable forecasts available at December 31, 2020, attributable to widely available vaccines, the lifting of most restrictions on movement and improvement across most economic variables.

The December 2021 baseline forecast is overall optimistic in its assumptions surrounding the drivers of economic growth, including passage of the Build Back Better Act bill by the end of 2021 with meaningful effects seen in early 2022, coronavirus infection abatement in February 2022, and that COVID-19 will become seasonal and endemic, with no explicit assumptions surrounding the Omicron variant of the virus. The baseline scenarios has forecasted unemployment rate at 3.6% and 3.5% in 2022 and 2023, respectively and forecasted GDP growth of 4.4% in 2022 and 2.9% 2023. This scenario assumes that the consumer price index is near its peak and that the worst of the supply chain issues are behind us. The downside slower near-term growth scenario (S-2) assumes a more subdued growth compared to the baseline, primarily as a result of lesser efficacy of vaccines against variants of the coronavirus, a reduction or delay in stimulus, and more prolonged labor shortages and global supply chain disruption. The forecasted unemployment rate under the S-2 scenario was 5.9% and 4.3% in 2022 and 2023, respectively and GDP growth of 2.6% in 2022 and 2.0% in 2023. Management considers the assumptions provided for in the S-2 scenario to be somewhat more likely than the baseline scenario, particularly within our footprint; as such, the baseline scenario and the S-2 scenario were given probability weightings of 40% and 60%, respectively, in our allowance for credit losses calculation at December 31, 2021. The weighting of the S-2 scenario reflects management’s view that the emergence of the Omicron variant could have a greater effect upon our portfolios, with loan concentrations in industries such as hospitality, retail and nonessential healthcare services, and the delay of economic stimulus and impacts from inflation, all of which may slow the economic recovery.

Excess liquidity from elevated customer deposit levels and from PPP loan forgiveness, coupled with nearly two years of a low interest rate environment, have and are expected to continue to pressure net interest margin in the near term. In response to rising inflation, in January 2022, the Federal Reserve signaled intentions to raise the target range for the Federal Funds rate in mid-March 2022. As a financial institution that is asset sensitive, we expect to see our net interest margin widen in the second half of the year. We expect core loan demand to continue to increase, with forecasted growth of 6%-8% in 2022 and expect the majority of PPP loans to be forgiven by the second quarter of 2022. Deposits are expected to remain elevated compared to pre-pandemic levels.  

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Given the economic volatility resulting from the pandemic, including supply chain constraints, labor shortages and the potential for future mitigation measures intended to combat variants of the virus, it is not possible to accurately predict the extent, severity or duration of these conditions or when typical operating conditions will fully resume. The continued success of government initiatives to stimulate economic activity, societal response to virus containment measures and the efficacy of vaccines and/or treatments to control the rate of serious illness are critical to the resolution of the crisis. We continuously monitor and anticipate developments, but cannot predict all of the various adverse effects COVID-19 will have on our business, financial condition, liquidity and results of operations.

Highlights of 2021 Financial Results

Net income for the year ended December 31, 2021 was $463.2 million, or $5.22 per diluted common share, compared to a net loss of $45.2 million in 2020, or ($0.54) per diluted common share. The results for 2021 include $35.9 million (pre-tax), or $0.31 per share after tax, of net nonoperating expenses items, including expense of $38.3 million related to efficiency initiatives, $4.4 million of hurricane-related expenses and $4.2 million associated with subordinated debt redemption, partially offset by $11.0 million gains. There were no nonoperating items in 2020. The following is an overview of financial results for the year ended December 31, 2021:    

[[GREPCENT_TABLE]]
[["","\u2022","Record net income of $463.2 million, or $5.22 per diluted common share, includes $35.9 million (pre-tax), or $0.31 per share after tax, of net nonoperating expense items, mostly attributable to efficiency initiatives"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Operating pre-provision net revenue (PPNR) was $537.6 million, up $46.5 million, or 9%, compared to 2020"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Negative provision for credit losses of $77.5 million in 2021 resulted from a reserve release of $108.7 million and net charge-offs of $31.2 million, compared to a provision expense of $602.9 million in 2020, which included $160.1 million related to the sale of a substantial portion of our energy loan portfolio and $442.8 million largely related to the expected economic impact to borrowers as a result of the pandemic"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Criticized commercial loans declined $105.4 million, or 27%, and total nonperforming loans declined by $84.8 million, or 59%, from December 31, 2020"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Core loan growth of $818.5 million, or 4%, and a $1.5 billion of reduction of PPP loans due to forgiveness resulted in an overall decrease in total loans of $655.6 million in 2021"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Deposits of $30.5 billion at December 31, 2021 increased $2.8 billion, or 10%, primarily driven by stimulus funding and Hurricane Ida insurance proceeds; noninterest bearing deposits comprised 47% of total deposits at December 31, 2021, compared to 44% for the prior year end"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Common stockholders\u2019 equity totaled $3.7 billion at December 31, 2021, up $231.3 million or 7%; common tier 1 equity ratio was 11.09%, up 48 basis points (bps); tangible common equity ratio totaled 7.71%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Net interest margin declined 32 bps to 2.95%, reflecting the continued impact of historic levels of excess liquidity and the low interest rate environment"]]
[[/GREPCENT_TABLE]]

We are pleased to report record earnings in this ongoing challenging environment. The pandemic brought into focus the importance of reassessing how we could meet the challenges 2020 presented to our Company and the banking industry as a whole, resulting in a phased-in plan to streamline and strengthen our operational framework according to our clients' changing needs and habits in a recovering economy. In 2021, we completed a Voluntary Early Retirement Incentive Program (VERIP), under which approximately 260 associates retired in the second quarter of 2021. Further, in the third quarter of 2021, we completed an additional reduction in force initiative that resulted in the net elimination of approximately 150 positions and, in the fourth quarter of 2021, we finalized the consolidation of an additional 18 financial centers, bringing the total closed to 38 since 2020. We also utilized excess liquidity with the early redemption of our 5.95% $150 million subordinated notes. We believe these cost reduction measures and revenue generating initiatives are the building blocks for our path to an efficiency ratio target of 55% by fourth quarter of 2022. Our path to this target considers the deployment of excess liquidity into loans through continued momentum in core loan growth and modest investment in the bond portfolio, and maintaining our target level of expenses with additional efficiency initiatives, including strategic procurement. Additional information related to our expectations is included in the discussions that follow.  

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TABLE 1. Consolidated Financial Results

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except per share data)","","2021","","2020","","2019"],["Income Statement:"],["Interest income (a)","","$","982,258","","$","1,057,981","","$","1,125,782"],["Interest income (te) (b)","","","993,437","","","1,070,981","","","1,140,556"],["Interest expense","","","49,023","","","115,458","","","230,565"],["Net interest income (te)","","","944,414","","","955,523","","","909,991"],["Provision for credit losses","","","(77,494)","","","602,904","","","47,708"],["Noninterest income","","","364,334","","","324,428","","","315,907"],["Noninterest expense","","","807,007","","","788,792","","","770,677"],["Income (loss) before income taxes","","","568,056","","","(124,745)","","","392,739"],["Income tax expense (benefit)","","","104,841","","","(79,571)","","","65,359"],["Net income (loss)","","$","463,215","","$","(45,174)","","$","327,380"],["For informational purposes - included above, pre-tax:"],["Nonoperating item included in noninterest income:"],["Gain on sale of Hancock Horizon Funds","","$","4,576","","$","\u2014","","$","\u2014"],["Gain on sale of Mastercard Class B common stock","","","2,800","","","\u2014","","","\u2014"],["Gain on hurricane-related insurance settlement","","","3,600","","","\u2014","","","\u2014"],["Nonoperating items included in noninterest expense:"],["Efficiency initiatives","","","38,296","","","\u2014","","","\u2014"],["Hurricane-related expenses","","","4,412","","","\u2014","","","\u2014"],["Loss on redemption of subordinated notes","","","4,165","","","\u2014","","","\u2014"],["Merger-related costs","","","\u2014","","","\u2014","","","32,666"],["Provision for credit loss associated with energy loan sale","","","\u2014","","","160,101","","$","\u2014"],["Balance Sheet Data:"],["Period end balance sheet data"],["Loans","","$","21,134,282","","$","21,789,931","","$","21,212,755"],["Earning assets","","","33,610,435","","","30,616,277","","","27,622,161"],["Total assets","","","36,531,205","","","33,638,602","","","30,600,757"],["Noninterest-bearing deposits","","","14,392,808","","","12,199,750","","","8,775,632"],["Total deposits","","","30,465,897","","","27,697,877","","","23,803,575"],["Stockholders' equity","","","3,670,352","","","3,439,025","","","3,467,685"],["Average balance sheet data"],["Loans","","$","21,207,942","","$","22,166,523","","$","20,380,027"],["Earning assets","","","32,060,863","","","29,235,313","","","26,476,900"],["Total assets","","","35,075,392","","","32,390,967","","","29,125,449"],["Noninterest-bearing deposits","","","13,323,978","","","10,779,570","","","8,255,859"],["Total deposits","","","29,093,709","","","26,212,317","","","23,299,304"],["Stockholders' equity","","","3,545,255","","","3,433,099","","","3,302,696"],["Common Shares Data:"],["Earnings (loss) per share - basic","","$","5.23","","$","(0.54)","","$","3.72"],["Earnings (loss) per share - diluted","","","5.22","","","(0.54)","","","3.72"],["Cash dividends per common share","","","1.08","","","1.08","","","1.08"],["Book value per share (period end)","","","42.31","","","39.65","","","39.62"],["Tangible book value per share (period end)","","","31.64","","","28.79","","","28.63"],["Weighted average number of shares - diluted","","","87,027","","","86,533","","","86,599"],["Period end number of shares","","","86,749","","","86,728","","","87,515"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(dollars in thousands)","","2021","","2020","","2019"],["Performance and other data:"],["Return on average assets","","","1.32%","","","(0.14%)","","","1.12%"],["Return on average common equity","","","13.07%","","","(1.32%)","","","9.91%"],["Return on average tangible common equity","","","17.74%","","","(1.82%)","","","13.66%"],["Tangible common equity (c)","","","7.71%","","","7.64%","","","8.45%"],["Common equity tier 1 (CET1) ratio","","","11.09%","","","10.61%","","","10.50%"],["Net interest margin (te)","","","2.95%","","","3.27%","","","3.44%"],["Noninterest income as a percentage of total revenue (te)","","","27.84%","","","25.35%","","","25.77%"],["Efficiency ratio (d)","","","57.29%","","","60.07%","","","58.50%"],["Allowance for loan loss as a percentage of total loans","","","1.62%","","","2.07%","","","0.90%"],["Allowance for credit loss as a percentage of total loans","","","1.76%","","","2.20%","","","0.92%"],["Annualized net charge-offs to average loans","","","0.15%","","","1.78%","","","0.23%"],["Nonperforming assets as a percentage of loans, ORE and foreclosed assets","","","0.32%","","","0.71%","","","1.59%"],["FTE headcount","","","3,486","","","3,986","","","4,136"],["Reconciliation of operating revenue and pre-provision net revenue (te) (non GAAP measures) ( e)"],["Net interest income","","$","933,235","","$","942,523","","$","895,217"],["Noninterest income","","","364,334","","","324,428","","","315,907"],["Total revenue","","","1,297,569","","","1,266,951","","","1,211,124"],["Taxable equivalent adjustment","","","11,179","","","13,000","","","14,774"],["Nonoperating revenue","","","(10,976)","","","\u2014","","","\u2014"],["Total operating revenue (te)","","","1,297,772","","","1,279,951","","","1,225,898"],["Noninterest expense","","","(807,007)","","","(788,792)","","","(770,677)"],["Nonoperating expense","","","46,873","","","\u2014","","","32,666"],["Operating pre-provision net revenue (te)","","$","537,638","","$","491,159","","$","487,887"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Interest income includes the net impact of discount accretion and premium amortization arising from business combinations totaling $8.6 million, $15.4 million and $23.2 million for the years ended December 31, 2021, 2020 and 2019, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","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%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(c)","The tangible common equity ratio is common stockholders\u2019 equity less intangible assets divided by total assets less intangible assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(d)","The efficiency ratio is noninterest expense to total net interest (te) and noninterest income, excluding amortization of purchased intangibles and nonoperating items."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(e)","See non-GAAP financial measures section of this analysis for a discussion of these measures."]]
[[/GREPCENT_TABLE]]

RESULTS OF OPERATIONS

The following is a discussion of results from operations for the year ended December 31, 2021 compared to the year ended December 31, 2020.  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 $933.2 million, down $9.3 million from $942.5 million in 2020. 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 of 21% on tax exempt items (primarily interest on municipal securities and loans).

Net interest income (te) for 2021 totaled $944.4 million, an $11.1 million, or 1%, decrease from 2020. The decrease in net interest income in 2021 was primarily due to a 56 bp compression in the earning asset yield, partially offset by a $2.8 billion increase in average earning assets, including a $2.1 billion increase in average short-term investments resulting from excess liquidity. The increase in average earning assets was largely driven by a $2.9 billion increase in average deposits, of which $2.5 billion were noninterest-bearing. The deposit growth is attributable to a combination of customers’ government stimulus funds, PPP loan proceeds, Hurricane Ida insurance proceeds, and a reduced level of consumer and business spending. The decrease in interest income was partially offset by a decline in interest expense resulting from a 24 bp reduction in the cost of funds, primarily driven by a 40 bp reduction in the cost of interest-bearing deposits.

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The yield on earning assets was 3.10% in 2021, down 56 bps from 2020. The decrease was mainly attributable to the impact of the lower interest rate environment on the loan and investment portfolios, a $6.8 million reduction in purchase accounting accretion and a less favorable earning asset mix driven by liquidity in excess of current needs. The excess liquidity resulted in a higher percentage of assets invested in lower yielding overnight funds. The loan yield was down 21 bps to 3.92%, reflecting a full year impact of the low interest rate environment, with the variable rate loan portfolio repricing downward. Also impacted by the low rate environment were the yields on new loans, which were originated at yields lower than portfolio averages. The loan yield was favorably impacted in 2021 by 6 bps due to higher net interest recoveries on nonaccrual loans. The yield on investment securities decreased 46 bps in 2021 to 1.92% as higher yielding fixed rate securities paid down and were replaced by securities purchased at lower yields in the current environment.

The cost of funds decreased 24 bps to 0.15% in 2021, from 0.39% in 2020, primarily as a result of the full year impact of the low interest rate environment. Average interest-bearing deposit costs decreased from 57 bps in 2020 to 17 bps in 2021. During 2021, we continued to price downward interest-bearing transaction accounts and time deposit rates. Other short-term borrowing costs which consist largely of Federal Home Loan Bank advances, decreased 13 bps to 0.49% in 2021 as excess liquidity was used to paydown advances in 2020. Our remaining Federal Home Loan Bank advances are lower fixed-rate advances entered into in late 2019 and early 2020. The rate on long-term debt decreased 4 bps to 5.32%, largely due to the debt associated with our new market tax credit program. The loan term debt rate also reflects the full year impact of the June 2020 issuance of $172.5 million in subordinated debt at 6.25% and the June 2021 redemption of $150 million in subordinated debt at 5.95%.

The net interest margin is the ratio of net interest income (te) to average earning assets. The net interest margin decreased 32 bps to 2.95% in 2021 from 3.27% in 2020, due primarily to the reasons noted above. Discussions of Asset/Liability Management and Net Interest Income at Risk later in this item provide additional information regarding our management of interest rate risk and the potential impact from changes in interest rates, respectively.

We anticipate net interest margin to be relatively flat to slightly down during the first half of 2022 compared to the fourth quarter of 2021 level of 2.80%, due largely to the continued high levels of excess liquidity. We expect our net interest margin to begin to expand around mid-year 2022 through the continued deployment of short-term liquid assets into higher yielding loans and investment securities.

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TABLE 2. Summary of Average Balances, Interest and Rates (te) (a)

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2021","","","","2020","","","","2019"],["","","Average","","","","Interest","","","","","","","","Average","","","","Interest","","","","","","","","Average","","","","Interest"],["($ in millions)","","Balance","","","","(d)","","","Rate","","","","Balance","","","","(d)","","","Rate","","","","Balance","","","","(d)","","","Rate"],["Assets"],["Interest-Earnings Assets:"],["Commercial & real estate loans (te) (a)","","$","","17,070.3","","","$","","606.1","","","","3.55","","%","","$","","17,270.9","","","$","","660.5","","","","3.82","","%","","$","","15,289.6","","","$","","739.0","","","","4.83","","%"],["Residential mortgage loans","","","","2,445.6","","","","","90.6","","","","3.70","","","","","","2,857.6","","","","","112.1","","","","3.92","","","","","","2,974.1","","","","","121.7","","","","4.09"],["Consumer loans","","","","1,692.1","","","","","81.6","","","","4.82","","","","","","2,038.0","","","","","101.5","","","","4.98","","","","","","2,116.3","","","","","121.5","","","","5.74"],["Loan fees & late charges","","","","\u2014","","","","","53.7","","","0.0","","","","","","\u2014","","","","","41.0","","","0.0","","","","","","\u2014","","","","","(1.2",")","","0.0"],["Loans (te) (b)","","","","21,208.0","","","","","832.0","","","","3.92","","","","","","22,166.5","","","","","915.1","","","","4.13","","","","","","20,380.0","","","","","981.0","","","","4.81"],["Loans held for sale","","","","90.2","","","","","2.5","","","","2.82","","","","","","86.8","","","","","2.6","","","","3.02","","","","","","41.7","","","","","1.9","","","","4.50"],["Investment securities:"],["U.S. Treasury and government agency securities","","","","330.6","","","","","5.4","","","","1.64","","","","","","153.5","","","","","3.2","","","","2.09","","","","","","134.1","","","","","3.1","","","","2.30"],["Mortgage-backed securities and collateralized mortgage obligations","","","","6,833.1","","","","","122.3","","","","1.79","","","","","","5,345.0","","","","","121.8","","","","2.28","","","","","","4,821.6","","","","","122.3","","","","2.54"],["Municipals (te)","","","","928.4","","","","","27.2","","","","2.93","","","","","","891.9","","","","","26.9","","","","3.02","","","","","","904.4","","","","","28.2","","","","3.12"],["Other securities","","","","13.7","","","","","0.5","","","","3.66","","","","","","8.4","","","","","0.4","","","","4.28","","","","","","4.1","","","","","0.1","","","","3.79"],["Total investment securities (te) (c)","","","","8,105.8","","","","","155.4","","","","1.92","","","","","","6,398.8","","","","","152.3","","","","2.38","","","","","","5,864.2","","","","","153.7","","","","2.62"],["Short-term investments","","","","2,656.9","","","","","3.5","","","","0.13","","","","","","583.2","","","","","1.0","","","","0.17","","","","","","191.0","","","","","4.0","","","","2.07"],["Total earning assets (te)","","","","32,060.9","","","","","993.4","","","","3.10","","%","","","","29,235.3","","","","","1,071.0","","","","3.66","","%","","","","26,476.9","","","","","1,140.6","","","","4.31","","%"],["Nonearning assets:"],["Other assets","","","","3,420.6","","","","","","","","","","","","","","","3,547.4","","","","","","","","","","","","","","","2,844.6"],["Allowance for loan losses","","","","(406.1",")","","","","","","","","","","","","","","(391.7",")","","","","","","","","","","","","","","(196.1",")"],["Total assets","","$","","35,075.4","","","","","","","","","","","","","$","","32,391.0","","","","","","","","","","","","","$","","29,125.4"],["Liabilities and Stockholders' Equity"],["Interest-bearing Liabilities:"],["Interest-bearing transaction and savings deposits","","$","","11,216.5","","","$","","9.1","","","","0.08","","%","","$","","9,558.1","","","$","","25.6","","","","0.27","","%","","$","","8,274.6","","","$","","60.1","","","","0.73","","%"],["Time deposits","","","","1,413.0","","","","","6.5","","","","0.46","","","","","","2,642.5","","","","","37.1","","","","1.40","","","","","","3,690.8","","","","","73.7","","","","2.00"],["Public funds","","","","3,140.2","","","","","10.6","","","","0.34","","","","","","3,232.1","","","","","25.6","","","","0.79","","","","","","3,078.0","","","","","54.2","","","","1.76"],["Total interest-bearing deposits","","","","15,769.7","","","","","26.2","","","","0.17","","","","","","15,432.7","","","","","88.3","","","","0.57","","","","","","15,043.4","","","","","188.0","","","","1.25"],["Repurchase agreements","","","","559.4","","","","","0.6","","","","0.10","","","","","","600.2","","","","","1.4","","","","0.24","","","","","","493.3","","","","","2.6","","","","0.52"],["Other short-term borrowings","","","","1,103.8","","","","","5.4","","","","0.49","","","","","","1,378.0","","","","","8.6","","","","0.62","","","","","","1,448.9","","","","","28.6","","","","1.98"],["Long-term debt","","","","314.9","","","","","16.8","","","","5.32","","","","","","320.3","","","","","17.2","","","","5.36","","","","","","233.5","","","","","11.4","","","","4.87"],["Total interest-bearing liabilities","","","","17,747.8","","","","","49.0","","","","0.28","","%","","","","17,731.2","","","","","115.5","","","","0.65","","%","","","","17,219.1","","","","","230.6","","","","1.34","","%"],["Noninterest-bearing:"],["Noninterest-bearing deposits","","","","13,324.0","","","","","","","","","","","","","","","10,779.6","","","","","","","","","","","","","","","8,255.9"],["Other liabilities","","","","458.3","","","","","","","","","","","","","","","447.1","","","","","","","","","","","","","","","347.8"],["Stockholders' equity","","","","3,545.3","","","","","","","","","","","","","","","3,433.1","","","","","","","","","","","","","","","3,302.6"],["Total liabilities and stockholders' equity","","$","","35,075.4","","","","","","","","","","","","","$","","32,391.0","","","","","","","","","","","","","$","","29,125.4"],["Net interest income (te) and margin","","","","","","","$","","944.4","","","","2.95","","","","","","","","","$","","955.5","","","","3.27","","","","","","","","","$","","910.0","","","","3.44"],["Net earning assets and spread","","$","","14,313.1","","","","","","","","","2.82","","","","$","","11,504.1","","","","","","","","","3.01","","","","$","","9,257.8","","","","","","","","","2.97"],["Interest cost of funding earning assets","","","","","","","","","","","","","0.15","","%","","","","","","","","","","","","","0.39","","%","","","","","","","","","","","","","0.87","","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Taxable equivalent (te) amounts are calculated using federal income tax rate of 21%."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","Includes nonaccrual loans."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(c)","Average securities do not include unrealized holding gains or losses on available for sale securities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(d)","Included in interest income is net purchase accounting accretion of $8.6 million, $15.4 million and $23.2 million for the years December 31, 2021, 2020, and 2019, respectively."]]
[[/GREPCENT_TABLE]]

43

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TABLE 3. Summary of Changes in Net Interest Income (te) (a) (b)

[[GREPCENT_TABLE]]
[["","","2021 Compared to 2020","","","2020 Compared to 2019"],["","","Due to","","","Total","","","Due to","","","Total"],["","","Change in","","","Increase","","","Change in","","","Increase"],["(in thousands)","","Volume","","","Rate","","","(Decrease)","","","Volume","","","Rate","","","(Decrease)"],["Interest Income (te)"],["Commercial & real estate loans (te) (a)","","$","","(7,579",")","","$","","(46,849",")","","$","","(54,428",")","","$","","88,109","","","$","","(166,601",")","","$","","(78,492",")"],["Residential mortgage loans","","","","(15,509",")","","","","(6,007",")","","","","(21,516",")","","","","(4,672",")","","","","(4,956",")","","","","(9,628",")"],["Consumer loans","","","","(16,849",")","","","","(2,991",")","","","","(19,840",")","","","","(4,212",")","","","","(15,816",")","","","","(20,028",")"],["Loan fees & late charges","","","","\u2014","","","","","12,660","","","","","12,660","","","","","\u2014","","","","","42,262","","","","","42,262"],["Loans (te) (c)","","","","(39,937",")","","","","(43,187",")","","","","(83,124",")","","","","79,225","","","","","(145,111",")","","","","(65,886",")"],["Loans held for sale","","","","100","","","","","(179",")","","","","(79",")","","","","1,520","","","","","(774",")","","","","746"],["Investment securities:"],["U.S. Treasury and government agency securities","","","","2,708","","","","","(499",")","","","","2,209","","","","","419","","","","","(297",")","","","","122"],["Mortgage-backed securities and collateralized mortgage obligations","","","","29,730","","","","","(29,220",")","","","","510","","","","","13,480","","","","","(14,012",")","","","","(532",")"],["Municipals","","","","1,084","","","","","(801",")","","","","283","","","","","(385",")","","","","(877",")","","","","(1,262",")"],["Other securities","","","","200","","","","","(58",")","","","","142","","","","","181","","","","","22","","","","","203"],["Total investment in securities (te) (d)","","","","33,722","","","","","(30,578",")","","","","3,144","","","","","13,695","","","","","(15,164",")","","","","(1,469",")"],["Short-term investments","","","","2,762","","","","","(246",")","","","","2,516","","","","","2,968","","","","","(5,937",")","","","","(2,969",")"],["Total earning assets (te)","","","","(3,353",")","","","","(74,190",")","","","","(77,543",")","","","","97,408","","","","","(166,986",")","","","","(69,578",")"],["Interest-bearing transaction and"],["Savings deposits","","","","(3,813",")","","","","20,268","","","","","16,455","","","","","8,157","","","","","(42,646",")","","","","(34,489",")"],["Time deposits","","","","12,499","","","","","18,070","","","","","30,569","","","","","(17,905",")","","","","(18,756",")","","","","(36,661",")"],["Public funds","","","","706","","","","","14,285","","","","","14,991","","","","","2,587","","","","","(31,164",")","","","","(28,577",")"],["Total interest-bearing deposits","","","","9,392","","","","","52,623","","","","","62,015","","","","","(7,161",")","","","","(92,566",")","","","","(99,727",")"],["Repurchase agreements","","","","92","","","","","777","","","","","869","","","","","471","","","","","(1,588",")","","","","(1,117",")"],["Other short-term borrowings","","","","1,541","","","","","1,617","","","","","3,158","","","","","(1,230",")","","","","(18,808",")","","","","(20,038",")"],["Long-term debt","","","","287","","","","","106","","","","","393","","","","","4,557","","","","","1,216","","","","","5,773"],["Total interest expense","","","","11,312","","","","","55,123","","","","","66,435","","","","","(3,363",")","","","","(111,746",")","","","","(115,109",")"],["Net interest income (te) variance","","$","","7,959","","","$","","(19,067",")","","$","","(11,108",")","","$","","100,771","","","$","","(55,240",")","","$","","45,531"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Taxable equivalent (te) amounts are calculated using a federal income tax rate of 21%."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(c)","Includes nonaccrual loans."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(d)","Average securities do not include unrealized holding gains or losses on available for sale securities."]]
[[/GREPCENT_TABLE]]

Provision for Credit Losses

Our 2021 results include a negative provision for credit losses of $77.5 million in 2021 compared to a provision for credit loss expense of $602.9 million in 2020. The 2021 negative provision includes a $108.1 million release of the allowance for funded loan losses and a $0.6 million release of the reserve for unfunded lending commitments, offset by net charge-offs of $31.2 million, or 0.15% of average loans outstanding. The negative provision for credit losses reflects improvement in macroeconomic forecasts and asset quality metrics, as the economy continued to rebound in 2021 from the economic impacts of the pandemic. The provision for credit losses expense recorded in 2020 included net charge-offs of $394.8 million, or 1.78% of average loans outstanding, and a $209.5 million build in the allowance for funded loan losses, partially offset by a $1.4 million release of the reserve for unfunded lending commitments. The provision expense in 2020 is primarily attributable to the impact of the widespread economic disruption from the pandemic upon our estimate of expected lifetime credit losses and an additional $160.1 million provision related to the energy loan sale, which significantly reduced our exposure in that sector.

As noted above, 2021 net charge-offs totaled $31.2 million, a decrease of $363.6 million from 2020. Net charge-offs in 2021 included $25.5 million of commercial net charge-offs, $6.4 million of consumer net charge-offs, and a net recovery of $0.7 million in residential mortgage. Net charge offs in 2020 included $242.6 million in net charges offs related to the energy loan sale, an additional $65.8 million related to the energy portfolio, $51.6 million related to healthcare credits, $24.3 million of other commercial charges, $11.6 million of consumer charges and a net recovery of $1.1 million in residential mortgage.

Future assumptions in economic forecasts will drive the level of reserves; however, management expects that our provision for credit losses will continue to reflect modest reserve releases over the next several quarters. 

44

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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.

Noninterest Income

Noninterest income for 2021 totaled $364.3 million, a $39.9 million, or 12%, increase from 2020, and includes $11.0 million of nonoperating income. Nonoperating income for 2021 is comprised of $4.6 million from the sale of the remaining Hancock Horizon Funds, $3.6 million related to a hurricane-related insurance settlement and $2.8 million related to the sale of Mastercard stock. Excluding nonoperating income, noninterest income was up $28.9 million, or 9%, with increases in most fee categories as economic conditions improved and consumer activity rebounded from the recessionary market conditions present in much of 2020. Increases in card fees, investment and annuity fees and insurance commissions, trust fees and service charges on deposit were partially offset by a decrease in secondary mortgage activity, which began to slow during the second half of 2021.

Table 4 presents, for each of the three years ended December 31, 2021, 2020 and 2019, the components of noninterest income, along with the percentage changes between years.

TABLE 4. Noninterest Income

[[GREPCENT_TABLE]]
[["($ in thousands)","","","2021","","","% Change","","","","","2020","","","% Change","","","","","2019"],["Service charges on deposit accounts","","$","","81,032","","","","6","","%","","$","","76,659","","","","(11",")","%","","$","","86,364"],["Trust fees","","","","62,898","","","","8","","","","","","58,191","","","","(6",")","","","","","61,609"],["Bank card and ATM fees","","","","79,074","","","","16","","","","","","68,131","","","","2","","","","","","66,976"],["Investment and annuity fees and insurance commissions","","","","29,502","","","","21","","","","","","24,330","","","","(8",")","","","","","26,574"],["Secondary mortgage market operations","","","","36,694","","","","(9",")","","","","","40,244","","","","103","","","","","","19,853"],["Securities transactions","","","","333","","","","(32",")","","","","","488","","","","100","","","","","","\u2014"],["Income from bank-owned life insurance","","","","18,330","","","","1","","","","","","18,179","","","","22","","","","","","14,946"],["Income from derivatives","","","","13,477","","","","5","","","","","","12,814","","","","(1",")","","","","","12,958"],["Credit-related fees","","","","11,001","","","","(2",")","","","","","11,255","","","","(1",")","","","","","11,399"],["Other miscellaneous income:"],["Gain on sale of Hancock Horizon Fund","","","","4,576","","","","n/m","","","","","","\u2014","","","","\u2014","","","","","","\u2014"],["Gain on sale of Mastercard Class B common stock","","","","2,800","","","","n/m","","","","","","\u2014","","","","\u2014","","","","","","\u2014"],["Gain on hurricane-related insurance settlement","","","","3,600","","","","n/m","","","","","","\u2014","","","","\u2014","","","","","","\u2014"],["Other operating miscellaneous income","","","","21,017","","","","49","","","","","","14,137","","","","(7",")","","","","","15,228"],["Total noninterest income","","$","","364,334","","","","12","","%","","$","","324,428","","","","3","","%","","$","","315,907"]]
[[/GREPCENT_TABLE]]

n/m – not meaningful

Service charges on deposit accounts include consumer, business, and corporate deposit account servicing fees, as well as overdraft and insufficient funds fees, overdraft protection fees, and other customer transaction-related fees. Service charges on deposit accounts were $81.0 million, up $4.4 million, or 6%, from 2020. The increase over 2020 was primarily attributable to stronger corporate customer activity as economic activity rebounded, lower earnings credit rate applied to excess deposit balances and business account fee structure changes implemented at the beginning of 2021. Service charges continue to rebound from the impacts of the pandemic but remain lower than pre-pandemic levels, due in part to higher account balances.

Trust fee income represents revenue generated from asset management services provided to individuals, businesses and institutions. Trust fees totaled $62.9 million in 2021, a $4.7 million, or 8%, increase from 2020.  The increase in trust fees is primarily due to both the introduction of a new fee structure during the second quarter of 2021 and the improvement of market conditions in 2021 compared to the volatile market conditions in 2020 caused by the pandemic. Trust assets under management increased to $9.8 billion at December 31, 2021, compared to $9.5 billion at December 31, 2020.

Bank card and ATM fees include income from credit and debit card transactions, fees earned from processing card transactions for merchants, and fees earned from ATM transactions. Bank card and ATM fees totaled $79.1 million in 2021, up $10.9 million, or 16%, compared to 2020. The growth over 2020 is the result of an increase in debit card activity during 2021 following a decline in 2020 as a result of the economic shutdown caused by the pandemic.

Investment and annuity fees and insurance commissions, which includes both fees earned from sales of annuity and insurance products as well as managed account fees, totaled $29.5 million in 2021, compared to $24.3 million in 2020.  The $5.2 million, or 21%, increase is primarily due to a higher level of investment and annuity sales and insurance fees as this business line was impacted

45

Table of Contents

by pandemic-related disruption of financial center operations and market volatility during 2020, and also favorably impacted by an increase in the number of managed accounts.

Income from secondary mortgage market operations is comprised of income produced from the origination and sales of residential mortgage loans in the secondary market. We offer a full range of mortgage products to our customers and typically sell longer-term fixed rate loans, while retaining the majority of adjustable rate loans and mortgage loans generated through programs to support customer relationships. Income from secondary mortgage market operations totaled $36.7 million in 2021, a decrease of $3.6 million, or 9%, from 2020. Mortgage loan production decreased by approximately 7% in 2021 compared to 2020, and the percentage of loan production sold in the secondary mortgage market was also down year-over-year. Mortgage loan production remained elevated during 2021, although levels began to decline during the second half of 2021 as demand for loan refinancing slowed. Loan production levels for our secondary mortgage market operations will vary based on application volume and loan closure rates. We expect income from the secondary mortgage market to continue to decline as interest rates rise and market conditions stabilize.

Income from bank-owned life insurance (“BOLI”) is generated through insurance benefit proceeds as well as the growth of the cash surrender value of insurance contracts held. BOLI income increased $0.2 million, or 1%, to $18.3 million in 2021. The increase was mainly due to $4.4 million in nonrecurring income received in connection with the purchase of policies in the first quarter of 2021, partially offset by lower mortality benefits, which were down $4.2 million from 2020.

Income from derivatives is largely from our customer interest rate derivative program totaled $13.5 million in 2021, compared to $12.8 million in 2020. The increase in income from derivatives was largely due to a $1.4 million negative valuation adjustment on a company owned derivative in 2020 that was not present in 2021, partially offset by lower interest earned on derivative collateral and a lower level of customer derivative income. 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 is comprised of various items, including income from small business investment companies, FHLB stock dividends; gain/losses from sales of other assets, and syndication fees. Other miscellaneous income includes the previously disclosed $11.0 million of gains considered nonoperating in nature. Other operating miscellaneous income was $21.0 million in 2021, up $6.9 million, or 49%, compared to 2020. The increase from the prior year is primarily due to a $4.1 million increase in net gains on sales of other assets, a $2.1 million increase in teller fees and a $1.4 million increase in syndication fees, partially offset by a $0.9 million decrease in FHLB stock dividends and a $0.3 million decrease in small business investment income.

We expect noninterest income to remain relatively flat in 2022, with improvements in most fee categories being offset by a lower level of secondary mortgage market operations fees.

Noninterest Expense

Noninterest expense for 2021 totaled $807.0 million, up $18.2 million, or 2%, compared to 2020. There were $46.9 million of nonoperating expenses in 2021, of which $38.3 million was related to initiatives put in place to improve overall efficiency and operating performance. Such initiatives included the VERIP, under which approximately 260 associates retired, a reduction in force initiative whereby a net of approximately 150 positions were eliminated, and the consolidation of 18 financial centers. Nonoperating expense also includes $4.2 million related to the redemption of the $150 million 5.95% subordinated notes and $4.4 million in expenses related to Hurricane Ida, which includes damage to facilities, recovery cost, charitable contributions to organizations providing recovery assistance, temporary housing, and distribution of meals, ice, and fuel. There were no nonoperating expenses in 2020. 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 our business. Noninterest expense excluding nonoperating items decreased $28.7 million, or 4%, in 2021. The largest individual components of the decrease in operating expense were other real estate and foreclosed asset expense attributable to write downs of two assets in 2020, personnel expense attributable to efficiency measures, and deposit insurance and regulatory fees due to the impact of excess liquidity and asset quality improvements. Explanations of the variances are discussed below in more detail.

46

Table of Contents

Table 5 presents, for each of the three years ended December 31, 2021, 2020 and 2019, noninterest expense, along with the percentage changes between years. Table 6 presents nonoperating expense included in noninterest expense (Table 5) by component for the same periods.

TABLE 5. Noninterest Expense

[[GREPCENT_TABLE]]
[["($ in thousands)","","2021","","","% Change","","","","2020","","","% Change","","","","2019"],["Compensation expense","","$","","378,589","","","","(0",")","%","","$","","379,727","","","","5","","%","","$","","362,083"],["Employee benefits","","","","103,786","","","","23","","","","","","84,332","","","","8","","","","","","77,796"],["Personnel expense","","","","482,375","","","","4","","","","","","464,059","","","","5","","","","","","439,879"],["Net occupancy expense","","","","49,786","","","","(5",")","","","","","52,589","","","","3","","","","","","50,936"],["Equipment expense","","","","18,167","","","","(5",")","","","","","19,212","","","","4","","","","","","18,393"],["Data processing expense","","","","96,755","","","","10","","","","","","87,823","","","","6","","","","","","82,981"],["Professional services expense","","","","48,678","","","","(2",")","","","","","49,529","","","","10","","","","","","45,007"],["Amortization of intangibles","","","","16,665","","","","(16",")","","","","","19,916","","","","(4",")","","","","","20,844"],["Deposit insurance and regulatory fees","","","","13,582","","","","(28",")","","","","","18,804","","","","(4",")","","","","","19,512"],["Other real estate and foreclosed assets expense (income)","","","","(210",")","","n/m","","","","","","9,555","","","n/m","","","","","","671"],["Advertising","","","","12,441","","","","(4",")","","","","","13,011","","","","(15",")","","","","","15,251"],["Corporate value, franchise taxes, and other non-income taxes","","","","14,478","","","","(13",")","","","","","16,578","","","","4","","","","","","15,949"],["Telecommunications and postage","","","","12,646","","","","(16",")","","","","","14,991","","","","3","","","","","","14,588"],["Entertainment and contributions","","","","7,867","","","","(20",")","","","","","9,865","","","","(8",")","","","","","10,777"],["Printing and supplies","","","","3,728","","","","(26",")","","","","","5,063","","","","2","","","","","","4,947"],["Travel expenses","","","","2,697","","","","17","","","","","","2,297","","","","(56",")","","","","","5,278"],["Tax credit investment amortization","","","","4,436","","","","15","","","","","","3,843","","","","(22",")","","","","","4,943"],["Other retirement expense","","","","(27,941",")","","","11","","","","","","(25,133",")","","","52","","","","","","(16,561",")"],["Loss on facilities and equipment from consolidation","","","","13,863","","","","360","","","","","","3,012","","","","100","","","","","","\u2014"],["Loss on extinguishment of debt","","","","4,165","","","","100","","","","","","\u2014","","","","\u2014","","","","","","\u2014"],["Other miscellaneous expense","","","","32,829","","","","38","","","","","","23,778","","","","(28",")","","","","","37,282"],["Total noninterest expense","","$","","807,007","","","","2","","%","","$","","788,792","","","","2","","%","","$","","770,677"]]
[[/GREPCENT_TABLE]]

TABLE 6. Nonoperating Expense

[[GREPCENT_TABLE]]
[["(in thousands)","","2021","","","2020","","","2019"],["Compensation expense","","$","","4,248","","","$","","\u2014","","","$","","6,826"],["Employee benefits","","","","20,192","","","","","\u2014","","","","","680"],["Personnel expense","","","","24,440","","","","","\u2014","","","","","7,506"],["Net occupancy expense","","","","2","","","","","\u2014","","","","","789"],["Equipment expense","","","","5","","","","","\u2014","","","","","675"],["Data processing expense","","","","\u2014","","","","","\u2014","","","","","1,092"],["Professional services expense","","","","\u2014","","","","","\u2014","","","","","7,075"],["Other real estate (income) expense","","","","\u2014","","","","","\u2014","","","","","130"],["Advertising","","","","16","","","","","\u2014","","","","","2,581"],["Printing and supplies","","","","22","","","","","\u2014","","","","","538"],["Entertainment and contributions","","","","174","","","","","\u2014","","","","","\u2014"],["Travel expenses","","","","5","","","","","\u2014","","","","","\u2014"],["Loss on facilities and equipment from consolidation","","","","13,863","","","","","\u2014","","","","","\u2014"],["Loss on extinguishment of debt","","","","4,165","","","","","\u2014","","","","","\u2014"],["Other miscellaneous expense","","","","4,181","","","","","\u2014","","","","","12,280"],["Total nonoperating expense","","$","","46,873","","","$","","\u2014","","","$","","32,666"]]
[[/GREPCENT_TABLE]]

Personnel expense consists of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and medical, life and disability insurance. Total personnel expense was up $18.3 million, or 4%, in 2021 compared to 2020, and includes $24.4 million of nonoperating efficiency initiatives including the VERIP and reduction in force. Excluding the nonoperating items, personnel expense was down $6.1 million, or 1%, mainly due to lower salary expense as full time equivalent headcount decreased by approximately 500 from December 2020 as a result of the efficiency initiatives.

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Occupancy and equipment expenses are primarily composed of lease expenses, depreciation, maintenance and repairs, rent, taxes, and other equipment expenses. Total occupancy and equipment expenses decreased $3.8 million, or 5%, in 2021 compared to 2020. The decrease was largely related to expense control measures, including the net reduction of 38 financial centers since the first quarter of 2020.

Data processing expense includes expenses related to third party technology processing and servicing costs, technology project costs and fees associated with bank card and ATM transactions. Data processing expense in 2021 was up $8.9 million, or 10%, from 2020. The increase is primarily related to increases of $5.8 million in costs associated with technology investments and $3.1 million in card transaction processing costs as a result of increased bank card activity.

Professional services expense decreased $0.9 million, or 2%, from 2020, primarily due to approximately $2.2 million of lower legal fees, largely related to lower problem loan expense, partially offset by $1.3 million in higher consulting and other professional fees, which includes costs related to PPP consulting support.

Amortization of intangibles in 2021 totaled $16.7 million, a $3.3 million, or 16%, decrease from 2020 as a result of the accelerated amortization methods used.

Deposit insurance and regulatory fees decreased $5.2 million, or 28%, from 2020 mainly due to a reduction in the risk-based deposit insurance assessment fees that were favorably impacted by our increased liquidity position and improved asset quality metrics, largely attributable to the improving economic environment and the energy loan sale.  

Other real estate and foreclosed asset (income) expense was a net income of $0.2 million in 2021, compared to net expense of $9.6 million in 2020.  The decrease is due to a $9.8 million write-down of equity interests in two energy-related companies received in borrower bankruptcy restructurings in 2020.

Business development-related expenses (including advertising, travel, entertainment and contributions) were down $2.2 million, or 9%, from 2020. Excluding nonoperating items, business development-related expenses were down $2.4 million. The decline from 2020 was largely due to the impact of expense control measures on entertainment and donations and advertising, partially offset by an increase in travel, which was limited in 2020 due to the pandemic.

Corporate value, franchise taxes, and other non-income taxes were down $2.1 million, or 13%, to $14.5 million in 2021, largely due to lower bank share tax, which was favorably impacted by the net loss recorded in 2020.

Noninterest expense in both 2021 and 2020 was reduced by a net credit in other retirement expense. The net credit was $2.8 million, or 11%, higher in 2021, based on better performance of pension plan assets.  

All other expenses increased $21.0 million, or 41%, from 2020 primarily due to $22.2 million of nonoperating costs incurred in 2021 including $13.9 million of loss on facilities and equipment from consolidating branches, $4.2 million related to the redemption of $150 million of subordinated notes, and $4.2 million related to Hurricane Ida. Excluding these nonoperating expenses, other expense was down $1.3 million, or 2%, primarily due to expense control initiatives.

In 2022, we expect operating expense to be down approximately 2% from $760.1 million in 2021, reflecting our continued focus on expense management. We expect our ongoing expense initiatives, including strategic procurement, combined with the full-year impact of initiatives completed to-date, will support the strategy of using cost control measures to fund revenue enhancements, such as additional investments in technology and additional bankers, and reduce the overall impact of wage inflation.

Income Taxes

We recorded income tax expense at an effective rate of 18.5% in 2021, compared to an income tax benefit at an effective rate of 63.8% in 2020. The comparability of the effective tax rate between 2021 and 2020 is impacted by the pre-tax loss year in 2020. Additionally, our effective tax rate is lower in 2021 because we realized a $4.9 million income tax benefit that increased our 2020 net operating loss (“NOL”).  The aforementioned income tax benefit was generated because our 2020 NOL is being carried back to a 35% statutory tax rate year under the CARES Act.

We expect the effective tax rate to return to a quarterly range of approximately 19% to 20% for 2022, absent any changes in tax laws.

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 bank-owned life insurance contract program are the major components of tax-exempt income.  

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Table 7 reconciles reported income tax expense to that computed at the statutory tax rate of 21% for the years ended December 31, 2021, 2020 and 2019.

TABLE 7. Income Taxes

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands)","","2021","","","2020","","","2019"],["Taxes computed at statutory rate","","$","","119,292","","","$","","(26,196",")","","$","","82,475"],["Tax credits:"],["QZAB/QSCB","","","","(1,633",")","","","","(2,289",")","","","","(2,840",")"],["NMTC - Federal and State","","","","(5,487",")","","","","(5,033",")","","","","(6,953",")"],["LIHTC and other tax credits","","","","(1,936",")","","","","(750",")","","","","(500",")"],["LIHTC amortization","","","","1,167","","","","","-","","","","","-"],["Total tax credits","","","","(7,889",")","","","","(8,072",")","","","","(10,293",")"],["State income taxes, net of federal income tax benefit","","","","9,048","","","","","(1,269",")","","","","7,204"],["Tax-exempt interest","","","","(9,100",")","","","","(10,444",")","","","","(10,435",")"],["Life insurance contracts","","","","(2,653",")","","","","(4,857",")","","","","(3,901",")"],["Employee share-based compensation","","","","(1,671",")","","","","1,351","","","","","(842",")"],["FDIC assessment disallowance","","","","1,609","","","","","2,094","","","","","1,895"],["NOL carryback under CARES Act","","","","(4,948",")","","","","(30,167",")","","","","\u2014"],["Other, net","","","","1,153","","","","","(2,011",")","","","","(744",")"],["Income tax expense (benefit)","","$","","104,841","","","$","","(79,571",")","","$","","65,359"]]
[[/GREPCENT_TABLE]]

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 Federal and State New Market Tax Credit (“NMTC”), Low-Income Housing Tax Credit (“LIHTC”) and pre-2018 Qualified Zone Academy Bonds (“QZAB”) and Qualified School Construction Bonds (“QSCB”) 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. Additionally, the amortization of the LIHTC investment cost will be recognized as a component of income tax expense in proportion to the tax credits recognized over the 10-year credit period of each project.

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 2021, we expect to realize benefits from federal and state tax credits over the next three years totaling $10.1 million, $10.0 million and $10.1 million for 2022, 2023 and 2024, 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, 2021, we had a net deferred tax liability of $19 million, which is comprised of $146 million of deferred tax liabilities offset against $127 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 $3.6 million valuation allowance for state net operating losses.

BALANCE SHEET ANALYSIS

Short-Term Investments

At December 31, 2021, short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, totaled $3.8 billion, an increase of $2.5 billion from December 31, 2020. Average short-term investments for 2021 totaled $2.7 billion, a $2.1 billion increase from $583 million in 2020. The increase in short-term investments is a result of excess liquidity due to increased deposits, cash inflows from PPP loan forgiveness and other paydowns, and limited loan demand for much of the year. Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors. See further discussion in the “Liquidity” section that follows.

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Investment Securities

Our investment in securities was $8.6 billion at December 31, 2021, compared to $7.4 billion at December 31, 2020. 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, 2021, the amortized cost of securities available for sale totaled $7.0 billion and securities held to maturity totaled $1.6 billion, compared to $5.8 billion and $1.4 billion, respectively, at December 31, 2020.

Our securities portfolio consists mainly of residential and commercial 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, 2021, the average expected maturity of the portfolio was 5.80 years with an effective duration of 4.25 years and a nominal weighted-average yield of 1.87%. Under an immediate, parallel rate shock of 100 bps and 200 bps, the effective duration would be 4.55 years and 4.64 years, respectively. At December 31, 2020, the average expected maturity of the portfolio was 5.70 years with an effective duration of 4.14 years and a nominal weighted-average yield of 2.07%. The change in expected maturity, effective duration, and nominal weighted-average yield is primarily attributable to reinvestment of securities portfolio cash flow and growth during 2021.

During 2021, we invested approximately $800 million in fixed rate commercial mortgage backed securities and simultaneously entered into last-of-layer swaps on these assets. As of December 31, 2021, we had approximately $1.8 billion in notional amount of forward-starting fixed payer swaps that convert the latter portion of the term of certain available for sale securities to a floating rate. These derivative instruments are designated as fair value hedges of interest rate risk. This strategy provides 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.

At the end of each reporting period, we evaluate the securities portfolio for credit loss. Based on our assessments, expected credit loss was negligible for all reporting periods in 2021 and 2020, and therefore no allowance for credit loss was recorded.

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 accumulated other comprehensive income, a separate component of stockholders’ equity.

The following table presents debt securities at amortized cost by type at December 31, 2021 and 2020:

TABLE 8. Debt Securities by Type

[[GREPCENT_TABLE]]
[["","","December 31,"],["(in thousands)","","2021","","","2020"],["Available for sale securities"],["U.S. Treasury and government agency securities","","$","","420,857","","","$","","207,365"],["Municipal obligations","","","","304,536","","","","","309,342"],["Residential mortgage-backed securities","","","","3,056,763","","","","","2,560,249"],["Commercial mortgage-backed securities","","","","3,064,828","","","","","2,323,306"],["Collateralized mortgage obligations","","","","119,046","","","","","354,472"],["Corporate debt securities","","","","18,500","","","","","11,500"],["","","$","","6,984,530","","","$","","5,766,234"],["Held to maturity securities"],["U.S. Treasury and government agency securities","","$","","14,857","","","$","","\u2014"],["Municipal obligations","","","","621,405","","","","","627,019"],["Residential mortgage-backed securities","","","","268,907","","","","","21,951"],["Commercial mortgage-backed securities","","","","603,156","","","","","549,686"],["Collateralized mortgage obligations","","","","57,426","","","","","158,514"],["","","$","","1,565,751","","","$","","1,357,170"]]
[[/GREPCENT_TABLE]]

The amortized cost, fair value and yield of debt securities at December 31, 2021, 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 table includes scheduled principal payments and assumptions for prepayments.

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TABLE 9. Debt Securities Maturities by Type

[[GREPCENT_TABLE]]
[["","Contractual Maturity"],["(in thousands)","One Year or Less","","","Over One Year Through Five Years","","","Over Five Years Through Ten Years","","","Over Ten Years","","","Total","","","Fair Value","","","Weighted Average Yield (te)","","","Expected Average Maturity Years"],["Available for sale"],["U.S. Treasury and government agency securities","$","","\u2014","","","$","","\u2014","","","$","","196,165","","","$","","224,692","","","$","","420,857","","","$","","419,298","","","","1.57","%","","","7.2"],["Municipal obligations","","","112","","","","","\u2014","","","","","212,542","","","","","91,882","","","","","304,536","","","","","314,158","","","","2.73","%","","","5.1"],["Residential mortgage-backed securities","","","775","","","","","49,161","","","","","383,232","","","","","2,623,595","","","","","3,056,763","","","","","3,035,798","","","","1.58","%","","","4.7"],["Commercial mortgage-backed securities","","","\u2014","","","","","617,926","","","","","2,179,685","","","","","267,217","","","","","3,064,828","","","","","3,077,859","","","","1.93","%","","","7.5"],["Collateralized mortgage obligations","","","\u2014","","","","","\u2014","","","","","8,763","","","","","110,283","","","","","119,046","","","","","120,883","","","","2.13","%","","","2.0"],["Other debt securities","","","1,500","","","","","2,000","","","","","15,000","","","","","\u2014","","","","","18,500","","","","","18,702","","","","3.43","%","","","3.5"],["Total debt securities","$","","2,387","","","$","","669,087","","","$","","2,995,387","","","$","","3,317,669","","","$","","6,984,530","","","$","","6,986,698","","","","1.80","%","","","6.1"],["Fair Value","$","","2,403","","","$","","696,513","","","$","","3,002,023","","","$","","3,285,759","","","$","","6,986,698"],["Weighted Average Yield (te)","","","2.93","%","","","","2.57","%","","","","1.79","%","","","","1.64","%","","","","1.80","%"],["Held to maturity"],["U.S. Treasury and government agency securities","$","","\u2014","","","$","","\u2014","","","$","","14,857","","","$","","\u2014","","","$","","14,857","","","$","","14,837","","","","1.40","%","","","6.8"],["Municipal obligations","","","11,225","","","","","117,691","","","","","196,482","","","","","296,007","","","","","621,405","","","","","659,140","","","","3.08","%","","","4.0"],["Residential mortgage-backed securities","","","\u2014","","","","","\u2014","","","","","31,930","","","","","236,977","","","","","268,907","","","","","268,090","","","","1.40","%","","","4.7"],["Commercial mortgage-backed securities","","","\u2014","","","","","241,519","","","","","361,637","","","","","\u2014","","","","","603,156","","","","","631,166","","","","2.56","%","","","5.6"],["Collateralized mortgage obligations","","","\u2014","","","","","2,202","","","","","13,651","","","","","41,573","","","","","57,426","","","","","58,249","","","","1.24","%","","","2.3"],["Total debt securities","$","","11,225","","","$","","361,412","","","$","","618,557","","","$","","574,557","","","$","","1,565,751","","","$","","1,631,482","","","","2.54","%","","","4.7"],["Fair Value","$","","11,311","","","$","","377,422","","","$","","650,531","","","$","","592,218","","","$","","1,631,482"],["Weighted Average Yield (te)","","","2.29","%","","","","2.72","%","","","","2.58","%","","","","2.40","%","","","","2.54","%"]]
[[/GREPCENT_TABLE]]

Loan Portfolio

Total loans at December 31, 2021 were $21.1 billion, compared to $21.8 billion at December 31, 2020. The $0.7 billion, or 3%, decrease is primarily attributable to $1.5 billion of net PPP loan forgiveness, partially offset by $0.8 billion of core loan growth (excluding PPP loans), as demand for traditional loan products increased across most regions and in specialty lines when compared to the prior year.

The composition of our loan portfolio at December 31, 2021 and 2020 was as follows:

TABLE 10. Loans Outstanding by Type

[[GREPCENT_TABLE]]
[["","","December 31,"],["(in thousands)","","2021","","","2020"],["Total loans:"],["Commercial non-real estate","","$","","9,612,460","","","$","","9,986,983"],["Commercial real estate - owner occupied","","","","2,821,246","","","","","2,857,445"],["Total commercial & industrial","","","","12,433,706","","","","","12,844,428"],["Commercial real estate - income producing","","","","3,464,626","","","","","3,357,939"],["Construction and land development","","","","1,228,670","","","","","1,065,057"],["Residential mortgages","","","","2,423,890","","","","","2,665,212"],["Consumer","","","","1,583,390","","","","","1,857,295"],["Total loans","","$","","21,134,282","","","$","","21,789,931"]]
[[/GREPCENT_TABLE]]

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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 $12.4 billion, or 59% of the total loan portfolio, at December 31, 2021, a decrease of $0.4 billion from December 31, 2020. The decrease is largely attributable to net PPP loan forgiveness of $1.5 billion, partially offset by core loan growth of $1.1 billion.

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, financial and professional services, healthcare services, energy, marine transportation and maritime construction, and agricultural production. We lend mainly to middle-market and smaller commercial entities, although we do participate in larger shared-credit loan facilities generally with businesses/sponsors well known to the relationship officers and operating in our market areas. Shared national credits that are funded at December 31, 2021 totaled approximately $2.1 billion, or 10%, of total loans. Our shared national credit industry concentration at December 31, 2021 includes approximately $429 million of health care-related facilities, $400 million in finance and insurance, $339 million in real estate, rental and leasing, with the remaining to various other industries.

The following table provides detail of the more significant industry concentrations for our commercial and industrial loan portfolio, which is based on NAICS codes for all industries, with the exceptions of energy, which is based on the borrower’s source of revenue (i.e. manufacturer whose income is derived from energy-related business is reported as energy), and PPP loans, as those are expected to be 100% SBA guaranteed and therefore have limited credit risk.

TABLE 11.  Commercial & Industrial Loans by Industry Concentration

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","","2020"],["","","","","","","Pct of","","","","","","","","Pct of"],["($ in thousands)","Balance","","","Total","","","Balance","","","Total"],["Commercial & industrial loans:"],["Real estate and rental and leasing","$","","1,311,241","","","","11","","%","$","","1,260,084","","","","10","","%"],["Health care and social assistance","","","1,284,578","","","","10","","","","","1,152,713","","","","9"],["Other","","","1,118,230","","","","9","","","","","725,948","","","","6"],["Retail trade","","","1,086,204","","","","9","","","","","1,084,810","","","","9"],["Construction","","","923,040","","","","7","","","","","688,676","","","","5"],["Manufacturing","","","919,830","","","","7","","","","","929,737","","","","7"],["Finance and insurance","","","896,105","","","","7","","","","","690,354","","","","5"],["Wholesale trade","","","823,295","","","","7","","","","","708,640","","","","6"],["Transportation and warehousing","","","780,934","","","","6","","","","","800,034","","","","6"],["Professional, scientific, and technical services","","","621,739","","","","5","","","","","500,219","","","","4"],["Public administration","","","596,301","","","","5","","","","","650,595","","","","5"],["Accommodation and food services","","","595,698","","","","5","","","","","633,869","","","","5"],["Other services (except public administration)","","","424,090","","","","4","","","","","436,665","","","","3"],["Energy","","","266,235","","","","2","","","","","305,867","","","","2"],["Educational services","","","255,127","","","","2","","","","","270,980","","","","2"],["Total commercial & industrial loans","$","","11,902,647","","","","96","","%","$","","10,839,191","","","","84","","%"],["PPP loans","","","531,059","","","","4","","","","","2,005,237","","","","16"],["Total commercial & industrial loans","$","","12,433,706","","","","100","","%","$","","12,844,428","","","","100","","%"]]
[[/GREPCENT_TABLE]]

Commercial real estate – income producing loans totaled $3.5 billion at December 31, 2021, an increase of $107 million, or 3%, from December 31, 2020.  The net increase reflects construction loans converting to permanent financing, as well as organic growth, partially offset by approximately $875 million in paydowns.

Construction and land development loans totaled approximately $1.2 billion at December 31, 2021, compared to $1.1 billion at December 31, 2020, an increase of $164 million, or 15%. The increase was primarily due to increased demand throughout our footprint, with the funding of new and existing loans outpacing loans converting to permanent financing.

The following table details the end-of-period aggregated commercial real estate – income producing and construction loan balances by property type. Loans reflected in 1-4 Family Residential Construction include both loans to construction builders as well as single-family borrowers.

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TABLE 12.  Commercial Real Estate– Income Producing and construction by Property Type Concentration

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","","2020"],["","","","","Pct of","","","","","","Pct of"],["($ in thousands)","Balance","","","Total","","","Balance","","","Total"],["Commercial real estate - Income Producing and Construction loans"],["Retail","$","","777,594","","","","17","","%","$","","746,520","","","","17","","%"],["Healthcare related properties","","","766,338","","","","16","","","","","557,473","","","","13"],["Multifamily","","","647,300","","","","14","","","","","630,392","","","","14"],["Industrial","","","561,022","","","","12","","","","","540,198","","","","12"],["Office","","","501,771","","","","11","","","","","527,576","","","","12"],["1-4 family residential construction","","","469,690","","","","10","","","","","393,568","","","","9"],["Hotel/motel and restaurants","","","437,241","","","","9","","","","","527,393","","","","12"],["Other land loans","","","257,594","","","","5","","","","","273,285","","","","6"],["Other","","","274,746","","","","6","","","","","226,591","","","","5"],["Total commercial real estate - income producing and construction loans","$","","4,693,296","","","","100","","%","$","","4,422,996","","","","100","","%"]]
[[/GREPCENT_TABLE]]

Residential mortgages totaled $2.4 billion at December 31, 2021, down $241 million, or 9%, from December 31, 2020. The decrease in mortgage loans is due primarily to a lower level of production, which was down 7% from 2020. Consumer loans totaled $1.6 billion at December 31, 2021, a decrease of $274 million, or 15%, compared to December 31, 2020. The decline in the consumer loan portfolio is due in part to a decrease of $197 million with the wind down of our indirect auto lending, as well as limited demand as a result of the pandemic.

The following table shows average loans by category, the effective taxable equivalent yield and the percentage of total loans for each of the preceding three years:

TABLE 13. Average Loans

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2021","","","","2020","","","","2019"],["","","","","","Yield","","","","Pct of","","","","","","","Yield","","","","Pct of","","","","","","","Yield"],["($ in thousands)","","Balance","","","(te)","","","","Total","","","","Balance","","","(te)","","","","Total","","","","Balance","","","(te)","","","","Total"],["Total loans:"],["Commercial & real estate loans","","$","","17,070,252","","","","3.55","","%","","","80","","%","","$","","17,270,894","","","","3.82","","%","","","78","","%","","$","","15,289,645","","","","4.83","","%","","","75","","%"],["Residential mortgages","","","","2,445,602","","","","3.70","","","","","12","","","","","","2,857,584","","","","3.92","","","","","13","","","","","","2,974,094","","","","4.09","","","","","15"],["Consumer","","","","1,692,088","","","","4.82","","","","","8","","","","","","2,038,045","","","","4.98","","","","","9","","","","","","2,116,288","","","","5.74","","","","","10"],["Total loans","","$","","21,207,942","","","","3.92","","%","","","100","","%","","$","","22,166,523","","","","4.13","","%","","","100","","%","","$","","20,380,027","","","","4.81","","%","","","100","","%"]]
[[/GREPCENT_TABLE]]

The following table sets forth the approximate contractual maturity by portfolio segment at December 31, 2021.

TABLE 14. Loan Maturities by Type

[[GREPCENT_TABLE]]
[["","","Maturity Range"],["(in thousands)","","Within One Year","","","After One Through Five Years","","","After Five Through Fifteen Years","","","","After Fifteen Years","","","Total"],["Total loans:"],["Commercial non-real estate","","$","","2,061,143","","","$","","5,749,321","","","$","","1,670,290","","","$","","131,706","","","$","","9,612,460"],["Commercial real estate - owner occupied","","","","187,285","","","","","820,185","","","","","1,733,383","","","","","80,393","","","","","2,821,246"],["Total commercial & industrial","","","","2,248,428","","","","","6,569,506","","","","","3,403,673","","","","","212,099","","","","","12,433,706"],["Commercial real estate - income producing","","","","511,244","","","","","1,964,922","","","","","954,339","","","","","34,121","","","","","3,464,626"],["Construction and land development","","","","251,392","","","","","505,500","","","","","210,181","","","","","261,597","","","","","1,228,670"],["Residential mortgages","","","","55,134","","","","","68,399","","","","","450,626","","","","","1,849,731","","","","","2,423,890"],["Consumer","","","","59,619","","","","","560,163","","","","","94,216","","","","","869,392","","","","","1,583,390"],["Total loans","","$","","3,125,817","","","$","","9,668,490","","","$","","5,113,035","","","$","","3,226,940","","","$","","21,134,282"]]
[[/GREPCENT_TABLE]]

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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

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["(in thousands)","","Fixed Rate","","","Floating Rate","","","Total"],["Total loans:"],["Commercial non-real estate","","$","","4,144,956","","","$","","5,467,504","","","$","","9,612,460"],["Commercial real estate - owner occupied","","","","1,789,260","","","","","1,031,986","","","","","2,821,246"],["Total commercial & industrial","","","","5,934,216","","","","","6,499,490","","","","","12,433,706"],["Commercial real estate - income producing","","","","1,092,834","","","","","2,371,792","","","","","3,464,626"],["Construction and land development","","","","425,136","","","","","803,534","","","","","1,228,670"],["Residential mortgages","","","","1,580,223","","","","","843,667","","","","","2,423,890"],["Consumer","","","","414,693","","","","","1,168,697","","","","","1,583,390"],["Total loans","","$","","9,447,102","","","$","","11,687,180","","","$","","21,134,282"]]
[[/GREPCENT_TABLE]]

Management expects 6% to 8% end of period core loan growth (excluding PPP loans) for 2022, with quarterly results reflecting normal seasonality. We expect the majority of our remaining PPP loans to be forgiven by the second quarter of 2022.

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Asset Quality

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

[[GREPCENT_TABLE]]
[["","","December 31,"],["(in thousands)","","2021","","","","2020"],["Loans accounted for on a nonaccrual basis:"],["Commercial non-real estate loans","","$","","4,058","","","","$","","34,200"],["Commercial non-real estate loans - restructured","","","","2,915","","","","","","18,636"],["Total commercial non-real estate loans","","","","6,973","","","","","","52,836"],["Commercial real estate - owner occupied","","","","3,104","","","","","","13,514"],["Commercial real estate - owner occupied - restructured","","","","1,817","","","","","","342"],["Total commercial real estate - owner occupied loans","","","","4,921","","","","","","13,856"],["Commercial real estate - income producing loans","","","","5,377","","","","","","6,650"],["Commercial real estate - income producing loans - restructured","","","","81","","","","","","93"],["Total commercial real estate - income producing loans","","","","5,458","","","","","","6,743"],["Construction and land development loans","","","","837","","","","","","2,475"],["Construction and land development loans - restructured","","","","7","","","","","","11"],["Total construction and land development loans","","","","844","","","","","","2,486"],["Residential mortgage loans","","","","23,483","","","","","","38,075"],["Residential mortgage loans - restructured","","","","1,956","","","","","","2,498"],["Total residential mortgage loans","","","","25,439","","","","","","40,573"],["Consumer loans","","","","11,888","","","","","","23,385"],["Consumer loans -restructured","","","\u2014","","","","","\u2014"],["Total consumer loans","","","","11,888","","","","","","23,385"],["Total nonaccrual loans","","$","","55,523","","","","$","","139,879"],["Restructured loans - still accruing:"],["Commercial non-real estate loans","","$","","515","","","","$","","549"],["Commercial real estate loans - owner occupied","","","","\u2014","","","","","\u2014"],["Commercial real estate loans - income producing","","","","\u2014","","","","","","349"],["Construction and land development loans","","","","118","","","","","","122"],["Residential mortgage loans","","","","2,169","","","","","","2,217"],["Consumer loans","","","","986","","","","","","1,025"],["Total restructured loans - still accruing","","","","3,788","","","","","","4,262"],["Total nonperforming loans","","","","59,311","","","","","","144,141"],["ORE and foreclosed assets","","","","7,533","","","","","","11,648"],["Total nonperforming assets (a)","","$","","66,844","","","","$","","155,789"],["Loans 90 days past due still accruing","","$","","5,524","","","","$","","3,361"],["Total restructured loans","","$","","10,564","","","","$","","25,842"],["Ratios:"],["Nonaccrual loans to total loans","","","","0.26","","%","","","","0.64","","%"],["Nonperforming assets to loans plus ORE and foreclosed assets","","","","0.32","","%","","","","0.71","","%"],["Allowance for loan losses to nonaccrual loans","","","","616.08","","%","","","","321.83","","%"],["Allowance for loan losses to nonperforming loans and accruing loans 90 days past due","","","","527.59","","%","","","","305.20","","%"],["Loans 90 days past due still accruing to loans","","","","0.03","","%","","","","0.02","","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Includes total nonaccrual loans, total restructured loans\u2014still accruing and ORE and foreclosed assets."]]
[[/GREPCENT_TABLE]]

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Nonperforming assets were $66.8 million at December 31, 2021, a decrease of $88.9 million, or 57%, compared to $155.8 million at December 31, 2020. The decrease in nonperforming assets was driven by an $84.8 million decrease in nonperforming loans, which includes nonaccrual loans and loans modified in a troubled debt restructurings (TDRs) still accruing. The decline in nonperforming loans was primarily attributable to repayments, upgrades and charge-offs exceeding downgrades due to improvement in economic activity in 2021 and its positive impact on our asset quality metrics. ORE and foreclosed assets totaled $7.5 million at December 31, 2021, a decrease of $4.1 million from December 31, 2020, as property sales exceeded new additions.

Nonperforming loans totaled $59.3 million at December 31, 2021, compared to $144.1 million at December 31, 2020, and was comprised of $18.8 million of commercial loans, $27.6 million of residential mortgage loans, and $12.9 million of consumer loans. The commercial nonperforming loans are spread across various industries and geographies.  

Loans modified in TDRs totaled $10.6 million at December 31, 2021, compared to $25.8 million at December 31, 2020, including $6.8 million and $21.6 million, respectively, of loans reported in nonaccrual loans. The decrease from December 31, 2020 is primarily related to charge-offs taken during the year and loan repayments, partially offset by new TDRs. 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 $3.8 million, or 6% of nonperforming loans, at December 31, 2021, down from $4.3 million, or 3%, of nonperforming loans at December 31, 2020.

Our TDR disclosures do not include loans modified under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act, which allows financial institutions to exclude eligible modifications from TDR assessment. Eligible modification must be (1) related to COVID-19, (2) executed on a loan that was not more than 30 days past due as of December 31, 2019 and (3) executed between March 1, 2020 and the earlier of 60 days after the date of the termination of the national emergency or January 1, 2022, as amended.

Criticized commercial loans totaled $287.2 million at December 31, 2021, down $105.4 million, or 27%, compared to December 31, 2020. The decrease in commercial criticized loans is largely attributable to both paydowns and upgrades, reflecting improved economic activity and the favorable impact of economic stimulus for our borrowers. 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. Commercial criticized loans comprised 1.73% of that portfolio at December 31, 2021, excluding PPP loans, down from 2.57% at December 31, 2020. Our commercial criticized loans at December 31, 2021 are diverse across many industries. The industries having the largest concentration of criticized loans to total commercial criticized loans at December 31, 2021 are energy support services with 24%; hospitality, including hotels, restaurants and entertainment with 18%; manufacturing with 12%, real estate rental and leasing with 11%, and transportation and warehousing with 10%.

Allowance for Credit Losses

At December 31, 2021, the allowance for credit losses was $371.4 million, consisting of $342.1 million in allowance for loan losses and $29.3 million in the reserve for unfunded lending commitments. The allowance for credit losses decreased $108.7 million from the December 31, 2020 balance of $480.1 million, which consisted of $450.2 million in allowance for loan losses and $29.9 million in the reserve for unfunded lending commitments.

Compared to December 31, 2020, the decrease in the allowance for credit losses includes reductions of $95.5 million in collectively evaluated reserves and $13.2 million in individually evaluated reserves (generally used for nonperforming loans and loans modified in a troubled debt restructuring), reflecting improvements in asset quality. The Company probability-weighted two Moody’s macroeconomic scenarios in the calculation of our collectively evaluated allowance for credit losses. The slower near-term growth S-2 scenario (anchored on the baseline) was weighted most heavily at 60% and the baseline scenario was weighted 40%, to incorporate reasonably possible alternative economic outcomes. Both economic scenarios utilized reflect continued recovery from the economic downturn in the first half of 2020; however, each scenario has varying degrees of severity of the COVID-19 pandemic, size and timing of additional fiscal stimulus, and resolution of the coronavirus pandemic.

The December 2021 baseline forecast used in our analysis assumes that new cases of COVID-19 will abate in February 2022 with no explicit assumption surrounding the Omicron variant; a $1.75 trillion social safety net and client spending bill implementing in early 2022; consumer prices reaching a peak in December 2021, with the worst of the supply chain issues behind us; and full employment reached by the end of 2022. The slower near-term growth S-2 forecast reflects a slower economic recovery than the baseline forecast, with new cases, hospitalizations and deaths from COVID-19 diminishing more slowly, and as a result, a slower return to spending on air travel, retail and hotels than baseline. The S-2 scenario also assumes less effective stimulus and a slower return to full employment. Additional information on the Moody’s forecast is provided in the “Economic Outlook” section of this document.

Our allowance for credit losses coverage to total loans remains strong at 1.76% at December 31, 2021, or 1.80% when excluding SBA guaranteed PPP loans, compared to 2.20%, or 2.42% when excluding PPP loans, at December 31, 2020, and reflects improvement in economic conditions in our markets.

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The allowance for credit losses on the commercial portfolio decreased to $307.9 million, or 1.80% of that portfolio, at December 31, 2021 compared to December 31, 2020 of $383.5 million, or 2.22%. Our residential mortgage reserve for credit losses decreased to $30.6 million, or 1.26%, at December 31, 2021, compared to $48.9 million, or 1.83%, at December 31, 2020. Our allowance for credit losses on the consumer portfolio was $32.8 million, or 2.07 % at December 31, 2021, compared to $47.8 million, or 2.57% at December 31, 2020. The decrease in the allowance across all portfolios reflects the strong economic recovery during 2021 with improvements in asset quality and the overall economic outlook.

Net charge-offs during 2021 were $31.2 million, or 0.15% of average total loans, down from net charge-offs of $394.8 million, or 1.78% of average total loans, for the year ended December 31, 2020. Net charge-offs in 2020 included a $242.6 million charge related to the sale of a significant portion of our energy loan portfolio as a part of a de-risking strategy. Commercial net charge-offs for 2021 totaled $25.5 million compared to $384.2 million (or $141.6 million when excluding the impact of the energy loan sale). Commercial net charge-offs in 2021 includes $14.1 million of energy-related charge-offs, with $13.3 million associated with a single legacy credit. Commercial net charge-offs in 2020 excluding the impact of the energy loan sale includes additional losses in energy, healthcare and other industries that were financially impacted by the pandemic. The residential mortgage portfolio had a net recovery in 2021 of $0.7 million, compared to a net recovery of $1.1 million in 2020. Consumer net charge-offs were down $5.2 million in 2021 to $6.4 million, with lower losses across most portfolios, including the indirect auto portfolio that is in run-off.

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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

[[GREPCENT_TABLE]]
[["","","December 31,"],["(in thousands)","","2021","","","","2020","","","","2019"],["Provision and Allowance for Credit Losses"],["Allowance for Loan Losses:"],["Allowance for loan losses at beginning of period","","$","","450,177","","","","$","","191,251","","","","$","","194,514"],["Loans charged-off:"],["Commercial non real estate","","","","33,523","","","","","","387,172","","","","","","39,600"],["Commercial real estate - owner occupied","","","","3,179","","","","","","1,828","","","","","","137"],["Total commercial & industrial","","","","36,702","","","","","","389,000","","","","","","39,737"],["Commercial real estate - income producing","","","","425","","","","","","2,512","","","","","","32"],["Construction and land development","","","","274","","","","","","400","","","","","","7"],["Total Commercial","","","","37,401","","","","","","391,912","","","","","","39,776"],["Residential mortgages","","","","713","","","","","","326","","","","","","846"],["Consumer","","","","12,722","","","","","","17,219","","","","","","18,455"],["Total charge-offs","","","","50,836","","","","","","409,457","","","","","","59,077"],["Recoveries of loans previously charged-off:"],["Commercial non real estate","","","","8,985","","","","","","6,032","","","","","","6,940"],["Commercial real estate - owner occupied","","","","642","","","","","","763","","","","","","306"],["Total commercial & industrial","","","","9,627","","","","","","6,795","","","","","","7,246"],["Commercial real estate - income producing","","","","105","","","","","","46","","","","","","569"],["Construction and land development","","","","2,172","","","","","","846","","","","","","140"],["Total commercial","","","","11,904","","","","","","7,687","","","","","","7,955"],["Residential mortgages","","","","1,459","","","","","","1,400","","","","","","480"],["Consumer","","","","6,282","","","","","","5,584","","","","","","3,645"],["Total recoveries","","","","19,645","","","","","","14,671","","","","","","12,080"],["Total net charge-offs","","","","31,191","","","","","","394,786","","","","","","46,997"],["Provision for loan losses","","","","(76,921",")","","","","","604,301","","","","","","43,734"],["Cumulative effect of change in accounting principle","","","","\u2014","","","","","","49,411","","","","","","\u2014"],["Allowance for loan losses at end of period","","$","","342,065","","","","$","","450,177","","","","$","","191,251"],["Reserve for Unfunded Lending Commitments:"],["Reserve for unfunded lending commitments at beginning of period","","$","","29,907","","","","$","","3,974","","","","$","","\u2014"],["Cumulative effect of change in accounting principle","","","","\u2014","","","","","","27,330","","","","","","\u2014"],["Provision for losses on unfunded lending commitments","","","","(573",")","","","","","(1,397",")","","","","","3,974"],["Reserve for unfunded lending commitments at end of period","","$","","29,334","","","","$","","29,907","","","","$","","3,974"],["Total Allowance for Credit Losses","","$","","371,399","","","","$","","480,084","","","","$","","195,225"],["Total Provision for Credit Losses","","$","","(77,494",")","","","$","","602,904","","","","$","","47,708"],["Coverage ratios:"],["Allowance for loan losses to period end loans","","","","1.62","","%","","","","2.07","","%","","","","0.90","","%"],["Allowance for credit loss to period end loans","","","","1.76","","%","","","","2.20","","%","","","","0.92","","%"],["Charge-offs ratios"],["Gross charge-offs to average loans","","","","0.24","","%","","","","1.85","","%","","","","0.29","","%"],["Recoveries to average loans","","","","0.09","","%","","","","0.07","","%","","","","0.06","","%"],["Net charge-offs to average loans","","","","0.15","","%","","","","1.78","","%","","","","0.23","","%"],["Net Charge-offs to average loans by portfolio:"],["Commercial non real estate","","","","0.25","","%","","","","3.77","","%","","","","0.38","","%"],["Commercial real estate - owner occupied","","","","0.09","","%","","","","0.04","","%","","","","(0.01",")","%"],["Total commercial & industrial","","","","0.22","","%","","","","2.97","","%","","","","0.29","","%"],["Commercial real estate - income producing","","","","0.01","","%","","","","0.08","","%","","","","(0.02",")","%"],["Construction and land development","","","","(0.16",")","%","","","","(0.04",")","%","","","","(0.01",")","%"],["Total Commercial","","","","0.15","","%","","","","2.22","","%","","","","0.21","","%"],["Residential mortgages","","","","(0.03",")","%","","","","(0.04",")","%","","","","0.00","","%"],["Consumer","","","","0.38","","%","","","","0.57","","%","","","","0.70","","%"]]
[[/GREPCENT_TABLE]]

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An allocation of the loan loss allowance by major loan category is set forth in the following table for the periods indicated.

TABLE 18. Allocation of Allowance for Loan Losses by Category

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2021","","","2020"],["($ in thousands)","","Allowance for Loan Losses","","","% of Total Allowance","","","Allowance for Loan Losses","","","% of Total Allowance"],["Commercial non-real estate","","$","","95,888","","","","28","","%","$","","149,693","","","","33","","%"],["Commercial real estate - owner occupied","","","","53,433","","","","16","","","","","69,134","","","","15"],["Total commercial & industrial","","","","149,321","","","","44","","","","","218,827","","","","48"],["Commercial real estate - income producing","","","","108,058","","","","32","","","","","109,474","","","","24"],["Construction and land development","","","","22,102","","","","6","","","","","26,462","","","","6"],["Residential mortgages","","","","30,623","","","","9","","","","","48,842","","","","11"],["Consumer","","","","31,961","","","","9","","","","","46,572","","","","11"],["Total","","$","","342,065","","","","100","","%","$","","450,177","","","","100","","%"]]
[[/GREPCENT_TABLE]]

Deposits

Total deposits were $30.5 billion at December 31, 2021, up $2.8 billion, or 10%, from December 31, 2020. Average deposits of $29.1 billion for 2021 were up $2.9 billion, or 11%, over 2020. The increases from 2020 for both end of period and average deposits was primarily pandemic-related, including increases from PPP loan proceeds and economic stimulus payments. During the latter half of 2021, deposit levels were also influenced by Hurricane Ida insurance proceeds.

TABLE 19. Deposits

[[GREPCENT_TABLE]]
[["","","December 31,"],["(in thousands)","","2021","","2020"],["Noninterest-bearing deposits","","$","14,392,808","","$","12,199,750"],["Interest-bearing retail transaction and savings deposits","","","11,677,333","","","10,435,362"],["Interest-bearing public fund deposits"],["Public fund transaction and savings deposits","","","3,216,651","","","3,068,555"],["Public fund time deposits","","","77,956","","","166,381"],["Total interest-bearing public fund deposits","","","3,294,607","","","3,234,936"],["Retail time deposits","","","1,091,959","","","1,813,705"],["Brokered time deposits","","","9,190","","","14,124"],["Total interest-bearing deposits","","","16,073,089","","","15,498,127"],["Total deposits","","$","30,465,897","","$","27,697,877"]]
[[/GREPCENT_TABLE]]

At December 31, 2021, noninterest-bearing demand deposits were $14.4 billion, up $2.2 billion, or 18%, from December 31, 2020. Noninterest-bearing demand deposits comprised 47% of total deposits at December 31, 2021, up from 44% at December 31, 2020.

Interest-bearing transaction and savings accounts of $11.7 billion at December 31, 2021 increased $1.2 billion, or 12%, from December 31, 2020.

Interest-bearing public fund deposits totaled $3.3 billion at December 31, 2021, up $60 million, or 2%, from December 31, 2020. 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 $1.1 billion at December 31, 2021, down $727 million, or 40%, from December 31, 2020. The decrease was due in part to maturing retail and jumbo certificates of deposit which were not renewed, likely due to prevailing rates that reflect management’s strategic approach to lowering the cost of funds.

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Table 20 sets forth average balances and weighted-average rates paid on deposits for each year in the three-year period ended December 31, 2021, as well as the percentage of total deposits for each category. Table 21 sets forth the maturities of time certificates of deposit greater than $250,000 at December 31, 2021.

TABLE 20. Average Deposits

[[GREPCENT_TABLE]]
[["","","2021","","","","2020","","","","2019"],["($ in millions)","","Balance","","","Rate","","","","Mix","","","","Balance","","","Rate","","","","Mix","","","","Balance","","","Rate","","","","Mix"],["Interest-bearing deposits:"],["Interest-bearing transaction deposits","","$","","2,425.2","","","","0.09","","%","","","8.3","","%","","$","","2,166.4","","","","0.20","","%","","","8.3","","%","","$","","1,999.5","","","","0.62","","%","","","8.6","","%"],["Money market deposits","","","","6,212.0","","","","0.11","","","","","21.4","","","","","","5,311.0","","","","0.39","","","","","20.3","","","","","","4,487.8","","","","1.05","","","","","19.3"],["Savings deposits","","","","2,598.2","","","","0.01","","","","","8.9","","","","","","2,092.4","","","","0.02","","","","","8.0","","","","","","1,796.1","","","","0.02","","","","","7.7"],["Time deposits","","","","1,394.1","","","","0.47","","","","","4.8","","","","","","2,630.8","","","","1.41","","","","","10.0","","","","","","3,682.0","","","","2.00","","","","","15.8"],["Public Funds","","","","3,140.2","","","","0.34","","","","","10.8","","","","","","3,232.1","","","","0.79","","","","","12.3","","","","","","3,078.1","","","","1.76","","","","","13.2"],["Total interest-bearing deposits","","","","15,769.7","","","","0.17","","%","","","54.2","","","","","","15,432.7","","","","0.57","","%","","","58.9","","","","","","15,043.5","","","","1.25","","%","","","64.6"],["Noninterest bearing demand deposits","","","","13,324.0","","","","","","","","","45.8","","","","","","10,779.6","","","","","","","","","41.1","","","","","","8,255.9","","","","","","","","","35.4"],["Total deposits","","$","","29,093.7","","","","","","","","","100.0","","%","","$","","26,212.3","","","","","","","","","100.0","","%","","$","","23,299.4","","","","","","","","","100.0","","%"]]
[[/GREPCENT_TABLE]]

TABLE 21. Maturity of Time Certificates of Deposit greater than or equal to $250,000*

[[GREPCENT_TABLE]]
[["(in thousands)","","December 31, 2021"],["Three months","","$","","145,283"],["Over three months through six months","","","","73,658"],["Over six months through one year","","","","117,746"],["Over one year","","","","41,875"],["Total","","$","","378,562"]]
[[/GREPCENT_TABLE]]

*     Includes public fund time deposits

We have estimated the Bank’s amount of uninsured assessable deposits to be approximately $15.6 billion, using the methodologies and assumptions required for FDIC regulatory reporting.

Management expects the level of end of period total deposits to be relatively flat or slightly down during 2022.

Short-Term Borrowings

Short-term borrowings totaled $1.7 billion at December 31, 2021, virtually flat when compared to December 31, 2020. Average short-term borrowings for 2021 totaled $1.7 billion, down $315 million, or 16%, compared to 2020. The decrease in average short-term borrowings is the result of utilizing excess liquidity on the balance sheet to pay down higher-rate borrowings, mostly during the second quarter of 2020. 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.

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Table 22 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.

TABLE 22. Short-Term Borrowings

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["($ in thousands)","","2021","","","2020","","","2019"],["Federal funds purchased:"],["Amount outstanding at period end","","$","","1,850","","","$","","300","","","$","","195,450"],["Average amount outstanding during period","","","","3,762","","","","","9,708","","","","","49,297"],["Maximum amount at any month end during period","","","","4,400","","","","","330,330","","","","","202,933"],["Weighted-average interest at period end","","","","0.15","%","","","","0.15","%","","","","1.60","%"],["Weighted-average interest rate during period","","","","0.43","%","","","","1.15","%","","","","2.30","%"],["Securities sold under agreements to repurchase:"],["Amount outstanding at period end","","$","","563,211","","","$","","567,213","","","$","","484,422"],["Average amount outstanding during period","","","","559,410","","","","","600,167","","","","","493,344"],["Maximum amount at any month end during period","","","","643,403","","","","","806,645","","","","","518,042"],["Weighted-average interest at period end","","","","0.05","%","","","","0.14","%","","","","0.54","%"],["Weighted-average interest rate during period","","","","0.10","%","","","","0.24","%","","","","0.52","%"],["FHLB borrowings:"],["Amount outstanding at period end","","$","","1,100,000","","","$","","1,100,000","","","$","","2,035,000"],["Average amount outstanding during period","","","","1,100,000","","","","","1,368,320","","","","","1,399,503"],["Maximum amount at any month end during period","","","","1,100,000","","","","","2,110,000","","","","","1,941,774"],["Weighted-average interest at period end","","","","0.49","%","","","","0.49","%","","","","1.17","%"],["Weighted-average interest rate during period","","","","0.49","%","","","","0.62","%","","","","1.96","%"]]
[[/GREPCENT_TABLE]]

The $1.1 billion of FHLB borrowings at December 31, 2021 consists of five fixed rate notes maturing between 2034 and 2035 that are classified as short-term as the FHLB has the option to put (terminate) the advance prior to maturity.   

Long-Term Debt

Long-term debt totaled $244.2 million at December 31, 2021, down $134.1 million compared to $378.3 million at December 31, 2020. On June 15, 2021, the Company utilized excess liquidity to redeem in full its $150 million 5.95% fixed rate subordinated notes due in 2045, driving most of the variance compared to prior year. The notes were redeemed at 100% of principal plus accrued and unpaid interest therein. Loss on extinguishment of debt included in other noninterest expense totaling $4.2 million represents the disposal of unamortized loan costs associated with the original issuance of the notes. The remaining variance is largely due to activity associated with tax credit fund activity.

On June 9, 2020, we completed the issuance of subordinated notes payable with an aggregate principal amount of $172.5 million and a stated maturity of June 15, 2060. The notes accrue interest at a fixed rate of 6.25% per annum, with quarterly interest payments that began September 15, 2020. 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, 2025. This debt qualifies as tier 2 capital in the calculation of certain regulatory capital ratios and was issued as part of a de-risking strategy.

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 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 totaled $9.4 billion at December 31, 2021 and 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.

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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 $397 million at December 31, 2021. 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, 2021, the Company has a reserve for unfunded lending commitments of $29.3 million.

The following table shows the commitments to extend credit and letters of credit at December 31, 2021 and 2020 according to expiration date.

TABLE 23. Loan Commitments and Letters of Credit

[[GREPCENT_TABLE]]
[["","","","","","","","Expiration Date"],["(in thousands)","","Total","","","Less Than 1 Year","","","1-3 Years","","","3-5 Years","","","More Than 5 Years"],["December 31, 2021"],["Commitments to extend credit","","$","","9,444,803","","","$","","4,171,685","","","$","","2,388,752","","","$","","2,071,055","","","$","","813,311"],["Letters of credit","","","","396,956","","","","","287,230","","","","","97,940","","","","","11,786","","","","","\u2014"],["Total","","$","","9,841,759","","","$","","4,458,915","","","$","","2,486,692","","","$","","2,082,841","","","$","","813,311"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","","","","","Expiration Date"],["(in thousands)","","Total","","","Less Than 1 Year","","","1-3 Years","","","3-5 Years","","","More Than 5 Years"],["December 31, 2020"],["Commitments to extend credit","","$","","8,106,223","","","$","","3,926,618","","","$","","1,877,640","","","$","","1,432,019","","","$","","869,946"],["Letters of credit","","","","365,510","","","","","272,632","","","","","80,348","","","","","12,530","","","","","\u2014"],["Total","","$","","8,471,733","","","$","","4,199,250","","","$","","1,957,988","","","$","","1,444,549","","","$","","869,946"]]
[[/GREPCENT_TABLE]]

ENTERPRISE RISK MANAGEMENT

We proactively manage risks to capture opportunities and maximize shareholder value. We balance revenue generation and profitability with the inherent risks of our business activities. Enterprise risk management helps protect shareholder value by assessing, monitoring, and managing the risks associated with our businesses. Strong risk management practices enhance decision-making, facilitate successful implementation of new initiatives, and where appropriate, support undertaking greater levels of well-managed risk to drive growth and achieve strategic objectives. Our risk management culture integrates a board-approved risk appetite with senior management direction and governance to facilitate the execution of the Company’s strategic plan. This integration ensures the daily management of risks by product types and continuous corporate monitoring of the levels of risk across the Company. We make changes to our enterprise risk management program and risk governance framework as described here at the direction of senior management and the Board of Directors to capture opportunities and to respond to changes in strategic, business, and operational environments.

Risk Categories and Definitions

Consistent with other participants in the financial services industry, the primary risk exposures of the Company are credit, market, liquidity, operational, legal, reputational, and strategic. We have adopted these seven risk categories as outlined by the Federal Reserve Board and other bank regulators to govern the risk management of banks and bank holding companies. Oversight responsibility for these categories is assigned within our risk committee governance structure:

[[GREPCENT_TABLE]]
[["","\u2022","Credit risk arises from the potential that a borrower or counterparty will fail to perform on an obligation."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Market risk is a financial institution\u2019s condition resulting from adverse movements in market rates or prices, such as interest rates, foreign exchange rates, or equity prices."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","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 \u201cfunding liquidity risk\u201d) or that it cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions (\u201cmarket liquidity risk\u201d)."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u2022","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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Reputational risk is the potential that negative publicity regarding an institution\u2019s 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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","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."]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","\u2022","Board risk committees. The Company\u2019s 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\u2019s internal control environment. The Board Risk Committee is chaired by an independent director. The Board has designated Ms. Joan Teofilo and Ms. Suzette Kent, independent directors who serve on the Board Risk Committee, as risk management experts."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","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\u2019s 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\u2019s reputation."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Portfolio committees. The Company has three portfolio risk/reward committees focusing on credit (CREDCO), market and liquidity through asset/liability management (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\u2019s risk profile as well as ensure the risk portfolio is performing within the board-approved risk appetite. Portfolio committees report to CAPCO."]]
[[/GREPCENT_TABLE]]

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, data governance, regulatory relations, corporate insurance, credit review (administrative only) 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.

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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.

Our commercial and industrial portfolio, which includes commercial non-real estate and owner occupied commercial real estate lending is diverse across various industries. We continuously manage our exposure to 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-and non-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. When deemed necessary, third party valuations may also be obtained for non-real estate collateral based on the same criteria as real estate secured loans. Such valuations, 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.

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, Monte Carlo, 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.

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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, 2021. 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 24. 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 24. Net Interest Income (te) at Risk

[[GREPCENT_TABLE]]
[["","","","Estimated Increase in NII"],["Change in Interest Rates","","Year 1","","","Year 2"],["(basis points)"],["+","100","","7.31","%","","10.89","","%"],["+","200","","15.67","%","","","22.66","","%"],["+","300","","24.13","%","","","34.61","","%"]]
[[/GREPCENT_TABLE]]

The results indicate a general asset sensitivity across most scenarios driven primarily by repricing in variable rate loans, balances at the Federal Reserve Bank and a funding mix which is composed of material volumes of non-interest bearing and lower rate sensitive deposits. Elevated levels of short-term investments driven by deposit inflows are contributing to an increase in asset sensitivity over the past year. When deemed prudent, management has taken actions to mitigate exposure to interest rate risk with on-or off-balance sheet financial instruments and intends to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.

Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet and earnings is fluid and would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Certain assets such as adjustable-rate loans have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. All of these factors are considered in monitoring exposure to interest rate risk.

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021; but, the publication of the remaining LIBOR offered rates will continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they will examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.

Uncertainty remains over what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. In particular, regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee (ARRC)) have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., AMERIBOR or the Secured Overnight Financing Rate (SOFR) as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments.

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We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. 

Management has established a LIBOR Transition Working Group (the “Group”) whose purpose is to direct the overall transition process for the Company. The Group is an internal, cross-functional team with representatives from business lines, support and control functions and legal counsel. Beginning in the third quarter of 2019, key provisions in our loan documents were modified to ensure new and renewed loans include appropriate pre-cessation trigger language and LIBOR fallback language for transition from LIBOR to the new benchmark when such transition occurs. All direct exposures resulting from existing financial contracts that mature after 2021 have been inventoried and are monitored on an ongoing basis. Remediation of these exposures will be consistent with industry timing. The Group has also inventoried indirect LIBOR exposures within the Company's systems, models and processes. The results of this assessment will drive development and prioritization of remediation plans, and the Group is continuing to monitor developments and taking steps to ensure readiness when the LIBOR benchmark rate is discontinued. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.

The Bank has adopted several replacement benchmarks to use in place of LIBOR benchmark rates, with AMERIBOR along with FRB-NY SOFR as the primary rates. The replacement benchmarks rates adopted by the Bank have been affirmed to comply with the 19 principles set forth by the International Organization of Securities Commissions (IOSCO) for Financial Benchmarks, and it further provides the Bank confidence these replacement benchmarks are based on transparent, market-based transactions. The Bank began using these replacement benchmarks towards the end of the third quarter of 2021.

At December 31, 2021, approximately 34% of our loan portfolio consisted of variable rate loans tied to LIBOR, along with related derivatives and other financial instruments.

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, ransomware and other forms of malware, credential theft, 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 regularly attends Board Risk Committee meetings and sits in executive session with the Board Risk Committee members at least once annually.  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).

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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

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity management ensures 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. At December 31, 2021, we had $21.4 billion in net available sources of funds, summarized as follows:

TABLE 25. Net Available Sources of Funds

[[GREPCENT_TABLE]]
[["","","","December 31, 2021"],["($ in thousands)","","","Total Available","","","Amount Used","","","Net Availability"],["Internal Sources"],["Free securities, cash and other","","$","8,475,515","","$","\u2014","","$","8,475,515"],["External Sources"],["Federal Home Loan Bank","","","5,817,081","","","2,058,551","","","3,758,530"],["Federal Reserve Bank","","","3,300,588","","","\u2014","","","3,300,588"],["Brokered time deposits","","","4,569,885","","","9,190","","","4,560,695"],["Other","","","1,294,000","","","\u2014","","","1,294,000"],["Total Liquidity","","$","23,457,069","","$","2,067,741","","$","21,389,328"]]
[[/GREPCENT_TABLE]]

TABLE 26. Liquidity Metrics

[[GREPCENT_TABLE]]
[["","","2021","","","","2020","","","","2019"],["Free securities / total securities","","","53.95","","%","","","54.21","","%","","","47.27","","%"],["Core deposits / total deposits","","","98.66","","%","","","97.14","","%","","","93.54","","%"],["Wholesale funds / core deposits","","","6.45","","%","","","7.85","","%","","","13.99","","%"],["Average loans / average deposits","","","72.90","","%","","","84.57","","%","","","87.47","","%"]]
[[/GREPCENT_TABLE]]

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 greater. As shown in Table 26 above, our ratios of free securities to total securities were 53.95% and 54.21%, respectively, at December 31, 2021 and 2020. Securities and FHLB letters of credit are pledged as collateral related to public funds and repurchase agreements. The total pledged securities of $4.0 billion at December 31, 2021 were up $545.8 million compared to December 31, 2020. The increase in pledged securities, as well as the decrease in the ratio of free securities to total securities, was the result of utilizing securities to replace $550 million in maturing FHLB letters of credit as pledged collateral.

The liability portion of the balance sheet provides liquidity mainly through the ability to use cash sourced from various customers’ interest-bearing and noninterest-bearing deposit accounts and sweep accounts. At December 31, 2021, deposits totaled $30.5 billion, an increase of $2.8 billion, or 10%, from December 31, 2020. This increase was primarily attributable to pandemic-related conditions, such as overall slowdown in consumer and business spending; coupled with government stimulus, as well as increased hurricane-related deposits generally from insurance proceeds. Core deposits represent total deposits excluding certificates of deposits (“CDs”) of

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$250,000 or more and brokered deposits. The ratio of core deposits to total deposits was 98.66% at December 31, 2021, compared to 97.14% at December 31, 2020. Core deposits totaled $30.1 billion at December 31, 2021, an increase of $3.2 billion from December 31, 2020. Brokered deposits totaled $30 million as of December 31, 2021 compared to $66 million at December 31, 2020. Brokered deposits declined as brokered certificates that matured were not reissued as part of our effort to utilize excess liquidity.  The use of brokered deposits as a funding source is subject to certain policies 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, 2021, the Bank had borrowed $1.1 billion from the FHLB and had approximately $3.8 billion remaining available under this line.  The Bank also has unused borrowing capacity at the Federal Reserve’s discount window of approximately $3.3 billion.  There were no outstanding borrowings with the Federal Reserve at December 31, 2021 and December 31, 2020, or at any point during the years then ended.

Wholesale funds, comprised of short-term borrowings, long-term debt and brokered deposits were 6.45% of core deposits at December 31, 2021 and 7.85% at December 31, 2020. Wholesale funds totaled $1.9 billion at December 31, 2021, a decrease of $173 million from December 31, 2020. The decrease was primarily due to redemption of our 2015 subordinated debt in the second quarter of 2021. 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 during 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 72.90% for 2021 compared to 84.57% in 2020. Management has established a target range for the loan to deposit ratio of 87% to 89%, but may operate outside that range under certain circumstances. The average loan to deposit ratio began to decline during the second quarter of 2020, and continued throughout 2021, as growth of average deposits continued to outpace average loans, largely due to pandemic-related economic conditions.  Average loans outstanding for 2021 and 2020, included approximately $1.5 billion and $1.6 billion, respectively of low-risk SBA guaranteed PPP loans that are expected to be largely repaid through the forgiveness process by the end of the second quarter of 2022.

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 ongoing cash or liquid asset needs, consisting primarily of common stockholder dividends, debt service requirements, and any expected share repurchase or early extinguishment of debt. The Parent may temporarily operate below that level if a return to the target can be achieved in the near-term, generally not to exceed four quarters.

On June 9, 2020, the Parent completed the issuance of subordinated notes payable with an aggregate principal amount of $172.5 million, providing additional liquidity that can be used by the Parent or to provide capital to the Bank, if deemed appropriate. On June 15, 2021, the Parent utilized excess liquidity to redeem all of its issued and outstanding 5.95% Subordinated Notes due with an aggregate principal amount of $150 million.

Material Cash Requirements

The company has sufficient access to liquidity for operations. The following table summarizes select significant contractual obligations as of December 31, 2021, according to payments due by period. The table excludes obligations under deposit contracts and short-term borrowings discussed previously in this analysis. The maturities of time deposits in amounts greater than $250,000 are presented in Table 20. Purchase obligations represent material legal and binding contracts to purchase services and goods that cannot be settled or terminated without paying substantially all of the contractual amounts.

TABLE 27. Contractual Cash Obligations

[[GREPCENT_TABLE]]
[["","","Payment due by period"],["(in thousands)","","Total","","","Less Than 1 Year","","","1-3 Years","","","3-5 Years","","","More Than 5 Years"],["Long-term debt obligations","","$","","670,245","","","$","","19,731","","","$","","30,051","","","$","","64,596","","","$","","555,867"],["Operating lease obligations","","","","153,889","","","","","16,726","","","","","28,389","","","","","23,845","","","","","84,929"],["Purchase obligations","","","","124,529","","","","","85,931","","","","","28,815","","","","","9,783","","","","","\u2014"],["Commitments to fund low income housing and small business investment company","","","","18,244","","","","","18,244","","","","","\u2014","","","","","\u2014","","","","","\u2014"],["Total","","$","","966,907","","","$","","140,632","","","$","","87,255","","","$","","98,224","","","$","","640,796"]]
[[/GREPCENT_TABLE]]

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Capital Resources

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 economic downturns, future growth and flexibility in addressing strategic opportunities. Stockholders’ equity totaled $3.7 billion at December 31, 2021 compared to $3.4 billion at December 31, 2020. The $231.3 million increase is attributable to 2021 earnings of $463.2 million and $19.8 million of long-term incentive and dividend reinvestment activity, partially offset by a loss of $134.0 million in accumulated other comprehensive income largely related to the market adjustment on the available for sale securities portfolio and cash flow hedges, $95.9 million of dividends, and $21.8 million of stock repurchase activity.

At December 31, 2021, the Company’s tangible common equity ratio was 7.71%, compared to 7.64% at December 31, 2020. The increase from 2020 is primarily attributable to a $248 million increase in tangible equity offset by the impact of a $2.9 billion growth in tangible assets, which was largely driven by a $2.5 billion increase in low-risk short term investments (primarily Federal Funds) resulting from the excess liquidity due to the increase in deposits.

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 changes per the Dodd-Frank Act established the Basel III minimum regulatory capital requirements for all organizations for Total, Tier 1 and Common Equity Tier 1 risk-based capital ratios equal to 8.00%, 6.00%, and 4.5%, respectively, as well as set a conservation buffer of 2.5% and a Leverage ratio of 4.0%. Based on capital ratios as of December 31, 2021 using Basel III definitions, the Company and the Bank exceeded all capital requirements of the rule. The Company and the Bank have established internal target ranges for Total, Tier 1 and Common Equity Tier 1 risk-based capital ratios and the leverage ratio. At December 31, 2021, each of these capital ratios fell within, or above, their respective target range.

At December 31, 2021, our regulatory capital ratios were well in excess of current regulatory minimum requirements, including the conservatism buffers, by at least $475 million. Additionally, both the Company and the Bank were considered “well capitalized” by regulatory agencies. Note 11 – Stockholders’ Equity to the consolidated financial statements provides additional information about the Bank’s regulatory capital ratios.

The following table shows the Company’s regulatory capital ratios as calculated under current rules for the indicated periods.  The capital ratios at December 31, 2021 reflect the election to use the interim final five-year transition rule issued on March 27, 2020 available for institutions required to adopt CECL as of January 1, 2020. The CECL transition rule allows for the option to delay for two years the estimated impact of CECL on regulatory capital (0%), followed by a three-year transition (25% in 2022, 50% in 2023, 75% in 2024, and 100% thereafter). In addition, the two-year delay also includes the full impact of January 1, 2020 cumulative effect impact plus an estimated impact of CECL calculated quarterly as 25% of the current ACL over the January 1, balance (modified transition amount). The modified transition amount is recalculated quarterly, with the December 31, 2021 impact of $24.9 million plus the day one impact of $44.1 million carrying through remaining three-year transition. The election to use the revised final CECL transition rules favorably impacted our leverage ratio upon adoption by 19 bps and our Total, Tier 1 and Common Equity Tier 1 risk-based capital ratios by 22 bps.  

TABLE 28.  Risk-Based Capital and Capital Ratios

[[GREPCENT_TABLE]]
[["(in thousands)","","2021","","","2020"],["Common equity tier 1 capital","","$","","2,890,770","","","$","","2,534,049"],["Additional tier 1 capital","","","","\u2014","","","","","\u2014"],["Tier 1 capital","","","","2,890,770","","","","","2,534,049"],["Tier 2 capital","","","","454,617","","","","","621,643"],["Total capital","","$","","3,345,387","","","$","","3,155,692"],["Risk-weighted assets","","$","","26,056,958","","","$","","23,872,707"],["Ratios"],["Leverage (Tier 1 capital to average assets)","","","","8.25","%","","","","7.88","%"],["Common equity tier 1 capital to risk-weighted assets *","","","","11.09","%","","","","10.61","%"],["Tier 1 capital to risk-weighted assets","","","","11.09","%","","","","10.61","%"],["Total capital to risk-weighted assets","","","","12.84","%","","","","13.22","%"],["Common stockholders' equity to total assets","","","","10.05","%","","","","10.22","%"],["Tangible common equity to total assets","","","","7.71","%","","","","7.64","%"]]
[[/GREPCENT_TABLE]]

*applies to Bank only

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Total capital to risk weighted assets ratios at December 31, 2021 reflects the impact of the June 15, 2021 redemption of $150 million of subordinated notes of the Parent that qualified as tier 2 capital in the calculation of certain regulatory capital ratios, reducing total capital to risk weighted assets ratio by approximately 58 bps. Our regulatory ratios also reflect the impact of changing levels of PPP loans, which are guaranteed by the SBA and, when meeting certain criteria, are subject to forgiveness to the debtor by the SBA. These loans carry a 0% risk-weighting in the tier 1 and total capital regulatory ratios due to the full guarantee by the SBA. However, these loans are reflected in average assets used to compute tier 1 leverage. As of December 31, 2021 and 2020, PPP loans totaled $531 million and 2.0 billion, respectively.

On June 9, 2020, the Parent completed the issuance of subordinated notes with an aggregate principal amount of $172.5 million and a stated maturity of June 15, 2060, that qualify as tier 2 capital in the calculation of certain regulatory capital ratios.

Throughout both 2021 and 2020, the Company paid quarterly dividends of $0.27 per share, for an annual cash dividend rate of $1.08 per share. The Company has paid uninterrupted quarterly dividends to shareholders since 1967.  

STOCK REPURCHASE PROGRAM

On April 22, 2021, the Company’s board of directors approved a stock buyback program whereby the Company is authorized to repurchase up to 4.3 million shares of its common stock through the program’s expiration date of December 31, 2022. 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 otherwise, in one or more transactions. The Company is not obligated to purchase any shares under this program, and the board of directors has the ability to terminate or amend the program at any time prior to the expiration date. During the year ended December 31, 2021, the Company repurchased 449,876 shares of its common stock at an average cost of $48.45 per share, inclusive of commissions.

Prior to its expiration date of December 31, 2020, the Company had in place a stock buyback program that authorized the repurchase of up to 5.5 million shares of its common stock. The program, as amended, allowed the Company to repurchase its common shares on 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 was not obligated to purchase any shares under this program, and the board of directors had the ability to terminate or amend the program at any time prior to the expiration date. In total, the Company repurchased 4.9 million of the 5.5 million authorized shares under this buyback program at an average cost of $37.65 per share, inclusive of commissions, with 4.6 million shares acquired through an accelerated share repurchase agreement and 0.3 million acquired in a privately negotiated transaction.

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FOURTH QUARTER RESULTS

Net income for the fourth quarter of 2021 was $137.7 million, or $1.55 per diluted common share, compared to $129.6 million, or $1.46, in the third quarter of 2021 and $103.6 million, or $1.17, in the fourth quarter of 2020. The fourth quarter of 2021 included $4.9 million ($.04 per share after-tax impact) of net nonoperating income items, mostly attributable to hurricane-related insurance proceeds. The third quarter of 2021 included $1.4 million, or $0.01 per share after-tax of net nonoperating income items related to a gain from the sale of the remaining Hancock Horizon Funds and a severance reversal, partially offset by Hurricane Ida expenses. There were no nonoperating items in the fourth quarter of 2020.

Highlights of our fourth quarter of 2021 results (compared to third quarter of 2021):

[[GREPCENT_TABLE]]
[["","\u2022","Net income of $137.7 million, or $1.55 per diluted share, was up $8.2 million, or $0.10 per diluted share; excluding the impact of nonoperating items, earnings per diluted share was up $0.06"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Pre-tax pre-provision net revenue of $134.2 million was down slightly from the prior quarter"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Core loan growth of $652.5 million, more than offset the impact of $404.3 million in PPP loan forgiveness, leading to an overall increase in total loans of $248.3 million"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Deposits increased $1.3 billion, with noninterest-bearing demand deposits up $739.4 million and interest-bearing accounts up $518.3 million"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Negative provision for credit losses of $28.4 million, comprised of a $29.1 million reserve release and $0.7 million in net charge-offs"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Allowance for credit losses coverage remained strong at 1.76%, or 1.80% excluding PPP loans"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Continued improvement in asset quality with nonperforming loans down 6%, and criticized commercial loans down 2%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","The impact of excess liquidity, driven mainly by PPP loan forgiveness and Hurricane Ida related deposits, led to a 14 bps compression in the net interest margin"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Tangible common equity ratio of 7.71% was down 14 bps, impacted by accumulated other comprehensive income and excess liquidity"]]
[[/GREPCENT_TABLE]]

Total loans at December 31, 2021 were $21.1 billion, an increase of $248 million, or 1%, from September 30, 2021. Core loans increased $653 million, offsetting the impact of $404 million in PPP loan forgiveness. Loan growth was reflected in markets across the footprint and in specialty lines.

Total deposits at December 31, 2021 were $30.5 billion, up $1.3 billion, or 4%, from September 30, 2021. The increase was driven by seasonality, excess liquidity related to stimulus and other pandemic-related client funds, and hurricane-related proceeds.

Noninterest-bearing deposits totaled $14.4 billion at December 31, 2021, up $739 million, or 5%, from September 30, 2021 and comprised 47% of total deposits at December 31, 2021. Interest-bearing transaction and savings deposits totaled $11.6 billion at December 31, 2021, up $358.0 million, or 3%, compared to September 30, 2021. Interest-bearing public fund deposits increased $239.2 million, or 8%, to $3.3 billion at December 31, 2021. The increase in public funds is seasonal and primarily related to year-end tax collections by local municipalities. Typically, these balances begin to runoff in the first quarter of each year. Time deposits of $1.1 billion decreased $78.9 million, or 7%, from September 30, 2021.

Net interest income (te) for the fourth quarter of 2021 was $231.9 million, down $5.5 million, or 2% from the third quarter of 2021, primarily driven by the decline in PPP loans and the impact of excess liquidity on our earning assets. The net interest margin declined 14 bps to 2.80%, in the fourth quarter due to the impact of additional excess liquidity (-10 bps), a change in the earning asset yield (-4 bps), and over $400 million of PPP loan forgiveness (-2 bps), partially offset by lower deposit costs (+1 bp) and other (+1 bp).

The provision for loan losses recorded in the fourth quarter of 2021 was a negative $28.4 million, compared to a negative provision of $27.0 million in the third quarter of 2021. Net charge-offs were $0.7 million, or 0.01% of average total loans on an annualized basis in the fourth quarter of 2021, down from $1.8 million, or 0.03% of average total loans, for the third quarter of 2021. Our allowance for credit loss reserves were $371.4 million at December 31, 2021, down $29.1 million from the prior quarter. 

Noninterest income totaled $89.6 million for the fourth quarter of 2021, down $3.7 million, or 4%, from the third quarter of 2021. The fourth quarter of 2021 included a $3.6 million gain from storm-related insurance proceeds, and the third quarter of 2021 included a $4.6 million gain from the sale of the remaining Hancock Horizon Funds, both of which are considered nonoperating. Excluding these nonoperating items, noninterest income for the fourth quarter totaled $86.0 million, down $2.8 million, or 3%, from the third quarter. Improvement compared to prior quarter was noted in many fee categories with increased economic activity and consumer spending. Service charges were up $0.2 million, or 1%. Bank card and ATM fees were up $0.8 million or 4%. Investment and annuity income and insurance fees were up $0.4 million, or 5%. Trust fees were down $0.5 million, or 3%. Income from secondary mortgage

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operations totaled $5.5 million, down $1.5 million as refinancing activity slowed. Other operating noninterest income was down $2.1 million primarily due to lower specialty income.

Noninterest expense of $182.5 million, declined $12.2 million, or 6%, from the third quarter of 2021, and included a net credit of $1.3 million of nonoperating items, primarily related to partial reversals of accruals for both Hurricane Ida expense and closed branch writedowns. The third quarter of 2021 included $3.2 million of nonoperating expense primarily related to Hurricane Ida. Excluding these items, operating expense totaled $183.8 million, down $7.7 million, or 4%, from the third quarter of 2021. The primary driver of the decrease was personnel expense, which was down $6.7 million, or 6%, related to recent efficiency initiatives. Also contributing to the decrease was lower occupancy and equipment expense, down $0.8 million, or 5%, from the third quarter of 2021.

The effective income tax rate for fourth quarter 2021 was 16.4%. The lower than normal rate was related to the Company revising its tax elections in anticipation of potential tax reform to a higher statutory rate. The company expects the effective tax rate to return to a normal quarterly range of 19-20% in 2022, absent any changes in tax laws. The effective income tax rate continues to be less than the statutory rate primarily due to tax-exempt income and income tax credits.  

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The following table provides selected comparative financial information for the five quarters ending with December 31, 2021.

TABLE 29. Quarterly Consolidated Financial Results

[[GREPCENT_TABLE]]
[["","","","","","","Three Months Ended"],["(in thousands, except per share data)","","December 31, 2021","","September 30, 2021","","June 30, 2021","","March 31, 2021","","December 31, 2020"],["Income Statement Data:"],["Interest income","","$","238,756","","$","244,417","","$","248,300","","$","250,785","","$","257,253"],["Interest income (te) (a)","","","241,391","","","247,185","","","251,154","","","253,707","","","260,368"],["Interest expense","","","9,460","","","9,708","","","13,657","","","16,198","","","18,967"],["Net interest income (te)","","","231,931","","","237,477","","","237,497","","","237,509","","","241,401"],["Provision for credit losses","","","(28,399)","","","(26,955)","","","(17,229)","","","(4,911)","","","24,214"],["Noninterest income","","","89,612","","","93,361","","","94,272","","","87,089","","","82,350"],["Noninterest expense","","","182,462","","","194,703","","","236,770","","","193,072","","","193,144"],["Income (loss) before income taxes","","","164,845","","","160,322","","","109,374","","","133,515","","","103,278"],["Income tax expense (benefit)","","","27,102","","","30,740","","","20,656","","","26,343","","","(297)"],["Net income (loss)","","$","137,743","","$","129,582","","$","88,718","","$","107,172","","$","103,575"],["For informational purposes - included above, pre-tax"],["Nonoperating item included in noninterest income:"],["Gain on hurricane-related insurance settlement","","$","3,600","","$","\u2014","","$","\u2014","","$","\u2014","","$","\u2014"],["Gain on sale of Hancock Horizon Funds","","","\u2014","","","4,576","","","\u2014","","","\u2014","","","\u2014"],["Gain on sale of Mastercard Class B common stock","","","\u2014","","","\u2014","","","2,800","","","\u2014","","","\u2014"],["Nonoperating items included in noninterest expense:"],["Efficiency initiatives","","","(649)","","","(1,867)","","","40,812","","","\u2014","","","\u2014"],["Hurricane related expenses","","","(680)","","","5,092","","","\u2014","","","\u2014","","","\u2014"],["Loss on redemption of subordinated notes","","","\u2014","","","\u2014","","","4,165","","","\u2014","","","\u2014"],["Balance Sheet Data:"],["Period end balance sheet data"],["Loans","","$","21,134,282","","$","20,886,015","","$","21,148,530","","$","21,664,859","","$","21,789,931"],["Earning assets","","","33,610,435","","","32,348,036","","","32,075,450","","","32,134,637","","","30,616,277"],["Total assets","","","36,531,205","","","35,318,308","","","35,098,709","","","35,072,643","","","33,638,602"],["Noninterest-bearing deposits","","","14,392,808","","","13,653,376","","","13,406,385","","","13,174,911","","","12,199,750"],["Total deposits","","","30,465,897","","","29,208,157","","","29,273,107","","","29,210,520","","","27,697,877"],["Stockholders' equity","","","3,670,352","","","3,629,766","","","3,562,901","","","3,416,903","","","3,439,025"],["Average balance sheet data"],["Loans","","$","20,770,130","","$","20,941,173","","$","21,388,814","","$","21,745,298","","$","22,065,672"],["Earning assets","","","32,913,659","","","32,097,381","","","32,195,515","","","31,015,637","","","29,875,531"],["Total assets","","","35,829,027","","","35,207,960","","","35,165,684","","","34,078,200","","","33,067,462"],["Noninterest-bearing deposits","","","14,126,335","","","13,535,961","","","13,237,796","","","12,374,235","","","11,759,755"],["Total deposits","","","29,750,665","","","29,237,306","","","29,228,809","","","28,138,763","","","27,040,447"],["Stockholders' equity","","","3,642,003","","","3,606,087","","","3,488,592","","","3,441,466","","","3,406,646"],["Common Shares Data:"],["Earnings (loss) per share:"],["Basic","","$","1.56","","$","1.46","","$","1.00","","$","1.21","","$","1.17"],["Diluted","","","1.55","","","1.46","","","1.00","","","1.21","","","1.17"],["Cash dividends per common share","","","0.27","","","0.27","","","0.27","","","0.27","","","0.27"],["Performance Ratios:"],["Return on average assets","","","1.53%","","","1.46%","","","1.01%","","","1.28%","","","1.25%"],["Return on average common equity","","","15.00%","","","14.26%","","","10.20%","","","12.63%","","","12.10%"],["Efficiency (b)","","","56.57%","","","57.44%","","","57.01%","","","58.12%","","","58.23%"],["Net interest margin (te)","","","2.80%","","","2.94%","","","2.96%","","","3.09%","","","3.22%"],["Reconciliation of operating revenue and operating pre-provision net revenue (non-GAAP measure) (te) (c)"],["Net interest income","","$","229,296","","$","234,709","","$","234,643","","$","234,587","","$","238,286"],["Noninterest income","","","89,612","","","93,361","","","94,272","","","87,089","","","82,350"],["Total revenue","","","318,908","","","328,070","","","328,915","","","321,676","","","320,636"],["Taxable equivalent adjustment","","","2,635","","","2,768","","","2,854","","","2,922","","","3,115"],["Nonoperating revenue","","","(3,600)","","","(4,576)","","","(2,800)","","","\u2014","","","\u2014"],["Total revenue (te)","","$","317,943","","$","326,262","","$","328,969","","$","324,598","","$","323,751"],["Noninterest expense","","","(182,462)","","","(194,703)","","","(236,770)","","","(193,072)","","","(193,144)"],["Nonoperating expense","","","(1,329)","","","3,225","","","44,977","","","\u2014","","","\u2014"],["Operating pre-provision net revenue (te)","","$","134,152","","$","134,784","","$","137,176","","$","131,526","","$","130,607"]]
[[/GREPCENT_TABLE]]

(a) Taxable equivalent basis (te). 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%

(b) The efficiency ratio is noninterest expense to total net interest (te) and noninterest income, excluding amortization of purchased intangibles and nonoperating items.

(c) Refer to the Non-GAAP Financial Measures section of this analysis for a discussion of these measures. 

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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.

Allowance for Credit Losses

On January 1, 2020, we adopted Accounting Standards Codification (“ASC”) Topic 326, “Financial Instruments – Credit Losses,” commonly referred to as Current Expected Credit Losses or CECL, on a modified retrospective basis. The provisions of this guidance required a material change to the manner in which the Company estimates and reports losses on financial instruments, including loans and unfunded lending commitments, select investment securities, and other assets carried at amortized cost. For reporting periods beginning on or subsequent to January 1, 2020, accounting for credit losses and related disclosures are presented under ASC 326, while prior period results continue to be reported in accordance with previously effective guidance under ASC 310 - Receivables.

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 leases held for investment, and the reserve for unfunded lending commitments, a liability established to absorb credit losses for the expected life of the contractual term of on and off-balance sheet exposures as of the date of the determination. The standard requires that management incorporate an economic forecast for a reasonable and supportable period, which is two years based on our current policy. We utilize third party forecasts that consist of multiple economic scenarios, including a baseline, with a probability distribution of 50% better or worse economic performance and various upside and downside scenarios utilized at an aggregated state (or regional) levels across our footprint or national level, depending on the portfolio. The economic forecasts are generally lagging and may not incorporate all events and circumstances through the financial statement date. The Company’s management considers available forecasts, current events not captured and our specific portfolio characteristics and applies weights to the scenario output based on a best estimate of likely outcomes. Since 2020, the United States and global financial markets experienced unprecedented volatility, with significant uncertainty surrounding the COVID-19 pandemic. Changing economic conditions and resulting government response in the form of interest rate adjustments and stimulus packages have introduced enhanced estimation uncertainty in the forecasts used to estimate expected credit loss. Our credit loss models were built using historical data that may not correlate to economic conditions stemming from the pandemic. The estimate of the life of a loan considers both contractual cash flows as well as estimated prepayments and forecasted draws on unfunded loan commitments that were also built on historical data that may react differently given the current environment. Such forecasted information is inherently uncertain, particularly in the environment resulting from the pandemic. Forecast uncertainty includes the severity of the impact to local and global economic conditions as well as the timing of recovery, among other things. Therefore, actual results may differ significantly from management’s estimates.

Management applies significant judgment when weighting the macroeconomic scenarios for the reasonable and supportable period. Our assessment considers the scenario description compared to our portfolio performance and benchmarking select variables to other third party forecasts. At December 31, 2021, the Company weighted the Moody’s baseline scenario at 40% and the slower growth S-2 scenario at 60%. Results by scenario can vary significantly from period to period as both the scenario assumptions and the portfolio composition are changing, therefore comparison of scenario weighting from period to period may not be meaningful. For example, holding all other assumptions constant, the slower growth S-2 scenario produced expected credit losses 21% higher than utilization of the baseline scenario at December 31, 2021. In contrast, for the year ended December 31, 2020, the slower growth S-2 scenario produced results only 8% greater than the baseline scenario. In addition, these quantitative results are adjusted, sometimes materially, by the qualitative assessment described below.

The quantitative loss rate analysis is supplemented by a review of qualitative factors that considers whether conditions differ from those existing during the historical periods used in the development of the credit loss models. Such factors include, but are not limited to, problem loan trends, changes in loan profiles and volumes, changes in lending policies and procedures, current or expected economic trends, business conditions, credit concentrations, model limitations and other relevant factors not captured by our models. While quantitative data for these factors is used where available, there is significant judgment applied in these processes.

For 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. Collateral on impaired loans includes, but is not limited to, commercial and residential real estate, accounts receivable and other corporate assets. Values for impaired credits are highly subjective and based on information available at the time of

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valuation and the current resolution strategy. These values are difficult to assess and have heightened uncertainty resulting from the impact of the pandemic on market conditions. Actual results could differ from these estimates.

Management considers the appropriateness of these critical assumptions as part of its allowance review and believes the ACL level is appropriate based on information available through the financial statement date. Refer to Note 3 – Loans and Allowance for Credit Losses for further discussion of significant assumptions used in the current allowance calculation.

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. Note 17 – Retirement Plans. 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.”