Core pre-tax, pre-provision income improves; results reflect previously announced energy provision
Highlights of the company’s first quarter 2016 results (compared to fourth quarter 2015):
- Core pre-tax, pre-provision income $76.4 million, up $8.4 million or 12%
- Total loans up $275 million, or 7% linked-quarter annualized (LQA)
- Loan growth funded completely by deposit growth of $307 million, or 7% LQA
- Core net interest margin up 2 basis points (bps); up 4 bps excluding interest reversals
- Tangible common equity (TCE) ratio up 7 bps to 7.69%
- Allowance for the energy portfolio increased $33 million, to $111 million, or almost 7% of energy loans
GULFPORT, Miss., April 19, 2016 (GLOBE NEWSWIRE) -- Hancock Holding Company (Nasdaq:HBHC) today announced its financial results for the first quarter of 2016. Net income for the first quarter of 2016 was $3.8 million, or $.05 per diluted common share, compared to $15.3 million, or $.19 in the fourth quarter of 2015 and $40.2 million, or $.49, in the first quarter of 2015. The linked-quarter decline in earnings was mainly related to the previously announced increase in the loan loss provision. There were also nonoperating expenses of $5.0 million (pre-tax), or $.04 per share, in the first quarter of 2016 mainly related to separation pay. There were no nonoperating items in the fourth quarter of 2015, with $7.0 million (pre-tax), or $.06 per share, of nonoperating items in the first quarter of 2015. The year-over-year decline in earnings was mainly related to a decrease in purchase accounting income of approximately $8.9 million (pre-tax), and the provision taken to increase the energy allowance noted above. Pre-tax, pre-provision earnings (core) were $76.4 million for the first quarter of 2016, compared to $68.0 million in the fourth quarter of 2015 and $63.6 million in the first quarter of 2015.
“Core pre-tax, pre-provision earnings improved in the first quarter despite the impact of today’s energy cycle,” said President and CEO John M. Hairston. “While the volatility of the current energy cycle continues to overshadow the progress we are making towards meeting our goals, we remain focused on growing the nonenergy portion of our company and is the reason we set our 2016 goal at pre-tax, pre-provision earnings growth. The metrics for the quarter outside of provision expense and energy are in-line with previous guidance and we are proud of the efforts our bankers have put forth in growing loans and deposits, controlling expenses and working to generate core revenue.”
At March 31, 2016, loans in the energy segment totaled $1.6 billion, or 10% of total loans. The energy portfolio increased approximately $53 million linked-quarter and is comprised of credits to both the E&P industry and support industries. The net increase in the portfolio for the quarter reflects approximately $85 million in payoffs and paydowns, and $17 million in energy charge-offs, offset by approximately $155MM in draws on existing lines.
During the first quarter of 2016 there were risk rating downgrades to criticized status of over $300 million in outstanding energy credits. This increase was mainly related to the application of new regulatory guidance which was used in the recent shared national credit (SNC) exam that was completed on March 15, 2016. Approximately 75% of the increase in criticized energy loans was from reserve-based (RBL) credits identified in the SNC exam or based on the new regulatory guidance. Several of the credits downgraded in the exam, totaling approximately $80 million, were moved to nonaccrual status.
Due to the changes noted above, and the impact of the prolonged energy cycle, the company increased its allowance for loan losses on the energy portfolio and booked a $60 million total provision for credit losses in the quarter. Approximately $50 million of the provision expense was related to the energy portfolio. As a result, and after energy charge-offs of approximately $17 million, the allowance for the energy portfolio was increased $33 million, to $111.2 million, or almost 7% of energy loans.
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.
Additional details of the energy portfolio are included in the presentation slides posted on our Investor Relations website.
Total loans at March 31, 2016 were $16.0 billion, up $275 million, or 2%, from December 31, 2015. All regions across the footprint reported net loan growth during the quarter. Average loans totaled $15.8 billion for the first quarter of 2016, up $651 million, or 4%, linked-quarter.
Management expects continued growth across the footprint will be slightly offset by ongoing payoffs and paydowns in the energy portfolio. This is expected to result in year over year period-end loan growth of 5-7% in 2016.
Total deposits at March 31, 2016 were $18.7 billion, up $307 million, or 2%, from December 31, 2015. Average deposits for the first quarter of 2016 were $18.3 billion, up $460 million, or 3%, linked-quarter.
Noninterest-bearing demand deposits (DDAs) totaled $7.1 billion at March 31, 2016, down $168 million from December 31, 2015. DDAs comprised 38% of total period-end deposits at March 31, 2016.
Interest-bearing transaction and savings deposits totaled $7.0 billion at the end of the first quarter of 2016, up $276 million, or 4%, from December 31, 2015. Time deposits of $2.4 billion increased $300 million, or 15%, while interest-bearing public fund deposits decreased $101 million, or 4%, to $2.2 billion at March 31, 2016.
Nonperforming assets (NPAs) totaled $307 million at March 31, 2016, up $116 million from December 31, 2015. During the first quarter of 2016, total nonperforming loans increased approximately $119 million while foreclosed and surplus real estate (ORE) and other foreclosed assets decreased approximately $3 million. The net increase in nonperforming loans was mainly related to the movement of several energy credits, totaling approximately $90 million during the quarter. Nonperforming assets as a percent of total loans, ORE and other foreclosed assets was 1.92% at March 31, 2016, up 70 bps from December 31, 2015.
The total allowance for loan losses was $217.8 million at March 31, 2016, up $36.6 million from December 31, 2015. The ratio of the allowance for loan losses to period-end loans was 1.36% at March 31, 2016, up from 1.15% at December 31, 2015. The allowance maintained on the non-FDIC acquired portion of the loan portfolio increased $39.2 million linked-quarter, totaling $197.3 million, while the allowance on the FDIC acquired loan portfolio decreased $2.6 million linked-quarter.
Net charge-offs from the non-FDIC acquired loan portfolio were $21.3 million, or 0.54% of average total loans on an annualized basis in the first quarter of 2016, up from $7.9 million, or 0.21% of average total loans in the fourth quarter of 2015. Included in the first quarter’s total are $17.4 million in charge-offs related to energy credits.
During the first quarter of 2016, Hancock recorded a total provision for loan losses of $60.0 million, up from $50.2 million in the fourth quarter of 2015. Based on information currently available, management currently expects the provision for loan losses could approximate $105 - $145 million for the full year of 2016.
Net Interest Income and Net Interest Margin
Net interest income (TE) for the first quarter of 2016 was $168.2 million, up $5.6 million from the fourth quarter of 2015. During the first quarter, the impact on net interest income from purchase accounting adjustments (PAAs) was virtually unchanged. Excluding the impact from purchase accounting items, core net interest income also increased $5.6 million linked-quarter. Average earning assets were $20.9 billion for the first quarter of 2016, up $770 million, or 4%, from the fourth quarter of 2015.
The reported net interest margin (TE) was 3.23% for the first quarter of 2016, up 2 bps from the fourth quarter of 2015. The core net interest margin (reported net interest income (TE) excluding total net purchase accounting adjustments, annualized, as a percent of average earning assets) also increased 2 bps to 3.12% during the first quarter of 2016. The main drivers of the improvement were an increase in the core loan yield of 5 bps and an increase in the securities portfolio yield of 6 bps. This was slightly offset by an increase in the cost of funds of 3 basis points. The margin was negatively impacted 2 bps in the quarter by interest reversals of approximately $0.9 million.
Noninterest income totaled $58.2 million for the first quarter of 2016, down $1.5 million, or 2%, from the fourth quarter of 2015. Included in the total is amortization of $1.6 million related to the FDIC indemnification asset, compared to amortization of $1.7 million in the fourth quarter of 2015. Excluding the impact of this item, core noninterest income totaled $59.8 million, down $1.6 million, or 3%, linked-quarter.
Service charges on deposits totaled $18.4 million for the first quarter of 2016, down $0.6 million, or 3%, from the fourth quarter of 2015. Bank card and ATM fees totaled $11.3 million, down $0.4 million, or 4%, from the fourth quarter of 2015.
Trust fees totaled $11.2 million, down slightly linked-quarter. Investment and annuity income and insurance fees totaled $6.2 million, down $0.4 million, or 6%, linked-quarter.
Fees from secondary mortgage operations totaled $2.9 million for the first quarter of 2016, up slightly linked-quarter.
Other noninterest income (excluding the amortization of the FDIC indemnification asset noted above) totaled $9.7 million, down $0.1 million, or 1%, from the fourth quarter of 2015.
Noninterest Expense & Taxes
Noninterest expense for the first quarter of 2016 totaled $156.0 million, virtually unchanged, from the fourth quarter of 2015. There were $5.0 million of nonoperating expenses in the first quarter of 2016 mainly related to separation pay. Excluding nonoperating items, operating expense totaled $151.1 million, down $5.0 million, or 3%, linked quarter. The line item discussions below exclude the impact of nonoperating expenses.
Total personnel expense was $84.7 million in the first quarter of 2016, down $0.6 million, or 1%, from the fourth quarter of 2015.
Occupancy and equipment expense totaled $14.1 million in the first quarter of 2016, down $0.4 million, or 3%, from the fourth quarter of 2015.
ORE expense totaled $0.4 million for the first quarter of 2016, down $0.9 million from the fourth quarter of 2015.
Amortization of intangibles totaled $5.1 million for the first quarter of 2016, down $0.6 million, or 10%, linked-quarter. Other operating expense totaled $46.6 million in the first quarter of 2016, down $2.5 million, or 5%, from the fourth quarter of 2015.
The effective income tax rate for the first quarter of 2016 was 23%. Management expects the effective income tax rate to approximate 22-24% for the remainder of 2016. The effective income tax rate continues to be less than the statutory rate of 35% due primarily to tax-exempt income and tax credits.
Common shareholders’ equity at March 31, 2016 totaled $2.4 billion. The tangible common equity (TCE) ratio was 7.69%, up 7 bps from December 31, 2015. 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 first 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, April 20, 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.hancockbank.com. Additional financial tables and a slide presentation related to first 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 April 27, 2016 by dialing (855) 859-2056 or (404) 537-3406, passcode 85429668.
About Hancock Holding Company
Hancock Holding Company is a financial services company with regional business headquarters and locations throughout a growing Gulf South corridor. The company’s banking subsidiary provides a comprehensive network of full-service financial choices through Hancock Bank locations in Mississippi, Alabama, and Florida and Whitney Bank offices in Louisiana and Texas, including traditional and online banking; commercial and small business banking; energy banking; private banking; trust and investment services; certain insurance services; mortgage services; and consumer financing. More information and online banking are available at www.hancockbank.com and www.whitneybank.com.
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, and we intend such forward-looking statements to be covered by the safe harbor provisions therein and are including this statement for purposes of invoking these safe-harbor provisions. Forward-looking statements provide projections of results of operations or of financial condition or state other forward-looking information, such as expectations about future conditions and descriptions of plans and strategies for the future. Forward-looking statements that we may make include, but may not be limited to, comments with respect to future levels of economic activity in our markets, including the impact of volatility of oil and gas prices on our energy portfolio and associated loan loss reserves and possible charge-offs, and the downstream impact on businesses that support the energy sector, especially in the Gulf Coast region, loan growth expectations, 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. Hancock’s ability to accurately project results, predict the effects of future plans or strategies, or predict market or economic developments is inherently limited. Although Hancock believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ from those expressed in Hancock’s forward-looking statements include, but are not limited to, those risk factors included in Hancock’s public filings with the Securities and Exchange Commission, which are available at the SEC’s internet site (http://www.sec.gov). You are cautioned not to place undue reliance on these forward-looking statements. Hancock does not intend, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.
|HANCOCK HOLDING COMPANY|
|Three Months Ended|
|(dollars in thousands, except per share data)||3/31/2016||12/31/2015||9/30/2015||6/30/2015||3/31/2015|
|INCOME STATEMENT DATA|
|Net interest income||$||162,836||$||158,395||$||156,830||$||151,791||$||158,158|
|Net interest income (TE) (a)||168,179||162,635||160,134||154,879||161,114|
|Provision for loan losses||60,036||50,196||10,080||6,608||6,154|
|Noninterest expense (excluding nonoperating items)||151,054||156,030||151,193||149,990||146,201|
|Operating income (b)||7,075||15,307||41,166||40,631||44,697|
|Pre-tax, pre-provision (PTPP) profit (TE) (a) (c)||70,333||66,258||69,152||56,836||64,145|
|PERIOD-END BALANCE SHEET DATA|
|Common shareholders' equity||2,421,040||2,413,143||2,453,561||2,430,040||2,425,098|
|AVERAGE BALANCE SHEET DATA|
|Common shareholders' equity||2,431,747||2,453,480||2,439,068||2,430,710||2,447,870|
|COMMON SHARE DATA|
|Earnings per share - diluted||$||0.05||$||0.19||$||0.52||$||0.44||$||0.49|
|Operating earnings per share - diluted (b)||0.09||0.19||0.52||0.51||0.55|
|Cash dividends per share||0.24||0.24||0.24||0.24||0.24|
|Book value per share (period-end)||31.24||31.14||31.65||31.12||31.14|
|Tangible book value per share (period-end)||21.90||21.74||22.18||21.63||21.55|
|Weighted average number of shares - diluted||77,672||77,544||78,075||78,115||79,661|
|Period-end number of shares||77,508||77,496||77,519||78,094||77,886|
|High sales price||$||25.84||$||30.96||$||32.47||$||32.98||$||31.13|
|Low sales price||20.01||23.35||25.20||28.02||24.96|
|Period-end closing price||22.96||25.17||27.05||31.91||29.86|
|Return on average assets||0.07||%||0.27||%||0.76||%||0.67||%||0.80||%|
|Return on average assets - operating (b)||0.12||%||0.27||%||0.76||%||0.78||%||0.89||%|
|Return on average common equity||0.64||%||2.48||%||6.70||%||5.75||%||6.65||%|
|Return on average common equity - operating (b)||1.17||%||2.48||%||6.70||%||6.70||%||7.41||%|
|Return on average tangible common equity||0.91||%||3.53||%||9.60||%||8.28||%||9.60||%|
|Return on average tangible common equity - operating (b)||1.67||%||3.53||%||9.60||%||9.66||%||10.68||%|
|Tangible common equity ratio (e)||7.69||%||7.62||%||8.24||%||8.13||%||8.40||%|
|Net interest margin (TE) (a)||3.23||%||3.21||%||3.28||%||3.30||%||3.55||%|
|Average loan/deposit ratio||86.69||%||85.28||%||83.82||%||83.85||%||84.13||%|
|Efficiency ratio (f)||64.47||%||67.63||%||65.88||%||66.67||%||64.36||%|
|Allowance for loan losses as a percent of period-end loans||1.36||%||1.15||%||0.95||%||0.91||%||0.92||%|
|Annualized net non-FDIC acquired charge-offs to average loans||0.54||%||0.21||%||0.09||%||0.03||%||0.11||%|
|Allowance for loan losses to non-performing loans + accruing loans 90 days past due||74.55||%||105.54||%||78.15||%||100.92||%||123.14||%|
|Noninterest income as a percent of total revenue (TE) (a)||25.70||%||26.84||%||27.32||%||28.21||%||25.98||%|
(a) Tax-equivalent (TE) amounts are calculated using a federal income tax rate of 35%.
(b) Net income less nonoperating items. Management believes that operating income provides a useful measure of financial performance that helps investors compare the Company's fundamental operations over time.
(c) Net interest income (TE) and noninterest income less noninterest expense. Management believes that PTPP profit is a useful financial measure because it enables investors to assess the Company's ability to generate capital to cover credit losses through a credit cycle.
(d) Average securities does not include unrealized holding gains/losses on available for sale securities.
(e) The tangible common equity ratio is common shareholders' equity less intangible assets divided by total assets less intangible assets.
(f) The efficiency ratio is noninterest expense to total net interest (TE) and noninterest income, excluding amortization of purchased intangibles, and nonoperating items.
For More Information Trisha Voltz Carlson SVP, Investor Relations Manager 504.299.5208 firstname.lastname@example.org
Source:Hancock Holding Company