Quarterly Results Stable; On Track to Beat Core Pre-Tax, Pre-Provision Goal

GULFPORT, Miss., Oct. 18, 2016 (GLOBE NEWSWIRE) -- Hancock Holding Company (Nasdaq:HBHC) today announced its financial results for the third quarter of 2016. Net income for the third quarter of 2016 was $46.7 million, or $.59 per diluted common share (EPS), compared to $46.9 million, or $.59 EPS in the second quarter of 2016 and $41.2 million, or $.52 EPS, in the third quarter of 2015.

Highlights of the company’s third quarter 2016 results (compared to second quarter 2016):

• Stable earnings
  • Revenue relatively stable
  • Noninterest expenses down $1.9 million
  • Loan loss provision of $19.0 million, compared to $17.2 million; includes impact of recent SNC exam; no significant impact from August 2016 flooding in south Louisiana
• Core pre-tax, pre-provision (core PTPP) income of $86.0 million, up $0.8 million or 1%
  (up $15.6 million, or 22%, year-over-year)
• Total loans up $35 million, or 1% linked-quarter annualized (LQA); includes a decrease of approximately $81 million in energy loan outstandings
• Energy loans comprise 8.7% of total loans, down from 9.2%
• Allowance for the energy portfolio totals $118.3 million, or 8.5% of energy loans
• Net interest margin (NIM) of 3.20% down 5 basis points (bps); core NIM down 3 bps to 3.12%
• Tangible common equity (TCE) ratio up 12 bps to 7.93%
• Efficiency ratio improved to 61.8%

“Earnings for the quarter were stable and in line with expectations, even with slight variances in a few line items,” said President and CEO John M. Hairston. “Our balance sheet and revenue for the quarter were relatively flat, but once again we found efficiencies across the organization that drove a lower level of expenses for the quarter.  These cost savings, along with a lower level of taxes, helped offset a slightly higher provision for loan losses, mainly related to the ongoing energy cycle and the impact of the most recent shared national credit (SNC) exam. While stable results are good, our primary target for growth (core pre-tax, pre-provision income) increased again this quarter, and we are now more than 75% of the way to meeting our core PTPP income goal for 2016.”

Loans
Total loans at September 30, 2016 were $16.1 billion, up approximately $35 million from June 30, 2016. Loans to energy-related companies declined approximately $81 million linked-quarter. Excluding the energy portfolio, loans would have increased 3% linked-quarter annualized. The company reported net loan growth during the quarter in areas such as healthcare lending, equipment finance and mortgage lending. These business lines represent targeted growth areas identified as part of the company’s revenue-generating initiatives.

Average loans totaled $16.0 billion for the third quarter of 2016, down $36 million, or less than 1%, linked-quarter.

Energy
At September 30, 2016, loans to the energy industry totaled $1.4 billion, or 8.7% of total loans. As noted earlier, the energy portfolio decreased approximately $81 million linked-quarter and is comprised of credits to both the E&P and support and services sectors.  Payoffs and paydowns of approximately $141 million, plus charge-offs of approximately $5 million, were partially offset by approximately $65 million of draws on existing lines.

As previously noted, even with improving oil prices, management expected a lag in the recovery of energy service and support credits. This is reflected in the third quarter of 2016’s criticized energy portfolio where the majority of risk rating downgrades were in non-drilling support credits.  Our expectation is that reserve-based lending credits will show signs of improvement first, followed by land-based services, and finally non-drilling services in the Gulf of Mexico. 

The impact and severity of future risk rating migration, as well as any associated provisions or net charge-offs, will depend on overall oil prices and the duration of the cycle. While we expect additional charge-offs in the portfolio, we continue to believe the impact on the company of the energy cycle will be manageable and our capital will remain solid. Management currently estimates that charge-offs from energy-related credits could approximate $65-$95 million over the duration of the cycle, of which approximately $30 million has been taken to-date.   

Deposits
Total deposits at September 30, 2016 were $18.9 billion, up $69 million, or less than 1%, from June 30, 2016. Average deposits for the third quarter of 2016 were $18.7 billion, virtually unchanged linked-quarter.

Noninterest-bearing demand deposits (DDAs) totaled $7.5 billion at September 30, 2016, up $392 million from June 30, 2016. DDAs comprised 40% of total period-end deposits at September 30, 2016. 

Interest-bearing transaction and savings deposits totaled $6.6 billion at the end of the third quarter of 2016, down $134 million, or 2%, from June 30, 2016. Time deposits of $2.3 billion decreased $229 million, or 9%, while interest-bearing public fund deposits increased $40 million, or 2%, to $2.4 billion at September 30, 2016. 

Asset Quality
Nonperforming assets (NPAs) totaled $331 million at September 30, 2016, up $6 million from June 30, 2016. During the third quarter of 2016, total nonperforming loans increased approximately $9 million while foreclosed and surplus real estate (ORE) and other foreclosed assets decreased approximately $4 million. Nonperforming assets as a percent of total loans, ORE and other foreclosed assets was 2.06% at September 30, 2016, up 4 bps from June 30, 2016. 

The total allowance for loan losses (ALLL) was $236.1 million at September 30, 2016, up $10.0 million from June 30, 2016. The ratio of the allowance for loan losses to period-end loans was 1.47% at September 30, 2016, up from 1.41% at June 30, 2016. The allowance for credits in the energy portfolio totaled $118.3 million, or 8.45% of energy loans, at September 30, 2016, up from 111.1 million, or 7.50% of energy loans, at June 30, 2016. There was no significant impact on the ALLL from the August 2016 flooding in south Louisiana.

Net charge-offs from the non-purchased credit impaired (PCI) loan portfolio were $9.5 million, or 0.24% of average total loans on an annualized basis in the third quarter of 2016, up from $7.8 million, or 0.20%  of average total loans in the second quarter of 2016. Included in the third quarter’s total are $4.4 million in charge-offs related to energy credits.

During the third quarter of 2016, Hancock recorded a total provision for loan losses of $19.0 million, up from $17.2 million in the second quarter of 2016.  The year-to-date loan loss provision totaled $96 million. Based on information currently available, management expects the provision for loan losses could approximate $12 - $17 million for the fourth quarter of 2016. 

Net Interest Income and Net Interest Margin
Net interest income (TE) for the third quarter of 2016 was $170.3 million, down $0.9 million from the second quarter of 2016. During the third quarter, the impact on net interest income from purchase accounting adjustments (PAAs) declined $0.6 million to $4.6 million. Excluding the impact from purchase accounting items, core net interest income decreased $0.2 million linked-quarter. Average earning assets were $21.2 billion for the third quarter of 2016, up $50 million, or less than 1%, from the second quarter of 2016. 

The reported net interest margin (TE) was 3.20% for the third quarter of 2016, down 5 bps from the second quarter of 2016. The core net interest margin (reported net interest income (TE) excluding total net purchase accounting adjustments, annualized, as a percent of average earning assets) decreased 3 bps to 3.12% during the third quarter of 2016. The main drivers of the decline was a decrease in the securities portfolio yield of 4 bps related to an increase in premium bond amortization plus interest reversals on some nonaccrual credits.

Noninterest Income
Noninterest income totaled $63.0 million for the third quarter of 2016, down $0.7 million, or 1%, from the second quarter of 2016. Included in the total is amortization of $1.5 million related to the FDIC indemnification asset, which is unchanged from the second quarter of 2016. Excluding the impact of this item, noninterest income totaled $64.5 million, down $0.7 million, or 1%, linked-quarter. 

Service charges on deposits totaled $18.7 million for the third quarter of 2016, up $0.3 million, or 2%, from the second quarter of 2016. Bank card and ATM fees totaled $11.8 million, down $0.1 million, or 1%, from the second quarter of 2016. 

Trust fees totaled $11.5 million, down $0.6 million, or 5% linked-quarter. Second quarter of 2016 results reflected seasonality related to annual tax fee income. Investment and annuity income and insurance fees totaled $5.4 million, down $0.9 million, or 14% linked-quarter.   

Fees from secondary mortgage operations totaled $4.9 million for the third quarter of 2016, up $0.7 million, or 18% linked quarter. 

Other noninterest income (excluding the amortization of the FDIC indemnification asset noted above) totaled $12.2 million, down $0.1 million, or 1%, from the second quarter of 2016.

Noninterest Expense & Taxes
Noninterest expense for the third quarter of 2016 totaled $149.1 million, down $1.9 million, or 1%, from the second quarter of 2016.

Total personnel expense was $83.2 million in the third quarter of 2016, down $1.1 million, or 1%, from the second quarter of 2016. 

Occupancy and equipment expense totaled $13.4 million in the third quarter of 2016, down $0.1 million, or less than 1%, from the second quarter of 2016. 

Amortization of intangibles totaled $4.9 million for the third quarter of 2016, down $0.1 million, or 2%, linked-quarter.

Other operating expense (including ORE) totaled $47.6 million in the third quarter of 2016, down $0.6 million, or 1%, from the second quarter of 2016. Net gains on ORE dispositions exceeded ORE expense in the third quarter of 2016 by $5.2 million, compared to $0.4 million of net expense in the second quarter of 2016. Also included in other expense for the third quarter was $2.5 million related to property damage from the August 2016 flooding in south Louisiana and $4.0 million of expense related to an early contract termination. Management does not expect similar level of expense for these items in future quarters.

The effective income tax rate for the third quarter of 2016 was 20%. Management expects the effective income tax rate to approximate 20% for the fourth quarter of 2016. Management expects a return to the company’s historical effective tax rate in 2017. The effective income tax rate continues to be less than the statutory rate of 35% due primarily to tax-exempt income and tax credits.

Capital
Common shareholders’ equity at September 30, 2016 totaled $2.5 billion. The tangible common equity (TCE) ratio was 7.93%, up 12 bps from June 30, 2016. During the fourth quarter of 2015 the company placed its common stock buyback on hold in light of the current energy cycle. No shares were repurchased in the third quarter of 2016. Additional capital ratios are included in the financial tables.
       
Conference Call and Slide Presentation
Management will host a conference call for analysts and investors at 9:00 a.m. Central Time on Wednesday, October 19, 2016 to review the results. A live listen-only webcast of the call will be available under the Investor Relations section of Hancock’s website at www.hancockwhitney.com/investors. A link to the release with additional financial tables, and a link to a slide presentation related to third quarter results are also posted as part of the webcast link. To participate in the Q&A portion of the call, dial (877) 564-1219 or (973) 638-3429. An audio archive of the conference call will be available under the Investor Relations section of our website. A replay of the call will also be available through October 26, 2016 by dialing (855) 859-2056 or (404) 537-3406, passcode 89224238. 

About Hancock Holding Company
Hancock Holding Company is a financial services company with regional business headquarters and locations across the Gulf South. The company’s banking subsidiary provides comprehensive financial products and services through Hancock Bank locations in Mississippi, Alabama, and Florida and Whitney Bank locations in Louisiana and Texas, including traditional, online, and mobile banking; commercial and small business banking; private banking; trust and investment services; certain insurance services; and mortgage services. More information is available at www.hancockwhitney.com.

Non-GAAP Financial Measures
This news release includes non-GAAP financial measures to describe Hancock’s performance. The reconciliations of those measures to GAAP measures are provided within Appendix A to this news release on page 17.

In this news release, consistent with Securities and Exchange Commission Industry Guide 3, the company presents net interest income, net interest margin and efficiency ratios on a fully taxable equivalent (“TE”) basis. The TE basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 35% to increase tax-exempt interest income to a taxable-equivalent basis. The company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.

Over the past several quarters we have disclosed our focus on strategic initiatives that were designed to replace declining levels of purchase accounting income from acquisitions with improvement in core income, which the company defines as income excluding net purchase accounting income. The company presents core income non-GAAP measures including core net interest income and core net interest margin, core revenue and core pre-tax, pre-provision profit. These measures are provided to assist the reader with better understanding of the company’s performance period over period as well as providing investors with assistance in understanding the success management has experienced in executing its strategic initiatives.

We define Core Net Interest Income as net interest income excluding net purchase accounting accretion resulting from the fair market value adjustments related to acquired operations.  We define Core Net Interest Margin as reported core net interest income (TE) expressed as a percentage of average earning assets. A reconciliation of reported net interest income to core net interest income and reported net interest margin to core net interest margin is included in Appendix A.

We define Core Revenue as core net interest income (TE) and noninterest income less the amortization of the FDIC loss share receivable related to loans acquired in an FDIC assisted transaction. A reconciliation of total income to core revenue is included in Appendix A.

We define Core Pre-Tax, Pre-Provision Income as core revenue less noninterest expense, excluding nonoperating items and intangible asset amortization.  Management believes that core pre-tax, pre-provision profit is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.  A reconciliation of net income to core pre-tax, pre-provision profit is included in Appendix A.

Important Cautionary Statement About Forward-Looking Statements
This news release contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended.  Forward looking statements that we may make include statements regarding balance sheet and revenue growth, the provision for loans losses, loan growth expectations, management’s predictions about charge-offs for loans, including energy related credits, the impact of volatility of oil and gas prices on our energy portfolio, and the downstream impact on businesses that support the energy sector, especially in the Gulf Coast region, deposit trends, credit quality trends, net interest margin trends, future expense levels, success of revenue-generating initiatives, projected tax rates, future profitability, improvements in expense to revenue (efficiency) ratio, purchase accounting impacts such as accretion levels, possible repurchases of shares under stock buyback programs, and the financial impact of regulatory requirements.  Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “forecast,” “goals,” “targets,” “initiatives,” “focus,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements. Additional factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 and in other periodic reports that we file with the SEC. 

 

HANCOCK HOLDING COMPANY
FINANCIAL HIGHLIGHTS
(Unaudited)
			Three Months Ended											Nine Months Ended
(amounts in thousands, except per share data)			9/30/2016				6/30/2016				9/30/2015				9/30/2016				9/30/2015
INCOME STATEMENT DATA
Net interest income			$	163,513			$	164,969			$	156,830			$	491,318			$	466,779
Net interest income (TE) (a)				170,297				171,165				160,134				509,641				476,127
Provision for loan losses				18,972				17,196				10,080				96,204				22,842
Noninterest income				63,008				63,694				60,211				184,888				177,631
Noninterest expense				149,058				150,942				151,193				456,032				463,625
Net income				46,719				46,907				41,166				97,465				116,154
Nonoperating items - pre-tax (for informational purposes only)				-				-				-				4,978				15,908
PERIOD-END BALANCE SHEET DATA
Loans			$	16,070,821			$	16,035,796			$	14,763,050			$	16,070,821			$	14,763,050
Securities				4,843,112				4,806,370				4,548,922				4,843,112				4,548,922
Earning assets				21,085,398				21,037,622				19,526,150				21,085,398				19,526,150
Total assets				23,108,730				23,063,790				21,602,793				23,108,730				21,602,793
Noninterest-bearing deposits				7,543,041				7,151,416				6,075,558				7,543,041				6,075,558
Total deposits				18,885,477				18,816,869				17,439,948				18,885,477				17,439,948
Common shareholders' equity				2,489,127				2,463,365				2,453,561				2,489,127				2,453,561
AVERAGE BALANCE SHEET DATA
Loans			$	16,023,458			$	16,059,846			$	14,511,474			$	15,977,526			$	14,175,611
Securities (b)				4,707,224				4,648,807				4,425,546				4,628,330				4,116,270
Earning assets				21,197,406				21,147,029				19,433,337				21,085,445				18,847,409
Total assets				23,202,790				23,138,591				21,475,943				23,091,705				20,932,896
Noninterest-bearing deposits				7,277,568				7,079,426				6,032,680				7,130,762				6,022,034
Total deposits				18,710,236				18,717,755				17,313,433				18,570,427				16,890,005
Common shareholders' equity				2,472,398				2,430,005				2,439,068				2,444,818				2,439,184
COMMON SHARE DATA
Earnings per share - diluted			$	0.59			$	0.59			$	0.52			$	1.23			$	1.45
Cash dividends per share			$	0.24			$	0.24			$	0.24			$	0.72			$	0.72
Book value per share (period-end)			$	32.09			$	31.77			$	31.65			$	32.09			$	31.65
Tangible book value per share (period-end)				22.89				22.50				22.18				22.89				22.18
Weighted average number of shares - diluted				77,677				77,680				78,075				77,653				78,609
Period-end number of shares				77,571				77,538				77,519				77,571				77,519
Market data
High sales price			$	32.94			$	27.84			$	32.47			$	32.94			$	32.98
Low sales price				24.49				21.93				25.20				20.01				24.96
Period-end closing price				32.43				26.11				27.05				32.43				27.05
Trading volume				42,809				41,668				44,705				140,796				136,733
PERFORMANCE RATIOS
Return on average assets				0.80	%			0.82	%			0.76	%			0.56	%			0.74	%
Return on average common equity				7.52	%			7.76	%			6.70	%			5.33	%			6.37	%
Return on average tangible common equity				10.58	%			11.04	%			9.60	%			7.55	%			9.16	%
Tangible common equity ratio (c)				7.93	%			7.81	%			8.24	%			7.93	%			8.24	%
Net interest margin (TE) (a)				3.20	%			3.25	%			3.28	%			3.23	%			3.37	%
Average loan/deposit ratio				85.64	%			85.80	%			83.82	%			86.04	%			83.93	%
Efficiency ratio (d)				61.80	%			62.14	%			65.88	%			62.78	%			65.64	%
Allowance for loan losses as a percent of period-end loans				1.47	%			1.41	%			0.95	%			1.47	%			0.95	%
Annualized net non-purchased credit impaired charge-offs to average loans				0.24	%			0.20	%			0.09	%			0.32	%			0.08	%
Allowance for loan losses to non-performing loans + accruing loans 90 days past due				74.75	%			73.01	%			78.15	%			74.75	%			78.15	%
Noninterest income as a percent of total revenue (TE) (a)				27.01	%			27.12	%			27.32	%			26.62	%			27.13	%
FTE headcount				3,747				3,723				3,863				3,747				3,863

(a) Tax-equivalent (TE) amounts are calculated using a federal income tax rate of 35%.
(b) Average securities does not include unrealized holding gains/losses on available for sale securities.
(c) The tangible common equity ratio is common shareholders' equity less intangible assets divided by total assets less intangible assets.
(d) The efficiency ratio is noninterest expense to total net interest (TE) and noninterest income, excluding amortization of purchased intangibles and nonoperating expense.

HANCOCK HOLDING COMPANY
QUARTERLY HIGHLIGHTS
(Unaudited)
			Three Months Ended
(dollars in thousands, except per share data)			9/30/2016				6/30/2016				3/31/2016				12/31/2015				9/30/2015
INCOME STATEMENT DATA
Net interest income			$	163,513			$	164,969			$	162,836			$	158,395			$	156,830
Net interest income (TE) (a)				170,297				171,165				168,179				162,635				160,134
Provision for loan losses				18,972				17,196				60,036				50,196				10,080
Noninterest income				63,008				63,694				58,186				59,653				60,211
Noninterest expense				149,058				150,942				156,032				156,030				151,193
Net income				46,719				46,907				3,839				15,307				41,166
Nonoperating items - pre-tax (for informational purposes only)				-				-				4,978				-				-
PERIOD-END BALANCE SHEET DATA
Loans			$	16,070,821			$	16,035,796			$	15,978,124			$	15,703,314			$	14,763,050
Securities				4,843,112				4,806,370				4,667,837				4,463,792				4,548,922
Earning assets				21,085,398				21,037,622				20,821,513				20,753,095				19,526,150
Total assets				23,108,730				23,063,790				22,809,370				22,833,605				21,602,793
Noninterest-bearing deposits				7,543,041				7,151,416				7,108,598				7,276,127				6,075,558
Total deposits				18,885,477				18,816,869				18,656,150				18,348,912				17,439,948
Common shareholders' equity				2,489,127				2,463,365				2,421,040				2,413,143				2,453,561
AVERAGE BALANCE SHEET DATA
Loans			$	16,023,458			$	16,059,846			$	15,848,770			$	15,198,232			$	14,511,474
Securities (b)				4,707,224				4,648,807				4,528,090				4,480,972				4,425,546
Earning assets				21,197,406				21,147,029				20,910,668				20,140,432				19,433,337
Total assets				23,202,790				23,138,591				22,932,515				22,171,216				21,475,943
Noninterest-bearing deposits				7,277,568				7,079,426				7,033,680				6,709,188				6,032,680
Total deposits				18,710,236				18,717,755				18,281,754				17,821,484				17,313,433
Common shareholders' equity				2,472,398				2,430,005				2,431,747				2,453,480				2,439,068
COMMON SHARE DATA
Earnings per share - diluted			$	0.59			$	0.59			$	0.05			$	0.19			$	0.52
Cash dividends per share				0.24				0.24				0.24				0.24				0.24
Book value per share (period-end)				32.09				31.77				31.24				31.14				31.65
Tangible book value per share (period-end)				22.89				22.50				21.90				21.74				22.18
Weighted average number of shares - diluted				77,677				77,680				77,672				77,544				78,075
Period-end number of shares				77,571				77,538				77,508				77,496				77,519
Market data
High sales price			$	32.94			$	27.84			$	25.84			$	30.96			$	32.47
Low sales price				24.49				21.93				20.01				23.35				25.20
Period-end closing price				32.43				26.11				22.96				25.17				27.05
Trading volume				42,809				41,668				56,319				48,789				44,705
PERFORMANCE RATIOS
Return on average assets				0.80	%			0.82	%			0.07	%			0.27	%			0.76	%
Return on average common equity				7.52	%			7.76	%			0.64	%			2.48	%			6.70	%
Return on average tangible common equity				10.58	%			11.04	%			0.91	%			3.53	%			9.60	%
Tangible common equity ratio (c)				7.93	%			7.81	%			7.69	%			7.62	%			8.24	%
Net interest margin (TE) (a)				3.20	%			3.25	%			3.23	%			3.21	%			3.28	%
Average loan/deposit ratio				85.64	%			85.80	%			86.69	%			85.28	%			83.82	%
Efficiency ratio (d)				61.80	%			62.14	%			64.47	%			67.63	%			65.88	%
Allowance for loan losses as a percent of period-end loans				1.47	%			1.41	%			1.36	%			1.15	%			0.95	%
Annualized net non-purchased credit impaired charge-offs to average loans				0.24	%			0.20	%			0.54	%			0.21	%			0.09	%
Allowance for loan losses to non-performing loans + accruing loans 90 days past due				74.75	%			73.01	%			74.55	%			105.54	%			78.15	%
Noninterest income as a percent of total revenue (TE) (a)				27.01	%			27.12	%			25.70	%			26.84	%			27.32	%
FTE headcount				3,747				3,723				3,819				3,921				3,863

(a) Tax-equivalent (TE) amounts are calculated using a federal income tax rate of 35%.
(b) Average securities does not include unrealized holding gains/losses on available for sale securities.
(c) The tangible common equity ratio is common shareholders' equity less intangible assets divided by total assets less intangible assets.
(d) The efficiency ratio is noninterest expense to total net interest (TE) and noninterest income, excluding amortization of purchased intangibles and nonoperating expense.

 

 

For More Information
Trisha Voltz Carlson 
SVP, Investor Relations Manager
504.299.5208
trisha.carlson@hancockwhitney.com