Hancock Holding Company (now identified in the request as Hancock Whitney Corp.) — Q1 2013 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet comparisons are to December 31, 2012 unless noted. Amounts are in U.S. dollars. The filing was unaudited.
Business context and financial results
The company operates Hancock and Whitney bank segments, providing commercial, consumer and mortgage lending, deposit, trust and related services. Its results reflect ongoing integration of the Whitney acquisition and FDIC-covered acquired loans.
- Net income: $48.6 million, or $0.56 diluted EPS, versus $18.5 million, or $0.21 diluted EPS, in Q1 2012. Q1 2012 included $33.9 million of pretax merger-related expenses; Q1 2013 had none. Management-defined operating income was $48.6 million versus $40.5 million in Q1 2012.
- Interest and other income: Net interest income was $174.0 million GAAP ($176.7 million taxable-equivalent), down 1% year over year on a taxable-equivalent basis. Noninterest income was $60.2 million, down 2% year over year. Total noninterest expense was $159.6 million, down 7% from Q1 2012 excluding that period’s merger expenses.
- Margins: Taxable-equivalent net interest margin was 4.32%, down 11 basis points year over year. Core margin, excluding purchase-accounting adjustments, was 3.41%. The efficiency ratio was 64.17%.
- Cash flow: Operating cash flow was $132.4 million and investing cash flow was $151.3 million; financing used $430.7 million. Cash and due from banks declined $147.0 million to $301.5 million. The company also shifted about $1.0 billion of short-term liquidity into securities late in the quarter.
- Balance sheet and liquidity: Total assets were $19.1 billion; loans were $11.5 billion, down 1% from year-end and up 3% year over year. Deposits were $15.3 billion, down 3% from year-end. Short-term borrowings were $722.5 million and long-term debt was $393.9 million. Stockholders’ equity was $2.48 billion; tangible common equity ratio was 9.14%.
- Capital and credit: Company regulatory total capital, Tier 1 risk-based capital and Tier 1 leverage ratios were 14.49%, 12.85% and 9.28%, respectively; the company and banks were categorized as well capitalized. Allowance for loan losses was $137.8 million, or 1.20% of period-end loans. Nonperforming assets were $229.3 million, or 1.98% of loans and foreclosed assets.
Material changes and notable items
- Net income increased substantially year over year, primarily reflecting the absence of Q1 2012 merger costs and lower ongoing expenses after integration. The comparison is not solely indicative of underlying revenue growth.
- Q1 2013 results included approximately $7.5 million pretax of higher-than-expected acquired-loan accretion, $6.6 million net provision on the FDIC-covered portfolio, and $1.1 million of one-time tax benefits.
- Deposit balances fell from year-end, including seasonal reductions and maturity of brokered certificates of deposit. The company redeployed excess liquidity into securities; the securities portfolio increased to $4.7 billion.
- Nonperforming assets declined $26.8 million from year-end, largely from lower other real estate owned. Total loans declined $95 million over the same period.
- Q1 2013 other comprehensive income was negative $8.6 million, including a decline in unrealized gains on available-for-sale securities; accumulated other comprehensive loss widened to $31.5 million.
Outlook, risks and contingencies
- Management expected near-term earnings to remain flat to slightly down, citing pressure on earning-asset yields and other economic headwinds. It anticipated 5–10 basis points of near-term core-margin compression and 10–20 basis points in reported margin, partly from lower expected loan accretion.
- The company announced an efficiency and process-improvement initiative targeting $50 million of annual expense reductions over seven quarters. Severance, professional fees and lease-exit costs were expected, but their amount was not yet estimable with certainty.
- Management expected a 2013 effective tax rate of 26%–28%. It also cited intense competition for quality borrowers, low interest rates, and uneven economic conditions; market areas showed generally modest improvement, with strength in energy-related activity and some real estate markets.
- Interest-rate simulations indicated the company was slightly asset-sensitive: a parallel 100-basis-point rate increase was estimated to raise net interest income 2.63%, and a 200-basis-point increase 6.09%. Results depend on modeling assumptions.
- On April 30, the board authorized repurchases of up to 5% of outstanding common shares. The filing reported no material change in previously disclosed risk factors and stated pending litigation and regulatory matters were not expected to materially affect financial position or liquidity.
Important facts for investors to verify
- How much of reported earnings depended on the $7.5 million acquired-loan accretion and one-time tax benefits, and whether accretion recurs.
- Progress and implementation costs of the $50 million annual expense-reduction initiative.
- Trends in core margin, loan pricing, deposits and funding costs against management’s compression outlook.
- Credit performance in originated, acquired and FDIC-covered loan portfolios, including reserve adequacy, troubled restructurings and FDIC reimbursements.
- Execution and funding of the authorized share-repurchase program, and its effect on capital and liquidity.