For Immediate Release
October 24, 2011
For More Information
Trisha Voltz Carlson, SVP, Investor Relations Manager
504.299.5208
trisha_carlson@hancockbank.com
Hancock reports third quarter 2011 financial results
Results include full quarter impact of Whitney acquisition
GULFPORT, Miss. (October 24, 2011) — Hancock Holding Company (Nasdaq: HBHC) (the “Company” or “Hancock”) today announced financial results for the third quarter of 2011. Operating income for the third quarter of 2011 was $45.2 million or $.53 per diluted common share compared to $26.6 million, or $.48, and $14.9 million, or $.40, in the second quarter of 2011 and third quarter of 2010, respectively. Operating income is defined as net income excluding tax-effected merger costs and securities transactions gains or losses. Included in the financial tables is a reconciliation of net income to operating income.
Hancock's return on average assets, excluding merger related items and securities transactions, was 0.92% for the third quarter of 2011, unchanged from the second quarter of 2011, and an improvement of 22 basis points (bps) over the prior year period.
Net income for the third quarter of 2011 was $30.4 million, or $.36 per diluted common share, compared to $12.1 million, or $.22, and $14.9 million, or $.40, in the second quarter of 2011 and third quarter of 2010, respectively. Included in net income for the third quarter of 2011 were $22.8 million of pre-tax merger-related costs. Pre-tax merger costs for the second quarter of 2011 totaled $22.2 million. There were no merger costs in the year ago quarter.
The Company's pre-tax, pre-provision profit for the third quarter of 2011 was $73.9 million compared to $49.5 million in the second quarter of 2011. Pre-tax pre-provision profit is total revenue (TE) less non-interest expense and excludes merger-related costs and securities transactions. Included in the financial tables is a reconciliation of net income to pre-tax, pre-provision profit.
"While opportunities remain to harvest additional cost synergies and continue cultivating revenue prospects, operating results for the third quarter better reflect the long-term earnings potential of this newly combined company,” said Hancock's President and Chief Executive Officer Carl J. Chaney. “I am proud of what our bankers have accomplished so far in integrating these two well-known organizations, and I look forward to what the future holds for this premiere Gulf Coast franchise.”
On June 4, 2011, Hancock completed its acquisition of Whitney Holding Corporation (“Whitney”) headquartered in New Orleans, Louisiana. The impact of the acquisition is reflected in the Company’s financial information from the acquisition date. The acquisition added $11.7 billion in assets, $6.5 billion in loans, and $9.2 billion in deposits.
Under purchase accounting, the Whitney balance sheet was marked to fair value at acquisition date. Whitney’s allowance for loan losses of $208 million at acquisition was not carried forward, and the loan portfolio was reduced, or “marked,” $463 million to fair value. A portion of the mark on the loan portfolio will be accreted into interest income over time. Goodwill and other intangibles of approximately $780 million were recorded in connection with the Whitney acquisition.
On September 16, 2011, the Company completed the sale of seven Whitney Bank branches located on the Mississippi Gulf Coast and one Whitney branch in Bogalusa, Louisiana. Hancock and Whitney agreed to sell the eight branches to resolve certain branch concentration concerns of the U.S. Department of Justice relating to the merger of Whitney into Hancock. As part of the divestiture, Hancock sold approximately $47 million in loans and approximately $180 million in deposits.
Highlights & Key Operating Items from Hancock's Third Quarter Results
Balance Sheet
Total assets at September 30, 2011, were $19.4 billion, compared to $19.8 billion at June 30, 2011. Approximately half of the decrease was related to the divestiture noted above.
Loans
Total loans at September 30, 2011 were $11.1 billion, down $147 million, or 1%, from June 30, 2011. The linked-quarter decline included approximately $47 million from the sale of the eight Whitney branches noted above, and approximately $26 million was from the portfolio covered by a loss share agreement with the FDIC related to the 2009 acquisition of Peoples First. Approximately $60 million, with about half from the Texas market, was related to resolution of problem credits. The remaining decline reflected payoffs and paydowns in excess of new originations during the quarter, mainly in the Texas market.
The Company continues to experience limited loan demand throughout its operating region. Many commercial customers are holding excess liquidity and are choosing to pay down debt in light of the overall economic environment.
Despite the overall decline in loans, several markets, including the Mississippi Gulf Coast, Baton Rouge and south central Louisiana, Tampa and Jacksonville, reported net loan growth for the quarter.
For the quarter ended September 30, 2011, Hancock's average total loans were $11.2 billion compared to $6.7 billion in the second quarter of 2011. The increase in average loans mainly reflects a full quarter impact of the Whitney acquisition.
Deposits
Total deposits at September 30, 2011 were $15.3 billion, down $296 million, or 2%, from June 30, 2011. The linked-quarter decline included approximately $180 million from the sale of the eight Whitney branches noted above, $73 million from the anticipated runoff in the Peoples First time deposit portfolio and $160 million of seasonal public funds outflows.
Time deposits (CDs) totaled $3.1 billion at September 30, 2011, down $298 million compared to $3.4 billion at June 30, 2011. During the third quarter, approximately $900 million of time deposits matured at 94bps, of which approximately 60% renewed at 33bps. In the current low rate environment, customers will be motivated to hold funds in no or low-cost transaction accounts until rates begin to rise.
Noninterest-bearing demand deposits (DDAs) totaled $5.1 billion at September 30, 2011, up $198 million compared to June 30, 2011. Noninterest-bearing demand deposits comprised 33% of total period-end deposits at September 30, 2011, compared to 31% at June 30, 2011.
Average deposits for the third quarter of 2011 were $15.5 billion compared to $9.2 billion in the second quarter of 2011. The increase in average deposits mainly reflects a full quarter impact of the Whitney acquisition.
Asset Quality
The Company's allowance for loan losses was $118.1 million at September 30, 2011, compared to $112.4 million at June 30, 2011. The ratio of the allowance for loan losses to period-end loans was 1.06% at September 30, 2011, compared to 1.00% at June 30, 2011. Excluding the acquired and covered portfolios, which did not carry forward a reserve under purchase accounting rules, the allowance for loan losses as a percent of period-end loans was 1.86% at September 30, 2011, compared to 1.99% at June 30, 2011.
Net charge-offs for the third quarter of 2011 were $7.8 million, or 0.28% of average loans on an annualized basis, compared to $8.2 million, or 0.49% of average loans, for the second quarter of 2011.
Hancock recorded a total provision for loan losses for the third quarter of 2011 of $9.3 million compared to $9.1 million in the second quarter of 2011. The third quarter total provision included approximately $0.2 million, net, related to the Peoples First covered portfolio. During the third quarter of 2011 the Company recorded a $4.5 million increase in the allowance for losses related to impairment of certain pools of covered loans. The allowance increase was mostly offset (95%) by a $4.3 million increase in the Company’s FDIC loss share indemnification asset.
Non-performing assets totaled $231 million at September 30, 2011, compared to $258 million at June 30, 2011. The decrease from the previous period is mainly in the legacy Hancock portfolio and is related to payoffs and paydowns on non-performing loans along with net sales/reductions of ORE. Whitney’s acquired credit-impaired loan portfolio was recorded at estimated fair value at acquisition and is not included in non-performing assets. Non-performing assets as a percent of total loans and foreclosed assets was 2.06% at September 30, 2011, compared to 2.27% at June 30, 2011.
Additional asset quality metrics for the acquired (Whitney), covered (Peoples First) and originated (Hancock legacy plus newly originated loans) portfolios are included in the financial tables.
Net Interest Income
Net interest income (TE) for the third quarter of 2011 was $180.2 million, compared to $101.9 million in the second quarter of 2011. The increase was mainly related to the full quarter impact of the Whitney acquisition.
Average earning assets were $16.6 billion in the third quarter of 2011 compared to $9.9 billion in the second quarter of 2011.
The net interest margin (TE) was 4.32% for the third quarter of 2011, compared to 4.11% for the second quarter of 2011. Net purchase accounting adjustments for the Whitney transaction added approximately 24bps and 8bps to the third quarter and second quarter net interest margins, respectively. The Company’s $400 million deployment of excess liquidity at the end of the second quarter favorably impacted the third quarter margin by approximately 6bps.
The margin continued to be favorably impacted by a shift in funding sources and a decline in funding costs, offset by a less favorable shift in the mix of earning assets and a decline in investment portfolio yields.
Non-interest Income
Non-interest income totaled $65.0 million for the third quarter of 2011 compared to $46.7 million in the second quarter of 2011. The increase was mainly related to the full quarter impact of the Whitney acquisition. There were no significant changes to recurring sources of income during the third quarter.
Management continues to expect that the new interchange rates related to the Durbin amendment implemented in the fourth quarter of 2011 could result in approximately $2 million to $3 million of lower fee income for the remainder of 2011 and approximately $15 million to $18 million of lower fee income in 2012.
Non-interest Expense & Taxes
Non-interest expense for the third quarter of 2011 totaled $194.0 million compared to $121.4 million in the second quarter of 2011. The majority of the increase was related to the full quarter impact of the Whitney acquisition. Non-interest expense included $22.8 million and $22.2 million of merger-related expenses for the third and second quarters of 2011, respectively.
The efficiency ratio, which excludes merger costs, was 66.98% for the third quarter of 2011 compared to 65.62% for the second quarter of 2011.
The effective income tax rate for the third quarter of 2011 was 22%, up slightly from 21% in the second quarter of 2011. The low tax rate is impacted by tax-exempt interest income and the utilization of tax credits. The source of the tax credits resulted from investments in New Market Tax Credits, Qualified Bond Credits and Work Opportunity Tax Credits.
Integration Update
The integration of Whitney into Hancock continues to progress as scheduled. The main systems conversion remains on track and is scheduled for the first quarter of 2012. Systems important to internal operations, such as payroll and general ledger, converted in recent weeks.
Merger costs incurred to-date totaled approximately $47 million. Management continues to expect a total of approximately $125 million in pre-tax merger costs related to the Whitney acquisition.
The Company realized approximately $15 million in merger-related cost saves during the third quarter of 2011 compared to proforma 2010 expense levels, or 45% of its projected target. Management remains confident it will meet its total projected annual cost saves of $134 million by the beginning of 2013.
Capital
Hancock continues to remain well capitalized, with total equity of $2.4 billion at September 30, 2011. The Company's tangible common equity ratio improved to 8.56% at September 30, 2011, up 45bps from 8.11% at June 30, 2011. Additional capital ratios are included in the financial tables.
Conference Call
Management will host a conference call for analysts and investors at 4:00 p.m. Central Daylight Time today to review the results. A live listen-only webcast of the call will be available under the Investor Relations section of Hancock’s website at www.hancockbank.com.
To participate in the Q&A portion of the call, dial (877) 564-1219 or (973) 638-3429. An audio archive of the conference call will be available under the Investor Relations section of Hancock’s website. A replay of the call will also be available through October 31, 2011, by dialing (855) 859-2056 or (404) 537-3406, passcode 14767673.
About Hancock Holding Company
Hancock Holding Company, the parent company of Hancock Bank and Whitney Bank, operates a combined total of nearly 300 full-service bank branches and almost 400 ATMs across a Gulf south corridor comprising South Mississippi; southern and central Alabama; southern Louisiana; the northern, central, and Panhandle regions of Florida; and Houston, Texas.
The Hancock Holding Company financial services family also includes Hancock Investment Services, Inc.; Hancock Insurance Agency and its divisions of J. Everett Eaves and Ross King Walker; Magna Insurance Company; Southern Coastal Insurance Agency, Inc.; corporate trust offices in Gulfport and Jackson, Miss., New Orleans and Baton Rouge, LA and Orlando, FL; and Harrison Finance Company.
Investors and customers can access more information about Hancock Holding Company, Hancock Bank, and e-banking at www.hancockbank.com. Details about Whitney Bank and online banking are available at www.whitneybank.com.
Forward-Looking Statements
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about companies' anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects the companies from unwarranted litigation if actual results are different from management expectations. This news release contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and we intend such forward-looking statements to be covered by the safe harbor provisions therein and are including this statement for purposes of invoking these safe-harbor provisions. Forward-looking statements reflect management’s current views and 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. The forward-looking statements made in this release include, but may not be limited to, comments with respect to, future profitability, the timing, merger costs, cost synergies, profitability and long-term success of the Hancock/Whitney integration and the financial impact of regulatory requirements such as the Durbin amendment.
Hancock’s ability to accurately project results or predict the effects of future plans or strategies is inherently limited. Although Hancock believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance in future periods could differ materially from those set forth in the forward-looking statements. Factors that could cause Hancock’s actual results to differ from those expressed in Hancock’s forward-looking statements include, but are not limited to, those risk factors outlined in Hancock’s public filings with the Securities and Exchange Commission, which are available at the SEC’s internet site (http://www.sec.gov), the anticipated benefits from the Whitney acquisition such as it being accretive to earnings, expanding our geographic presence and synergies are not realized in the time frame anticipated or at all as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations (including changes to capital requirements) and their enforcement, and the degree of competition in the geographic and business areas in which the companies operate; the ability to promptly and effectively integrate the businesses of Whitney and Hancock; reputational risks and the reaction of the company’s customers to the transaction; unanticipated losses related to the integration of, and accounting for, acquired business and assets, current market volatility and diversion of management time on merger-related issues.
You are cautioned not to place undue reliance on these forward-looking statements. Hancock does not intend, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.
