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HANCOCK WHITNEY CORP - Quarter Report: 2016 March (Form 10-Q)

Table of Contents

 





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________





FORM 10-Q

___________________________________________________________



(Mark one)



 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2016

OR





 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from                      to                      

Commission file number: 001-36827



HANCOCK HOLDING COMPANY

(Exact name of registrant as specified in its charter)





 

Mississippi

64-0693170

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)



 

One Hancock Plaza, 2510 14th Street,
Gulfport, Mississippi

39501

(Address of principal executive offices)

(Zip Code)



(228) 868-4000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, address and fiscal year, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes      No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





 

 

 

Large accelerated filer  

Accelerated filer  



 

 

 

Non-accelerated filer  

  (Do not check if a smaller reporting company)

Smaller reporting company  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes      No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 

77,514,296 common shares were outstanding as of May 1, 2016.  





 



 


 

Table of Contents

 

Hancock Holding Company

Index



 

 

Part I. Financial Information

Page
Number

ITEM 1.

Financial Statements

 



Consolidated Balance Sheets – March 31, 2016 (unaudited) and December 31, 2015

1



Consolidated Statements of Income (unaudited) - Three months ended March 31, 2016 and 2015

2



Consolidated Statements of Comprehensive Income (unaudited) - Three months ended March 31, 2016 and 2015

3



Consolidated Statements of Changes in Stockholders’ Equity - (unaudited) – Three months ended March 31, 2016 and 2015

4



Consolidated Statements of Cash Flows (unaudited) - Three months ended March 31, 2016 and 2015

5



Notes to Consolidated Financial Statements (unaudited)  March 31, 2016

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

41

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

63

ITEM 4.

Controls and Procedures

64

Part II.  Other Information

 

ITEM 1.

 Legal Proceedings

64

ITEM 1A. 

 Risk Factors

64

ITEM 2.

 Unregistered Sales of Equity Securities and Use of Proceeds

64

ITEM 3.

 Default on Senior Securities

N/A

ITEM 4.

 Mine Safety Disclosures

N/A

ITEM 5.

Other Information

N/A

ITEM 6.

Exhibits

65

Signatures

 



 



 

 


 

Table of Contents

 

Part I. Financial Information

Item 1. Financial Statements

Hancock Holding Company and Subsidiaries

Consolidated Balance Sheets







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,

(in thousands, except share data)

 

2016

 

2015

ASSETS

 

 

unaudited

 

 

 

Cash and due from banks

 

$

291,099 

 

$

303,874 

Interest-bearing bank deposits

 

 

151,193 

 

 

564,671 

Federal funds sold

 

 

358 

 

 

884 

Securities available for sale, at fair value (amortized cost of $2,116,271 and $2,086,745)

 

 

2,149,466 

 

 

2,093,404 

Securities held to maturity (fair value of $2,566,799 and $2,375,851)

 

 

2,518,371 

 

 

2,370,388 

Loans held for sale

 

 

24,001 

 

 

20,434 

Loans

 

 

15,978,124 

 

 

15,703,314 

Less: allowance for loan losses

 

 

(217,794)

 

 

(181,179)

Loans, net

 

 

15,760,330 

 

 

15,522,135 

Property and equipment, net of accumulated depreciation of $216,418 and $209,763

 

 

371,319 

 

 

377,015 

Prepaid expenses

 

 

20,152 

 

 

17,560 

Other real estate, net

 

 

23,191 

 

 

26,256 

Accrued interest receivable

 

 

57,448 

 

 

54,068 

Goodwill

 

 

621,193 

 

 

621,193 

Other intangible assets, net

 

 

102,414 

 

 

107,538 

Life insurance contracts

 

 

435,494 

 

 

434,550 

FDIC loss share receivable

 

 

25,828 

 

 

29,868 

Deferred tax asset, net

 

 

72,131 

 

 

75,830 

Other assets

 

 

185,382 

 

 

213,937 

Total assets

 

$

22,809,370 

 

$

22,833,605 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

7,108,598 

 

$

7,276,127 

Interest-bearing

 

 

11,547,552 

 

 

11,072,785 

Total deposits

 

 

18,656,150 

 

 

18,348,912 

Short-term borrowings

 

 

1,100,787 

 

 

1,423,644 

Long-term debt

 

 

471,245 

 

 

490,145 

Accrued interest payable

 

 

8,455 

 

 

6,609 

Other liabilities

 

 

151,693 

 

 

151,152 

Total liabilities

 

 

20,388,330 

 

 

20,420,462 

Stockholders' equity

 

 

 

 

 

 

Common Stock - $3.33 par value per share; 350,000,000 shares authorized, 77,507,960 and 77,496,429 outstanding

 

 

258,102 

 

 

258,063 

Capital surplus

 

 

1,688,482 

 

 

1,684,101 

Treasury shares at cost - 9,307,551 and 9,319,082 shares

 

 

(227,130)

 

 

(226,370)

Retained earnings

 

 

762,652 

 

 

777,944 

Accumulated other comprehensive loss, net

 

 

(61,066)

 

 

(80,595)

Total stockholders' equity

 

 

2,421,040 

 

 

2,413,143 

Total liabilities and stockholders' equity

 

$

22,809,370 

 

$

22,833,605 



See notes to unaudited consolidated financial statements.

1


 

Table of Contents

 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Income

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

 

 

 

 

 

(in thousands, except per share data)

 

2016

 

2015

Interest income:

 

 

 

 

 

 

Loans, including fees

 

$

154,113 

 

$

146,967 

Loans held for sale

 

 

159 

 

 

96 

Securities-taxable

 

 

23,957 

 

 

20,790 

Securities-tax exempt

 

 

1,802 

 

 

880 

Short-term investments

 

 

610 

 

 

354 

Total interest income

 

 

180,641 

 

 

169,087 

Interest expense:

 

 

 

 

 

 

Deposits

 

 

11,733 

 

 

7,126 

Short-term borrowings

 

 

993 

 

 

172 

Long-term debt

 

 

5,079 

 

 

3,631 

Total interest expense

 

 

17,805 

 

 

10,929 

Net interest income

 

 

162,836 

 

 

158,158 

Provision for loan losses

 

 

60,036 

 

 

6,154 

Net interest income after provision for loan losses

 

 

102,800 

 

 

152,004 

Noninterest income:

 

 

 

 

 

 

Service charges on deposit accounts

 

 

18,383 

 

 

17,315 

Trust fees

 

 

11,224 

 

 

11,200 

Bank card and ATM fees

 

 

11,348 

 

 

11,183 

Investment and annuity fees

 

 

4,933 

 

 

5,050 

Secondary mortgage market operations

 

 

2,912 

 

 

2,664 

Insurance commissions and fees

 

 

1,307 

 

 

1,754 

Amortization of FDIC loss share receivable

 

 

(1,613)

 

 

(1,197)

Other income

 

 

9,692 

 

 

8,577 

Total noninterest income

 

 

58,186 

 

 

56,546 

Noninterest expense:

 

 

 

 

 

 

Compensation expense

 

 

73,001 

 

 

65,017 

Employee benefits

 

 

15,714 

 

 

15,634 

Personnel expense

 

 

88,715 

 

 

80,651 

Net occupancy expense

 

 

10,356 

 

 

11,177 

Equipment expense

 

 

3,774 

 

 

3,935 

Data processing expense

 

 

14,207 

 

 

13,556 

Professional services expense

 

 

7,621 

 

 

15,370 

Amortization of intangibles

 

 

5,124 

 

 

6,318 

Telecommunications and postage

 

 

3,361 

 

 

3,651 

Deposit insurance and regulatory fees

 

 

5,397 

 

 

3,595 

Other real estate expense, net

 

 

768 

 

 

456 

Other expense

 

 

16,709 

 

 

14,806 

Total noninterest expense

 

 

156,032 

 

 

153,515 

Income before income taxes

 

 

4,954 

 

 

55,035 

Income taxes

 

 

1,115 

 

 

14,876 

Net income

 

$

3,839 

 

$

40,159 

Earnings per common share-basic

 

$

0.05 

 

$

0.49 

Earnings per common share-diluted

 

$

0.05 

 

$

0.49 

Dividends paid per share

 

$

0.24 

 

$

0.24 

Weighted average shares outstanding-basic

 

 

77,501 

 

 

79,496 

Weighted average shares outstanding-diluted

 

 

77,672 

 

 

79,661 



See notes to unaudited consolidated financial statements.

2


 

Table of Contents

 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

(in thousands)

 

2016

 

2015

Net income

 

$

3,839 

 

$

40,159 

Other comprehensive income:

 

 

 

 

 

 

Net change in unrealized gain

 

 

28,972 

 

 

5,413 

Reclassification adjustment for net losses realized and included in earnings

 

 

1,091 

 

 

605 

Amortization of unrealized net gain on securities transferred to held to maturity

 

 

798 

 

 

647 

Other comprehensive income before income taxes

 

 

30,861 

 

 

6,665 

Income tax

 

 

11,332 

 

 

2,360 

Other comprehensive income net of income taxes

 

 

19,529 

 

 

4,305 

Comprehensive income

 

$

23,368 

 

$

44,464 



See notes to unaudited consolidated financial statements.

3


 

Table of Contents

 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

 

 

 

 



 

Common Stock

 

Capital

 

Retained

 

Income (Loss),

 

Treasury

 

 

 

(in thousands, except share data)

 

Shares

 

Amount

 

Surplus

 

Earnings

 

net

 

Stock

 

Total

Balance, December 31, 2014

 

80,426,485 

 

$

267,820 

 

$

1,689,291 

 

$

723,496 

 

$

(50,074)

 

$

(158,131)

 

$

2,472,402 

Net income

 

 —

 

 

 —

 

 

 —

 

 

40,159 

 

 

 —

 

 

 —

 

 

40,159 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,305 

 

 

 —

 

 

4,305 

Comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

40,159 

 

 

4,305 

 

 

 —

 

 

44,464 

Cash dividends declared ($0.24 per common share)

 

 —

 

 

 —

 

 

 —

 

 

(19,524)

 

 

 —

 

 

 —

 

 

(19,524)

Common stock activity, long-term  incentive plan

 

23,242 

 

 

78 

 

 

12,086 

 

 

 —

 

 

 —

 

 

(9,138)

 

 

3,026 

Purchase of common stock under stock buyback program

 

(2,563,607)

 

 

(8,537)

 

 

 —

 

 

 —

 

 

 —

 

 

(66,733)

 

 

(75,270)

Balance, March 31, 2015

 

77,886,120 

 

$

259,361 

 

$

1,701,377 

 

$

744,131 

 

$

(45,769)

 

$

(234,002)

 

$

2,425,098 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

77,496,429 

 

$

258,063 

 

$

1,684,101 

 

$

777,944 

 

$

(80,595)

 

$

(226,370)

 

$

2,413,143 

Net income

 

 —

 

 

 —

 

 

 —

 

 

3,839 

 

 

 —

 

 

 —

 

 

3,839 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

19,529 

 

 

 —

 

 

19,529 

Comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

3,839 

 

 

19,529 

 

 

 —

 

 

23,368 

Cash dividends declared ($0.24 per common share)

 

 —

 

 

 —

 

 

 —

 

 

(19,131)

 

 

 —

 

 

 —

 

 

(19,131)

Common stock activity, long-term incentive plan

 

11,531 

 

 

39 

 

 

4,381 

 

 

 —

 

 

 —

 

 

(760)

 

 

3,660 

Balance, March 31, 2016

 

77,507,960 

 

$

258,102 

 

$

1,688,482 

 

$

762,652 

 

$

(61,066)

 

$

(227,130)

 

$

2,421,040 



See notes to unaudited consolidated financial statements.

4


 

Table of Contents

 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 

 

 

Three Months Ended



 

March 31,

(in thousands)

 

2016

 

2015

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

3,839 

 

$

40,159 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

7,199 

 

 

7,218 

Provision for loan losses

 

 

60,036 

 

 

6,154 

Loss (gain) on other real estate owned

 

 

416 

 

 

(248)

Deferred tax (benefit) expense

 

 

(8,041)

 

 

9,252 

Increase in cash surrender value of life insurance contracts

 

 

(1,208)

 

 

(2,596)

Gain on disposal of other assets

 

 

(2,111)

 

 

(340)

Net (increase) decrease in loans held for sale

 

 

(3,308)

 

 

356 

Net amortization of securities premium/discount

 

 

5,799 

 

 

4,223 

Amortization of intangible assets

 

 

5,124 

 

 

6,318 

Amortization of FDIC indemnification asset

 

 

1,613 

 

 

1,197 

Stock-based compensation expense

 

 

4,050 

 

 

3,071 

Decrease in interest payable and other liabilities

 

 

(8,565)

 

 

(8,577)

Net payments (to) from FDIC for loss share claims

 

 

(302)

 

 

7,580 

Decrease (increase) in FDIC loss share receivable

 

 

557 

 

 

(1,188)

Decrease (increase) in other assets

 

 

27,488 

 

 

(6,826)

Other, net

 

 

143 

 

 

(447)

Net cash provided by operating activities

 

 

92,729 

 

 

65,306 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from sales of securities

 

 

47,774 

 

 

9,221 

Proceeds from maturities of securities available for sale

 

 

86,966 

 

 

468,358 

Purchases of securities available for sale

 

 

(167,419)

 

 

(638,861)

Proceeds from maturities of securities held to maturity

 

 

86,632 

 

 

88,381 

Purchases of securities held to maturity

 

 

(236,117)

 

 

(207,849)

Net decrease in interest-bearing bank deposits

 

 

413,478 

 

 

286,551 

Net decrease in federal funds sold

 

 

526 

 

 

600 

Proceeds from sales of loans

 

 

61,878 

 

 

 —

Net increase in loans

 

 

(351,202)

 

 

(36,137)

Purchases of property and equipment

 

 

(1,550)

 

 

(8,609)

Proceeds from sales of other real estate

 

 

4,316 

 

 

21,969 

Other, net

 

 

3,567 

 

 

(4,582)

Net cash used in investing activities

 

 

(51,151)

 

 

(20,958)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net increase in deposits

 

 

307,254 

 

 

287,654 

Net decrease in short-term borrowings

 

 

(322,857)

 

 

(396,323)

Repayments of long-term debt

 

 

(19,551)

 

 

(8,800)

Net proceeds from issuance of long-term debt

 

 

66 

 

 

145,196 

Dividends paid

 

 

(19,131)

 

 

(19,524)

Purchase of common stock under stock buyback program

 

 

 —

 

 

(75,270)

Other, net

 

 

(134)

 

 

 —

Net cash provided by financing activities

 

 

(54,353)

 

 

(67,067)

NET DECREASE IN CASH AND DUE FROM BANKS

 

 

(12,775)

 

 

(22,719)

CASH AND DUE FROM BANKS, BEGINNING

 

 

303,874 

 

 

356,455 

CASH AND DUE FROM BANKS, ENDING

 

$

291,099 

 

$

333,736 

SUPPLEMENTAL INFORMATION FOR NON-CASH

 

 

 

 

 

 

INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Assets acquired in settlement of loans

 

$

1,662 

 

$

4,161 



See notes to unaudited consolidated financial statements.



 

5


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

1.  Basis of Presentation

The consolidated financial statements include the accounts of Hancock Holding Company and all other entities in which it has a controlling interest (the “Company”). The financial statements include all adjustments that are, in the opinion of management, necessary to present fairly the Company’s financial condition, results of operations, changes in stockholders’ equity and cash flows for the interim periods presented.  Some financial information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.  Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations, or cash flows for any other interim or annual period.

Certain prior period amounts have been reclassified to conform to the current period presentation.    Effective January 1, 2016, the Company retrospectively adopted accounting guidance intended to simplify the presentation of debt issuance costs by requiring that costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.  Historically, debt issuance costs were reported in the “Other Assets” line items in the Consolidated Balance Sheets and Statements of Cash Flows.  All historical periods have been restated to reflect the revised presentation and new required disclosures.  The adoption of this guidance did not have a material impact on the Company’s financial condition or operating results.

Use of Estimates

The accounting principles the Company follows and the methods for applying these principles conform with GAAP and with general practices followed by the banking industry.   These accounting principles require management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and the accompanying notes.  Actual results could differ from those estimates.    

Critical Accounting Policies and Estimates

There were no material changes or developments with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2015.   

 

2.  Securities

The amortized cost and fair value of securities classified as available for sale and held to maturity follow.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

March 31, 2016

 

December 31, 2015



 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 



 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair



 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

US Treasury and government agency securities

 

$

125 

 

$

 —

 

$

 —

 

$

125 

 

$

135 

 

$

 —

 

$

 

$

134 

Municipal obligations

 

 

87,190 

 

 

792 

 

 

43 

 

 

87,939 

 

 

39,410 

 

 

235 

 

 

38 

 

 

39,607 

Mortgage-backed securities

 

 

1,735,836 

 

 

30,862 

 

 

724 

 

 

1,765,974 

 

 

1,750,168 

 

 

19,387 

 

 

11,182 

 

 

1,758,373 

Collateralized mortgage obligations

 

 

287,171 

 

 

2,414 

 

 

419 

 

 

289,166 

 

 

291,085 

 

 

140 

 

 

2,192 

 

 

289,033 

Corporate debt securities

 

 

3,500 

 

 

 —

 

 

 —

 

 

3,500 

 

 

3,500 

 

 

 —

 

 

 —

 

 

3,500 

Equity securities

 

 

2,449 

 

 

340 

 

 

27 

 

 

2,762 

 

 

2,447 

 

 

358 

 

 

48 

 

 

2,757 



 

$

2,116,271 

 

$

34,408 

 

$

1,213 

 

$

2,149,466 

 

$

2,086,745 

 

$

20,120 

 

$

13,461 

 

$

2,093,404 



6


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

March 31, 2016

 

December 31, 2015



 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 



 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair



 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

US Treasury and government agency securities

 

$

50,000 

 

$

672 

 

$

 —

 

$

50,672 

 

$

50,000 

 

$

 —

 

$

410 

 

$

49,590 

Municipal obligations

 

 

417,911 

 

 

6,270 

 

 

430 

 

 

423,751 

 

 

185,890 

 

 

3,475 

 

 

1,166 

 

 

188,199 

Mortgage-backed securities

 

 

983,146 

 

 

34,214 

 

 

 —

 

 

1,017,360 

 

 

1,014,135 

 

 

15,585 

 

 

1,589 

 

 

1,028,131 

Collateralized mortgage obligations

 

 

1,067,314 

 

 

10,630 

 

 

2,928 

 

 

1,075,016 

 

 

1,120,363 

 

 

2,244 

 

 

12,676 

 

 

1,109,931 



 

$

2,518,371 

 

$

51,786 

 

$

3,358 

 

$

2,566,799 

 

$

2,370,388 

 

$

21,304 

 

$

15,841 

 

$

2,375,851 



The following table presents the amortized cost and fair value of debt securities at March 31, 2016 by contractual maturity.  Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.







 

 

 

 

 

 



 

 

 

 

 

 

(in thousands)

 

Amortized

 

Fair

Debt Securities Available for Sale

 

Cost

 

Value

Due in one year or less

 

$

6,851 

 

$

6,881 

Due after one year through five years

 

 

78,862 

 

 

79,865 

Due after five years through ten years

 

 

366,738 

 

 

377,314 

Due after ten years

 

 

1,661,371 

 

 

1,682,644 

  Total available for sale debt securities

 

$

2,113,822 

 

$

2,146,704 



 

 

 

 

 

 



 

Amortized

 

Fair

Debt Securities Held to Maturity

 

Cost

 

Value

Due in one year or less

 

$

15,296 

 

$

15,408 

Due after one year through five years

 

 

415,949 

 

 

417,841 

Due after five years through ten years

 

 

356,084 

 

 

358,834 

Due after ten years

 

 

1,731,042 

 

 

1,774,716 

  Total held to maturity securities

 

$

2,518,371 

 

$

2,566,799 

The Company held no securities classified as trading at March 31, 2016 or December 31, 2015. 

The details for securities classified as available for sale with unrealized losses for the periods indicated follow. 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

Losses < 12 months

 

Losses 12 months or >

 

Total



 

 

 

Gross

 

 

 

Gross

 

 

 

Gross



 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

(in thousands)

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

US Treasury and government agency securities

 

$

 —

 

 

 —

 

$

76 

 

$

 —

 

$

76 

 

$

 —

Municipal obligations

 

 

25,999 

 

 

43 

 

 

 —

 

 

 —

 

 

25,999 

 

 

43 

Mortgage-backed securities

 

 

160,058 

 

 

170 

 

 

69,703 

 

 

554 

 

 

229,761 

 

 

724 

Collateralized mortgage obligations

 

 

 —

 

 

 —

 

 

32,215 

 

 

419 

 

 

32,215 

 

 

419 

Equity securities

 

 

 —

 

 

 —

 

 

1,513 

 

 

27 

 

 

1,513 

 

 

27 



 

$

186,057 

 

$

213 

 

$

103,507 

 

$

1,000 

 

$

289,564 

 

$

1,213 



7


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

Losses < 12 months

 

Losses 12 months or >

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Gross

 

 

 

Gross

 

 

 

Gross



 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

(in thousands)

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

US Treasury and government agency securities

 

$

 —

 

$

 —

 

$

82 

 

$

 

$

82 

 

$

Municipal obligations

 

 

8,296 

 

 

38 

 

 

 —

 

 

 —

 

 

8,296 

 

 

38 

Mortgage-backed securities

 

 

831,156 

 

 

8,257 

 

 

116,126 

 

 

2,925 

 

 

947,282 

 

 

11,182 

Collateralized mortgage obligations

 

 

208,397 

 

 

1,257 

 

 

33,138 

 

 

935 

 

 

241,535 

 

 

2,192 

Equity securities

 

 

20 

 

 

 

 

1,473 

 

 

47 

 

 

1,493 

 

 

48 



 

$

1,047,869 

 

$

9,553 

 

$

150,819 

 

$

3,908 

 

$

1,198,688 

 

$

13,461 



The details for securities classified as held to maturity with unrealized losses for the periods indicated follow. 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

Losses < 12 months

 

Losses 12 months or >

 

Total



 

 

 

Gross

 

 

 

Gross

 

 

 

Gross



 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

(in thousands)

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

Municipal obligations

 

$

47,173 

 

$

118 

 

$

10,792 

 

$

312 

 

$

57,965 

 

$

430 

Collateralized mortgage obligations

 

 

8,871 

 

 

15 

 

 

314,160 

 

 

2,913 

 

 

323,031 

 

 

2,928 



 

$

56,044 

 

$

133 

 

$

324,952 

 

$

3,225 

 

$

380,996 

 

$

3,358 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

Losses < 12 months

 

Losses 12 months or >

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Gross

 

 

 

Gross

 

 

 

Gross



 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

(in thousands)

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

U.S. Treasury and government agency securities

 

$

45,590 

 

$

410 

 

$

 —

 

$

 —

 

$

45,590 

 

$

410 

Municipal obligations

 

 

22,652 

 

 

301 

 

 

48,727 

 

 

865 

 

 

71,379 

 

 

1,166 

Mortgage-backed securities

 

 

349,635 

 

 

1,589 

 

 

 —

 

 

 —

 

 

349,635 

 

 

1,589 

Collateralized mortgage obligations

 

 

516,330 

 

 

2,894 

 

 

370,756 

 

 

9,782 

 

 

887,086 

 

 

12,676 



 

$

934,207 

 

$

5,194 

 

$

419,483 

 

$

10,647 

 

$

1,353,690 

 

$

15,841 

The unrealized losses primarily relate to changes in market rates on fixed-rate debt securities since the respective purchase dates.  In all cases, the indicated impairment on these debt securities would be recovered no later than the security’s maturity date or possibly earlier if the market price for the security increases with a reduction in the yield required by the market.  None of the unrealized losses relate to the marketability of the securities or the issuer’s ability to meet contractual obligations.  The Company believes it has adequate liquidity and, therefore, does not plan to and, more likely than not, will not be required to sell these securities before recovery of the indicated impairment.  Accordingly, the unrealized losses on these securities have been determined to be temporary.

Securities with carrying values totaling $3.1 billion at March 31, 2016 and $3.5 billion at December 31, 2015 were pledged as collateral primarily to secure public deposits or securities sold under agreements to repurchase.

 

8


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

3.  Loans and Allowance for Loan Losses

Loans, net of unearned income, consisted of the following.







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,

(in thousands)

 

2016

 

2015

Originated loans:

 

 

 

 

 

 

Commercial non-real estate

 

$

7,088,146 

 

$

6,930,453 

Construction and land development

 

 

1,086,382 

 

 

1,139,743 

Commercial real estate

 

 

3,504,803 

 

 

3,220,509 

Residential mortgages

 

 

1,839,889 

 

 

1,887,256 

Consumer

 

 

2,048,068 

 

 

2,080,626 

Total originated loans

 

$

15,567,288 

 

$

15,258,587 

Acquired loans:

 

 

 

 

 

 

Commercial non-real estate

 

$

51,949 

 

$

59,843 

Construction and land development

 

 

2,250 

 

 

5,080 

Commercial real estate

 

 

156,285 

 

 

176,460 

Residential mortgages

 

 

1,116 

 

 

27 

Consumer

 

 

20 

 

 

20 

Total acquired loans

 

$

211,620 

 

$

241,430 

FDIC acquired loans:

 

 

 

 

 

 

Commercial non-real estate

 

$

5,311 

 

$

5,528 

Construction and land development

 

 

6,782 

 

 

7,127 

Commercial real estate

 

 

15,004 

 

 

15,582 

Residential mortgages

 

 

159,962 

 

 

162,241 

Consumer

 

 

12,157 

 

 

12,819 

Total FDIC acquired loans

 

$

199,216 

 

$

203,297 

Total loans:

 

 

 

 

 

 

Commercial non-real estate

 

$

7,145,406 

 

$

6,995,824 

Construction and land development

 

 

1,095,414 

 

 

1,151,950 

Commercial real estate

 

 

3,676,092 

 

 

3,412,551 

Residential mortgages

 

 

2,000,967 

 

 

2,049,524 

Consumer

 

 

2,060,245 

 

 

2,093,465 

Total loans

 

$

15,978,124 

 

$

15,703,314 



9


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

The following briefly describes the distinction among originated, acquired and FDIC acquired loans and certain significant accounting policies relevant to each category.

Originated loans

Loans reported as “originated” include both loans and leases originated for investment and acquired-performing loans where the discount (premium) has been fully accreted (amortized).  Originated loans are reported at the principal balance outstanding, net of unearned income.  Interest on loans and accretion of unearned income, including deferred loan fees, are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recognized in income as earned.

The accrual of interest on an originated loan is discontinued when, in management’s opinion, it is probable that the borrower will be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. When accrual of interest is discontinued on a loan, all unpaid accrued interest is reversed and payments subsequently received are applied first to recover principal. Interest income is recognized for payments received after contractual principal has been satisfied. Loans are returned to accrual status when all the principal and interest contractually due are brought current and future payment performance is reasonably assured. 

Acquired loans

Loans reported as “acquired” are those loans that were purchased in the 2011 Whitney Holding Corporation acquisition.  These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses.  At the time of the Whitney acquisition, the Whitney acquired loans were segregated between those considered to be performing (“acquired-performing”) and those with evidence of credit deterioration (“acquired-impaired”) based on such factors as past due status, nonaccrual status and credit risk ratings (rated substandard or worse).  The acquired loans were further segregated into loan pools designed to facilitate the development of expected cash flows to be used in estimating fair value for purchase accounting.  Acquired-performing loans are accounted for under ASC 310-20 and acquired-impaired loans are accounted for under ASC 310-30.

Acquired-performing loans were segregated into pools based on common risk characteristics such as loan type, credit risk ratings, and contractual interest rate and repayment terms.  The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, residential mortgage loans, and consumer loans, with further segregation within certain loan types as needed.  Expected cash flows, both principal and interest, from each pool were estimated based on key assumptions covering such factors as prepayments, default rates, and severity of loss given a default.  These assumptions were developed using both historical experience and the portfolio characteristics at acquisition as well as available market research.  The fair value for each acquired-performing pool was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

The difference at the acquisition date between the fair value and the contractual amounts due of an acquired-performing loan pool (the “fair value discount”) is accreted into income over the estimated life of the pool.  Acquired-performing loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The acquired-impaired loans were segregated into pools by identifying loans with common credit risk profiles and were based primarily on characteristics such as loan type and market area in which originated.  The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, and residential mortgage loans, with further segregation within certain loan types as needed. The acquired-impaired loans were further disaggregated by geographic region in recognition of the differences in general economic conditions affecting borrowers in certain states.  The fair value estimate for each pool of acquired-impaired loans was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

The excess of estimated cash flows expected to be collected from an acquired-impaired loan pool over the pool’s carrying value is referred to as the accretable yield and is recognized in interest income using an effective yield method over the expected life of the loan pool.  Each pool of acquired-impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.  Acquired-impaired loans in pools with an accretable yield and expected cash flows that are reasonably estimable are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting.  Acquired-impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings even if they would otherwise qualify for such treatment.

10


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

FDIC acquired loans and the related loss share receivable

Loans reported as “FDIC acquired” are loans purchased in the 2009 acquisition of Peoples First Community Bank (“Peoples First”) that were covered by two loss share agreements between the FDIC and the Company.  These loans are accounted for as acquired-impaired loans as described above in the section on acquired loans.  The Company treated all loans for the Peoples First acquisition as impaired based on the significant amount of deteriorating and nonperforming loans, comprised mainly of adjustable rate mortgages and home equity loans, located in Florida. The loss share receivable is measured separately from the related covered loans as it is not contractually embedded in the loans and is not transferrable should the loans be sold.  The fair value of the loss share receivable at acquisition was estimated by discounting expected reimbursements for losses from the loans covered by the loss share agreements, including appropriate consideration of possible true-up payments to the FDIC at the expiration of the agreements.

The loss share receivable is reviewed and updated prospectively as loss estimates related to covered loan pools change.  Increases in expected reimbursements under the loss sharing agreement will lead to an increase in the loss share receivable.  A decrease in expected reimbursements is reflected first as a reversal of any previously recorded increase in the loss share receivable on the covered loan pools with the remainder reflected as an increase in the loss share receivable’s amortization rate.  The loss share receivable serves to offset the impact on provision due to impairments or impairment reversals that occur as a result of changes in loss estimates on the underlying covered loan pools.  The excess (or shortfall) of expected claims compared to the carrying value of the loss share receivable is accreted (amortized) into noninterest income over the shorter of the remaining life of the covered loan pool or the life of the loss share agreement.  The impact on operations of an increase in the loss share receivable’s amortization rate is associated with an increase in the accretable yield on the underlying loan pool.  The loss share receivable is reduced as cash is received from the FDIC related to losses incurred on covered assets.

The following schedule shows activity in the loss share receivable for the three months ended March 31, 2016 and 2015.







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

March 31,

(in thousands)

 

2016

 

2015

Balance, January 1

 

$

29,868 

 

$

60,272 

Amortization

 

 

(1,613)

 

 

(1,197)

Charge-offs, write-downs and other recoveries

 

 

(1,005)

 

 

(1,475)

External expenses qualifying under loss share agreement

 

 

465 

 

 

298 

Changes due to changes in cash flow projections

 

 

(2,189)

 

 

(421)

Net payments to (from) FDIC

 

 

302 

 

 

(7,580)

Ending balance

 

$

25,828 

 

$

49,897 



The loss share agreement covering the non-single family FDIC acquired portfolio expired in December 2014.  The loss share agreement covering the single family portfolio expires in December 2019.



11


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

The following schedule shows activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 and 2015, as well as the corresponding recorded investment in loans at the end of each period.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 



 

Commercial

 

and land

 

Commercial

 

Residential

 

 

 

 

 

 

(in thousands)

 

non-real estate

 

development

 

real estate

 

mortgages

 

Consumer

 

Total



 

Three Months Ended March 31, 2016

Originated loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

108,982 

 

$

4,985 

 

$

14,059 

 

$

7,690 

 

$

22,310 

 

$

158,026 

Charge-offs

 

 

(17,667)

 

 

(110)

 

 

(898)

 

 

(175)

 

 

(5,843)

 

 

(24,693)

Recoveries

 

 

809 

 

 

605 

 

 

185 

 

 

301 

 

 

1,494 

 

 

3,394 

Net provision for loan losses

 

 

52,096 

 

 

(1,627)

 

 

7,325 

 

 

235 

 

 

2,529 

 

 

60,558 

Ending balance

 

$

144,220 

 

$

3,853 

 

$

20,671 

 

$

8,051 

 

$

20,490 

 

$

197,285 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

26,502 

 

$

185 

 

$

1,332 

 

$

125 

 

$

16 

 

$

28,160 

Collectively evaluated for impairment

 

 

117,718 

 

 

3,668 

 

 

19,339 

 

 

7,926 

 

 

20,474 

 

 

169,125 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

$

7,088,146 

 

$

1,086,382 

 

$

3,504,803 

 

$

1,839,889 

 

$

2,048,068 

 

$

15,567,288 

Individually evaluated for impairment

 

 

201,029 

 

 

14,072 

 

 

12,393 

 

 

883 

 

 

58 

 

 

228,435 

Collectively evaluated for impairment

 

 

6,887,117 

 

 

1,072,310 

 

 

3,492,410 

 

 

1,839,006 

 

 

2,048,010 

 

 

15,338,853 

Acquired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

 —

 

$

 —

 

$

33 

 

$

 —

 

$

 —

 

$

33 

Charge-offs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Recoveries

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net provision for loan losses

 

 

 —

 

 

 —

 

 

(26)

 

 

 —

 

 

 —

 

 

(26)

Ending balance

 

$

 —

 

$

 —

 

$

 

$

 —

 

$

 —

 

$

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 —

 

$

 —

 

$

 

$

 —

 

$

 —

 

$

Amounts related to acquired-impaired loans

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Collectively evaluated for impairment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

$

51,949 

 

$

2,250 

 

$

156,285 

 

$

1,116 

 

$

20 

 

$

211,620 

Individually evaluated for impairment

 

 

 —

 

 

 —

 

 

2,306 

 

 

 —

 

 

 —

 

 

2,306 

Acquired-impaired loans

 

 

7,348 

 

 

2,148 

 

 

12,045 

 

 

1,116 

 

 

20 

 

 

22,677 

Collectively evaluated for impairment

 

 

44,601 

 

 

102 

 

 

141,934 

 

 

 —

 

 

 —

 

 

186,637 



12


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 



 

Commercial

 

and land

 

Commercial

 

Residential

 

 

 

 

 

 

(in thousands)

 

non-real estate

 

development

 

real estate

 

mortgages

 

Consumer

 

Total



 

Three Months Ended March 31, 2016

FDIC acquired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

446 

 

$

657 

 

$

1,807 

 

$

17,663 

 

$

2,547 

 

$

23,120 

Charge-offs

 

 

 —

 

 

(18)

 

 

(29)

 

 

 —

 

 

 —

 

 

(47)

Recoveries

 

 

 

 

35 

 

 

36 

 

 

 

 

39 

 

 

114 

Net provision for loan losses

 

 

 

 

(151)

 

 

(303)

 

 

1,130 

 

 

(1,179)

 

 

(496)

Increase (decrease) in FDIC loss share receivable

 

 

(17)

 

 

 —

 

 

 —

 

 

(2,153)

 

 

(19)

 

 

(2,189)

Ending balance

 

$

439 

 

$

523 

 

$

1,511 

 

$

16,641 

 

$

1,388 

 

$

20,502 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Amounts related to acquired-impaired loans

 

 

439 

 

 

523 

 

 

1,511 

 

 

16,641 

 

 

1,388 

 

 

20,502 

Collectively evaluated for impairment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

$

5,311 

 

$

6,782 

 

$

15,004 

 

$

159,962 

 

$

12,157 

 

$

199,216 

Individually evaluated for impairment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Acquired-impaired loans

 

 

5,311 

 

 

6,782 

 

 

15,004 

 

 

159,962 

 

 

12,157 

 

 

199,216 

Collectively evaluated for impairment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

109,428 

 

$

5,642 

 

$

15,899 

 

$

25,353 

 

$

24,857 

 

$

181,179 

Charge-offs

 

 

(17,667)

 

 

(128)

 

 

(927)

 

 

(175)

 

 

(5,843)

 

 

(24,740)

Recoveries

 

 

812 

 

 

640 

 

 

221 

 

 

302 

 

 

1,533 

 

 

3,508 

Net provision for loan losses

 

 

52,103 

 

 

(1,778)

 

 

6,996 

 

 

1,365 

 

 

1,350 

 

 

60,036 

Increase (decrease) in FDIC loss share receivable

 

 

(17)

 

 

 —

 

 

 —

 

 

(2,153)

 

 

(19)

 

 

(2,189)

Ending balance

 

$

144,659 

 

$

4,376 

 

$

22,189 

 

$

24,692 

 

$

21,878 

 

$

217,794 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

26,502 

 

$

185 

 

$

1,339 

 

$

125 

 

$

16 

 

$

28,167 

Amounts related to acquired-impaired loans

 

 

439 

 

 

523 

 

 

1,511 

 

 

16,641 

 

 

1,388 

 

 

20,502 

Collectively evaluated for impairment

 

 

117,718 

 

 

3,668 

 

 

19,339 

 

 

7,926 

 

 

20,474 

 

 

169,125 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

$

7,145,406 

 

$

1,095,414 

 

$

3,676,092 

 

$

2,000,967 

 

$

2,060,245 

 

$

15,978,124 

Individually evaluated for impairment

 

 

201,029 

 

 

14,072 

 

 

14,699 

 

 

883 

 

 

58 

 

 

230,741 

Acquired-impaired loans

 

 

12,659 

 

 

8,930 

 

 

27,049 

 

 

161,078 

 

 

12,177 

 

 

221,893 

Collectively evaluated for impairment

 

 

6,931,718 

 

 

1,072,412 

 

 

3,634,344 

 

 

1,839,006 

 

 

2,048,010 

 

 

15,525,490 



13


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 



 

Commercial

 

and land

 

Commercial

 

Residential

 

 

 

 

 

 

(in thousands)

 

non-real estate

 

development

 

real estate

 

mortgages

 

Consumer

 

Total



 

Three Months ended March 31, 2015

Originated loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

50,258 

 

$

5,413 

 

$

16,544 

 

$

8,051 

 

$

17,435 

 

$

97,701 

Charge-offs

 

 

(1,697)

 

 

(747)

 

 

(251)

 

 

(1,209)

 

 

(3,556)

 

 

(7,460)

Recoveries

 

 

981 

 

 

1,243 

 

 

(3)

 

 

305 

 

 

1,280 

 

 

3,806 

Net provision for loan losses

 

 

6,754 

 

 

(1,500)

 

 

(966)

 

 

738 

 

 

1,421 

 

 

6,447 

Ending balance

 

$

56,296 

 

$

4,409 

 

$

15,324 

 

$

7,885 

 

$

16,580 

 

$

100,494 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

529 

 

$

71 

 

$

147 

 

$

88 

 

$

 

$

838 

Collectively evaluated for impairment

 

 

55,767 

 

 

4,338 

 

 

15,177 

 

 

7,797 

 

 

16,577 

 

 

99,656 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

$

5,861,887 

 

$

1,087,449 

 

$

2,492,351 

 

$

1,736,033 

 

$

1,742,810 

 

$

12,920,530 

Individually evaluated for impairment

 

 

14,566 

 

 

4,381 

 

 

17,210 

 

 

2,423 

 

 

120 

 

 

38,700 

Collectively evaluated for impairment

 

 

5,847,321 

 

 

1,083,068 

 

 

2,475,141 

 

 

1,733,610 

 

 

1,742,690 

 

 

12,881,830 

Acquired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

 —

 

$

 —

 

$

477 

 

$

 —

 

$

 —

 

$

477 

Charge-offs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Recoveries

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net provision for loan losses

 

 

 —

 

 

 —

 

 

(223)

 

 

 —

 

 

 —

 

 

(223)

Ending balance

 

$

 —

 

$

 —

 

$

254 

 

$

 —

 

$

 —

 

$

254 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 —

 

$

 —

 

$

254 

 

$

 —

 

$

 —

 

$

254 

Amounts related to acquired-impaired loans

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Collectively evaluated for impairment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

$

118,260 

 

$

14,579 

 

$

629,975 

 

$

2,485 

 

$

25 

 

$

765,324 

Individually evaluated for impairment

 

 

 —

 

 

 —

 

 

2,579 

 

 

 —

 

 

 —

 

 

2,579 

Acquired-impaired loans

 

 

8,708 

 

 

12,801 

 

 

21,226 

 

 

2,485 

 

 

25 

 

 

45,245 

Collectively evaluated for impairment

 

 

109,552 

 

 

1,778 

 

 

606,170 

 

 

 —

 

 

 —

 

 

717,500 





14


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 



 

Commercial

 

and land

 

Commercial

 

Residential

 

 

 

 

 

 

(in thousands)

 

non-real estate

 

development

 

real estate

 

mortgages

 

Consumer

 

Total



 

Three Months ended March 31, 2015

FDIC acquired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

911 

 

$

1,008 

 

$

4,061 

 

$

20,609 

 

$

3,995 

 

$

30,584 

Charge-offs

 

 

(127)

 

 

(276)

 

 

(2,368)

 

 

(93)

 

 

(140)

 

 

(3,004)

Recoveries

 

 

14 

 

 

406 

 

 

113 

 

 

 —

 

 

16 

 

 

549 

Net provision for loan losses

 

 

(2)

 

 

(6)

 

 

202 

 

 

(195)

 

 

(69)

 

 

(70)

Increase (decrease) in FDIC loss share receivable

 

 

(13)

 

 

(34)

 

 

1,207 

 

 

(1,171)

 

 

(410)

 

 

(421)

Ending balance

 

$

783 

 

$

1,098 

 

$

3,215 

 

$

19,150 

 

$

3,392 

 

$

27,638 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Amounts related to acquired-impaired loans

 

 

783 

 

 

1,098 

 

 

3,215 

 

 

19,150 

 

 

3,392 

 

 

27,638 

Collectively evaluated for impairment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

Ending balance:

 

$

6,937 

 

$

11,482 

 

$

27,777 

 

$

175,367 

 

$

16,969 

 

$

238,532 

Individually evaluated for impairment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Acquired-impaired loans

 

 

6,937 

 

 

11,482 

 

 

27,777 

 

 

175,367 

 

 

16,969 

 

 

238,532 

Collectively evaluated for impairment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

51,169 

 

$

6,421 

 

$

21,082 

 

$

28,660 

 

$

21,430 

 

$

128,762 

Charge-offs

 

 

(1,824)

 

 

(1,023)

 

 

(2,619)

 

 

(1,302)

 

 

(3,696)

 

 

(10,464)

Recoveries

 

 

995 

 

 

1,649 

 

 

110 

 

 

305 

 

 

1,296 

 

 

4,355 

Net provision for loan losses

 

 

6,752 

 

 

(1,506)

 

 

(987)

 

 

543 

 

 

1,352 

 

 

6,154 

Increase (decrease) in FDIC loss share receivable

 

 

(13)

 

 

(34)

 

 

1,207 

 

 

(1,171)

 

 

(410)

 

 

(421)

Ending balance

 

$

57,079 

 

$

5,507 

 

$

18,793 

 

$

27,035 

 

$

19,972 

 

$

128,386 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

529 

 

$

71 

 

$

401 

 

$

88 

 

$

 

$

1,092 

Amounts related to acquired-impaired loans

 

 

783 

 

 

1,098 

 

 

3,215 

 

 

19,150 

 

 

3,392 

 

 

27,638 

Collectively evaluated for impairment

 

 

55,767 

 

 

4,338 

 

 

15,177 

 

 

7,797 

 

 

16,577 

 

 

99,656 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

$

5,987,084 

 

$

1,113,510 

 

$

3,150,103 

 

$

1,913,885 

 

$

1,759,804 

 

$

13,924,386 

Individually evaluated for impairment

 

 

14,566 

 

 

4,381 

 

 

19,789 

 

 

2,423 

 

 

120 

 

 

41,279 

Acquired-impaired loans

 

 

15,645 

 

 

24,283 

 

 

49,003 

 

 

177,852 

 

 

16,994 

 

 

283,777 

Collectively evaluated for impairment

 

 

5,956,873 

 

 

1,084,846 

 

 

3,081,311 

 

 

1,733,610 

 

 

1,742,690 

 

 

13,599,330 



15


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

The following table shows the composition of nonaccrual loans by portfolio segment and class.  Acquired-impaired and certain FDIC acquired loans are considered to be performing due to the application of the accretion method and are excluded from the table.  FDIC acquired loans accounted for using the cost recovery method do not have an accretable yield and are included below as nonaccrual loans.  Acquired-performing loans that have subsequently been placed on nonaccrual status are also included below.







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,

(in thousands)

 

2016

 

2015

Originated loans:

 

 

 

 

 

 

Commercial non-real estate

 

$

165,930 

 

$

88,743 

Construction and land development

 

 

16,997 

 

 

17,294 

Commercial real estate

 

 

19,217 

 

 

17,824 

Residential mortgages

 

 

23,713 

 

 

23,799 

Consumer

 

 

8,538 

 

 

9,061 

Total originated loans

 

$

234,395 

 

$

156,721 

Acquired loans:

 

 

 

 

 

 

Commercial non-real estate

 

$

 —

 

$

 —

Construction and land development

 

 

 —

 

 

 —

Commercial real estate

 

 

2,908 

 

 

2,992 

Residential mortgages

 

 

 —

 

 

 —

Consumer

 

 

 —

 

 

 —

Total acquired loans

 

$

2,908 

 

$

2,992 

FDIC acquired loans:

 

 

 

 

 

 

Commercial non-real estate

 

$

 —

 

$

 —

Construction and land development

 

 

 —

 

 

 —

Commercial real estate

 

 

 —

 

 

 —

Residential mortgages

 

 

 —

 

 

 —

Consumer

 

 

 —

 

 

 —

Total FDIC acquired loans

 

$

 —

 

$

 —

Total loans:

 

 

 

 

 

 

Commercial non-real estate

 

 

165,930 

 

 

88,743 

Construction and land development

 

 

16,997 

 

 

17,294 

Commercial real estate

 

 

22,125 

 

 

20,816 

Residential mortgages

 

 

23,713 

 

 

23,799 

Consumer

 

 

8,538 

 

 

9,061 

Total loans

 

$

237,303 

 

$

159,713 



Nonaccrual loans include loans modified in troubled debt restructurings (“TDRs”) of $18.3 million and $8.8 million at March 31, 2016 and December 31, 2015, respectively.  Total TDRs, both accruing and nonaccruing, were $63.9 million as of March 31, 2016 and $13.1 million at December 31, 2015.

16


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

The table below details TDRs that were modified during the three months ended March 31, 2016 and March 31, 2015 by portfolio segment.  The TDRs during the three months ended March 31, 2016 and 2015 were extended amortization, other modification of payment terms, or covenant violations.  All are individually evaluated for impairment.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

($ in thousands)

 

March 31, 2016

 

March 31, 2015



 

 

 

Pre-Modification

 

Post-Modification

 

 

 

Pre-Modification

 

Post-Modification



 

 

 

Outstanding

 

Outstanding

 

 

 

Outstanding

 

Outstanding



 

Number of

 

Recorded

 

Recorded

 

Number of

 

Recorded

 

Recorded

Troubled Debt Restructurings:

 

Contracts

 

Investment

 

Investment

 

Contracts

 

Investment

 

Investment

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

11 

 

$

51,246 

 

$

51,246 

 

 —

 

$

 —

 

$

 —

Construction and land development

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Commercial real estate

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Residential mortgages

 

 —

 

 

 —

 

 

 —

 

 

 

68 

 

 

68 

Consumer

 

 —

 

 

 —

 

 

 —

 

 

 

20 

 

 

20 

Total originated loans

 

11 

 

$

51,246 

 

$

51,246 

 

 

$

88 

 

$

88 

Acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

 —

 

$

 —

 

$

 —

 

 —

 

$

 —

 

$

 —

Construction and land development

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Commercial real estate

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Residential mortgages

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Consumer

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Total acquired loans

 

 —

 

$

 —

 

$

 —

 

 —

 

$

 —

 

$

 —

FDIC acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

 —

 

$

 —

 

$

 —

 

 —

 

$

 —

 

$

 —

Construction and land development

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Commercial real estate

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Residential mortgages

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Consumer

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Total FDIC acquired loans

 

 —

 

$

 —

 

$

 —

 

 —

 

$

 —

 

$

 —

Total loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

11 

 

$

51,246 

 

$

51,246 

 

 —

 

$

 —

 

$

 —

Construction and land development

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Commercial real estate

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Residential mortgages

 

 —

 

 

 —

 

 

 —

 

 

 

68 

 

 

68 

Consumer

 

 —

 

 

 —

 

 

 —

 

 

 

20 

 

 

20 

Total loans

 

11 

 

$

51,246 

 

$

51,246 

 

 

$

88 

 

$

88 



No TDRs that subsequently defaulted within twelve months of modification were recorded in the three months ended March 31, 2016 or 2015. 

17


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

The tables below present loans that are individually evaluated for impairment disaggregated by class at March 31, 2016 and December 31, 2015.  Loans individually evaluated for impairment include TDRs and loans that are determined to be impaired and have aggregate relationship balances of $1 million or more. 









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



March 31, 2016

December 31, 2015



 

 

 

Unpaid

 

 

 

 

 

Unpaid

 

 



 

Recorded

 

Principal

 

Related

 

Recorded

 

Principal

 

Related

(in thousands)

 

Investment

 

Balance

 

Allowance

 

Investment

 

Balance

 

Allowance

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

$

77,155 

$

85,295 

$

 —

$

34,788 

$

37,285 

$

 —

Construction and land development

 

12,413 

 

12,413 

 

 —

 

12,461 

 

12,461 

 

 —

Commercial real estate

 

5,939 

 

6,140 

 

 —

 

7,785 

 

8,499 

 

 —

Residential mortgages

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Consumer

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —



 

95,507 

 

103,848 

 

 —

 

55,034 

 

58,245 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

123,874 

 

125,744 

 

26,502 

 

46,834 

 

47,703 

 

19,031 

Construction and land development

 

1,659 

 

2,315 

 

185 

 

1,765 

 

2,323 

 

392 

Commercial real estate

 

6,454 

 

6,521 

 

1,332 

 

6,406 

 

6,413 

 

1,372 

Residential mortgages

 

883 

 

1,394 

 

125 

 

895 

 

1,405 

 

127 

Consumer

 

58 

 

58 

 

16 

 

152 

 

152 

 

33 



 

132,928 

 

136,032 

 

28,160 

 

56,052 

 

57,996 

 

20,955 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

201,029 

 

211,039 

 

26,502 

 

81,622 

 

84,988 

 

19,031 

Construction and land development

 

14,072 

 

14,728 

 

185 

 

14,226 

 

14,784 

 

392 

Commercial real estate

 

12,393 

 

12,661 

 

1,332 

 

14,191 

 

14,912 

 

1,372 

Residential mortgages

 

883 

 

1,394 

 

125 

 

895 

 

1,405 

 

127 

Consumer

 

58 

 

58 

 

16 

 

152 

 

152 

 

33 

Total originated loans

$

228,435 

$

239,880 

$

28,160 

$

111,086 

$

116,241 

$

20,955 



 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

$

 —

$

 —

$

 —

$

 —

$

 —

$

 —

Construction and land development

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Commercial real estate

 

2,306 

 

2,343 

 

 

2,340 

 

2,382 

 

33 

Residential mortgages

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Consumer

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —



 

2,306 

 

2,343 

 

 

2,340 

 

2,382 

 

33 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Construction and land development

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Commercial real estate

 

2,306 

 

2,343 

 

 

2,340 

 

2,382 

 

33 

Residential mortgages

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Consumer

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Total acquired loans

$

2,306 

$

2,343 

$

$

2,340 

$

2,382 

$

33 





18


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



March 31, 2016

December 31, 2015



 

 

 

Unpaid

 

 

 

 

 

Unpaid

 

 



 

Recorded

 

Principal

 

Related

 

Recorded

 

Principal

 

Related

(in thousands)

 

Investment

 

Balance

 

Allowance

 

Investment

 

Balance

 

Allowance

Total loans:

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

$

77,155 

$

85,295 

$

 —

$

34,788 

$

37,285 

$

 —

Construction and land development

 

12,413 

 

12,413 

 

 —

 

12,461 

 

12,461 

 

 —

Commercial real estate

 

5,939 

 

6,140 

 

 —

 

7,785 

 

8,499 

 

 —

Residential mortgages

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Consumer

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —



 

95,507 

 

103,848 

 

 —

 

55,034 

 

58,245 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

123,874 

 

125,744 

 

26,502 

 

46,834 

 

47,703 

 

19,031 

Construction and land development

 

1,659 

 

2,315 

 

185 

 

1,765 

 

2,323 

 

392 

Commercial real estate

 

8,760 

 

8,864 

 

1,339 

 

8,746 

 

8,795 

 

1,405 

Residential mortgages

 

883 

 

1,394 

 

125 

 

895 

 

1,405 

 

127 

Consumer

 

58 

 

58 

 

16 

 

152 

 

152 

 

33 



 

135,234 

 

138,375 

 

28,167 

 

58,392 

 

60,378 

 

20,988 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

201,029 

 

211,039 

 

26,502 

 

81,622 

 

84,988 

 

19,031 

Construction and land development

 

14,072 

 

14,728 

 

185 

 

14,226 

 

14,784 

 

392 

Commercial real estate

 

14,699 

 

15,004 

 

1,339 

 

16,531 

 

17,294 

 

1,405 

Residential mortgages

 

883 

 

1,394 

 

125 

 

895 

 

1,405 

 

127 

Consumer

 

58 

 

58 

 

16 

 

152 

 

152 

 

33 

Total loans

$

230,741 

$

242,223 

$

28,167 

$

113,426 

$

118,623 

$

20,988 







19


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended



March 31, 2016

 

March 31, 2015



Average

 

Interest

 

Average

 

Interest



Recorded

 

Income

 

Recorded

 

Income

(in thousands)

Investment

 

Recognized

 

Investment

 

Recognized

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

$

55,972 

 

$

 —

 

$

7,196 

 

$

 —

Construction and land development

 

12,437 

 

 

 —

 

 

1,915 

 

 

 —

Commercial real estate

 

6,862 

 

 

 

 

9,563 

 

 

10 

Residential mortgages

 

 —

 

 

 —

 

 

517 

 

 

Consumer

 

 —

 

 

 —

 

 

51 

 

 

 —



 

75,271 

 

 

 

 

19,242 

 

 

11 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

85,354 

 

 

182 

 

 

2,081 

 

 

Construction and land development

 

1,712 

 

 

 —

 

 

4,401 

 

 

32 

Commercial real estate

 

6,430 

 

 

27 

 

 

5,103 

 

 

17 

Residential mortgages

 

889 

 

 

 

 

2,023 

 

 

11 

Consumer

 

105 

 

 

 

 

13 

 

 



 

94,490 

 

 

212 

 

 

13,621 

 

 

64 

Total:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

141,326 

 

 

182 

 

 

9,277 

 

 

Construction and land development

 

14,149 

 

 

 —

 

 

6,316 

 

 

32 

Commercial real estate

 

13,292 

 

 

36 

 

 

14,666 

 

 

27 

Residential mortgages

 

889 

 

 

 

 

2,540 

 

 

12 

Consumer

 

105 

 

 

 

 

64 

 

 

Total originated loans

$

169,761 

 

$

221 

 

$

32,863 

 

$

75 



 

 

 

 

 

 

 

 

 

 

 

Acquired loans:

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

$

 —

 

$

 —

 

$

 —

 

$

 —

Construction and land development

 

 —

 

 

 —

 

 

 —

 

 

 —

Commercial real estate

 

 —

 

 

 —

 

 

 —

 

 

 —

Residential mortgages

 

 —

 

 

 —

 

 

 —

 

 

 —

Consumer

 

 —

 

 

 —

 

 

 —

 

 

 —



 

 —

 

 

 —

 

 

 —

 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

 —

 

 

 —

 

 

 —

 

 

 —

Construction and land development

 

 —

 

 

 —

 

 

 —

 

 

 —

Commercial real estate

 

2,323 

 

 

 —

 

 

2,635 

 

 

 —

Residential mortgages

 

 —

 

 

 —

 

 

 —

 

 

 —

Consumer

 

 —

 

 

 —

 

 

 —

 

 

 —



 

2,323 

 

 

 —

 

 

2,635 

 

 

 —

Total:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

 —

 

 

 —

 

 

 —

 

 

 —

Construction and land development

 

 —

 

 

 —

 

 

 —

 

 

 —

Commercial real estate

 

2,323 

 

 

 —

 

 

2,635 

 

 

 —

Residential mortgages

 

 —

 

 

 —

 

 

 —

 

 

 —

Consumer

 

 —

 

 

 —

 

 

 —

 

 

 —

Total acquired loans

$

2,323 

 

$

 —

 

$

2,635 

 

$

 —





20


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended



March 31, 2016

 

March 31, 2015



Average

 

Interest

 

Average

 

Interest



Recorded

 

Income

 

Recorded

 

Income

(in thousands)

Investment

 

Recognized

 

Investment

 

Recognized

Total loans:

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

$

55,972 

 

$

 —

 

$

7,196 

 

$

 —

Construction and land development

 

12,437 

 

 

 —

 

 

1,915 

 

 

 —

Commercial real estate

 

6,862 

 

 

 

 

9,563 

 

 

10 

Residential mortgages

 

 —

 

 

 —

 

 

517 

 

 

Consumer

 

 —

 

 

 —

 

 

51 

 

 

 —



 

75,271 

 

 

 

 

19,242 

 

 

11 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

85,354 

 

 

182 

 

 

2,081 

 

 

Construction and land development

 

1,712 

 

 

 —

 

 

4,401 

 

 

32 

Commercial real estate

 

8,753 

 

 

27 

 

 

7,738 

 

 

17 

Residential mortgages

 

889 

 

 

 

 

2,023 

 

 

11 

Consumer

 

105 

 

 

 

 

13 

 

 



 

96,813 

 

 

212 

 

 

16,256 

 

 

64 

Total:

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

141,326 

 

 

182 

 

 

9,277 

 

 

Construction and land development

 

14,149 

 

 

 —

 

 

6,316 

 

 

32 

Commercial real estate

 

15,615 

 

 

36 

 

 

17,301 

 

 

27 

Residential mortgages

 

889 

 

 

 

 

2,540 

 

 

12 

Consumer

 

105 

 

 

 

 

64 

 

 

Total loans

$

172,084 

 

$

221 

 

$

35,498 

 

$

75 







21


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

The tables below present the age analysis of past due loans at March 31, 2016 and December 31, 2015FDIC acquired and acquired-impaired loans accounted for in pools with an accretable yield are considered to be current. 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded



 

 

 

 

 

Greater than

 

 

 

 

 

 

 

 

investment



 

30-59 days

 

60-89 days

 

90 days

 

Total

 

 

 

Total

 

> 90 days and

March 31, 2016

 

past due

 

past due

 

past due

 

past due

 

Current

 

Loans

 

still accruing

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

35,443 

 

$

2,843 

 

$

23,366 

 

$

61,652 

 

$

7,026,494 

 

$

7,088,146 

 

$

2,503 

Construction and land development

 

 

6,007 

 

 

126 

 

 

18,684 

 

 

24,817 

 

 

1,061,565 

 

 

1,086,382 

 

 

3,610 

Commercial real estate

 

 

7,873 

 

 

1,042 

 

 

13,789 

 

 

22,704 

 

 

3,482,099 

 

 

3,504,803 

 

 

1,892 

Residential mortgages

 

 

18,644 

 

 

6,615 

 

 

10,375 

 

 

35,634 

 

 

1,804,255 

 

 

1,839,889 

 

 

123 

Consumer

 

 

14,050 

 

 

3,500 

 

 

6,171 

 

 

23,721 

 

 

2,024,347 

 

 

2,048,068 

 

 

1,098 

Total

 

$

82,017 

 

$

14,126 

 

$

72,385 

 

$

168,528 

 

$

15,398,760 

 

$

15,567,288 

 

$

9,226 

Acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

51,949 

 

$

51,949 

 

$

 —

Construction and land development

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,250 

 

 

2,250 

 

 

 —

Commercial real estate

 

 

 —

 

 

 —

 

 

453 

 

 

453 

 

 

155,832 

 

 

156,285 

 

 

 —

Residential mortgages

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,116 

 

 

1,116 

 

 

 —

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

20 

 

 

20 

 

 

 —

Total

 

$

 —

 

$

 —

 

$

453 

 

$

453 

 

$

211,167 

 

$

211,620 

 

$

 —

FDIC acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

5,311 

 

$

5,311 

 

$

 —

Construction and land development

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

6,782 

 

 

6,782 

 

 

 —

Commercial real estate

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

15,004 

 

 

15,004 

 

 

 —

Residential mortgages

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

159,962 

 

 

159,962 

 

 

 —

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

12,157 

 

 

12,157 

 

 

 —

Total

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

199,216 

 

$

199,216 

 

$

 —

Total loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

35,443 

 

$

2,843 

 

$

23,366 

 

$

61,652 

 

$

7,083,754 

 

$

7,145,406 

 

$

2,503 

Construction and land development

 

 

6,007 

 

 

126 

 

 

18,684 

 

 

24,817 

 

 

1,070,597 

 

 

1,095,414 

 

 

3,610 

Commercial real estate

 

 

7,873 

 

 

1,042 

 

 

14,242 

 

 

23,157 

 

 

3,652,935 

 

 

3,676,092 

 

 

1,892 

Residential mortgages

 

 

18,644 

 

 

6,615 

 

 

10,375 

 

 

35,634 

 

 

1,965,333 

 

 

2,000,967 

 

 

123 

Consumer

 

 

14,050 

 

 

3,500 

 

 

6,171 

 

 

23,721 

 

 

2,036,524 

 

 

2,060,245 

 

 

1,098 

Total

 

$

82,017 

 

$

14,126 

 

$

72,838 

 

$

168,981 

 

$

15,809,143 

 

$

15,978,124 

 

$

9,226 





22


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded



 

 

 

 

 

 

Greater than

 

 

 

 

 

 

 

 

investment



 

30-59 days

 

60-89 days

 

90 days

 

Total

 

 

 

Total

 

> 90 days and

December 31, 2015

 

past due

 

past due

 

past due

 

past due

 

Current

 

Loans

 

still accruing

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

17,406 

 

$

1,468 

 

$

25,007 

 

$

43,881 

 

$

6,886,572 

 

$

6,930,453 

 

$

3,060 

Construction and land development

 

 

19,886 

 

 

436 

 

 

4,043 

 

 

24,365 

 

 

1,115,378 

 

 

1,139,743 

 

 

1,230 

Commercial real estate

 

 

6,754 

 

 

1,329 

 

 

12,503 

 

 

20,586 

 

 

3,199,923 

 

 

3,220,509 

 

 

1,034 

Residential mortgages

 

 

18,657 

 

 

4,360 

 

 

11,840 

 

 

34,857 

 

 

1,852,399 

 

 

1,887,256 

 

 

163 

Consumer

 

 

16,309 

 

 

4,432 

 

 

8,645 

 

 

29,386 

 

 

2,051,240 

 

 

2,080,626 

 

 

2,166 

Total

 

$

79,012 

 

$

12,025 

 

$

62,038 

 

$

153,075 

 

$

15,105,512 

 

$

15,258,587 

 

$

7,653 

Acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

59,843 

 

$

59,843 

 

$

 —

Construction and land development

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

5,080 

 

 

5,080 

 

 

 —

Commercial real estate

 

 

15 

 

 

76 

 

 

525 

 

 

616 

 

 

175,844 

 

 

176,460 

 

 

 —

Residential mortgages

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

27 

 

 

27 

 

 

 —

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

20 

 

 

20 

 

 

 —

Total

 

$

15 

 

$

76 

 

$

525 

 

$

616 

 

$

240,814 

 

$

241,430 

 

$

 —

FDIC acquired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

5,528 

 

$

5,528 

 

$

 —

Construction and land development

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

7,127 

 

 

7,127 

 

 

 —

Commercial real estate

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

15,582 

 

 

15,582 

 

 

 —

Residential mortgages

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

162,241 

 

 

162,241 

 

 

 —

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

12,819 

 

 

12,819 

 

 

 —

Total

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

203,297 

 

$

203,297 

 

$

 —

Total loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

17,406 

 

$

1,468 

 

$

25,007 

 

$

43,881 

 

$

6,951,943 

 

$

6,995,824 

 

$

3,060 

Construction and land development

 

 

19,886 

 

 

436 

 

 

4,043 

 

 

24,365 

 

 

1,127,585 

 

 

1,151,950 

 

 

1,230 

Commercial real estate

 

 

6,769 

 

 

1,405 

 

 

13,028 

 

 

21,202 

 

 

3,391,349 

 

 

3,412,551 

 

 

1,034 

Residential mortgages

 

 

18,657 

 

 

4,360 

 

 

11,840 

 

 

34,857 

 

 

2,014,667 

 

 

2,049,524 

 

 

163 

Consumer

 

 

16,309 

 

 

4,432 

 

 

8,645 

 

 

29,386 

 

 

2,064,079 

 

 

2,093,465 

 

 

2,166 

Total

 

$

79,027 

 

$

12,101 

 

$

62,563 

 

$

153,691 

 

$

15,549,623 

 

$

15,703,314 

 

$

7,653 



The following tables present the credit quality indicators of the Company’s various classes of loans at March 31, 2016 and December 31, 2015

Commercial Non-Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015

(in thousands)

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

5,895,649 

 

$

44,847 

 

$

2,068 

 

$

5,942,564 

 

$

6,205,372 

 

$

53,381 

 

$

2,110 

 

$

6,260,863 

Pass-Watch

 

 

298,176 

 

 

 —

 

 

733 

 

 

298,909 

 

 

167,720 

 

 

 —

 

 

869 

 

 

168,589 

Special Mention

 

 

208,731 

 

 

 

 

 —

 

 

208,733 

 

 

211,230 

 

 

 —

 

 

 —

 

 

211,230 

Substandard

 

 

683,449 

 

 

7,100 

 

 

2,510 

 

 

693,059 

 

 

346,087 

 

 

6,462 

 

 

2,549 

 

 

355,098 

Doubtful

 

 

2,141 

 

 

 —

 

 

 —

 

 

2,141 

 

 

44 

 

 

 —

 

 

 —

 

 

44 

Total

 

$

7,088,146 

 

$

51,949 

 

$

5,311 

 

$

7,145,406 

 

$

6,930,453 

 

$

59,843 

 

$

5,528 

 

$

6,995,824 



23


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Construction Credit Exposure

Credit Risk Profile by Internally Assigned Grade







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015

(in thousands)

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

1,036,847 

 

$

837 

 

$

1,455 

 

$

1,039,139 

 

$

1,092,299 

 

$

910 

 

$

2,087 

 

$

1,095,296 

Pass-Watch

 

 

22,947 

 

 

150 

 

 

1,885 

 

 

24,982 

 

 

5,709 

 

 

223 

 

 

909 

 

 

6,841 

Special Mention

 

 

592 

 

 

 —

 

 

21 

 

 

613 

 

 

12,017 

 

 

 —

 

 

280 

 

 

12,297 

Substandard

 

 

25,996 

 

 

1,263 

 

 

3,421 

 

 

30,680 

 

 

29,718 

 

 

3,947 

 

 

3,851 

 

 

37,516 

Total

 

$

1,086,382 

 

$

2,250 

 

$

6,782 

 

$

1,095,414 

 

$

1,139,743 

 

$

5,080 

 

$

7,127 

 

$

1,151,950 



Commercial Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015

(in thousands)

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

3,293,852 

 

$

136,879 

 

$

3,114 

 

$

3,433,845 

 

$

3,058,342 

 

$

159,750 

 

$

3,117 

 

$

3,221,209 

Pass-Watch

 

 

60,595 

 

 

1,684 

 

 

2,233 

 

 

64,512 

 

 

41,830 

 

 

2,355 

 

 

2,296 

 

 

46,481 

Special Mention

 

 

42,170 

 

 

4,804 

 

 

1,143 

 

 

48,117 

 

 

40,576 

 

 

5,112 

 

 

1,364 

 

 

47,052 

Substandard

 

 

108,171 

 

 

12,918 

 

 

8,514 

 

 

129,603 

 

 

79,745 

 

 

9,243 

 

 

8,805 

 

 

97,793 

Doubtful

 

 

15 

 

 

 —

 

 

 —

 

 

15 

 

 

16 

 

 

 —

 

 

 —

 

 

16 

Total

 

$

3,504,803 

 

$

156,285 

 

$

15,004 

 

$

3,676,092 

 

$

3,220,509 

 

$

176,460 

 

$

15,582 

 

$

3,412,551 



Residential Mortgage Credit Exposure

Credit Risk Profile Based on Payment Activity and Accrual Status







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015

(in thousands)

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

Performing

 

$

1,816,053 

 

$

1,116 

 

$

159,962 

 

$

1,977,131 

 

$

1,863,295 

 

$

27 

 

$

162,241 

 

$

2,025,563 

Nonperforming

 

 

23,836 

 

 

 —

 

 

 —

 

 

23,836 

 

 

23,961 

 

 

 —

 

 

 —

 

 

23,961 

Total

 

$

1,839,889 

 

$

1,116 

 

$

159,962 

 

$

2,000,967 

 

$

1,887,256 

 

$

27 

 

$

162,241 

 

$

2,049,524 



Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity and Accrual Status







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015

(in thousands)

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

 

Originated

 

Acquired

 

FDIC
acquired

 

Total

Performing

 

$

2,038,432 

 

$

20 

 

$

12,157 

 

$

2,050,609 

 

$

2,069,399 

 

$

20 

 

$

12,819 

 

$

2,082,238 

Nonperforming

 

 

9,636 

 

 

 —

 

 

 —

 

 

9,636 

 

 

11,227 

 

 

 —

 

 

 —

 

 

11,227 

Total

 

$

2,048,068 

 

$

20 

 

$

12,157 

 

$

2,060,245 

 

$

2,080,626 

 

$

20 

 

$

12,819 

 

$

2,093,465 





24


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Below are the definitions of the Company’s internally assigned grades:

Commercial:

·

Pass - loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk.

·

Pass - Watch - credits in this category have heightened risk factors that warrant additional monitoring; however, these risk factors have not manifested themselves as potential weaknesses.  The “Watch” grade should be regarded as a transition category.

·

Special Mention – a criticized asset category defined as having potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution’s credit position.  Special mention credits are not considered part of the Classified credit categories and do not expose an institution to sufficient risk to warrant adverse classification.

·

Substandard – an asset that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

·

Doubtful – an asset that has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection nor liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

·

Loss - credits classified as Loss are considered uncollectable and are charged off promptly once so classified.

Residential and Consumer:

·

Performing – loans on which payments of principal and interest are less than 90 days past due.

·

Nonperforming – a nonperforming loan is a loan that is in default or close to being in default and there are good reasons to doubt that payments will be made in full.  All loans rated as nonaccrual loans are also classified as nonperforming.

Loan review uses a risk-focused continuous monitoring program that provides for an independent, objective and timely review of credit risk within the Company. 

Changes in the carrying amount of acquired-impaired loans and accretable yield are presented in the following table for the three months ended March 31, 2016 and the year ended December 31, 2015.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015



 

FDIC acquired

 

Acquired

 

FDIC acquired

 

Acquired



 

Carrying

 

 

 

Carrying

 

 

 

Carrying

 

 

 

Carrying

 

 



 

Amount

 

Accretable

 

Amount

 

Accretable

 

Amount

 

Accretable

 

Amount

 

Accretable

(in thousands)

 

of Loans

 

Yield

 

of Loans

 

Yield

 

of Loans

 

Yield

 

of Loans

 

Yield

Balance at beginning of period

 

$

203,297 

 

$

91,564 

 

$

22,541 

 

$

37,924 

 

$

252,409 

 

$

112,788 

 

$

61,276 

 

$

74,668 

Payments received, net

 

 

(7,290)

 

 

(28)

 

 

(2,145)

 

 

(2,598)

 

 

(62,579)

 

 

(422)

 

 

(53,268)

 

 

(21,556)

Accretion

 

 

3,209 

 

 

(3,209)

 

 

2,281 

 

 

(2,281)

 

 

13,467 

 

 

(13,467)

 

 

14,533 

 

 

(14,533)

Increase (decrease) in expected cash flows based on actual cash flows and changes in cash flow assumptions

 

 

 —

 

 

4,207 

 

 

 —

 

 

56 

 

 

 —

 

 

(3,537)

 

 

 —

 

 

(701)

Net transfers to (from) nonaccretable difference to accretable yield

 

 

 —

 

 

3,776 

 

 

 —

 

 

947 

 

 

 —

 

 

(3,798)

 

 

 —

 

 

46 

Balance at end of period

 

$

199,216 

 

$

96,310 

 

$

22,677 

 

$

34,048 

 

$

203,297 

 

$

91,564 

 

$

22,541 

 

$

37,924 



Included in loans are $6.0 million and $7.4 million of consumer loans secured by single family residential mortgage real estate that are in process of foreclosure as of March 31, 2016 and December 31, 2015, respectively.  Of these loans, $4.0 million and $4.1 million, respectively, are covered by an FDIC loss share agreement that provides significant protection against losses.  Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction.  In addition to the single family residential real estate loans in process of foreclosure, the Company also held $5.9 million and $9.3 million of foreclosed single family residential properties in other real estate owned as of March 31, 2016 and December 31, 2015, respectively.  Of these foreclosed properties, $1.1 million and $1.6 million as of March  31, 2016 and December 31, 2015, respectively, are also covered by the FDIC loss share agreement.

25


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

4.  Securities Sold under Agreements to Repurchase

Included in short term borrowings at March 31, 2016 was $419.0 million of customer securities sold under agreements to repurchase (“repurchase agreements”) that mature daily and were secured by agency securities.  The Company borrows funds on a secured basis by selling securities under agreements to repurchase, mainly in connection with treasury management services offered to its deposit customers. As the Company maintains effective control over assets sold under agreements to repurchase, the securities continue to be carried on the consolidated statements of financial condition. Because the Company acts as borrower transferring assets to the counterparty, and the agreements mature daily, the Company’s risk is very limited.

 

5.  Long-Term Debt



Effective January 1, 2016, the Company retrospectively adopted accounting guidance intended to simplify the presentation of debt issuance costs by requiring that costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. Historically, debt issuance costs were reported in the “Other Assets” line items in the Consolidated Balance Sheets and Statements of Cash Flows. All historical periods have been restated to reflect the revised presentation and new required disclosures are reflected below. The adoption of this guidance did not have a material impact on the Company’s financial condition or operating results.   

Long-term debt consisted of the following:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

March 31,

 

 

December 31,

(in thousands)

 

 

2016

 

 

2015

Subordinated notes payable, maturing June 2045

 

$

150,000 

 

$

150,000 

Subordinated notes payable, maturing April 2017

 

 

98,011 

 

 

98,011 

Term note payable, maturing December 2018

 

 

120,525 

 

 

125,000 

Other long-term debt

 

 

108,581 

 

 

122,988 

Less unamortized debt issuance costs

 

 

(5,872)

 

 

(5,854)

Total long-term debt less unamortized debt issuance costs

 

$

471,245 

 

$

490,145 



Long-term debt with its related unamortized debt issuance cost at March 31, 2016 is presented in the following table:



 

 

 

 

 

 

Long-term debt at March 31, 2016, consisted of the following:

 

 

 

 

 

 



 

 

 

 

 

Unamortized



 

 

 

 

 

Debt



 

 

 

 

 

Issuance

(in thousands)

 

 

Principal

 

 

Costs

Subordinated notes payable, maturing June 2045

 

$

150,000 

 

$

5,088 

Subordinated notes payable, maturing April 2017

 

 

98,011 

 

 

 -

Term note payable, maturing December 2018

 

 

120,525 

 

 

784 

Other long-term debt

 

 

108,581 

 

 

 -

 Total

 

$

477,117 

 

 

5,872 





 

26


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

6.  Derivatives

Risk Management Objective of Using Derivatives

The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments, currently related to select pools of variable rate loans.  The Bank has also entered into interest rate derivative agreements as a service to certain qualifying customers.  The Bank manages a matched book with respect to these customer derivatives in order to minimize their net risk exposure resulting from such agreements.  The Bank also enters into risk participation agreements under which they may either sell or buy credit risk associated with a customer’s performance under certain interest rate derivative contracts related to loans in which participation interests have been sold to or purchased from other banks.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts and fair values of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2016 and December 31, 2015.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Fair Values (1)



 

 

 

Notional Amounts

 

Assets

 

Liabilities



 

Type of

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

December 31,

(in thousands)

 

Hedge

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

Cash Flow

 

$

800,000 

 

$

500,000 

 

$

1,808 

 

$

 —

 

$

 —

 

$

281 



 

 

 

$

800,000 

 

$

500,000 

 

$

1,808 

 

$

 —

 

$

 —

 

$

281 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps (2)

 

N/A

 

$

826,734 

 

$

780,871 

 

$

32,510 

 

$

20,622 

 

$

33,838 

 

$

21,007 

Risk participation agreements

 

N/A

 

 

89,723 

 

 

83,430 

 

 

112 

 

 

83 

 

 

217 

 

 

162 

Forward commitments to sell residential mortgage loans

 

N/A

 

 

83,935 

 

 

55,128 

 

 

51 

 

 

263 

 

 

979 

 

 

336 

Interest rate-lock commitments on residential mortgage loans

 

N/A

 

 

60,607 

 

 

38,853 

 

 

697 

 

 

243 

 

 

24 

 

 

167 

Foreign exchange forward contracts

 

N/A

 

 

37,015 

 

 

44,068 

 

 

1,301 

 

 

2,040 

 

 

1,278 

 

 

2,015 



 

 

 

$

1,098,014 

 

$

1,002,350 

 

$

34,671 

 

$

23,251 

 

$

36,336 

 

$

23,687 

(1)

Derivative assets and liabilities are reported with other assets or other liabilities, respectively, in the consolidated balance sheets.

 

(2)

The notional amount represents both the customer accommodation agreements and offsetting agreements with unrelated financial institutions.



Cash Flow Hedges of Interest Rate Risk

The Company is party to five interest rate swap agreements designated as and qualifying as cash flow hedges of the Company’s forecasted variable cash flows for pools of variable rate loans.   For each agreement, the Company receives interest at a fixed rate and pays at a variable rate.  The five swap agreements expire as follows:  notional amount of $300 million expires in January 2017; notional amount of $200 million expires in June 2017; and three contracts each with notional amounts of $100 million expire in April 2018,  2019, and 2020

During the terms of the swap agreements, the effective portion of changes in the fair value of the derivative instruments are recorded in AOCI and subsequently reclassified into earnings in the periods that the hedged forecasted variable-rate interest payments affect earnings.  The impact on AOCI is reflected in footnote 7.  There was no ineffective portion of the change in fair value of the derivative recognized directly in earnings.

Derivatives Not Designated as Hedges

Customer interest rate derivative program

The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies.  The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions.  Because the interest rate derivatives associated with this program do not meet hedge

27


 

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Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Risk participation agreements

The Bank also enters into risk participation agreements under which it may either assume or sell credit risk associated with a borrower’s performance under certain interest rate derivative contracts.  In those instances where the Bank has assumed credit risk, it is not a direct counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because it is a party to the related loan agreement with the borrower.  In those instances in which the Bank has sold credit risk, it is the sole counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because other banks participate in the related loan agreement.  The Bank manages its credit risk under risk participation agreements by monitoring the creditworthiness of the borrower, based on the Bank’s normal credit review process.

Mortgage banking derivatives

The Bank also enters into certain derivative agreements as part of their mortgage banking activities.  These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis.

Customer foreign exchange forward contract derivatives

The Bank enters into foreign exchange forward derivative agreements, primarily forward currency contracts, with commercial banking customers to facilitate their risk management strategies.  The Bank manages its risk exposure from such transactions by entering into offsetting agreements with unrelated financial institutions.  Because the foreign exchange forward contract derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Effect of Derivative Instruments on the Income Statement

Derivative income consisting primarily of customer interest rate swap fees, net of fair value adjustments, is reflected in the income statement in other noninterest income, totaling ($0.1) million and ($0.1) million for the three months ended March 31, 2016 and 2015, respectively.  The impact to interest income from cash flow hedges was $0.3 million and $0.4 million for the three months ended March 31, 2016 and 2015, respectively. 

Credit risk-related Contingent Features

Certain of the Bank’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as the downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution.  These derivative agreements also contain provisions regarding the posting of collateral by each party.  As of March 31, 2016, the aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position was $31.9 million, for which the Bank had posted collateral of $33.1 million. 

28


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Offsetting Assets and Liabilities

The Bank’s derivative instruments to certain counterparties contain legally enforceable netting provisions that allow for net settlement of multiple transactions to a single amount, which may be positive, negative, or zero.  Offsetting information in regards to derivative assets and liabilities subject to these master netting agreements at March 31, 2016 and December 31, 2015 is presented in the following tables.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

Gross
Amounts
Offset in

 

Net Amounts 
Presented in

 

Gross Amounts Not Offset in the Statement
of Financial Position

Description

 

Gross
Amounts
Recognized

 

the Statement
of Financial
Position

 

the Statement
 of Financial
Position

 

Financial
Instruments

 

Cash
Collateral

 

Net
Amount

As of March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

1,987 

 

$

 —

 

$

1,987 

 

$

1,987 

 

$

 —

 

$

 —



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

33,890 

 

$

 —

 

$

33,890 

 

$

1,987 

 

$

33,071 

 

$

(1,168)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

Gross
Amounts
Offset in

 

Net Amounts 
Presented in

 

Gross Amounts Not Offset in the Statement
of Financial Position

Description

 

Gross
Amounts
Recognized

 

the Statement
of Financial
Position

 

the Statement
 of Financial
Position

 

Financial
Instruments

 

Cash
Collateral

 

Net
Amount

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

224 

 

$

 —

 

$

224 

 

$

224 

 

$

 —

 

$

 —



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

21,034 

 

$

 —

 

$

21,034 

 

$

224 

 

$

23,482 

 

$

(2,672)



The Company has excess collateral compared to total exposure due to initial margin requirements for day-to-day rate volatility. 



7.    Stockholders’ Equity

Stock Repurchase Program

On August 28, 2015, the Company’s board of directors approved a stock repurchase plan that authorizes the repurchase of up to 5%, or approximately 3.9 million shares of its outstanding common stock. The approved plan allows the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company from time to time until September 30, 2016. Under this plan, the Company has repurchased 741,393 shares of its common stock at an average price of $27.44 per share through March 31, 2016.  There were no shares of common stock repurchased during the first quarter of 2016.

Accumulated Other Comprehensive Income (Loss)

AOCI is reported as a component of stockholders’ equity.  AOCI can include, among other items, unrealized holding gains and losses on securities available for sale (“AFS”), gains and losses associated with pension or other post retirement benefits that are not recognized immediately as a component of net periodic benefit cost, and gains and losses on derivative instruments that are designated as, and qualify as, cash flow hedges.  Net unrealized gains/losses on AFS securities reclassified as securities held to maturity (“HTM”) also continue to be reported as a component of AOCI and will be amortized over the estimated remaining life of the securities as an adjustment to interest income.  The components of AOCI are reported net of related tax effects. 



The components of AOCI and changes in those components are presented in the following table.

29


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Available

 

HTM Securities

 

 

 

Loss on

 

 

 



 

for Sale

 

Transferred

 

Employee

 

Effective Cash

 

 

 

(in thousands)

 

Securities

 

from AFS

 

Benefit Plans

 

Flow Hedges

 

Total

Balance, December 31, 2014

 

$

18,001 

 

$

(19,074)

 

$

(48,626)

 

$

(375)

 

$

(50,074)

Other comprehensive income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gain

 

 

4,421 

 

 

 —

 

 

 —

 

 

992 

 

 

5,413 

Reclassification of net losses realized and included in earnings

 

 

(165)

 

 

 —

 

 

770 

 

 

 —

 

 

605 

Amortization of unrealized net loss on securities transferred to HTM

 

 

 —

 

 

647 

 

 

 —

 

 

 —

 

 

647 

Income tax expense

 

 

1,481 

 

 

238 

 

 

280 

 

 

361 

 

 

2,360 

Balance, March 31, 2015

 

$

20,776 

 

$

(18,665)

 

$

(48,136)

 

$

256 

 

$

(45,769)

Balance, December 31, 2015

 

$

4,268 

 

$

(16,795)

 

$

(67,890)

 

$

(178)

 

$

(80,595)

Other comprehensive income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gain

 

 

26,882 

 

 

 —

 

 

 —

 

 

2,090 

 

 

28,972 

Reclassification of net (gain) losses realized and included in earnings

 

 

(346)

 

 

 —

 

 

1,437 

 

 

 —

 

 

1,091 

Amortization of unrealized net loss on securities transferred to HTM

 

 

 —

 

 

798 

 

 

 —

 

 

 —

 

 

798 

Income tax expense

 

 

9,751 

 

 

292 

 

 

525 

 

 

764 

 

 

11,332 

Balance, March 31, 2016

 

$

21,053 

 

$

(16,289)

 

$

(66,978)

 

$

1,148 

 

$

(61,066)



The following table shows the line items in the consolidated income statements affected by amounts reclassified from accumulated other comprehensive income.







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Three Months Ended

 

 

Amount reclassified from AOCI (a) 

 

March 31,

 

Affected line item on

(in thousands)

 

 

2016

 

 

2015

 

the income statement

Gain on sale of AFS securities

 

$

346 

 

$

165 

 

Securities gains (losses)

Tax effect

 

 

(127)

 

 

(58)

 

Income taxes

Net of tax

 

 

219 

 

 

107 

 

Net income

Amortization of unrealized net loss on securities transferred to HTM

 

 

(798)

 

 

(647)

 

Interest income

Tax effect

 

 

292 

 

 

238 

 

Income taxes

Net of tax

 

 

(506)

 

 

(409)

 

Net income

Amortization of defined benefit pension and post-retirement items

 

 

(1,437)

 

 

(770)

 

Employee benefits expense (b)

Tax effect

 

 

525 

 

 

280 

 

Income taxes

Net of tax

 

 

(912)

 

 

(490)

 

Net income

Total reclassifications, net of tax

 

$

(1,199)

 

$

(792)

 

Net income



(a)

Amounts in parenthesis indicate reduction in net income.



(b)

These accumulated other comprehensive income components are included in the computation of net periodic pension and post-retirement cost that is reported with employee benefits expense (see Note 11 for additional details).

 



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Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

8.  Other Noninterest Income

Components of other noninterest income are as follows.







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Three Months Ended

 



 

 

 

 

 

 

 



 

March 31,

 



 

 

 

 

 

 

 

(in thousands)

 

2016

 

2015

 

Income from bank-owned life insurance

 

$

2,550 

 

$

2,666 

 

Credit related fees

 

 

2,357 

 

 

2,457 

 

Loss from derivatives

 

 

(139)

 

 

(52)

 

Net gain on sale of assets

 

 

2,111 

 

 

340 

 

Safety deposit box income

 

 

478 

 

 

486 

 

Other miscellaneous

 

 

2,335 

 

 

2,680 

 

Total other noninterest income

 

$

9,692 

 

$

8,577 

 











9.  Other Noninterest Expense

Components of other noninterest expense are as follows.







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

(in thousands)

 

2016

 

2015

Advertising

 

$

2,357 

 

$

2,165 

Ad valorem and franchise taxes

 

 

2,303 

 

 

2,715 

Printing and supplies

 

 

1,111 

 

 

1,217 

Insurance expense

 

 

835 

 

 

922 

Travel expense

 

 

949 

 

 

1,219 

Entertainment and contributions

 

 

1,632 

 

 

1,639 

Tax credit investment amortization

 

 

1,743 

 

 

2,095 

Other miscellaneous

 

 

5,779 

 

 

2,834 

Total other noninterest expense

 

$

16,709 

 

$

14,806 



 

10.  Earnings Per Share

Hancock calculates earnings per share using the two-class method.  The two-class method allocates net income to each class of common stock and participating security according to common dividends declared and participation rights in undistributed earnings.  Participating securities consist of unvested stock-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents. 

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Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

A summary of the information used in the computation of earnings per common share follows.







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

(in thousands, except per share data)

 

2016

 

2015

Numerator:

 

 

 

 

 

 

Net income to common shareholders

 

$

3,839 

 

$

40,159 

Net income allocated to participating securities - basic and diluted

 

 

97 

 

 

935 

Net income allocated to common shareholders - basic and diluted

 

$

3,742 

 

$

39,224 

Denominator:

 

 

 

 

 

 

Weighted-average common shares - basic

 

$

77,501 

 

$

79,496 

Dilutive potential common shares

 

 

171 

 

 

165 

Weighted-average common shares - diluted

 

$

77,672 

 

$

79,661 

Earnings per common share:

 

 

 

 

 

 

Basic

 

$

0.05 

 

$

0.49 

Diluted

 

$

0.05 

 

$

0.49 



Potential common shares consist of employee and director stock options.  These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be anti-dilutive, i.e., increase earnings per share or reduce a loss per share.  Weighted-average anti-dilutive potential common shares totaled 656,623 and 862,402, respectively, for the three months ended March 31, 2016 and March 31, 2015.

 

11.  Retirement Plans

The Company has a qualified defined benefit pension plan covering all eligible employees. Eligibility is based on minimum age-related and service-related requirements as well as job classification. Accrued benefits under a nonqualified plan covering certain legacy Whitney employees were frozen as of December 31, 2012 and no future benefits will be accrued under this plan.

The Company also sponsors defined benefit postretirement plans for both legacy Hancock and legacy Whitney employees that provide health care and life insurance benefits.  Benefits under the Hancock plan are not available to employees hired on or after January 1, 2000. Benefits under the Whitney plan are restricted to retirees who were already receiving benefits at the time of plan amendments in 2007 or active participants who were eligible to receive benefits as of December 31, 2007.

The following tables show the components of net periodic benefits cost included in expense for the plans for the periods indicated.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Other Post-

(in thousands)

 

Pension Benefits

 

retirement Benefits



 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2016

 

2015

 

2016

 

2015

Service cost

 

$

3,265 

 

$

3,363 

 

$

29 

 

$

50 

Interest cost

 

 

4,988 

 

 

4,619 

 

 

206 

 

 

369 

Expected return on plan assets

 

 

(8,891)

 

 

(8,213)

 

 

 —

 

 

 —

Amortization of net loss

 

 

1,468 

 

 

644 

 

 

(31)

 

 

125 

Net periodic benefit cost

 

$

830 

 

$

413 

 

$

204 

 

$

544 



No contribution is required in 2016 to meet minimum funding requirements, and the Company has no plans to make a contribution in the current year.

The Company also provides a defined contribution 401(k) retirement benefit plan. Under the plan, the Company matches 100% of the first 1% of compensation saved by a participant, and 50% of the next 5% of compensation saved. 

 

32


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

12.  Share-Based Payment Arrangements

Hancock maintains incentive compensation plans that provide for awards of share-based compensation to employees and directors.  These plans have been approved by the Company’s shareholders.  Detailed descriptions of these plans were included in Note 16 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015

A summary of option activity for the three months ended March 31, 2016 is presented below.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

 

Average

 

 

 



 

 

 

Weighted

 

Remaining

 

 

 



 

 

 

Average

 

Contractual

 

Aggregate



 

Number of

 

Exercise

 

Term

 

Intrinsic

Options

 

Shares

 

Price

 

(Years)

 

Value ($000)

Outstanding at January 1, 2016

 

745,806 

 

$

37.55 

 

 

 

 

 

Cancelled/forfeited

 

(49,610)

 

 

34.61 

 

 

 

 

 

Expired

 

(137,139)

 

 

42.20 

 

 

 

 

 

Outstanding at March 31, 2016

 

559,057 

 

$

36.67 

 

4.19 

 

$

 —

Exercisable at March 31, 2016

 

493,714 

 

$

37.57 

 

3.95 

 

$

 —



There was no total intrinsic value of options exercised at March 31, 2016 compared to $0.5 million at March 31, 2015.

The restricted and performance shares in the table below are subject to service requirements. A summary of the status of the Company’s nonvested restricted and performance shares as of March 31, 2016 and changes during the three months ended March 31, 2016, is presented in the following table.







 

 

 

 

 



 

 

 

 

 



 

 

 

 

Weighted



 

 

 

 

Average



 

Number of

 

 

Grant Date



 

Shares

 

 

Fair Value

Nonvested at January 1, 2016

 

2,196,145 

 

$

30.97 

Granted

 

71,924 

 

 

23.50 

Vested

 

(24,402)

 

 

32.00 

Forfeited

 

(98,606)

 

 

31.46 

Nonvested at March 31, 2016

 

2,145,061 

 

$

30.66 



As of March 31, 2016, there were $42.3 million of total unrecognized compensation expense related to nonvested restricted and performance shares expected to vest.  This compensation is expected to be recognized in expense over a weighted average period of 3.4 years.  The total fair value of shares which vested during the three months ended March 31, 2016 and 2015 was $0.9 million for both periods.    

During the three months ended March 31, 2016, the Company granted 35,587 performance shares subject to a total shareholder return (TSR) performance metric with a grant date fair value of $24.42 per share and 35,587 performance shares subject to a core earnings per share performance metric with a grant date fair value of $22.58 per share to key members of executive management. The number of performance shares subject to TSR that ultimately vest at the end of the three-year performance period, if any, will be based on the relative rank of the Company’s three-year TSR among the TSRs of a peer group of 44 regional banks. The fair value of the performance shares subject to TSR at the grant date was determined using a Monte Carlo simulation method.  The number of performance shares subject to core earnings per share that ultimately vest will be based on the Company’s attainment of certain core earnings per share goals over the two-year performance period.  The maximum number of performance shares that could vest is 200% of the target award.  Compensation expense for these performance shares is recognized on a straight-line basis over the three-year service period.

 

33


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

13.  Fair Value

The Financial Accounting Standards Board (“FASB”) defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.   The FASB’s guidance also established a fair value hierarchy that prioritizes the inputs to these valuation techniques used to measure fair value, giving preference to quoted prices in active markets for identical assets or liabilities (“level 1”) and the lowest priority to unobservable inputs such as a reporting entity’s own data (“level 3”).   Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets that are not active, observable inputs other than quoted prices, such as interest rates and yield curves, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present for each of the fair value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis in the consolidated balance sheets.





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

March 31, 2016

(in thousands)

 

Level 1

 

Level 2

 

Total

Assets

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agency securities

 

$

 —

 

$

125 

 

$

125 

Municipal obligations

 

 

 —

 

 

87,939 

 

 

87,939 

Corporate debt securities

 

 

 —

 

 

3,500 

 

 

3,500 

Mortgage-backed securities

 

 

 —

 

 

1,765,974 

 

 

1,765,974 

Collateralized mortgage obligations

 

 

 —

 

 

289,166 

 

 

289,166 

Equity securities

 

 

2,762 

 

 

 —

 

 

2,762 

Total available for sale securities

 

 

2,762 

 

 

2,146,704 

 

 

2,149,466 

Derivative assets (1)

 

 

 —

 

 

36,479 

 

 

36,479 

Total recurring fair value measurements - assets

 

$

2,762 

 

$

2,183,183 

 

$

2,185,945 

Liabilities

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

$

 —

 

$

36,336 

 

$

36,336 

Total recurring fair value measurements - liabilities

 

$

 —

 

$

36,336 

 

$

36,336 



(1)

For further disaggregation of derivative assets and liabilities, see Note 6 - Derivatives.







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

December 31, 2015

(in thousands)

 

Level 1

 

Level 2

 

Total

Assets

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agency securities

 

$

 —

 

$

134 

 

$

134 

  Municipal obligations

 

 

 —

 

 

39,607 

 

 

39,607 

Corporate debt securities

 

 

 —

 

 

3,500 

 

 

3,500 

Mortgage-backed securities

 

 

 —

 

 

1,758,373 

 

 

1,758,373 

Collateralized mortgage obligations

 

 

 —

 

 

289,033 

 

 

289,033 

Equity securities

 

 

2,757 

 

 

 —

 

 

2,757 

Total available for sale securities

 

 

2,757 

 

 

2,090,647 

 

 

2,093,404 

Derivative assets (1)

 

 

 —

 

 

23,251 

 

 

23,251 

Total recurring fair value measurements - assets

 

$

2,757 

 

$

2,113,898 

 

$

2,116,655 

Liabilities

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

$

 —

 

$

23,968 

 

$

23,968 

Total recurring fair value measurements - liabilities

 

$

 —

 

$

23,968 

 

$

23,968 



(1)

For further disaggregation of derivative assets and liabilities, see Note 6 - Derivatives.



34


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Securities classified as level 1 within the valuation hierarchy include U.S. Treasury securities and certain other debt and equity securities.  Level 2 classified securities include obligations of U.S. Government agencies and U.S. Government-sponsored agencies, residential mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies, and state and municipal bonds.   The level 2 fair value measurements for investment securities are obtained quarterly from a third-party pricing service that uses industry-standard pricing models.  Substantially all of the model inputs are observable in the marketplace or can be supported by observable data. 

The Company invests only in securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two and five.  Company policies generally limit investments to agency securities and municipal securities determined to be investment grade according to an internally generated score which generally includes a rating of not less than “Baa” or its equivalent by a nationally recognized statistical rating agency.    There were no transfers between valuation hierarchy levels during the periods shown. 

The fair value of derivative financial instruments, which are predominantly customer interest rate swaps, is obtained from a third-party pricing service that uses an industry-standard discounted cash flow model that relies on inputs, LIBOR swap curves and Overnight Index swap rate curves, observable in the marketplace.  To comply with the accounting guidance, credit valuation adjustments are incorporated in the fair values to appropriately reflect nonperformance risk for both the Company and the counterparties.  Although the Company has determined that the majority of the inputs used to value the derivative instruments fall within level 2 of the fair value hierarchy, the credit value adjustments utilize level 3 inputs, such as estimates of current credit spreads.  The Company has determined that the impact of the credit valuation adjustments is not significant to the overall valuation of these derivatives.  As a result, the Company has classified its derivative valuations in their entirety in level 2 of the fair value hierarchy. The Company’s policy is to measure counterparty credit risk quarterly for all derivative instruments, including those subject to master netting arrangements consistent with how market participants would price the net risk exposure at the measurement date. 

The Company also has certain derivative instruments associated with the Bank’s mortgage-banking activities.  These derivative instruments include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis.  The fair value of these derivative instruments is measured using observable market prices for similar instruments and is classified as a level 2 measurement. 

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis.  Collateral-dependent impaired loans are level 2 assets measured at the fair value of the underlying collateral based on independent third-party appraisals that take into consideration market-based information such as recent sales activity for similar assets in the property’s market. 

Other real estate owned, including both foreclosed property and surplus banking property, are level 3 assets that are adjusted to fair value, less estimated selling costs, upon transfer to other real estate owned.  Subsequently, other real estate owned is carried at the lower of carrying value or fair value less estimated selling costs.  Fair values are determined by sales agreement or third-party appraisals as discounted for estimated selling costs, information from comparable sales, and marketability of the property. 

The fair value information presented below is not as of the period-end, rather it was as of the date the fair value adjustment was recorded during the twelve months for each of the dates presented below, and excludes nonrecurring fair value measurements of assets no longer on the balance sheet. 

The following tables present the Company’s financial assets that are measured at fair value on a nonrecurring basis for each of the fair value hierarchy levels.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Collateral-dependent impaired loans

 

$

 —

 

$

179,627 

 

$

 —

 

$

179,627 

Other real estate owned

 

 

 —

 

 

 —

 

 

14,508 

 

 

14,508 

Total nonrecurring fair value measurements

 

$

 —

 

$

179,627 

 

$

14,508 

 

$

194,135 





35


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2015

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Collateral-dependent impaired loans

 

$

 —

 

$

93,602 

 

$

 —

 

$

93,602 

Other real estate owned

 

 

 —

 

 

 —

 

 

17,206 

 

 

17,206 

Total nonrecurring fair value measurements

 

$

 —

 

$

93,602 

 

$

17,206 

 

$

110,808 



Accounting guidance from the FASB requires the disclosure of estimated fair value information about certain on- and off-balance sheet financial instruments, including those financial instruments that are not measured and reported at fair value on a recurring basis.  The significant methods and assumptions used by the Company to estimate the fair value of financial instruments are discussed below.

Cash, Short‑Term Investments and Federal Funds Sold - For these short‑term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – The fair value measurement for securities available for sale was discussed earlier in the note.  The same measurement techniques were applied to the valuation of securities held to maturity. 

Loans, Net - The fair value measurement for certain impaired loans was discussed earlier in the note.  For the remaining portfolio, fair values were generally determined by discounting scheduled cash flows using discount rates determined with reference to current market rates at which loans with similar terms would be made to borrowers of similar credit quality. 

Loans Held for Sale – These loans are recorded at fair value and carried at the lower of cost or market.  The carrying amount is considered a reasonable estimate of fair value. 

Deposits - The accounting guidance requires that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and savings accounts, be assigned fair values equal to amounts payable upon demand (“carrying amounts”).  The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold under Agreements to Repurchase, Federal Funds Purchased, and Federal Home Loan Bank (“FHLB”) Borrowings - For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

Long-Term Debt - The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained. 

Derivative Financial Instruments – The fair value measurement for derivative financial instruments was discussed earlier in the note.

36


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amount at March 31, 2016 and December 31, 2015.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016



 

 

 

 

 

 

 

 

 

 

Total Fair

 

Carrying

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Value

 

Amount

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, interest-bearing bank deposits, and federal funds sold

 

$

442,650 

 

$

 —

 

$

 —

 

$

442,650 

 

$

442,650 

Available for sale securities

 

 

2,762 

 

 

2,146,704 

 

 

 —

 

 

2,149,466 

 

 

2,149,466 

Held to maturity securities

 

 

 —

 

 

2,566,799 

 

 

 —

 

 

2,566,799 

 

 

2,518,371 

Loans, net

 

 

 —

 

 

179,627 

 

 

15,761,305 

 

 

15,940,932 

 

 

15,760,330 

Loans held for sale

 

 

 —

 

 

24,001 

 

 

 —

 

 

24,001 

 

 

24,001 

Derivative financial instruments

 

 

 —

 

 

36,479 

 

 

 —

 

 

36,479 

 

 

36,479 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

 —

 

$

 —

 

$

18,651,845 

 

$

18,651,845 

 

$

18,656,150 

Federal funds purchased

 

 

6,825 

 

 

 —

 

 

 —

 

 

6,825 

 

 

6,825 

Securities sold under  agreements to repurchase

 

 

418,962 

 

 

 —

 

 

 —

 

 

418,962 

 

 

418,962 

FHLB borrowings

 

 

675,000 

 

 

 —

 

 

 —

 

 

675,000 

 

 

675,000 

Long-term debt

 

 

 —

 

 

476,530 

 

 

 —

 

 

476,530 

 

 

471,245 

Derivative financial instruments

 

 

 —

 

 

36,336 

 

 

 —

 

 

36,336 

 

 

36,336 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2015



 

 

 

 

 

 

 

 

 

 

Total Fair

 

Carrying

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Value

 

Amount

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, interest-bearing bank deposits, and federal funds sold

 

$

869,429 

 

$

 —

 

$

 —

 

$

869,429 

 

$

869,429 

Available for sale securities

 

 

2,757 

 

 

2,090,647 

 

 

 —

 

 

2,093,404 

 

 

2,093,404 

Held to maturity securities

 

 

 —

 

 

2,375,851 

 

 

 —

 

 

2,375,851 

 

 

2,370,388 

Loans, net

 

 

 —

 

 

93,602 

 

 

15,334,201 

 

 

15,427,803 

 

 

15,522,135 

Loans held for sale

 

 

 —

 

 

20,434 

 

 

 —

 

 

20,434 

 

 

20,434 

Derivative financial instruments

 

 

 —

 

 

23,251 

 

 

 —

 

 

23,251 

 

 

23,251 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

 —

 

$

 —

 

$

18,327,425 

 

$

18,327,425 

 

$

18,348,912 

Federal funds purchased

 

 

10,100 

 

 

 —

 

 

 —

 

 

10,100 

 

 

10,100 

Securities sold under  agreements to repurchase

 

 

513,544 

 

 

 —

 

 

 —

 

 

513,544 

 

 

513,544 

FHLB borrowings

 

 

900,000 

 

 

 —

 

 

 —

 

 

900,000 

 

 

900,000 

Long-term debt

 

 

 —

 

 

488,711 

 

 

 —

 

 

488,711 

 

 

490,145 

Derivative financial instruments

 

 

 —

 

 

23,968 

 

 

 —

 

 

23,968 

 

 

23,968 



 





37


 

Table of Contents

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

14.  Recent Accounting Pronouncements



New Accounting Standards Adopted in 2016

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02 “Consolidation (Topic 810): Amendments to the Consolidation Analysis” that changed the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this ASU (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  The amendments in this update were effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.  The Company performed the consolidation analysis using the new guidelines effective as of January 1, 2016.  The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.



In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The guidance in this ASU does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements.  Therefore, the FASB issued ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting)” to clarify the SEC staff position that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.  We adopted ASU 2015-03 and ASU 2015-15 on the first day of 2016 as required by the guidance and applied it retrospectively to the first day of 2012.  Our adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.  We retrospectively adjusted the balance sheet, statement of cash flows, long-term debt note and selected financial data.  The effect of the change on the financial statement line items of Other Assets and Long-term Debt was immaterial (See Note 5).

In April 2015, the FASB issued ASU 2015-05, Subtopic 350-40 “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” that provides guidance to customers about how to account for a cloud computing arrangement depending on whether or not it includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance did not change GAAP for a customer’s accounting for service contracts.  For public business entities, the amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The Company elected to adopt this guidance prospectively to all arrangements entered into or materially modified on or after the first day of 2016, as required by the guidance. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” that removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient.  The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

In September 2015, the FASB issued ASU 2015-16 “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.



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Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 



Recently Issued but Not Yet Adopted Accounting Standards



In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” that clarifies the identification of performance obligations and licensing from revenue from contracts with customers.  The amendments help determine whether promises to transfer goods or services to a customer are separately identifiable by emphasizing that an entity determines whether the nature of its promise in the contract is to transfer each of the goods or services or whether the promise is to transfer a combined item (or items) to which the promised goods and/or services are inputs. In addition, the amendments clarify how to determine whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property or a right to access the entity’s intellectual property.  Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently assessing this pronouncement and adoption of this guidance, but it is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” to improve the accounting for employee share-based payments. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company is currently assessing this pronouncement and the impact of adoption. 



In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” that improves the operability and understandability of the implementation on guidance on principal versus agent considerations.  The amendments relate to when another party, along with the entity, is involved in providing a good or service to a customer.  It requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (i.e., the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (i.e., the entity is an agent).  Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2016, the FASB issued ASU 2016-07 “Investments —Equity Method and Joint Ventures (Topic 323)” that simplifies the transition to the equity method of accounting.  The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.  The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.  Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.  The amendments require that an entity that has an available for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.  The amendments are effective for all entities for fiscal years beginning after December 15, 2016.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.  



In March 2016, the FASB issued ASU 2016-06 “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments” that requires embedded derivatives to be separated from the host contract and accounted for separately as derivatives if certain criteria are met.  The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options.  The amendments clarify what steps are required when assessing whether the economic characteristics and risks or call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative.  Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credits risks.  Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years.  Early adoption is permitted.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2016, the FASB issued ASU 2016-05 “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships” that clarifies that a change in the counterparty to a derivative instrument that has been

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Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship.  The amendments apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument.  The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.  The amendments may be applied on either a prospective basis or a modified retrospective basis.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2016, the FASB issued ASU 2016-04 “Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products” to provide guidance to entities that offer certain prepaid stored value products, such as prepaid gift cards, prepaid telecommunication cards, and traveler’s checks.  The amendments provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606 Revenue from Contracts with Customers.  The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  These amendments can either be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective, or retrospectively to each period presented.  The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” that provides new lease accounting guidance.  Under the guidance, lessees (with the exception of short-term leases) will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.  Lessor accounting is largely unchanged.  Lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability.  Lessees will no longer be provided with a source of off-balance sheet financing.  Public business entities should apply the amendments for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early application is permitted. The Company is currently assessing this pronouncement and adoption of this guidance. 



In January 2016, the FASB issued an ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” that improves the recognition and measurement of financial instruments through targeted changes to existing GAAP. It requires equity investments (except those that are accounted for under the equity method of accounting or result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It also requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  The Company is currently assessing this pronouncement and adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” regarding revenue from contracts with customers affecting any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2017. The Company is currently assessing this pronouncement and adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.















 



 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

NON-GAAP FINANCIAL MEASURES

Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, management uses several non-GAAP financial measures including Operating Income, Pre-Tax, Pre-Provision Profit, Core Net Interest Income and Core Net Interest Margin. These measures are provided to assist the reader with better understanding the Company’s financial condition and results of operations.

We define Operating Income as net income less tax-effected nonoperating items.  Management believes this is a useful financial measure as it enables investors to assess the financial performance of our ongoing operations and compare the Company’s fundamental operational performance from period to period. A reconciliation of net income to operating income is included in Selected Financial Data. The components of nonoperating expense are further discussed in the Noninterest Expense section of this item.

We define Pre-Tax, Pre-Provision Profit as taxable equivalent (te) net interest income and noninterest income less noninterest expense.  Management believes that 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 pre-tax, pre-provision profit is included in Selected Financial Data.

We define Core Net Interest Income as net interest income (te) excluding net purchase accounting accretion resulting from the fair market value adjustments related to the purchases of Peoples First in 2009 and Whitney in 2011.  We define Core Net Interest Margin as reported (te) core net interest income (annualized) 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 the Net Interest Income section of this item. Management believes that core net interest income and core net interest margin provide a useful measure to investors regarding 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.

Recent Economic and Industry Developments



Energy Industry Impact



WTI Crude Oil continued to trade below $38 per barrel during the first quarter of 2016, dropping below $28 per barrel for a short time period in early February.  Its March 31, 2016 closing price of approximately $37 per barrel was down almost 64% from July 2014. The price of natural gas, which experienced a similar percentage decline as WTI Crude Oil during the past twenty-one months, continued to trade at depressed levels during the quarter as well.  The depth and duration of the current energy cycle has been deeper and longer than many industry analysts originally expected.  This sustained downturn in crude oil and natural gas prices has had a substantial negative effect on a large number of energy-related companies, including a number of the Company’s customers, impacting our current financial performance and our credit metrics. 



At March 31, 2016, the Company’s loans to energy-related customers totaled approximately $1.6 billion, or 10% of its total loan portfolio.  Total criticized loans in the energy portfolio increased approximately $309 million in 2016 to $761 million, or approximately 47% of the total energy portfolio. Criticized loans are defined as those which are risk rated special mention, substandard or doubtful, and include both accruing and nonaccrual loans.  The linked-quarter increase in criticized loans was mainly driven by the application of new regulatory guidance which was used in the recent regulatory shared national credit (SNC) exam completed on March 15, 2016.  Approximately 75% of the increase in criticized energy loans was from reserve-based (RBL) credits identified in the SNC regulatory exam or based on the new regulatory guidance.  Several of the credits downgraded in the exam, totaling approximately $82 million, were moved to nonaccrual status.   Nonperforming energy loans totaled $159 million, up approximately $90 million from December 31, 2015. The prolonged decline in oil and gas prices from international economic and geopolitical events with no indication of a quick recovery, coupled with declining collateral values related to specific credits within the energy portfolio, led management to increase the allowance for the energy portfolio during the first three months of 2016 by $33 million to $111 million, or almost 7% of energy loans at March 31, 2016, up from approximately 5% at December 31, 2015.    At March 31, 2016, the total allowance for loan losses was $218 million compared to $181 million at December 31, 2015.  

  

Energy-related loans increased approximately $53 million between December 31, 2015 and March 31, 2016.  The linked-quarter- net increase in the energy portfolio included approximately $85 million in payoffs and paydowns and $17 million in charge-offs, offset by approximately $155 million in draws on existing lines. Management continues to work to reduce the Company’s overall concentration of energy-related credits by reducing the balance of energy-related credits while implementing a number of initiatives to increase its nonenergy-related portfolio.  At March 31, 2016, the Company has outstanding approximately $790 million in unfunded commitments to its energy-related customers.  The availability of these funds generally requires the borrower to meet credit standards, maintain collateral values established in the underlying contract and not be in violation of any other contractual conditions.

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The Company’s energy-related loan portfolio is diversified across a number of industries. It is comprised of loans to customers involved in both exploration and production and support services.  Approximately $1.0 billion, or 63%, of the energy portfolio is with customers who provide transportation and other onshore and offshore services and products to support exploration and production activities. The remaining $600 million, or 37%, is to customers engaged in oil and gas exploration and production, 90% of which is supported by proved developed producing reserves.  These customers are diversified across 12 primary basins in the U.S. and the Gulf of Mexico and by product line with approximately 60% in oil and 40% in gas. Borrowing base redeterminations for the RBL loans are completed twice a year and all borrowing bases will be reviewed and appropriately adjusted in the second and fourth quarters of 2016.  Management believes that RBL commitments, a portion of which are unfunded as discussed above, will be reduced approximately 15% – 20% in the second quarter redetermination due to continued low commodity prices.



Management continues to closely monitor the impact that the sustained decrease in oil prices will have on the ability of the Company’s energy-related customers to service their debt.  Part of the ongoing monitoring includes a review of customers’ balance sheets, leverage ratios, collateral values and other critical lending metrics.  As new information becomes available, the Company could have additional risk rating downgrades.  Management believes that if further risk rating downgrades occur, they could lead to additional loan loss provisions, a higher allowance for loan losses, and additional charge-offs.  While management expects additional charge-offs in the portfolio, we continue to believe the impact of the energy cycle on the Company will be manageable and capital will remain solid.  Management estimates that net charge-offs from energy-related credits will approximate $65 to $95 million over the duration of the cycle.  During the first three months of 2016, the Company recorded net charge-offs of $17 million on energy-related credits.  For the cycle-to-date, the Company has recorded approximately $21 million in net charge-offs on energy-related credits.



Additionally, management is closely monitoring the impact that the depressed oil and gas prices are having on the local economies in the Company’s energy-dependent markets, particularly as it relates to our consumer and commercial real estate portfolios.  Although the Company has not experienced any significant issues in these portfolios, we could experience some credit degradation during 2016, particularly in the consumer portfolio, which may require an increase in our allowance for loan losses.

Current Economic Environment

The Federal Reserve publishes its Summary of Commentary on Current Economic Conditions (the “Beige Book”) eight times a year, most recently on April 13, 2016.  The Beige Book includes summaries from all 12 Banks in the Federal Reserve System.  Reports from the Atlanta Bank and the Dallas Bank indicate continued improvement of economic activity throughout most of Hancock’s market area. However, activity among energy-related businesses operating mainly in Hancock’s south Louisiana and Houston, Texas market areas continued to decline. Counterbalancing the effect of low prices in the energy sector, many segments of the economy were favorably impacted.  The travel and tourism industry, which is important within several of the Company’s market areas, saw an increase in activity with many hotels and resorts reporting high occupancy levels and an increase in consumer spending compared to prior year.  Outlooks for the next three months were favorable.  Auto sales continued to experience increases in sales activity.  Reports on manufacturing activity were mixed, with some areas reporting increases in production and others reporting declines in demand. 

The real estate markets for residential properties were mostly positive, with most brokers indicating that sales met or exceeded their expectations; however, Houston contacts noted some home price concessions being offered.  Most of Hancock’s market areas reported growth in real estate activity.  Inventory levels remained stable year-over-year.  Apartment demand was strong.  Outside of Houston, outlooks for the housing sector were positive, with brokers expecting to see an increase in sales over the next three months.  New home sales and construction activity are flat to slightly ahead of prior-year levels and expected to improve modestly.

The commercial real estate market continues to improve in most areas, with growing demand for office and industrial space in certain market areas.  Commercial construction activity has increased in these sectors.  Continued improvement is expected in the commercial real estate market. However, the Houston market is the exception to this positive outlook due to concerns about the energy sector.

Loan demand across most of the geographic markets that Hancock serves has remained relatively stable since the last Beige Book report, but competition for quality borrowers remains stiff. Consumer and business lending have increased in metropolitan areas, but decreased in rural areas.  The oil and gas industry loans continued to deteriorate due to the stress in the energy sector.  Business contacts indicated that although credit was available, activity tended to be focused on refinancing or paying down debt.

The overall U.S. economy continued to expand, with almost all regions showing modest to moderate growth rates.  Overall, outlooks remained positive, although confidence in the prospect of a higher rate of sustained growth decreased slightly in regions with more significant energy presence due to anticipated low oil prices for the foreseeable future.





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Highlights of First Quarter 2016 Financial Results

Net income in the first quarter of 2016 was $3.8 million, or $0.05 per diluted common share, compared to $15.3 million, or $0.19 per diluted common share, in the fourth quarter of 2015.  Net income was $40.2 million, or $0.49 per diluted common share, in the first quarter of 2015.  The linked-quarter decline in earnings was mainly related to an increase in the energy-related provision for loan and lease losses.  There were nonoperating expenses of $5.0 million (pre-tax), or $0.04 per share, in the first quarter of 2016 mainly related to separation pay.  There were no nonoperating items in the fourth quarter of 2015, and $7.0 million (pre-tax), or $0.06 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, excluding the impact of purchase accounting adjustments related to the Peoples First and Whitney acquisitions and nonoperating items, were $76.4 million for the first quarter of 2016, an increase of $8.4 million, or 12%, from the fourth quarter of 2015 and an increase of $12.8 million, or 20%, from the first quarter of 2015.    

Highlights of the Company’s first quarter of 2016 results compared to the fourth quarter of 2015:

·

Pre-tax, pre-provision income, excluding purchase accounting adjustments and nonoperating items, of $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

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. 

The increase in the non-FDIC portion of the allowance was primarily driven by an increase of approximately $33 million in the reserve related to the energy portfolio.  As previously noted, this increase was mainly related to an increased level of criticized loans from the application of new regulatory risk-rating guidance which was used in the recent shared national credit review completed on March 15, 2016.  





RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the first quarter of 2016 was $168.2 million, up $5.6 million, or 3%, from the fourth quarter of 2015 primarily from average earning asset growth. Average earning assets were $20.9 billion for the first quarter of 2016, up $770 million, or 4%, from the fourth quarter of 2015. Core net interest income also increased $5.6 million linked-quarter, as the impact on net interest income from net purchase accounting accretion related to the Peoples First and Whitney acquisitions was virtually unchanged.  For analytical purposes, management adjusts net interest income to a taxable equivalent basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans).

Net interest income (te) for the first quarter of 2016 increased $7.1 million, or 4%, compared to the first quarter of 2015. Additional net interest income earned on a $2.6 billion increase in average earning assets was partially offset by a $9.6 million reduction in net  purchase accounting accretion.

The reported net interest margin was 3.23% for the first quarter of 2016, up 2 bps from the fourth quarter of 2015, but down 32 bps from the first quarter of 2015.  The impact of net purchase accounting accretion was 11 bps in both the first quarter of 2016 and the fourth quarter of 2015. Included in the first quarter of 2016 results is approximately $0.9 million of reversals of accrued interest, mainly from loans being placed on nonaccrual as a result of the March 2016 SNC exam,  that reduced the net interest margin by 2 bps. The first quarter of 2016 core net interest margin of 3.12% was 2 bps higher than fourth quarter 2015 driven by a 5 bps increase in the loan yield, excluding net purchase accounting accretion, and a 6 bps increase in the yield on securities. Compared to the first quarter of 2015, the core net interest margin decreased 9 bps primarily due to a 10 bps increase in the cost of funds. 

The overall reported yield on earning assets was 3.57% in the first quarter of 2016, up 4 bps from the fourth quarter of 2015 and down 22 bps from the first quarter of 2015. The linked-quarter increase was a result of a 6 bps increase in investment portfolio yields due to

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a change in mix toward higher yielding municipal securities and a 4 bps increase in loan yields.  The 22 bps decrease from first quarter 2015 was primarily a result of the lower yields on the loan portfolio due mostly to the impact of the decline in net purchase accounting accretion. 

The cost of funding earning assets was up 3 bps from the fourth quarter of 2015 and up 10 bps from the first quarter of 2015.  The increase from the first quarter of 2015 was primarily attributable to a 15 bps increase in deposit rates related to the Company’s deposit initiatives and a 62 bps increase in long-term debt costs as a result of the $150 million subordinated debt issuance in the first quarter of 2015 at a cost of 5.95%.

The following tables detail the components of our net interest income and net interest margin.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended



 

 

March 31, 2016

 

 

December 31, 2015

 

 

March 31, 2015

 

(dollars in millions)

 

 

Volume

 

Interest

 

Rate

 

 

Volume

 

Interest

 

Rate

 

 

Volume

 

Interest

 

Rate

 

Average earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & real estate   loans (te) (a) (b)

 

 

$

11,713.2 

 

$

111.7 

 

3.83 

%

 

$

11,128.8 

 

$

106.2 

 

3.79 

%

 

$

10,235.2 

 

$

106.8 

 

 

4.23 

%

Residential mortgage loans

 

 

 

2,058.5 

 

 

21.3 

 

4.13 

 

 

 

2,028.7 

 

 

20.6 

 

4.07 

 

 

 

1,902.9 

 

 

20.4 

 

 

4.30 

 

Consumer loans

 

 

 

2,077.1 

 

 

26.3 

 

5.10 

 

 

 

2,040.7 

 

 

25.9 

 

5.03 

 

 

 

1,731.3 

 

 

21.9 

 

 

5.13 

 

Loan fees & late charges

 

 

 

 

 

 

(0.8)

 

 

 

 

 

 

 

 

(0.5)

 

 

 

 

 

 

 

 

0.3 

 

 

 

 

Total loans (te)

 

 

 

15,848.8 

 

 

158.5 

 

4.02 

 

 

 

15,198.2 

 

 

152.2 

 

3.98 

 

 

 

13,869.4 

 

 

149.4 

 

 

4.36 

 

Loans held for sale

 

 

 

14.8 

 

 

0.2 

 

4.28 

 

 

 

16.7 

 

 

0.2 

 

4.40 

 

 

 

15.6 

 

 

0.1 

 

 

2.45 

 

US Treasury and government agency securities

 

 

 

50.1 

 

 

0.2 

 

1.67 

 

 

 

50.0 

 

 

0.2 

 

1.68 

 

 

 

275.0 

 

 

1.1 

 

 

1.58 

 

Mortgage-backed securities and collateralized mortgage obligations

 

 

 

4,132.8 

 

 

22.9 

 

2.21 

 

 

 

4,219.1 

 

 

23.3 

 

2.20 

 

 

 

3,290.5 

 

 

18.6 

 

 

2.26 

 

Municipals (te) (a)

 

 

 

339.1 

 

 

3.6 

 

4.27 

 

 

 

205.8 

 

 

2.3 

 

4.45 

 

 

 

195.8 

 

 

2.3 

 

 

4.61 

 

Other securities

 

 

 

6.1 

 

 

 —

 

1.85 

 

 

 

6.1 

 

 

 —

 

1.80 

 

 

 

11.6 

 

 

0.1 

 

 

4.47 

 

Total securities (te) (c)

 

 

 

4,528.1 

 

 

26.7 

 

2.36 

 

 

 

4,481.0 

 

 

25.8 

 

2.30 

 

 

 

3,772.9 

 

 

22.1 

 

 

2.35 

 

Total short-term investments

 

 

 

519.0 

 

 

0.6 

 

0.47 

 

 

 

444.5 

 

 

0.3 

 

0.30 

 

 

 

657.9 

 

 

0.4 

 

 

0.22 

 

Total earning assets (te)

 

 

$

20,910.7 

 

$

186.0 

 

3.57 

%

 

$

20,140.4 

 

$

178.5 

 

3.53 

%

 

$

18,315.8 

 

$

172.0 

 

 

3.79 

%

Average interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction  and savings deposits

 

 

$

6,815.7 

 

$

4.7 

 

0.28 

%

 

$

7,065.3 

 

$

4.4 

 

0.25 

%

 

$

6,506.8 

 

$

2.2 

 

 

0.14 

%

Time deposits

 

 

 

2,258.9 

 

 

4.9 

 

0.88 

 

 

 

2,212.7 

 

 

4.3 

 

0.76 

 

 

 

2,238.8 

 

 

3.7 

 

 

0.67 

 

Public funds

 

 

 

2,173.5 

 

 

2.1 

 

0.38 

 

 

 

1,834.3 

 

 

1.5 

 

0.32 

 

 

 

1,815.4 

 

 

1.2 

 

 

0.27 

 

Total interest-bearing deposits

 

 

 

11,248.1 

 

 

11.7 

 

0.42 

 

 

 

11,112.3 

 

 

10.2 

 

0.36 

 

 

 

10,561.0 

 

 

7.1 

 

 

0.27 

 

Short-term borrowings

 

 

 

1,564.8 

 

 

1.0 

 

0.26 

 

 

 

1,229.6 

 

 

0.4 

 

0.14 

 

 

 

920.5 

 

 

0.2 

 

 

0.08 

 

Long-term debt

 

 

 

483.3 

 

 

5.1 

 

4.20 

 

 

 

490.8 

 

 

5.3 

 

4.26 

 

 

 

411.1 

 

 

3.6 

 

 

3.58 

 

Total borrowings

 

 

 

2,048.1 

 

 

6.1 

 

1.19 

 

 

 

1,720.4 

 

 

5.7 

 

1.32 

 

 

 

1,331.6 

 

 

3.8 

 

 

1.16 

 

Total interest-bearing liabilities

 

 

 

13,296.2 

 

 

17.8 

 

0.54 

%

 

 

12,832.7 

 

 

15.9 

 

0.49 

%

 

 

11,892.6 

 

 

10.9 

 

 

0.37 

%

Net interest-free funding sources

 

 

 

7,614.5 

 

 

 

 

 

 

 

 

7,307.7 

 

 

 

 

 

 

 

 

6,423.2 

 

 

 

 

 

 

 

Total cost of funds

 

 

$

20,910.7 

 

$

17.8 

 

0.34 

%

 

$

20,140.4 

 

$

15.9 

 

0.31 

%

 

$

18,315.8 

 

$

10.9 

 

 

0.24 

%

Net interest spread (te)

 

 

 

 

 

$

168.2 

 

3.03 

%

 

 

 

 

$

162.6 

 

3.03 

%

 

 

 

 

$

161.1 

 

 

3.42 

%

Net interest margin

 

 

$

20,910.7 

 

$

168.2 

 

3.23 

%

 

$

20,140.4 

 

$

162.6 

 

3.21 

%

 

$

18,315.8 

 

$

161.1 

 

 

3.55 

%



(a)

Tax equivalent (te) amounts are calculated using a marginal federal income tax rate of 35%.

(b)

Includes nonaccrual loans.

(c)

Average securities do not include unrealized holding gains/losses on available for sale securities.

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Table of Contents

Due to the significant, unsustainable contribution from purchase accounting accretion, management believes that core net interest income and core net interest margin provide investors with meaningful financial measures of the Company’s performance over time.  The following table provides a reconciliation of reported and core net interest income and reported and core net interest margin.

Reconciliation of Reported Net Interest Income and Margin to Core Net Interest Income and Margin







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

December 31,

 

March 31,

(dollars in millions)

 

2016

 

2015

 

2015

Net interest income (te) (a)

 

$

168.2 

 

 

$

162.6 

 

 

$

161.1 

 

Purchase accounting adjustments

 

 

 

 

 

 

 

 

 

 

 

 

Loan discount accretion

 

 

6.4 

 

 

 

6.5 

 

 

 

16.4 

 

Bond premium amortization   

 

 

(0.7)

 

 

 

(0.8)

 

 

 

(1.1)

 

Net purchase accounting accretion

 

 

5.7 

 

 

 

5.7 

 

 

 

15.3 

 

Net interest income (te) - core

 

$

162.5 

 

 

$

156.9 

 

 

$

145.8 

 

Average earning assets

 

$

20,910.7 

 

 

$

20,140.4 

 

 

$

18,315.8 

 

Net interest margin - reported

 

 

3.23 

%

 

 

3.21 

%

 

 

3.55 

%

Net purchase accounting adjustments

 

 

0.11 

%

 

 

0.11 

%

 

 

0.34 

%

Net interest margin - core

 

 

3.12 

%

 

 

3.10 

%

 

 

3.21 

%



(a)

Tax equivalent (te) amounts are calculated using a marginal federal income tax rate of 35%.





Provision for Loan Losses

During the first quarter of 2016, the Company recorded a total provision for loan losses of $60.0 million, up $9.8 million from the fourth quarter of 2015 and up $53.9 million from the first quarter of 2015.  Both the linked-quarter and prior year increases reflect an increase in the provision related to the energy portfolio as discussed more fully in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Loan Losses and Asset Quality.”  The provision for the FDIC acquired portfolio was a credit of $0.5 million for the three months ended March 31, 2016, compared to a credit of $0.1 million for the same period prior year.  For the three months ended December 31, 2015, the provision for the FDIC acquired portfolio was a credit of $1.7 million.  The credits to provision in both years for the FDIC acquired portfolio were primarily due to reductions in expected losses. 

The section in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Loan Losses and Asset Quality” provides additional information on changes in the allowance for loan losses and general credit quality.  Certain differences in the determination of the allowance for loan losses for originated loans and for acquired-performing loans and acquired-impaired loans (which includes all FDIC acquired loans) are described in Note 3 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.



Noninterest Income

Noninterest income totaled $58.2 million for the first quarter of 2016, down $1.5 million, or 2% from the fourth quarter of 2015. A $1.6 million gain from the sale of approximately $52 million of residential mortgage loans was offset by decreases in services charges and bank card and ATM fees, as well as a decline in income from derivatives.  Compared to the first quarter of 2015, noninterest income was up $1.6 million, or 3%.  The gain from the mortgage loan sale and a $1.1 million, or 6%, increase in service charges on deposit accounts were partially offset by a $0.4 million increase in amortization of the FDIC indemnification asset and a decrease in insurance commissions and fees.    

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Table of Contents

The components of noninterest income are presented in the following table for the indicated periods.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended



 

 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

 

2016

 

2015

 

2015

Service charges on deposit accounts

 

 

$

18,383 

 

$

18,971 

 

$

17,315 

Trust fees

 

 

 

11,224 

 

 

11,287 

 

 

11,200 

Bank card and ATM fees

 

 

 

11,348 

 

 

11,792 

 

 

11,183 

Investment and annuity fees

 

 

 

4,933 

 

 

4,632 

 

 

5,050 

Secondary mortgage market operations

 

 

 

2,912 

 

 

2,884 

 

 

2,664 

Insurance commissions and fees

 

 

 

1,307 

 

 

1,980 

 

 

1,754 

Amortization of FDIC loss share receivable

 

 

 

(1,613)

 

 

(1,713)

 

 

(1,197)

Income from bank-owned life insurance

 

 

 

2,550 

 

 

3,093 

 

 

2,666 

Credit related fees

 

 

 

2,357 

 

 

3,271 

 

 

2,457 

Gain (loss) from derivatives

 

 

 

(139)

 

 

1,259 

 

 

(52)

Gain (loss) on sale of assets

 

 

 

2,111 

 

 

(179)

 

 

340 

Safety deposit box income

 

 

 

478 

 

 

402 

 

 

486 

Other miscellaneous

 

 

 

2,335 

 

 

1,974 

 

 

2,680 

Total noninterest income

 

 

$

58,186 

 

$

59,653 

 

$

56,546 



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, but up $1.1 million, or 6%, from the first quarter of 2015. The linked-quarter decrease is due to normal seasonal variations in overdraft occurrences.  The increase from the first quarter of 2015 was due to increases in both fees from commercial products and in consumer overdraft fees.  

Bank card and ATM fees totaled $11.3 million for the quarter ended March 31, 2016, down $0.4 million, or 4%, from the fourth quarter of 2015, primarily due to seasonality.  Compared to the same period a year ago, bank card and ATM fees were up $0.2 million, or 1%.

Secondary mortgage market operations fee income increased slightly from the fourth quarter of 2015, and was up $0.2 million, or 9% compared to the first quarter of 2015. The increase is mainly related to the addition of several new mortgage originators hired in the fourth quarter of 2015 and first quarter of 2016.   



Insurance commissions and fees totaled $1.3 million in the first quarter of 2016, down $0.7 million linked-quarter and down $0.4 million compared to the first quarter of 2015.  In the third quarter of 2015, the Company elected to exit its title insurance operation to focus on more profitable areas. The title insurance operation contributed approximately $1 million in fee income annually.     

Amortization of the FDIC loss share receivable totaled $1.6 million in the first quarter of 2016 compared to $1.7 million in the fourth quarter of 2015 and $1.2 million in the first quarter of 2015.  The increase in amortization from the first quarter of 2015 reflects a reduction in the amount of expected reimbursements under the loss share agreements due to lower loss projections for the related FDIC acquired loan pools. 

Income from bank-owned life insurance was down $0.5 million, or 18%, linked quarter as the fourth quarter of 2015 included a mortality benefit.

Market valuations on our customer interest rate derivative program resulted in a $0.1 million loss for the first quarter of 2016 compared to a $1.3 million gain in the fourth quarter of 2015 and a slight loss in the first quarter of 2015.  This income is volatile in nature and is dependent upon both customer sales activity and market value adjustments due to interest rate movement. 

Noninterest Expense

Noninterest expense for the first quarter of 2016 was $156.0 million, unchanged from the fourth quarter of 2015, and up $2.5 million, or 2%, from the first quarter of 2015.  Excluding nonoperating expense items, operating expense for the first quarter of 2016 totaled $151.1 million, a $5.0 million, or 3%, decrease from the fourth quarter of 2015 and a $4.9 million, or 3%, increase from the same period in 2015.   

Nonoperating expenses were $5.0 million in the first quarter of 2016, none in the fourth quarter of 2015 and $7.3 million in the first quarter of 2015.  Nonoperating expenses for the first quarter of 2016 were almost all related to separation costs included in personnel expenses due to an efficiency initiative and technology enhancements.  The nonoperating expenses in the first quarter of 2015 were all related to the Company’s expense and efficiency initiative. The following discussion of the components of noninterest expenses excludes nonoperating expenses for each period.

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Table of Contents

Personnel expense totaled $84.7 million for the first quarter of 2016, down $0.6 million, or 1%, from the fourth quarter of 2015, and up $4.6 million, or 6%, compared to the first quarter of 2015.  There were 3,819 full-time equivalent employees as of March 31, 2016, over 100 fewer than at year-end, but up slightly from March 31, 2015.

Occupancy and equipment expenses totaled $14.1 million for the first quarter of 2016, down $0.4 million, or 3%, from the fourth quarter of 2015 and $1.0 million, or 6%, from the first quarter of 2015

Other real estate (“ORE”) expense in the first quarter of 2016 was $0.4 million, less than half of the $1.4 million in ORE expense in the fourth quarter of 2015, which included two large valuation write-downs. ORE was relatively flat compared to the first quarter of 2015.

All other expenses, excluding amortization of intangibles and nonoperating expense items, totaled $46.6 million for the first quarter of 2016, a $2.5 million, or 5%, decrease from the fourth quarter of 2015.  Decreases in advertising of $1.7 million and professional services expense of $0.8 million were partially offset by an increase in deposit insurance and regulatory fees due mainly to asset growth and an increased level of criticized assets.    

All other expenses compared to the first quarter of 2015 were up $2.4 million, or 5%, due primarily to a $1.8 million, or 50%, increase in deposit insurance and regulatory fees.

The components of noninterest expense are presented in the following table for the indicated periods.









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

 

 

 

 

 

 

 

 



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2016

 

2015

 

2015

Operating expense

 

 

 

 

 

 

 

 

 

Compensation expense

 

$

69,438 

 

$

71,907 

 

$

64,547 

Employee benefits

 

 

15,303 

 

 

13,408 

 

 

15,570 

Personnel expense

 

 

84,741 

 

 

85,315 

 

 

80,117 

Net occupancy expense

 

 

10,356 

 

 

10,639 

 

 

11,162 

Equipment expense

 

 

3,774 

 

 

3,871 

 

 

3,933 

Data processing expense

 

 

14,207 

 

 

14,178 

 

 

13,536 

Professional services expense

 

 

7,440 

 

 

8,220 

 

 

6,320 

Amortization of intangibles

 

 

5,124 

 

 

5,691 

 

 

6,318 

Telecommunications and postage

 

 

3,361 

 

 

3,520 

 

 

3,651 

Deposit insurance and regulatory fees

 

 

5,397 

 

 

4,703 

 

 

3,595 

Other real estate expense, net

 

 

445 

 

 

1,361 

 

 

456 

Advertising

 

 

2,357 

 

 

4,071 

 

 

2,157 

Ad valorem and franchise taxes

 

 

2,303 

 

 

2,179 

 

 

2,715 

Printing and supplies

 

 

1,111 

 

 

1,283 

 

 

1,217 

Insurance expense

 

 

835 

 

 

838 

 

 

922 

Travel expense

 

 

949 

 

 

1,385 

 

 

1,219 

Entertainment and contributions

 

 

1,632 

 

 

1,714 

 

 

1,639 

Tax credit investment amortization

 

 

1,743 

 

 

2,161 

 

 

2,095 

Other miscellaneous

 

 

5,279 

 

 

4,901 

 

 

5,149 

Total operating expense

 

$

151,054 

 

$

156,030 

 

$

146,201 

Nonoperating expense items

 

 

4,978 

 

 

 —

 

 

7,314 

Total noninterest expense

 

$

156,032 

 

$

156,030 

 

$

153,515 



Income Taxes

The effective income tax rate for the first quarter of 2016 was approximately 23%.  Management expects the effective tax rate for the remainder of 2016 will approximate 22% to 24%.  The Company’s effective tax rate varies from the 35% federal statutory rate primarily because of tax-exempt income and the use of tax credits.  Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the bank-owned life insurance program are the major components of tax-exempt income.  The main source of tax credits has been investments in tax-advantaged securities and tax credit projects.  These investments are made primarily in the markets the Company serves and are directed at tax credits issued under the Qualified Zone Academy Bonds (“QZAB”), Qualified School Construction Bonds (“QSCB”), Federal and State New Market Tax Credit (“NMTC”) and Low-Income Housing Tax Credit (“LIHTC”) programs. The investments generate tax credits, which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes. 

47


 

Table of Contents

During 2008, 2011 and 2013, the Company’s Community Development Entity (CDE) was awarded three federal NMTC allocations totaling $148 million.  In addition to investing in federal and state NMTC projects through its own CDE, the Company has invested in projects in other unrelated CDEs.  Since 2008, the Company has invested in NMTC projects generating approximately $101 million in federal and state tax credits.  Federal tax credits from NMTC investments are recognized over a seven-year period, while recognition of the benefits from state tax credits varies from three to five years.

The Company intends to continue making investments in tax credit projects and qualified bonds.  However, its ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits.  Based on tax credit investments that have been made to date, the Company expects to realize benefits from federal and state tax credits over the next three years totaling $9.0 million, $7.5 million and $5.7 million for 2017, 2018, and 2019, respectively.

The following table reconciles reported income tax expense to that computed at the statutory federal tax rate for the indicated periods.







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2016

 

2015

 

2015

Taxes computed at statutory rate

 

$

1,734 

 

$

4,138 

 

$

19,262 

Tax credits:

 

 

 

 

 

 

 

 

 

QZAB/QSCB

 

 

(697)

 

 

(792)

 

 

(730)

NMTC - Federal and State

 

 

(1,830)

 

 

(2,442)

 

 

(2,573)

LIHTC

 

 

(12)

 

 

(56)

 

 

(24)

Other tax credits

 

 

 —

 

 

(110)

 

 

 —

Total tax credits

 

 

(2,539)

 

 

(3,400)

 

 

(3,327)

State income taxes, net of federal income tax benefit

 

 

293 

 

 

214 

 

 

728 

Tax-exempt interest

 

 

(3,053)

 

 

(2,448)

 

 

(1,710)

Bank owned life insurance

 

 

(890)

 

 

(1,073)

 

 

(919)

Impact from interim estimated effective tax rate

 

 

5,382 

 

 

(858)

 

 

653 

Other, net

 

 

188 

 

 

(58)

 

 

189 

Income tax expense

 

$

1,115 

 

$

(3,485)

 

$

14,876 



Accounting standards for income taxes require income tax provisions for interim periods to be based on the estimated effective tax rate for the year.  The estimated annual effective tax rate is applied to year-to-date pretax book income to compute the year-to-date income tax provision. Income taxes for the current interim period are equal to the difference between the year-to-date income taxes as computed at the latest interim period date, less year-to-date income taxes as determined at the end of the previous interim period. Application of the requirements for accounting for income taxes in interim periods can result in a variation in the customary relationship between income tax expense and pretax accounting income, which is reflected as “Impact from interim estimated effective tax rate” in the table above.





48


 

Table of Contents

Selected Financial Data

The following tables contain selected financial data as of the dates and for the periods indicated.  







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

December 31,

 

March 31,



 

2016

 

2015

 

2015

Common Share Data

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05 

 

$

0.19 

 

$

0.49 

Diluted

 

$

0.05 

 

$

0.19 

 

$

0.49 

Operating earnings per share: (a)

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09 

 

$

0.19 

 

$

0.55 

Diluted

 

$

0.09 

 

$

0.19 

 

$

0.55 

Cash dividends paid

 

$

0.24 

 

$

0.24 

 

$

0.24 

Book value per share (period-end)

 

$

31.24 

 

$

31.14 

 

$

31.14 

Tangible book value per share (period-end)

 

$

21.90 

 

$

21.74 

 

$

21.55 

Weighted average number of shares (000s):

 

 

 

 

 

 

 

 

 

Basic

 

 

77,501 

 

 

77,440 

 

 

79,496 

Diluted

 

 

77,672 

 

 

77,544 

 

 

79,661 

Period-end number of shares (000s)

 

 

77,508 

 

 

77,496 

 

 

77,886 

Market data:

 

 

 

 

 

 

 

 

 

High sales price

 

$

25.84 

 

$

30.96 

 

$

31.13 

Low sales price

 

$

20.01 

 

$

23.35 

 

$

24.96 

Period-end closing price

 

$

22.96 

 

$

25.17 

 

$

29.86 

Trading volume (000s) (b)

 

 

56,319 

 

 

48,789 

 

 

51,866 



(a)

Net income less tax-effected 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.

(b)

Trading volume is based on the total volume as determined by NASDAQ on the last day of the quarter.





49


 

Table of Contents



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2016

 

2015

 

2015

Income Statement:

 

 

 

 

 

 

 

 

 

Interest income

 

$

180,641 

 

$

174,310 

 

$

169,087 

Interest income (te) (a)

 

 

185,984 

 

 

178,550 

 

 

172,043 

Interest expense

 

 

17,805 

 

 

15,915 

 

 

10,929 

Net interest income (te)

 

 

168,179 

 

 

162,635 

 

 

161,114 

Provision for loan losses

 

 

60,036 

 

 

50,196 

 

 

6,154 

Noninterest income

 

 

58,186 

 

 

59,653 

 

 

56,546 

Noninterest expense (excluding amortization of intangibles)

 

 

150,908 

 

 

150,339 

 

 

147,197 

Amortization of intangibles

 

 

5,124 

 

 

5,691 

 

 

6,318 

Income before income taxes

 

 

4,954 

 

 

11,822 

 

 

55,035 

Income tax expense (benefit)

 

 

1,115 

 

 

(3,485)

 

 

14,876 

Net income

 

$

3,839 

 

$

15,307 

 

$

40,159 

Total nonoperating items

 

 

4,978 

 

 

 —

 

 

6,981 

Taxes on adjustments at marginal tax rate

 

 

1,742 

 

 

 —

 

 

2,443 

Total adjustments, net of taxes

 

 

3,236 

 

 

 —

 

 

4,538 

Operating income (b)

 

$

7,075 

 

$

15,307 

 

$

44,697 

Difference between interest income and interest income (te)

 

$

5,343 

 

$

4,240 

 

$

2,956 

Provision for loan losses

 

 

60,036 

 

 

50,196 

 

 

6,154 

Income tax expense (benefit)

 

 

1,115 

 

 

(3,485)

 

 

14,876 

Pre-tax, pre-provision profit (PTPP) (te) (c)

 

$

70,333 

 

$

66,258 

 

$

64,145 



(a)

For analytical purposes, management adjusts net interest income to a “taxable equivalent” basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans).

(b)

Net income less tax-effected 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 is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover the losses through a credit cycle.



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Three Months Ended



 

 

March 31,

 

 

December 31,

 

 

March 31,

(in thousands)

 

 

2016

 

 

2015

 

 

2015

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.07 

%

 

 

0.27 

%

 

 

0.80 

%

Return on average assets - operating (a)

 

 

0.12 

%

 

 

0.27 

%

 

 

0.89 

%

Return on average common equity

 

 

0.64 

%

 

 

2.48 

%

 

 

6.65 

%

Return on average common equity - operating (a)

 

 

1.17 

%

 

 

2.48 

%

 

 

7.41 

%

Return on average tangible common equity

 

 

0.91 

%

 

 

3.53 

%

 

 

9.60 

%

Return on average tangible common equity - operating (a)

 

 

1.67 

%

 

 

3.53 

%

 

 

10.68 

%

Earning asset yield (te)

 

 

3.57 

%

 

 

3.53 

%

 

 

3.79 

%

Total cost of funds

 

 

0.34 

%

 

 

0.31 

%

 

 

0.24 

%

Net interest margin (te)

 

 

3.23 

%

 

 

3.21 

%

 

 

3.55 

%

Core net interest margin (b)

 

 

3.12 

%

 

 

3.10 

%

 

 

3.21 

%

Noninterest income to total revenue (te)

 

 

25.70 

%

 

 

26.84 

%

 

 

25.98 

%

Efficiency ratio (c)

 

 

64.47 

%

 

 

67.63 

%

 

 

64.36 

%

Average loan/deposit ratio

 

 

86.69 

%

 

 

85.28 

%

 

 

84.13 

%

FTE employees (period-end)

 

 

3,819 

 

 

 

3,921 

 

 

 

3,785 

 

Capital Ratios

 

 

 

 

 

 

 

 

 

 

 

 

Common stockholders' equity to total assets

 

 

10.61 

%

 

 

10.57 

%

 

 

11.70 

%

Tangible common equity ratio

 

 

7.69 

%

 

 

7.62 

%

 

 

8.40 

%



(a)

Excludes tax-effected nonoperating items. Management believes that this is a useful financial measure that helps investors compare the Company’s fundamental operations over time.

(b)

Reported taxable equivalent (te) net interest income, excluding net purchase accounting adjustments, expressed as a percentage of earning assets.

(c)

Noninterest expense as a percent of total revenue (te) before amortization of purchased intangibles and nonoperating expense items.

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Three Months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2016

 

2015

 

2015

Asset Quality Information

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans (a)

 

$

237,303 

 

 

$

159,713 

 

 

$

90,821 

 

Restructured loans - still accruing

 

 

45,620 

 

 

 

4,297 

 

 

 

7,564 

 

Total nonperforming loans

 

 

282,923 

 

 

 

164,010 

 

 

 

98,385 

 

Other real estate (“ORE”) and foreclosed assets

 

 

24,032 

 

 

 

27,133 

 

 

 

42,956 

 

Total nonperforming assets

 

$

306,955 

 

 

$

191,143 

 

 

$

141,341 

 

Accruing loans 90 days past due (a)

 

$

9,226 

 

 

$

7,653 

 

 

$

5,872 

 

Net charge-offs - non-FDIC acquired

 

 

21,299 

 

 

 

7,877 

 

 

 

3,654 

 

Net charge-offs - FDIC acquired

 

 

(67)

 

 

 

(100)

 

 

 

2,455 

 

Allowance for loan losses

 

 

217,794 

 

 

 

181,179 

 

 

 

128,386 

 

Provision for loan losses

 

 

60,036 

 

 

 

50,196 

 

 

 

6,154 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming assets to loans, ORE and foreclosed assets

 

 

1.92 

%

 

 

1.22 

%

 

 

1.01 

%

Accruing loans 90 days past due to loans

 

 

0.06 

%

 

 

0.05 

%

 

 

0.04 

%

Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets

 

 

1.98 

%

 

 

1.26 

%

 

 

1.05 

%

Net charge-offs - non-FDIC acquired to average loans

 

 

0.54 

%

 

 

0.21 

%

 

 

0.11 

%

Allowance for loan losses to period-end loans

 

 

1.36 

%

 

 

1.15 

%

 

 

0.92 

%

Allowance for loan losses to nonperforming loans + accruing loans 90 days past due

 

 

74.55 

%

 

 

105.54 

%

 

 

123.14 

%



(a)

Nonaccrual loans and accruing loans past due 90 days or more do not include acquired-impaired loans with an accretable yield. Included in nonaccrual loans are $18.3 million, $8.8 million, and $5.0 million in restructured loans at March 31, 2016December 31, 2015, and March 31, 2015, respectively.



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Supplemental Asset Quality Information

 

Originated

 

 

Acquired  (a)

 

 

FDIC

acquired (b)

 

 

Total

(in thousands)

 

March 31, 2016

Nonaccrual loans (c)

 

$

234,395 

 

 

$

2,908 

 

 

$

 —

 

 

$

237,303 

Restructured loans - still accruing

 

 

45,620 

 

 

 

 —

 

 

 

 —

 

 

 

45,620 

Total nonperforming loans

 

 

280,015 

 

 

 

2,908 

 

 

 

 —

 

 

 

282,923 

ORE and foreclosed assets (d)

 

 

16,403 

 

 

 

 —

 

 

 

7,629 

 

 

 

24,032 

Total nonperforming assets

 

$

296,418 

 

 

$

2,908 

 

 

$

7,629 

 

 

$

306,955 

Accruing loans 90 days past due

 

$

9,226 

 

 

$

 —

 

 

$

 —

 

 

$

9,226 

Allowance for loan losses

 

$

197,285 

 

 

$

 

 

$

20,502 

 

 

$

217,794 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2015

Nonaccrual loans (c)

 

$

156,721 

 

 

$

2,992 

 

 

$

 —

 

 

$

159,713 

Restructured loans - still accruing

 

 

4,297 

 

 

 

 —

 

 

 

 —

 

 

 

4,297 

Total nonperforming loans

 

 

161,018 

 

 

 

2,992 

 

 

 

 —

 

 

 

164,010 

ORE and foreclosed assets (d)

 

 

18,580 

 

 

 

 —

 

 

 

8,553 

 

 

 

27,133 

Total nonperforming assets

 

$

179,598 

 

 

$

2,992 

 

 

$

8,553 

 

 

$

191,143 

Accruing loans 90 days past due

 

$

7,653 

 

 

$

 —

 

 

$

 —

 

 

$

7,653 

Allowance for loan losses

 

$

158,026 

 

 

$

33 

 

 

$

23,120 

 

 

$

181,179 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Outstanding

 

Originated

 

 

Acquired  (a)

 

 

FDIC

acquired (b)

 

 

Total

 

(in thousands)

 

March 31, 2016

Commercial non-real estate loans

 

$

7,088,146 

 

 

$

51,949 

 

 

$

5,311 

 

 

$

7,145,406 

Construction and land development loans

 

 

1,086,382 

 

 

 

2,250 

 

 

 

6,782 

 

 

 

1,095,414 

Commercial real estate loans

 

 

3,504,803 

 

 

 

156,285 

 

 

 

15,004 

 

 

 

3,676,092 

Residential mortgage loans

 

 

1,839,889 

 

 

 

1,116 

 

 

 

159,962 

 

 

 

2,000,967 

Consumer loans

 

 

2,048,068 

 

 

 

20 

 

 

 

12,157 

 

 

 

2,060,245 

Total loans

 

$

15,567,288 

 

 

$

211,620 

 

 

$

199,216 

 

 

$

15,978,124 

Change in loan balance from previous quarter

 

$

308,701 

 

 

$

(29,810)

 

 

$

(4,081)

 

 

$

274,810 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2015

Commercial non-real estate loans

 

$

6,930,453 

 

 

$

59,843 

 

 

$

5,528 

 

 

$

6,995,824 

Construction and land development loans

 

 

1,139,743 

 

 

 

5,080 

 

 

 

7,127 

 

 

 

1,151,950 

Commercial real estate loans

 

 

3,220,509 

 

 

 

176,460 

 

 

 

15,582 

 

 

 

3,412,551 

Residential mortgage loans

 

 

1,887,256 

 

 

 

27 

 

 

 

162,241 

 

 

 

2,049,524 

Consumer loans

 

 

2,080,626 

 

 

 

20 

 

 

 

12,819 

 

 

 

2,093,465 

Total loans

 

$

15,258,587 

 

 

$

241,430 

 

 

$

203,297 

 

 

$

15,703,314 

Change in loan balance from previous quarter

 

$

1,180,400 

 

 

$

(228,589)

 

 

$

(11,547)

 

 

$

940,264 



(a)

Loans which have been acquired and no allowance brought forward in accordance with acquisition accounting. Acquired-performing loans in pools with fully accreted purchase fair value discounts are reported as originated loans, resulting in changes in classification between periods.

(b)

Loans acquired in an FDIC-assisted transaction. Non-single family loss share agreement expired on December 31, 2014. As of March 31, 2016, $168.1 million in loans and $1.1 million in ORE remain covered by the FDIC single family loss share agreement, providing considerable protection against credit risk. As of December 31, 2015, $170.1 million in loans and $1.7 million in ORE remained covered by the FDIC single family loss share agreement.

(c)

Included in nonaccrual loans are $18.3 million and $8.8 million of nonaccruing restructured loans at March 31, 2016 and December 31, 2015, respectively.

(d)

ORE received in settlement of acquired loans is no longer subject to purchase accounting guidance and has been included with ORE from originated loans. ORE received in settlement of FDIC acquired loans remains covered under the FDIC single-family loss share agreement.





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Three Months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2016

 

2015

 

2015

Period-End Balance Sheet

 

 

 

 

 

 

 

 

 

Total loans, net of unearned income (a)

 

$

15,978,124 

 

$

15,703,314 

 

$

13,924,386 

Loans held for sale

 

 

24,001 

 

 

20,434 

 

 

19,950 

Securities

 

 

4,667,837 

 

 

4,463,792 

 

 

4,107,904 

Short-term investments

 

 

151,551 

 

 

565,555 

 

 

515,797 

Earning assets

 

 

20,821,513 

 

 

20,753,095 

 

 

18,568,037 

Allowance for loan losses

 

 

(217,794)

 

 

(181,179)

 

 

(128,386)

Goodwill

 

 

621,193 

 

 

621,193 

 

 

621,193 

Other intangible assets, net

 

 

102,414 

 

 

107,538 

 

 

125,404 

Other assets (c)

 

 

1,482,044 

 

 

1,532,958 

 

 

1,532,491 

Total assets

 

$

22,809,370 

 

$

22,833,605 

 

$

20,718,739 

Noninterest-bearing deposits

 

$

7,108,598 

 

$

7,276,127 

 

$

6,201,403 

Interest-bearing transaction and savings deposits

 

 

7,043,484 

 

 

6,767,881 

 

 

6,576,658 

Interest-bearing public funds deposits

 

 

2,152,903 

 

 

2,253,645 

 

 

1,828,559 

Time deposits

 

 

2,351,165 

 

 

2,051,259 

 

 

2,253,865 

Total interest-bearing deposits

 

 

11,547,552 

 

 

11,072,785 

 

 

10,659,082 

Total deposits

 

 

18,656,150 

 

 

18,348,912 

 

 

16,860,485 

Short-term borrowings

 

 

1,100,787 

 

 

1,423,644 

 

 

755,250 

Long-term debt (c)

 

 

471,245 

 

 

490,145 

 

 

510,235 

Other liabilities

 

 

160,148 

 

 

157,761 

 

 

167,671 

Stockholders' equity

 

 

2,421,040 

 

 

2,413,143 

 

 

2,425,098 

Total liabilities & stockholders' equity

 

$

22,809,370 

 

$

22,833,605 

 

$

20,718,739 







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2016

 

2015

 

2015

Average Balance Sheet

 

 

 

 

 

 

 

 

 

Total loans, net of unearned income (a)

 

$

15,848,770 

 

$

15,198,232 

 

$

13,869,397 

Loans held for sale

 

 

14,822 

 

 

16,717 

 

 

15,567 

Securities (b)

 

 

4,528,090 

 

 

4,480,972 

 

 

3,772,997 

Short-term investments

 

 

518,986 

 

 

444,511 

 

 

657,878 

Earning assets

 

 

20,910,668 

 

 

20,140,432 

 

 

18,315,839 

Allowance for loan losses

 

 

(183,264)

 

 

(140,798)

 

 

(130,217)

Goodwill and other intangible assets

 

 

726,094 

 

 

731,414 

 

 

750,705 

Other assets (c)

 

 

1,479,017 

 

 

1,440,168 

 

 

1,505,648 

Total assets

 

$

22,932,515 

 

$

22,171,216 

 

$

20,441,975 

Noninterest-bearing deposits

 

$

7,033,680 

 

$

6,709,188 

 

$

5,924,196 

Interest-bearing transaction and savings deposits

 

 

6,815,703 

 

 

7,065,338 

 

 

6,506,812 

Interest-bearing public fund deposits

 

 

2,173,435 

 

 

1,834,302 

 

 

1,815,445 

Time deposits

 

 

2,258,936 

 

 

2,212,656 

 

 

2,238,806 

Total interest-bearing deposits

 

 

11,248,074 

 

 

11,112,296 

 

 

10,561,063 

Total deposits

 

 

18,281,754 

 

 

17,821,484 

 

 

16,485,259 

Short-term borrowings

 

 

1,564,804 

 

 

1,229,603 

 

 

920,436 

Long-term debt (c)

 

 

483,348 

 

 

490,761 

 

 

411,054 

Other liabilities

 

 

170,862 

 

 

175,888 

 

 

177,356 

Stockholders' equity

 

 

2,431,747 

 

 

2,453,480 

 

 

2,447,870 

Total liabilities & stockholders' equity

 

$

22,932,515 

 

$

22,171,216 

 

$

20,441,975 



(a)

Includes nonaccrual loans.

(b)

Average securities does not include unrealized holding gains/losses on available for sale securities.

(c)

Prior period has been restated to reclassify debt issuance costs from other assets to net against the related debt.

 

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LIQUIDITY

Liquidity management is focused on ensuring that funds are available to meet the cash flow requirements of our depositors and borrowers, while also meeting the operating, capital and strategic cash flow needs of the Company, the Bank and other subsidiaries.  Hancock develops its liquidity management strategies and measures and regularly monitors liquidity risk as part of its overall asset/liability management process.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, as well as maturities and repayments of investment securities.  Short-term investments such as federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with the Federal Reserve Bank or with other commercial banks are additional sources of liquidity to meet cash flow requirements.  Free securities represent unpledged securities that can be sold or used as collateral for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window.  As shown in the table below, our ratio of free securities to total securities was 25.47% at March 31, 2016, compared to 20.29% at December 31, 2015 and 27.06% at March 31, 2015The increase compared to year-end was due in part to the reduction in securities required to collateralize seasonal public funds deposits and repurchase agreements as well as the overall increase in the investment securities portfolio.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

Liquidity Metrics

 

2016

 

2015

 

2015

 

2015

 

2015

Free securities / total securities

 

25.47 

%

 

20.29 

%

 

33.68 

%

 

27.37 

%

 

27.06 

%

Core deposits / total deposits

 

92.95 

%

 

94.90 

%

 

93.50 

%

 

93.56 

%

 

93.08 

%

Wholesale funds / core deposits

 

9.07 

%

 

10.99 

%

 

9.48 

%

 

9.80 

%

 

8.10 

%

Quarter-to-date average loans /quarter-to-date average deposits

 

86.69 

%

 

85.28 

%

 

83.82 

%

 

83.85 

%

 

84.13 

%

The liability portion of the balance sheet provides liquidity mainly through the Company’s ability to use cash sourced from various customers’ interest-bearing and noninterest-bearing deposit and sweep accounts.  Core deposits consist of total deposits less certificates of deposits (“CDs”) of $250,000 or more, brokered deposits, and balances in sweep time deposit products used by commercial customers. The ratio of core deposits to total deposits was a healthy 92.95% at March 31, 2016, down 195 bps compared to December 31, 2015 and down 13 bps from March 31, 2015.  Brokered deposits totaled $731 million as of March 31, 2016, a $369 million increase from December 31, 2015, and up $468 million compared to at March 31, 2015. The Company’s use of brokered deposits as a funding source is subject to very strict parameters regarding the term and interest rate. The impact of increased brokered deposits on the core deposit ratio was partially offset by the movement of balances out of the Company’s overnight Eurodollar treasury management product into other deposit categories. The Company discontinued offering the Eurodollar deposit product in the fourth quarter of 2015.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, our short-term borrowing capacity includes an approved line of credit with the FHLB of $3.0 billion and borrowing capacity at the Federal Reserve’s discount window of $1.7 billion at March 31, 2016.  Wholesale funds, which are comprised of short-term borrowings and long-term debt, were 9.07% of core deposits at March 31, 2016, compared to 10.99% at December 31, 2015 and 8.10% at March 31, 2015.  The decrease from December 31, 2015 primarily reflects a $225 million decrease in borrowings from the FHLB to $675 million at March 31, 2016.  FHLB borrowings totaled $200 million at March 31, 2015.  No amounts had been borrowed at the Federal Reserve’s discount window in any period. See the discussion on “Balance Sheet Analysis - Deposits” for more information.

Another key measure the Company uses to monitor its liquidity position is the loan-to-deposit ratio (average loans outstanding for the reporting period divided by average deposits outstanding).  The loan-to-deposit ratio measures the amount of funds the Company lends out for each dollar of deposits on hand.  The Company’s loan-to-deposit ratio for the first quarter of 2016 was 86.69%, a 141 bps increase from the fourth quarter of 2015, and up 256 bps from March 31,  2015.  The Company has established an internal target range for the loan-to-deposit ratio from 83% to 87%.

Cash generated from operations is another important source of funds to meet liquidity needs.  The consolidated statements of cash flows present operating cash flows and summarize all significant sources and uses of funds for the three months ended March 31, 2016 and 2015

Dividends received from the Bank have been the primary source of funds available to the Company for the payment of dividends to our stockholders, and for servicing debt issued by the parent company. The liquidity management process takes into account the various regulatory provisions that can limit the amount of dividends the Bank can distribute to the Company.  The Company maintains cash and other liquid assets at the parent company to provide liquidity sufficient to fund six quarters of anticipated common stockholder dividends.

 

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CAPITAL RESOURCES



Stockholders’ equity totaled $2.4 billion at March 31, 2016, virtually flat compared to both December 31, 2015 and March 31, 2015.  Depressed earnings resulting from the energy-related provision expense discussed previously kept capital level near the year-end amount.  Compared to a year earlier, the common stock buyback program discussed below also contributed to the lack of growth in capital levels. The tangible common equity ratio of 7.69% at March 31, 2016 was up 7 bps from December 31, 2015. This ratio was 8.40% at March 31, 2015 with the decline primarily due to $2.1 billion in asset growth.  The Company has established an internal target for the tangible common equity ratio of at least 8.00%. However, management will allow the Company’s tangible common equity ratio to drop below 8.00% on a temporary basis if it believes that the shortfall can be replenished through normal operations.

On August 28, 2015, the Company’s Board of Directors approved a stock repurchase plan that authorizes the repurchase of up to 5%, or approximately 3.9 million shares of its outstanding common stock. The approved plan allows the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company from time to time until September 30, 2016. Under this plan, the Company has repurchased 741,393 shares of its common stock at an average price of $27.44 per share.  There were no share repurchases during the first quarter of 2016, as management has placed the stock repurchase plan on hold until we see evidence of an emergent recovery in the current energy cycle.



At March 31, 2016, the regulatory capital ratios of the Company and the Bank were well in excess of current regulatory minimum requirements, as indicated in the table below.  The Company and the Bank have been categorized as “well-capitalized” in the most recent notices received from our regulators and both currently exceed all capital requirements of the new rule, including the fully phased-in conservation buffer.

The following table shows the regulatory capital ratios for the Company and the Bank as calculated under current rules for the indicated periods.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,



 

 

2016

 

2015

 

2015

 

2015

 

2015

Total capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hancock Holding Company

 

 

11.75 

%

 

11.86 

%

 

12.32 

%

 

12.53 

%

 

12.77 

%

Whitney Bank

 

 

11.56 

%

 

11.73 

%

 

12.04 

%

 

12.04 

%

 

12.17 

%

Tier 1 common equity capital (to risk weighted assets)   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hancock Holding Company

 

 

9.69 

%

 

9.96 

%

 

10.56 

%

 

10.77 

%

 

10.86 

%

Whitney Bank

 

 

10.30 

%

 

10.64 

%

 

11.13 

%

 

11.16 

%

 

11.16 

%

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hancock Holding Company

 

 

9.69 

%

 

9.96 

%

 

10.56 

%

 

10.77 

%

 

10.86 

%

Whitney Bank

 

 

10.30 

%

 

10.64 

%

 

11.13 

%

 

11.16 

%

 

11.16 

%

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hancock Holding Company

 

 

8.14 

%

 

8.55 

%

 

8.85 

%

 

9.07 

%

 

9.17 

%

Whitney Bank

 

 

8.68 

%

 

9.16 

%

 

9.36 

%

 

9.42 

%

 

9.45 

%



Regulatory definitions:

(1)

Tier 1 common equity capital generally includes common equity and retained earnings, reduced by goodwill and other disallowed intangibles, disallowed deferred tax assets and certain other assets.

(2)

Tier 1 capital consists of Tier 1 common equity capital plus non-controlling interest in equity of consolidated subsidiaries and a limited amount of qualifying perpetual preferred stock.

(3)

Total capital consists of Tier 1 capital plus perpetual preferred stock not qualifying as Tier 1 capital, mandatory convertible securities, certain types of subordinated debt and a limited amount of allowances for credit losses.

(4)

The risk-weighted asset base is equal to the sum of the aggregate value of assets and credit-converted off-balance sheet items in each risk category as specified in regulatory guidelines, multiplied by the weight assigned by the guidelines to that category.

(5)

The Tier 1 leverage capital ratio is Tier 1 capital divided by average total assets reduced by the deductions for Tier 1 capital noted above.

 



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BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $4.7 billion at March 31, 2016, up $204 million from December 31, 2015 and $560 million from March 31, 2015.  During the first quarter of 2016, the Company purchased approximately $370 million of mortgage-backed securities and municipal securities at an average yield of 3.45%.  At March 31, 2016, securities available for sale totaled $2.2 billion and securities held to maturity totaled $2.5 billion. 

The securities portfolio consists mainly of residential mortgage-backed securities and collateralized mortgage obligations issued or guaranteed by U.S. government agencies.  The portfolio is designed to enhance liquidity while providing an acceptable rate of return.  The Company invests only in high quality securities of investment grade quality with a targeted duration for the overall portfolio of between two and five.  At March 31, 2016, the average maturity of the portfolio was 5.01 years with an effective duration of 3.69 and a weighted-average yield of 2.43%. The effective duration increases, under management scenarios, to 4.30 with a 100 bps increase in the yield curve and to 4.52 with a 200 bps increase.  At December 31, 2015, the average maturity of the portfolio was 4.90 years with an effective duration of 3.89 and a weighted-average yield of 2.33%.  The 6 bps increase in the weighted average security portfolio yield between December 31, 2015 and March 31, 2016 is primarily the result of an improved mix with an increase in the amount of higher yielding municipal securities in the portfolio.



Loans

Total loans at March 31, 2016 were $16.0 billion, up $275 million, or 2%, compared to December 31, 2015, and up $2.1 billion, or 15%, compared to March 31, 2015All regions across the footprint reported net loan growth during the first quarter of 2016.  See Note 3 to the consolidated financial statements for the composition of originated, acquired and FDIC acquired loans at March 31, 2016 and December 31, 2015.

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.

The Company’s commercial customer base is diversified over a range of industries, including energy, healthcare, wholesale and retail trade in various durable and nondurable products and the manufacture of such products, marine transportation and maritime construction, financial and professional services, and agricultural production.

At March 31, 2016, loans in the energy sector, which is comprised of credits to both the exploration and production segment and the support services segment, totaled $1.6 billion, or 10% of total loans.  The energy portfolio reflected a net increase of approximately $53 million linked-quarter, which includes approximately $85 million in payoffs and paydowns, and $17 million in energy charge-offs, offset by approximately $155 million in draws on existing lines.     

The Bank lends mainly to middle-market and smaller commercial entities, although it participates in larger shared-credit loan facilities.  Shared national credits funded at March 31, 2016 totaling approximately $2.2 billion, or 14% of total loans, were up approximately $180 million from December 31, 2015 and up $380 million from March 31, 2015Approximately $975 million of shared national credits were with energy-related customers at March 31, 2016,  down approximately $25 million from both December 31, 2015 and March 31, 2015.  

Commercial non-real estate loans, construction and land development loans, and commercial real estate loans increased $357 million over the first three months of 2016.  Commercial real estate loans include approximately $1.8 billion in loans on income-producing properties, up approximately $200 million, or 13%, from December 31, 2015, and approximately $1.9 billion in loans on properties used by borrowers in commercial operations, up approximately $64 million, or 3%, from December 31, 2015.  

Residential mortgages were down $49 million during the first three months of 2016 from the sale of approximately $52 million of single family mortgages.  Consumer loans decreased $33 million during the first three months of 2016.

Total FDIC acquired loans at March 31, 2016 were down $4 million from December 31, 2015 and down $39 million from March 31, 2015, reflecting normal repayments, charge-offs and foreclosures.    

Allowance for Loan Losses and Asset Quality

The Company's total allowance for loan losses was $217.8 million at March 31, 2016, compared to $181.2 million at December 31, 2015.  The allowance maintained on the non-FDIC acquired portion of the loan portfolio totaled $197.3 million, a $39.2 million linked-quarter increase, and the impaired reserve on the FDIC acquired loan portfolio decreased $2.6 million linked-quarter



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Table of Contents

During the first quarter of 2016, there were in excess of $300 million in outstanding energy credits downgrades to criticized.  The increase in criticized loans 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 lending credits identified in the shared national credit exam or based on new guidance provided by the regulators.  Several of the reserve-based lending credits downgraded in the exam, totaling approximately $82 million, were moved to nonaccrual status.  As of March 31, 2016, criticized loans in the energy portfolio were $761 million, or approximately 47% of the energy portfolio.

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 million, or almost 7% of energy loans. 

The following table provides a breakout of the Company’s allowance for loan losses for the energy portfolio, allocated by sector at March 31, 2016.





 

 

 

 

 



 

 

 

 

 

(in millions)

Outstanding Balance

 

Allocated Allowance for Loan and Lease Losses

 

Allowance for Loan and Lease Losses as a % of Loans

Upstream (reserve-based lending)

$           598.9

 

$           32.7

 

5.5% 

Midstream

107.7 

 

0.7 

 

0.6% 

Support - drilling

244.2 

 

26.7 

 

10.9% 

Support - nondrilling

682.0 

 

51.1 

 

7.5% 

Total

$        1,632.8

 

$         111.2

 

6.8% 



Management continues to closely monitor the potential impact that the decrease in oil and natural gas prices over the past twenty-one months will have on the ability of the Company’s energy loan portfolio customers’ to service their debt.  Part of the ongoing monitoring includes a review of customers’ balance sheets, leverage ratios, collateral values and other critical lending metrics.  As new information becomes available, the Company could have additional risk rating downgrades.  Management believes that if further risk rating downgrades occur, they could lead to additional loan loss provisions, a higher allowance for loan losses, and additional charge-offs.  However, management does not believe any resulting losses will be significant enough to put our capital levels at risk.  Based upon its assessment of information currently available, management currently estimates that charge-offs from energy-related credits could approximate $65-$95 million over the duration of the cycle.  See Item 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion of the Company’s energy portfolio and its potential impact on the allowance for loan losses.

The $2.6 million linked-quarter decrease in the allowance related to the FDIC acquired loan portfolio is the result of lower projected losses.

The ratio of the allowance to period-end loans was 1.36% at March 31, 2016, compared to 1.15% at December 31, 2015.  The allowance maintained on the originated portion of the loan portfolio totaled $197.3 million, or 1.27% of related loans, at March 31,  2016,  compared to $158.0 million, or 1.04%, at December 31, 2015. 

Net charge-offs for the three months ended March 31, 2016 from the non-FDIC acquired loan portfolio were $21.3 million, or 0.54% of average total loans on an annualized basis, compared to $7.9 million, or 0.21%, for the three-month period ended December 31, 2015.  Included in the first quarter of 2016 total are $17.4 million in charge-offs related to energy credits.

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Table of Contents

The following table sets forth activity in the allowance for loan losses for the periods indicated.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 



 

March 31,

 

December 31,

 

March 31,

 

(in thousands)

 

2016

 

2015

 

2015

 

Allowance for loan losses at beginning of period

 

$

181,179 

 

$

139,576 

 

$

128,762 

 

Loans charged-off:

 

 

 

 

 

 

 

 

 

 

Non-FDIC acquired loans:

 

 

 

 

 

 

 

 

 

 

Commercial non real estate

 

 

17,667 

 

 

3,866 

 

 

1,697 

 

Construction and land development

 

 

110 

 

 

941 

 

 

747 

 

Commercial real estate

 

 

898 

 

 

354 

 

 

251 

 

Residential mortgages

 

 

175 

 

 

184 

 

 

1,209 

 

Consumer

 

 

5,843 

 

 

6,257 

 

 

3,556 

 

Total non-FDIC acquired charge-offs

 

 

24,693 

 

 

11,602 

 

 

7,460 

 

FDIC acquired loans:

 

 

 

 

 

 

 

 

 

 

Commercial non real estate

 

 

 —

 

 

 

 

127 

 

Construction and land development

 

 

18 

 

 

 

 

276 

 

Commercial real estate

 

 

29 

 

 

11 

 

 

2,368 

 

Residential mortgages

 

 

 —

 

 

24 

 

 

93 

 

Consumer

 

 

 —

 

 

 

 

140 

 

Total FDIC acquired charge-offs

 

 

47 

 

 

44 

 

 

3,004 

 

Total charge-offs

 

 

24,740 

 

 

11,646 

 

 

10,464 

 

Recoveries of loans previously charged-off:

 

 

 

 

 

 

 

 

 

 

Non-FDIC acquired loans:

 

 

 

 

 

 

 

 

 

 

Commercial non real estate

 

 

809 

 

 

753 

 

 

981 

 

Construction and land development

 

 

605 

 

 

173 

 

 

1,243 

 

Commercial real estate

 

 

185 

 

 

1,770 

 

 

(3)

 

Residential mortgages

 

 

301 

 

 

109 

 

 

305 

 

Consumer

 

 

1,494 

 

 

920 

 

 

1,280 

 

Total non-FDIC acquired recoveries

 

 

3,394 

 

 

3,725 

 

 

3,806 

 

FDIC acquired loans:

 

 

 

 

 

 

 

 

 

 

Commercial non real estate

 

 

 

 

 

 

14 

 

Construction and land development

 

 

35 

 

 

14 

 

 

406 

 

Commercial real estate

 

 

36 

 

 

35 

 

 

113 

 

Residential mortgages

 

 

 

 

79 

 

 

 —

 

Consumer

 

 

39 

 

 

11 

 

 

16 

 

Total FDIC acquired recoveries

 

 

114 

 

 

144 

 

 

549 

 

Total recoveries

 

 

3,508 

 

 

3,869 

 

 

4,355 

 

Net charge-offs - non-FDIC acquired

 

 

21,299 

 

 

7,877 

 

 

3,654 

 

Net charge-offs - FDIC acquired

 

 

(67)

 

 

(100)

 

 

2,455 

 

Total net charge-offs

 

 

21,232 

 

 

7,777 

 

 

6,109 

 

Provision for loan losses before FDIC benefit - FDIC acquired loans

 

 

(2,685)

 

 

(2,485)

 

 

(491)

 

Benefit attributable to FDIC loss share agreement

 

 

2,189 

 

 

816 

 

 

421 

 

Provision for loan losses non-FDIC acquired loans

 

 

60,532 

 

 

51,865 

 

 

6,224 

 

Provision for loan losses, net

 

 

60,036 

 

 

50,196 

 

 

6,154 

 

(Decrease) Increase in FDIC loss share receivable

 

 

(2,189)

 

 

(816)

 

 

(421)

 

Allowance for loan losses  at end of period

 

$

217,794 

 

$

181,179 

 

$

128,386 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

Gross charge-offs - non-FDIC acquired to average loans

 

 

0.62 

%

 

0.30 

%

 

0.22 

%

Recoveries - non-FDIC acquired to average loans

 

 

0.09 

%

 

0.10 

%

 

0.11 

%

Net charge-offs - non-FDIC acquired to average loans

 

 

0.54 

%

 

0.21 

%

 

0.11 

%

Allowance for loan losses to period-end loans

 

 

1.36 

%

 

1.15 

%

 

0.92 

%



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Table of Contents

The following table sets forth nonperforming assets by type for the periods indicated, consisting of nonaccrual loans, troubled debt restructurings and foreclosed and surplus ORE and other foreclosed assets.  Loans past due 90 days or more and still accruing are also disclosed.







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

March 31,

 

December 31,

 

(in thousands)

 

2016

 

2015

 

Loans accounted for on a nonaccrual basis: (a)

 

 

 

 

 

 

 

Commercial  non-real estate loans

 

$

151,342 

 

$

83,677 

 

Commercial non-real estate loans - restructured

 

 

14,588 

 

 

5,066 

 

Total commercial non-real estate loans

 

 

165,930 

 

 

88,743 

 

Construction and land development loans

 

 

15,710 

 

 

15,993 

 

Construction and land development loans - restructured

 

 

1,287 

 

 

1,301 

 

Total construction and land development loans

 

 

16,997 

 

 

17,294 

 

Commercial real estate loans

 

 

20,400 

 

 

19,066 

 

Commercial real estate loans - restructured

 

 

1,725 

 

 

1,750 

 

Total commercial real estate loans

 

 

22,125 

 

 

20,816 

 

Residential mortgage loans

 

 

23,005 

 

 

23,082 

 

Residential mortgage loans - restructured

 

 

708 

 

 

717 

 

Total residential mortgage loans

 

 

23,713 

 

 

23,799 

 

Consumer loans

 

 

8,538 

 

 

9,061 

 

Total nonaccrual loans

 

$

237,303 

 

$

159,713 

 

Restructured loans - still accruing:

 

 

 

 

 

 

 

Commercial non-real estate loans

 

$

41,273 

 

$

 —

 

Construction and land development loans

 

 

19 

 

 

20 

 

Commercial real estate loans

 

 

4,095 

 

 

4,111 

 

Residential mortgage loans

 

 

175 

 

 

106 

 

Consumer loans

 

 

58 

 

 

60 

 

Total restructured loans - still accruing

 

 

45,620 

 

 

4,297 

 

Total nonperforming loans

 

 

282,923 

 

 

164,010 

 

ORE and foreclosed assets

 

 

24,032 

 

 

27,133 

 

Total nonperforming assets (b)

 

$

306,955 

 

$

191,143 

 

Loans 90 days past due still accruing

 

$

9,226 

 

$

7,653 

 

Total restructured loans

 

$

63,928 

 

$

13,131 

 

Ratios:

 

 

 

 

 

 

 

Nonperforming assets to loans plus ORE and foreclosed assets

 

 

1.92 

%

 

1.22 

%

Allowance for loan losses to nonperforming loans and accruing loans 90 days past due

 

 

74.55 

%

 

105.54 

%

Loans 90 days past due still accruing to loans

 

 

0.06 

%

 

0.05 

%



(a)

Nonaccrual loans and accruing loans past due 90 days or more do not include acquired credit-impaired loans which were written down to fair value upon acquisition and accrete interest income over the remaining life of the loan.

(b)

Includes total nonaccrual loans, total restructured loans - still accruing and ORE and foreclosed assets.

Nonperforming assets 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 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

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Table of Contents

Short-Term Investments

Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors.  Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, decreased to $152 million at March 31, 2016. This total was down $414 million from December 31, 2015, and $364 million from March 31, 2015.  These assets are highly volatile on a daily basis depending upon movement in customer loan and deposit accounts.  Average short-term investments of $519 million for the first quarter of 2016 were up $74 million compared to the fourth quarter of 2015, and down $139 million, or 21%, compared to the first quarter of 2015. See the Liquidity section above for further discussion regarding the management of its short-term investment portfolio and its impact on the Company’s liquidity in general.

Deposits

Total deposits were $18.7 billion at March 31, 2016, up $307 million, or 2%, from December 31, 2015, and $1.8 billion, or 11%, from March 31, 2015.  Average deposits for the first quarter of 2016 were $18.3 billion, up $460 million, or 3% from the fourth quarter of 2015. The continuing impact of the deposit growth initiatives implemented during 2015 and greater utilization of the Company’s brokered deposits program offset the seasonal declines that typically reduce deposits in the first quarter of each year.



Noninterest-bearing demand deposits were $7.1 billion at March 31, 2016, down $168 million, or 2%, compared to the fourth quarter and were up $907 million, or 15%, from March 31, 2015. In the fourth quarter of 2015, the Company redesigned its deposit product offerings, resulting in a transfer of approximately $1.2 billion of balances from interest-bearing transaction accounts to noninterest-bearing demand deposits. Management believes that the benefits included the new suite of consumer products will minimize migration to other interest-bearing products in a rising interest rate environment.   Noninterest-bearing demand deposits comprised 38.1% of total period-end deposits at March 31, 2016, down from 39.7% at December 31, 2015, but up from 36.8% at March 31, 2015. 



Interest-bearing transaction and savings accounts of $7.0 billion at March 31, 2016, increased $276 million, or 4% compared to year-end, and were up $467 million, or 7% from March 31, 2015. Additional deposits attracted through the deposit initiatives more than offset the effect of the transfer of deposits into noninterest-bearing accounts mentioned above. 

Interest-bearing public fund deposits totaled $2.2 billion at March 31, 2016, down $101 million, or 4% from December 31, 2015. This category totaled $1.8 billion at March 31, 2015.  These deposits are seasonal in nature with normal quarterly fluctuations.

Time deposits, other than public funds, at March 31, 2016, increased $300 million, or 15% from December 31, 2015 and $97 million, or 4% compared to March 31, 2015.  Brokered CDs increased $241 million from December 31, 2015 and $340 million from March 31, 2015.  Other CDs increased $59 million, or 4% during the first quarter, and $149 million, or 9%, from March 31, 2015.   The Company discontinued the Eurodollar sweep deposit product in the fourth quarter of 2015.  This product totaled $391 million at March 31, 2015.  As discussed in the Liquidity section, the Company uses brokered deposits, subject to strict parameters regarding term and rates, as a short-term funding source.    

Short-Term Borrowings

At March 31, 2016, short-term borrowings totaled $1.1 billion, down $323 million, or 23%, from December 31, 2015. FHLB borrowings decreased $225 million, or 25%, while securities sold under agreements to repurchase (“Reverse Repos”) decreased $95 million, or 18%.   Short-term borrowings increased $346 million compared to March 31, 2015 as FHLB borrowings increased $475 million while Reverse Repos were down $125 million. Reverse Repos and FHLB borrowings are the major sources of short-term borrowings. Reverse Repos are offered mainly to commercial customers to assist them with their cash management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for corporate or investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, the amounts available over time can be volatile.  FHLB borrowings are funds from the Federal Home Loan Bank that are collateralized by loans in the bank’s loan portfolio.

 

OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

In the normal course of business, the Bank enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of their customers.  Such instruments are not reflected in the accompanying consolidated financial statements until they are funded, although they expose the Bank to varying degrees of credit risk and interest rate risk in much the same way as funded loans. Under regulatory capital guidelines, the Company must include unfunded commitments meeting certain criteria in its risk-weighted capital calculation.

Commitments to extend credit include revolving commercial credit lines, nonrevolving loan commitments issued mainly to finance the acquisition and development or construction of real property or equipment, and credit card and personal credit lines.  The availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower continues to meet credit standards established in the underlying contract and has not violated other contractual conditions.  Loan commitments

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generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower.  Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates.  A number of commercial and personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do not necessarily represent future cash requirements of the Company.

A substantial majority of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial commitments to a third party if the customer is unable to perform.  The Bank issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services. 

The contract amounts of these instruments reflect the Company's exposure to credit risk.  The Company undertakes the same credit evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support. 

The following table shows the commitments to extend credit and letters of credit at March 31, 2016 according to expiration date. 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Expiration Date



 

 

 

 

Less than

 

1-3

 

3-5

 

More than

(in thousands)

 

Total

 

1 year

 

years

 

years

 

5 years

Commitments to extend credit

 

$

5,735,863 

 

$

2,663,491 

 

$

1,201,057 

 

$

1,138,428 

 

$

732,887 

Letters of credit

 

 

378,720 

 

 

230,450 

 

 

117,287 

 

 

30,983 

 

 

 —

Total

 

$

6,114,583 

 

$

2,893,941 

 

$

1,318,344 

 

$

1,169,411 

 

$

732,887 



 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no material changes or developments with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, except as noted under Goodwill Impairment Testing below

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with those generally practiced within the banking industry which require management to make estimates and assumptions about future events.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and the resulting estimates form the basis for making judgments about the carrying values of certain assets and liabilities not readily apparent from other sources.  Actual results could differ significantly from those estimates.

Goodwill Impairment Testing



Goodwill, which represents the excess of cost over the fair value of the net assets of an acquired business, is not amortized but is assessed for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment.  The impairment test compares the estimated fair value of a reporting unit with its net book value.  The Company has assigned all goodwill to one reporting unit that represents overall banking operations. The fair value of the reporting unit is based on valuation techniques that market participants would use in an acquisition of the whole unit, such as estimated discounted cash flows, the quoted market price of  Hancock’s stock adjusted for a control premium and observable average price-to-earnings and price-to-book multiples of our competitors.  If the unit’s fair value is less than its carrying value, an estimate of the implied fair value of the goodwill is compared to the goodwill’s carrying value and any impairment recognized.



The Company completed its annual impairment test of goodwill as of December 31, 2015 and concluded that there was no impairment of goodwill.  However, the continuation of the downturn in the energy cycle combined with a continued decline in the Company’s stock price and market capitalization, and an unusually large first quarter 2016 loan loss provision indicated there may be impairment.  As a result, management tested for goodwill impairment as of March 31, 2016.



Consistent with December 31, 2015, the Company used multiple approaches to measure its fair value at March 31, 2016.  These included an income approach using the discounted net present value of estimated future cash flows, a transaction or price-to-book multiple approach using the actual price paid by similar companies in recent acquisition transactions and a market capitalization approach using both the Company’s actual market capitalization at March 31, 2016 and an estimated market capitalization using a price-to-earnings multiple based off the Company’s 2016 and 2017 forecast.



The results from each of the approaches were relatively similar with little disparity and were combined and weighted to derive an estimated fair market value for the Company.  Equal weightings were given to the income approach, the transaction approach and the market capitalization approach using 2016 and 2017 forecasted earnings and a lower weighting given to the current market

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capitalization approach as management believes the Company’s current market capitalization is temporarily depressed due to the depressed energy sector. The weighted approach resulted in a fair market value approximately 13% higher than net book value at March 31, 2016.

 

Each of the valuation techniques used by the Company requires significant assumptions.  Depending upon the specific approach, assumptions are made concerning the economic environment, expected net interest margins, growth rates, discount rates for cash flows, control premiums, price-to-earnings multiples, and price-to-book multiples. Also, assumptions are made to determine the appropriate individual weighting to be used for each approach in determining the fair market value.  Changes to any one of these assumptions could result in significantly different results. 



 

NEW ACCOUNTING PRONOUNCEMENTS

See Note 14 to our Consolidated Financial Statements included elsewhere in this report.

 

FORWARD-LOOKING STATEMENTS

This report 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 net accretion levels, possible repurchases of shares under stock buyback programs, and the financial impact of regulatory requirements.  The Company’s ability to accurately project results, predict the effects of future plans or strategies, or predict market or economic developments is inherently limited.  Although the Company 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 the Company’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.  The Company 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.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our net income is materially dependent on our net interest income.  The Company’s primary market risk is interest rate risk that stems from uncertainty with respect to absolute and relative levels of future market interest rates that affect our financial products and services.  In an attempt to manage our exposure to interest rate risk, management measures the sensitivity of our net interest income and cash flows under various market interest rate scenarios, establishes interest rate risk management policies and implements asset/liability management strategies designed to produce a relatively stable net interest margin under varying rate environments.

The Company measures its interest rate sensitivity primarily by running net interest income simulations.  The Company’s balance sheet is asset sensitive over a two-year period to rising interest rates under various shock scenarios.  The model measures annual net interest income sensitivity relative to a base case scenario and incorporates assumptions regarding balance sheet growth and the mix of earning assets and funding sources as well as pricing, re-pricing and maturity characteristics of the existing and projected balance sheet.

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The table below presents the results of simulations run as of March 31, 2016 for year 1 and year 2, assuming the indicated instantaneous and sustained parallel shift in the yield curve at the measurement date. These results indicate that we are slightly asset sensitive compared to the stable rate environment assumed for the base case.





 

 

 

 

 

 

 



 

 

 

 

 

 

 



Net Interest Income (te) at Risk



 

 

Estimated



Change in

 

increase (decrease)



interest rate

 

in net interest income



(basis points)

 

Year 1

 

Year 2



+100

 

1.61 

%

 

1.97 

%



+200

 

3.94 

%

 

4.54 

%



+300

 

5.55 

%

 

6.10 

%



Note: Decrease in interest rates discontinued in the current rate environment

The foregoing disclosures related to our market risk should be read in conjunction with our audited consolidated financial statements, related notes and management’s discussion and analysis for the year ended December 31, 2015 included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Item 4. Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to timely alert them to material information relating to us (including our consolidated subsidiaries) required to be included in our Exchange Act filings.

Our management, including the Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the three-month period ended March 31, 2016, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

The Company, including subsidiaries, is party to various legal proceedings arising in the ordinary course of business.  We do not believe that loss contingencies, if any, arising from pending litigation and regulatory matters will have a material adverse effect on our consolidated financial position or liquidity.

Item 1A.  Risk Factors

There were no changes to the risk factors that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015. 

The risks described may not be the only risks facing us.  Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition, and/or operating results.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

On August 28, 2015 the Company approved a stock purchase program authorizing the repurchase of up to 5% of its outstanding stock, or approximately 3.9 million shares, until September 2016.  As of March 31, 2016, there were 3.2 million shares available for repurchase under the plan. Under this plan, the Company has repurchased 741,393 shares of its common stock at an average price of $27.44 per share.  There were no share repurchases during the first quarter of 2016.  

    



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Item 6.  Exhibits.

(a)  Exhibits:







 

 



 

 

Exhibit

 

 

Number

 

Description

 3.1

 

Composite Articles of the Company (filed as Exhibit 2.1 to the Company's Form 10-K for the year ended December 31, 2014 (file No. 01-36872) filed with the Commission on February 27, 2015.

 3.2

 

Amended and Restated Bylaws, dated November 8, 1990 (filed as Exhibit 3.2 to Hancock's registration statement on Form S-8 filed with the Commission on September 19, 1996 and incorporated herein by reference.

*10.1

 

Separation and Restrictive Covenant Agreement, between the Company and Edward G. Francis, dated April 7, 2016.

*10.2

 

Form of Amended Restricted Stock Award Agreement (amending awards approved in 2016).

*10.3

 

2016 Executive Incentive Plan.

*10.4

 

First Amendment to Credit Agreement and Waiver, dated May 3, 2016.

  31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 101

 

XBRL Interactive Data.



*   Filed with this Form 10Q

 

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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





 

 



Hancock Holding Company



 

 



By:

/s/ John M. Hairston



 

John M. Hairston



 

President & Chief Executive Officer



 

(Principal Executive Officer)



 

 



 

/s/ Michael M. Achary



 

Michael M. Achary



 

Chief Financial Officer



 

(Principal Financial Officer)



 

 



Date:

 May 92016



 



 

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Index to Exhibits







 

 



 

 

Exhibit

 

 

Number

 

Description

 3.1

 

Composite Articles of the Company (filed as Exhibit 2.1 to the Company's Form 10-K for the year ended December 31, 2014 (file No. 01-36872) filed with the Commission on February 27, 2015.

 3.2

 

Amended and Restated Bylaws, dated November 8, 1990 (filed as Exhibit 3.2 to Hancock's registration statement on Form S-8 filed with the Commission on September 19, 1996 and incorporated herein by reference.

*10.1

 

Separation and Restrictive Covenant Agreement, between the Company and Edward G. Francis, dated April 7, 2016.

*10.2

 

Form of Amended Restricted Stock Award Agreement (amending awards approved in 2016).

*10.3

 

2016 Executive Incentive Plan.

*10.4

 

First Amendment to Credit Agreement and Waiver, dated May 3, 2016.

  31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 101

 

XBRL Interactive Data.



*   Filed with this Form 10Q