Hancock Holding Company — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; includes fourth-quarter results. The filing identifies the registrant as Hancock Holding Company, with banking operations conducted through Whitney Bank, under the Hancock Bank and Whitney Bank brands across the Gulf South.
Financial results and position
| Metric | FY2015 / year-end | Prior comparable period |
|---|---|---|
| Net income | $131.5 million; diluted EPS $1.64 | FY2014: $175.7 million; $2.10 per diluted share |
| Net interest income, taxable-equivalent | $638.8 million; net interest margin 3.33% | FY2014: $665.3 million; 3.87% |
| Core net interest margin | 3.14% | FY2014: 3.33% |
| Provision for loan losses | $73.0 million | FY2014: $33.8 million |
| Noninterest income / expense | $237.3 million / $619.7 million | FY2014: $228.0 million / $606.7 million |
| Total assets | $22.8 billion | FY2014 year-end: $20.7 billion |
| Loans / deposits | $15.7 billion / $18.3 billion | FY2014 year-end: $13.9 billion / $16.6 billion |
| Stockholders’ equity / tangible common equity ratio | $2.4 billion / 7.62% | FY2014 year-end: $2.5 billion / 8.59% |
- Noninterest income excluding securities transactions rose 4% to $236.9 million. Management reported revenue excluding purchase-accounting adjustments increased $33.4 million, or 4%.
- Net cash provided by operating activities was $232.3 million; investing activities used $2.28 billion and financing activities provided $1.99 billion. Cash and due from banks declined $52.6 million to $303.9 million.
- Year-end short-term borrowings were $1.42 billion and long-term debt was $496.0 million. Deposits were the principal funding source; the average loan-to-deposit ratio was 84.28%.
- The Company’s regulatory capital ratios were 9.96% common equity Tier 1, 9.96% Tier 1 risk-based, 11.86% total risk-based, and 8.55% Tier 1 leverage. The Company and Bank were reported well capitalized.
Material changes from FY2014
- Net income fell 25%, primarily reflecting a $39.2 million increase in loan-loss provision and a $57.4 million reduction in net purchase-accounting accretion. Operating income was $141.8 million, down 27%.
- Loans and deposits each grew about $1.8 billion (13% and 11%, respectively). Energy loans declined about $144 million, while total loans increased.
- Credit quality weakened: nonperforming assets rose to $191.1 million from $148.1 million, and the nonperforming-asset ratio increased to 1.22% from 1.06%. The allowance increased to $181.2 million from $128.8 million.
- Interest expense increased to $54.5 million from $38.1 million; the Company issued $150 million of 30-year subordinated notes at 5.95% in March 2015.
Outlook, commentary, risks and unusual items
- Energy exposure: Energy-related loans were approximately $1.58 billion, or 10% of loans. Criticized energy loans reached $451 million, and nonaccrual energy loans were about $70 million, versus none a year earlier. The energy allowance was $78.2 million, about 5% of the segment.
- Management estimated energy-related net charge-offs of $50–$75 million over the duration of the cycle; 2015 energy net charge-offs were $3.8 million. Management warned of possible further downgrades, provisions and charge-offs, and anticipated some credit deterioration in 2016.
- Management expected 2016 loan growth of 5%–7%, a slight increase in core net interest margin, and an effective tax rate of 26%–28%. These are forward-looking expectations, not guarantees.
- Fourth-quarter net income was $15.3 million, or $0.19 per diluted share, versus $41.2 million, or $0.52, in Q3 2015. Q4 provision was $50.2 million, including a $43 million increase in the energy allowance.
- Liquidity measures included free securities of 20.29% of total securities, core deposits of 94.90% of deposits, approximately $2.7 billion of available FHLB capacity and $1.7 billion of unused Federal Reserve discount-window capacity. Brokered deposits were $361 million, under 2% of deposits.
- The 7.62% tangible common equity ratio was below management’s 8% internal target; management expected it to exceed 8% in the second half of 2016. Share repurchases were temporarily put on hold amid energy-sector uncertainty. Annual cash dividends were $0.96 per share.
- Goodwill was $621.2 million. A year-end impairment test found estimated fair value approximately 15% above book value and no impairment; management planned quarterly impairment testing in 2016. Management said ordinary-course litigation and regulatory matters were not expected to materially affect financial position or liquidity.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Key facts for investors to verify
- Whether energy-sector stress, criticized loans and nonaccruals develop into losses beyond the $78.2 million energy allowance and management’s $50–$75 million cycle estimate.
- Whether the 5%–7% loan-growth outlook and expected improvement in core margin are achieved without further deterioration in credit quality or capital.
- How deposit growth, the checking-product redesign, seasonal public funds and brokered deposits affect funding costs and liquidity.
- Whether tangible common equity recovers above management’s 8% target, and whether repurchases resume; also confirm the capacity to maintain dividends under regulatory and earnings constraints.
- The assumptions behind the goodwill valuation and the results of the planned 2016 quarterly impairment tests.