HBHC Hancock Holding Company (delisted)

Hancock Holding Company (Nasdaq:HBHC) today announced its financial results for the first quarter of 2018. Net income for the first quarter of 2018 was $72.5 million, or $.83 per diluted common share (EPS), compared to $55.4 million, or $.64 EPS in the fourth quarter of 2017 and $49.0 million, or $.57 EPS, in the first quarter of 2017. The first quarter of 2018 includes $7.0 million ($.07 per share after-tax impact) of expenses related to the sale of Harrison Finance Company (HFC), the pending Capital One trust and asset management transaction, the brand consolidation project, and a one-time all hands bonus. The fourth quarter of 2017 included an estimated $19.5 million ($.22 per share impact) tax reform related re-measurement charge of the net deferred tax asset (DTA). The first quarter of 2017 nonoperating items included $6.5 million of acquisition costs related to the First NBC Bank (FNBC) transaction ($.05 per share), partially offset by a $4.4 million gain from the sale of selected Hancock Horizon funds ($.03 per share).

Highlights of the company’s first quarter 2018 results (compared to fourth quarter 2017):

• Reported earnings increased $17.0 million, or 31%; excluding the impact of the DTA re-measurement charge and nonoperating items, operating earnings increased $3.3 million, or 4%
• Loans increased $88 million, or 2%, linked-quarter annualized; net increase reflects a decline of $95 million related to the sale of the consumer finance company (HFC)
• Energy loans totaled $1.1 billion and comprised 5.5% of total loans; allowance for the energy portfolio totals $62.6 million, or 5.9% of energy loans
• Net interest margin (NIM) of 3.37%, down 11 bps; core NIM down 9 bps to 3.26%
• Operating expenses totaled $164.9 million, down 2% linked-quarter
• Efficiency ratio was 57.5% compared to 56.6% linked-quarter; the change is mainly related to the impact of tax reform on the TE adjustment
• Return on average assets (ROA) improved 26 bps to 1.08%; excluding nonoperating items and the 4Q17 DTA charge, operating ROA increased 7 bps to 1.17%
• Tangible common equity (TCE) ratio increased 7 bps to 7.80%

“We are pleased with solid results for the first quarter of 2018,” said John M. Hairston, President & CEO.  “Our reported ROA is above 1% and we accomplished another step towards achieving our newly announced corporate strategic objectives by realizing two of them this period – ROA (operating) of 1.17% and ROTCE (operating) of 15.56%.  The positive impact from a lower provision for loan loss, lower operating expenses, and a lower tax rate led to those achievements, along with an improved level of operating EPS.   Results also included the negative impact of tax reform on our TE income, the sale of our consumer finance business, typical first quarter seasonality and the impact of today’s rate environment on our capital ratios.  However, even with those items, and the non-operating items related to an all-hands bonus and several significant projects, we made good progress toward attaining the new 2019 CSOs.”

Loans Total loans at March 31, 2018 were $19.1 billion, up approximately $88 million, or less than 1%, linked-quarter. Net growth reflects a decline of $95 million related to the sale of the consumer finance company during the first quarter. Net loan growth during the quarter continues to be diversified across the regions and also in areas identified as part of the company’s revenue-generating initiatives.

Average loans totaled $19.0 billion for the first quarter of 2018, up $189 million, or 1%, linked-quarter.

EnergyAt March 31, 2018, loans to the energy industry totaled $1.1 billion, or 5.5% of total loans. The energy portfolio was relatively stable linked-quarter, and is comprised of credits to both the exploration and production (E&P) sector and the support and services sectors. Payoffs and paydowns of approximately $76 million and charge-offs of $7.6 million were partially offset by approximately $85 million in fundings.

Recent higher oil prices are helpful in the recovery of credits impacted by the energy cycle, however the key to resolution of many of those credits, especially in support services, is stabilization of prices over the longer term.

Management continues to estimate that net charge-offs from energy-related credits could approximate up to $95 million over the duration of the cycle, of which approximately $81 million has been taken to-date. While we expect additional charge-offs in the portfolio, we continue to believe the impact of the energy cycle on our loan portfolio will be manageable, our reserve is adequate and our capital will remain solid.

Deposits Total deposits at March 31, 2018 were $22.5 billion, up $233 million, or 1%, from December 31, 2017.

Noninterest-bearing demand deposits (DDAs) totaled $8.2 billion at March 31, 2018, down $77 million, or 1%, from December 31, 2017. DDAs comprised 37% of total period-end deposits at March 31, 2018.

Interest-bearing transaction and savings deposits totaled $8.1 billion at the end of the first quarter of 2018, down $123 million, or 2%, from December 31, 2017. Time deposits of $3.1 billion were up $365 million, or 13%, while interest-bearing public fund deposits increased $68 million, or 2%, to $3.1 billion at March 31, 2018.

Average deposits for the first quarter of 2018 were $22.0 billion, up $281 million, or 1%, linked-quarter.

Asset QualityNonperforming assets (NPAs) totaled $468.3 million at March 31, 2018, up $67.5 million from December 31, 2017. During the first quarter of 2018, total nonperforming loans increased approximately $68.4 million, mainly related to an increase in restructured support nondrilling loans (TDRs), while foreclosed and surplus real estate (ORE) and other foreclosed assets decreased approximately $0.9 million. Nonperforming assets as a percent of total loans, ORE and other foreclosed assets was 2.45% at March 31, 2018, up 34 bps from December 31, 2017.

The total allowance for loan losses (ALLL) was $210.7 million at March 31, 2018, down $6.6 million from December 31, 2017. The decline reflects the sale of the consumer finance company during the first quarter. The ratio of the allowance for loan losses to period-end loans was 1.10% at March 31, 2018, down 4 bps from 1.14% at December 31, 2017. The allowance for credits in the energy portfolio totaled $62.6 million, or 5.9% of energy loans, at March 31, 2018, as compared to $70.2 million, or 6.7% of energy loans, at December 31, 2017.

Net charge-offs were $12.2 million, or 0.26% of average total loans on an annualized basis in the first quarter of 2018, down from $20.8 million, or 0.44% of average total loans in the fourth quarter of 2017. There were approximately $7.6 million of charge-offs related to energy credits in the first quarter of 2018, partially offset by energy-related recoveries of $3.3 million.

During the first quarter of 2018, Hancock recorded a total provision for loan losses of $12.3 million, down from $15.0 million in the fourth quarter of 2017.

Net Interest Income and Net Interest Margin (NIM) Net interest income (TE) for the first quarter of 2018 was $209.6 million, down $7.4 million from the fourth quarter of 2017. The decrease is related to a $4.2 million negative impact of tax reform on the TE adjustment, a $1.7 million reversal of interest on nonaccrual loans, a $3.3 million reduction due to 2 fewer business days in the first quarter and a $1.5 million reduction in income related to the sale of the consumer finance company.

Average earning assets were $25.1 billion for the first quarter of 2018, up $294 million, or 1%, from the fourth quarter of 2017. The net interest margin (TE) was 3.37% for the first quarter of 2018, down 11 bps from the fourth quarter of 2017. The decline in the margin is related to an 8 bps negative impact on the TE adjustment from tax reform, a 3 bps negative impact from the reversal of interest on nonaccrual loans and a 2 bps negative impact related to the sale of the consumer finance company.

Noninterest IncomeNoninterest income totaled $66.3 million for the first quarter of 2018, down $3.4 million, or 5%, from the fourth quarter of 2017, and includes a loss on the sale of the consumer finance company of $1.1 million. Excluding the loss on the sale, noninterest income (operating) totaled $67.4 million, down $2.3 million, or 3%.

Service charges on deposits totaled $21.4 million for the first quarter of 2018, down $1.0 million, or 4%, from the fourth quarter of 2017. Bank card and ATM fees totaled $14.5 million, up $0.2 million, or 2%, from the fourth quarter of 2017.

Trust fees totaled $11.3 million, up $0.3 million, or 2% linked-quarter. Investment and annuity income and insurance fees totaled $6.1 million, up $0.3 million, or 6%, linked-quarter.

Fees from secondary mortgage operations totaled $3.4 million for the first quarter of 2018, up $0.2 million, or 5%, linked-quarter.

Other noninterest income totaled $10.6 million, down $2.2 million, or 17%, from the fourth quarter of 2017. Other noninterest income in the fourth quarter of 2017 included a $2.9 million gain related to a bulk sale of loans from the Peoples First acquisition.

Noninterest Expense & Taxes Noninterest expense for the first quarter of 2018 totaled $170.8 million, up $2.7 million, or 2%, from the fourth quarter of 2017, including $5.9 million of nonoperating expense related to the sale of the consumer finance company, the pending acquisition of Capital One’s trust and asset management business, the brand consolidation project, and a one-time all hands bonus. Excluding nonoperating items, operating expense totaled $164.9 million, down $3.1 million, or 2%. The discussion below excludes nonoperating items.

Total personnel expense was $96.4 million in the first quarter of 2018, down $3.2 million, or 3%, from the fourth quarter of 2017. The decrease is mainly related to higher performance-based incentive pay in the fourth quarter, partly offset by higher seasonal personnel expense.

Occupancy and equipment expense totaled $14.4 million in the first quarter of 2018, down $0.5 million, or 4%, from the fourth quarter of 2017.

Amortization of intangibles totaled $5.6 million for the first quarter of 2018, down $0.3 million or 5% linked-quarter. ORE expense totaled $0.2 million in the first quarter of 2018, compared to net gains on ORE dispositions that exceeded ORE expense by $0.3 million in the fourth quarter of 2017. The first quarter reflects a more normal level of ORE expense.

Other operating expense totaled $48.3 million in the first quarter of 2018, up $0.3 million, or 1%, from the fourth quarter of 2017.

The effective income tax rate for the first quarter of 2018 was 18%. Management expects the tax rate in the second quarter of 2018 to approximate 18%. The effective income tax rate continues to be less than the statutory rate due primarily to tax-exempt income and tax credits.

CapitalCommon shareholders’ equity at March 31, 2018 totaled $2.9 billion, unchanged from year-end 2017. The tangible common equity (TCE) ratio was 7.80%, up 7 bps from December 31, 2017. Additional capital ratios are included in the financial tables.

Conference Call and Slide PresentationManagement will host a conference call for analysts and investors at 9:00 a.m. Central Time on Wednesday, April 18, 2018 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 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 25, 2018 by dialing (855) 859-2056 or (404) 537-3406, passcode 4289388.

About Hancock Holding CompanyHancock 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 either in the financial tables or in Appendix A thereto.

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 the statutory federal tax rate 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.

The company presents 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. These non-GAAP measures may reference the concepts “core” or “operating.” The company uses the term “core” to describe a financial measure that excludes income or expense arising from accretion or amortization of fair value adjustments recorded as part of purchase accounting. The company uses 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.

We define Core Net Interest Income as net interest income (TE) excluding net purchase accounting accretion and amortization. We define Core Net Interest Margin as core net interest income 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 Operating Revenue as net interest income (TE) and noninterest income less nonoperating revenue.  We define Operating Pre-Provision Net Revenue as operating revenue (TE) less noninterest expense, excluding nonoperating items. Management believes that operating pre-provision net revenue is a useful financial measure because it enables investors and others to assess the company’s ability to generate capital to cover credit losses through a credit cycle. A reconciliation of reported net interest income to operating pre-provision net revenue is included in Appendix A.

We define Operating Earnings as reported net income excluding nonoperating items net of income tax.  We define Operating Earnings per Share as operating earnings expressed as an amount available to each common shareholder on a diluted basis. A reconciliation of reported net income to operating earnings is presented in the Income Statement table and a reconciliation of reported earnings per share – diluted to operating earnings per share – diluted is presented 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 changes in 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, the impact of the sale of HFC on our performance and financial condition, the impact of the transactions with First NBC and Capital One (pending) on our performance and financial condition, including our ability to successfully integrate the businesses, 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, and the financial impact of regulatory requirements and tax reform legislation. 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. Any forward-looking statement made in this release is subject to the safe harbor protections set forth in the Private Securities Litigation Reform Act of 1995. 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, 2017 and in other periodic reports that we file with the SEC.

HANCOCK HOLDING COMPANY
QUARTERLY FINANCIAL HIGHLIGHTS
(Unaudited)
		Three Months Ended
(dollars and common share data in thousands, except per share amounts)		3/31/2018				12/31/2017				9/30/2017				6/30/2017				3/31/2017
NET INCOME
Net interest income		$	205,664			$	208,047			$	202,857			$	199,717			$	181,691
Net interest income (TE) (a)			209,627				216,996				211,436				208,281				189,989
Provision for loan losses			12,253				14,986				13,040				14,951				15,991
Noninterest income			66,252				69,688				67,115				67,487				63,491
Noninterest expense			170,791				168,063				177,616				183,470				163,542
Income tax expense			16,397				39,237				20,414				16,516				16,635
Net income		$	72,475			$	55,449			$	58,902			$	52,267			$	49,014
Earnings excluding nonoperating items
Net income		$	72,475			$	55,449			$	58,902			$	52,267			$	49,014
Nonoperating items, net of income tax benefit			5,782				—				7,405				6,902				1,372
Income tax resulting from re-measurement of deferred tax asset			—				19,520				—				—				—
Operating earnings		$	78,257			$	74,969			$	66,307			$	59,169			$	50,386
PERIOD-END BALANCE SHEET DATA
Loans		$	19,092,504			$	19,004,163			$	18,786,285			$	18,473,841			$	18,204,868
Securities			5,930,076				5,888,380				5,624,552				5,668,836				5,001,273
Earning assets			25,105,948				25,024,792				24,545,798				24,295,892				23,278,297
Total assets			27,297,337				27,336,086				26,816,755				26,630,569				25,485,026
Noninterest-bearing deposits			8,230,060				8,307,497				7,896,384				7,887,867				7,722,279
Total deposits			22,485,722				22,253,202				21,533,859				21,442,815				19,922,020
Common shareholders' equity			2,896,038				2,884,949				2,863,275				2,813,962				2,763,622
AVERAGE BALANCE SHEET DATA
Loans		$	19,028,490			$	18,839,537			$	18,591,219			$	18,369,446			$	17,303,044
Securities (b)			5,897,290				5,801,451				5,679,841				5,241,735				5,037,286
Earning assets			25,106,283				24,812,676				24,487,426				24,338,130				22,770,001
Total assets			27,237,077				26,973,507				26,677,573				26,526,253				24,756,506
Noninterest-bearing deposits			7,951,121				8,095,563				7,775,913				7,769,932				7,462,258
Total deposits			22,043,419				21,762,757				21,349,818				20,932,561				19,247,858
Common shareholders' equity			2,872,813				2,867,475				2,838,517				2,786,566				2,733,089
COMMON SHARE DATA
Earnings per share - diluted		$	0.83			$	0.64			$	0.68			$	0.60			$	0.57
Cash dividends per share			0.24				0.24				0.24				0.24				0.24
Book value per share (period-end)			33.96				33.86				33.78				33.21				32.70
Tangible book value per share (period-end)			24.22				24.05				23.92				23.27				23.19
Weighted average number of shares - diluted			85,423				85,303				84,980				84,867				84,624
Period-end number of shares			85,285				85,200				84,767				84,738				84,517
Market data
High sales price		$	56.40			$	53.35			$	50.40			$	52.94			$	49.50
Low sales price			49.48				46.18				41.05				42.70				41.71
Period-end closing price			51.70				49.50				48.45				49.00				45.55
Trading volume			35,459				29,308				33,243				39,035				45,119
PERFORMANCE RATIOS
Return on average assets			1.08	%			0.82	%			0.88	%			0.79	%			0.80	%
Return on average common equity			10.23	%			7.67	%			8.23	%			7.52	%			7.27	%
Return on average tangible common equity			14.41	%			10.81	%			11.68	%			10.69	%			9.92	%
Tangible common equity ratio (c)			7.80	%			7.73	%			7.80	%			7.65	%			7.94	%
Net interest margin (TE) (d)			3.37	%			3.48	%			3.44	%			3.43	%			3.37	%
Average loan/deposit ratio			86.32	%			86.57	%			87.08	%			87.76	%			89.90	%
Allowance for loan losses as a percent of period-end loans			1.10	%			1.14	%			1.19	%			1.20	%			1.17	%
Annualized net charge-offs to average loans			0.26	%			0.44	%			0.25	%			0.13	%			0.70	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due			46.37	%			54.18	%			56.45	%			63.92	%			68.77	%
Select performance measures excluding nonoperating items
Operating earnings per share - diluted (d)		$	0.90			$	0.86			$	0.76			$	0.68			$	0.58
Return on average assets - operating			1.17	%			1.10	%			0.99	%			0.89	%			0.83	%
Return on average common equity - operating			11.05	%			10.37	%			9.27	%			8.52	%			7.48	%
Return on average tangible common equity - operating			15.56	%			14.62	%			13.14	%			12.11	%			10.20	%
Efficiency ratio (e)			57.51	%			56.57	%			57.50	%			60.59	%			61.16	%
Noninterest income as a percent of total revenue (TE) - operating			24.33	%			24.31	%			24.09	%			24.47	%			23.74	%
FTE headcount			3,775				3,887				3,979				4,162				3,819

(a) Taxable equivalent (TE) amounts are calculated using a federal income tax rate of 21% for the three months ended 3/31/2018, and 35% for all other periods presented. (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) Refer to Appendix A for reconciliation of this non-GAAP measure.(e) The efficiency ratio is noninterest expense to total net interest income (TE) and noninterest income, excluding amortization of purchased intangibles and nonoperating items.

For More InformationTrisha Voltz Carlson EVP, Investor Relations Manager504.299.5208trisha.carlson@hancockwhitney.com