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EX-31.2 - EX-31.2 - HANCOCK WHITNEY CORPhbhc-20170331xex31_2.htm
EX-31.1 - EX-31.1 - HANCOCK WHITNEY CORPhbhc-20170331xex31_1.htm
EX-10.3 - EX-10.3 - HANCOCK WHITNEY CORPhbhc-20170331xex10_3.htm
EX-10.2 - EX-10.2 - HANCOCK WHITNEY CORPhbhc-20170331xex10_2.htm





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, 2017

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, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company, and “emerging growth 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  



Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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. 

84,519,088 common shares were outstanding as of May 1, 2017.  



1


 







Hancock Holding Company

Index



 

 

Part I. Financial Information

Page
Number

ITEM 1.

Financial Statements

 



Consolidated Balance Sheets – March 31, 2017 (unaudited) and December 31, 2016



Consolidated Statements of Income (unaudited) - Three months ended March 31, 2017 and 2016



Consolidated Statements of Comprehensive Income (unaudited) – Three months ended March 31, 2017 and 2016



Consolidated Statements of Changes in Stockholders’ Equity - (unaudited) – Three months ended March 31, 2017 and 2016



Consolidated Statements of Cash Flows (unaudited) - Three months ended March 31, 2017 and 2016



Notes to Consolidated Financial Statements (unaudited)  March 31, 2017

10 

ITEM 2.

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

36 

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

58 

ITEM 4.

Controls and Procedures

58 

Part II.  Other Information

 

ITEM 1.

 Legal Proceedings

59 

ITEM 1A. 

 Risk Factors

59 

ITEM 2.

 Unregistered Sales of Equity Securities and Use of Proceeds

59 

ITEM 3.

 Default on Senior Securities

N/A

ITEM 4.

 Mine Safety Disclosures

N/A

ITEM 5.

Other Information

N/A

ITEM 6.

Exhibits

59 

Signatures

 



2


 



Hancock Holding Company

Glossary of Defined Terms



AFS – available for sale securities

AOCI – accumulated other comprehensive income

ALLL – allowance for loan and lease losses

ASC – Accounting Standards Codification

ASU – Accounting Standards Update

ATM - automatic teller machine

Bank – Whitney Bank

Basel II - Basel Committee's 2004 Regulatory Capital Framework (Second Accord)

Basel III - Basel Committee's 2010 Regulatory Capital Framework (Third Accord)

Basel Committee - Basel Committee on Banking Supervision

Beige Book - Federal Reserve’s Summary of Commentary on Current Economic Conditions    

bp(s) – basis point(s)

C&I – commercial and industrial loans

CD – certificate of deposit

CDE – Community Development Entity

CMO – Collateralized Mortgage Obligation

Company – Hancock Holding Company and its wholly-owned subsidiaries

CRE – commercial real estate

Dodd-Frank Act – The Dodd-Frank Wall Street Reform and Consumer Protection Act

FASB – Financial Accounting Standards Board

FDIC – Federal Deposit Insurance Corporation

Federal Reserve Bank – The 12 banks that are the operating arms of the U.S. central bank. They implement the

policies of the Federal Reserve Board and also conduct economic research.

Federal Reserve Board – The 7-member Board of Governors that oversees the Federal Reserve System, establishes

monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed

by the President subject to Senate confirmation, and serve 14-year terms.

Federal Reserve System – The 12 Federal Reserve Banks, with each one serving member banks in its own district.

This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the

credit structure.

FHLB – Federal Home Loan Bank

FNBC – First NBC Bank

GAAP – Generally Accepted Accounting Principles in the United States of America

Hancock – Hancock Holding Company

Hancock Bank – Whitney Bank does business as Hancock Bank in Mississippi, Alabama, and Florida

HTM – held to maturity securities

LIBOR – London Interbank Offered Rate

LIHTC – Low Income Housing Tax Credit

MD&A – management’s discussion and analysis of financial condition and results of operations

NAICS – North American Industry Classification System

n/m – not meaningful

OCI – other comprehensive income

OFI – Louisiana Office of Financial Institutions

OREother real estate defined as foreclosed and surplus real estate

Parent Company – Hancock Holding Company

PCI – purchased credit impaired loans

Repos – securities sold under agreements to repurchase

SEC – U.S. Securities and Exchange Commission

Securities Act – Securities Act of 1933, as amended

3


 

te – tax equivalent adjustment

TDR – troubled debt restructuring (as defined in ASC 310-40)

TSR – total shareholder return

U.S. Treasury – The United States Department of the Treasury

Whitney Bank – wholly-owned subsidiary of Hancock Holding Company, through which Hancock conducts its banking operations

4


 





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)

 

2017

 

2016

ASSETS

 

 

unaudited

 

 

 

Cash and due from banks

 

$

333,314 

 

$

372,689 

Interest-bearing bank deposits

 

 

50,452 

 

 

77,235 

Federal funds sold

 

 

821 

 

 

942 

Securities available for sale, at fair value (amortized cost of $2,541,535 and $2,562,000)

 

 

2,498,761 

 

 

2,516,908 

Securities held to maturity (fair value of $2,477,420 and $2,470,117)

 

 

2,502,512 

 

 

2,500,220 

Loans held for sale

 

 

20,883 

 

 

34,064 

Loans

 

 

18,204,868 

 

 

16,752,151 

Less: allowance for loan losses

 

 

(213,550)

 

 

(229,418)

Loans, net

 

 

17,991,318 

 

 

16,522,733 

Property and equipment, net of accumulated depreciation of $236,166 and $231,127

 

 

374,112 

 

 

361,612 

Prepaid expenses

 

 

22,033 

 

 

18,038 

Other real estate, net

 

 

17,068 

 

 

18,884 

Accrued interest receivable

 

 

70,975 

 

 

65,887 

Goodwill

 

 

716,761 

 

 

621,193 

Other intangible assets, net

 

 

86,952 

 

 

87,757 

Life insurance contracts

 

 

484,042 

 

 

480,406 

FDIC loss share receivable

 

 

13,320 

 

 

16,219 

Deferred tax asset, net

 

 

96,078 

 

 

104,435 

Other assets

 

 

205,624 

 

 

176,080 

Total assets

 

$

25,485,026 

 

$

23,975,302 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

7,722,279 

 

$

7,658,203 

Interest-bearing

 

 

12,199,741 

 

 

11,766,063 

Total deposits

 

 

19,922,020 

 

 

19,424,266 

Short-term borrowings

 

 

2,121,932 

 

 

1,225,406 

Long-term debt

 

 

525,082 

 

 

436,280 

Accrued interest payable

 

 

10,476 

 

 

9,574 

Other liabilities

 

 

141,894 

 

 

160,008 

Total liabilities

 

 

22,721,404 

 

 

21,255,534 

Stockholders' equity

 

 

 

 

 

 

Common stock

 

 

291,358 

 

 

291,358 

Capital surplus

 

 

1,711,823 

 

 

1,698,253 

Retained earnings

 

 

878,953 

 

 

850,689 

Accumulated other comprehensive loss, net

 

 

(118,512)

 

 

(120,532)

Total stockholders' equity

 

 

2,763,622 

 

 

2,719,768 

Total liabilities and stockholders' equity

 

$

25,485,026 

 

$

23,975,302 

Common shares authorized (par value of $3.33 per share)

 

 

350,000 

 

 

350,000 

Common shares issued

 

 

87,495 

 

 

87,495 

Common shares outstanding

 

 

84,517 

 

 

84,235 



See notes to unaudited consolidated financial statements.

5


 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Income

(Unaudited)





 

 

 

 

 

 



 

 

 

 

 

 



 

Three months Ended



 

March 31,



 

 

 

 

 

 

(in thousands, except per share data)

 

2017

 

2016

Interest income:

 

 

 

 

 

 

Loans, including fees

 

$

172,781 

 

$

154,113 

Loans held for sale

 

 

217 

 

 

159 

Securities-taxable

 

 

23,367 

 

 

23,957 

Securities-tax exempt

 

 

5,407 

 

 

1,802 

Short-term investments

 

 

743 

 

 

610 

Total interest income

 

 

202,515 

 

 

180,641 

Interest expense:

 

 

 

 

 

 

Deposits

 

 

12,819 

 

 

11,733 

Short-term borrowings

 

 

2,941 

 

 

993 

Long-term debt

 

 

5,064 

 

 

5,079 

Total interest expense

 

 

20,824 

 

 

17,805 

Net interest income

 

 

181,691 

 

 

162,836 

Provision for loan losses

 

 

15,991 

 

 

60,036 

Net interest income after provision for loan losses

 

 

165,700 

 

 

102,800 

Noninterest income:

 

 

 

 

 

 

Service charges on deposit accounts

 

 

19,206 

 

 

18,383 

Trust fees

 

 

11,211 

 

 

11,224 

Bank card and ATM fees

 

 

12,468 

 

 

11,348 

Investment and annuity fees

 

 

4,599 

 

 

4,933 

Secondary mortgage market operations

 

 

3,567 

 

 

2,912 

Insurance commissions and fees

 

 

665 

 

 

1,307 

Amortization of FDIC loss share receivable

 

 

(1,100)

 

 

(1,613)

Other income

 

 

12,875 

 

 

9,346 

Securities transactions

 

 

 —

 

 

346 

Total noninterest income

 

 

63,491 

 

 

58,186 

Noninterest expense:

 

 

 

 

 

 

Compensation expense

 

 

73,099 

 

 

73,001 

Employee benefits

 

 

16,020 

 

 

15,714 

Personnel expense

 

 

89,119 

 

 

88,715 

Net occupancy expense

 

 

10,757 

 

 

10,356 

Equipment expense

 

 

3,714 

 

 

3,774 

Data processing expense

 

 

15,397 

 

 

14,207 

Professional services expense

 

 

11,276 

 

 

7,621 

Amortization of intangibles

 

 

4,705 

 

 

5,124 

Telecommunications and postage

 

 

3,467 

 

 

3,361 

Deposit insurance and regulatory fees

 

 

6,490 

 

 

5,397 

Other real estate expense, net

 

 

(13)

 

 

768 

Other expense

 

 

18,630 

 

 

16,709 

Total noninterest expense

 

 

163,542 

 

 

156,032 

Income before income taxes

 

 

65,649 

 

 

4,954 

Income taxes

 

 

16,635 

 

 

1,115 

Net income

 

$

49,014 

 

$

3,839 

Earnings per common share-basic

 

$

0.57 

 

$

0.05 

Earnings per common share-diluted

 

$

0.57 

 

$

0.05 

Dividends paid per share

 

$

0.24 

 

$

0.24 

Weighted average shares outstanding-basic

 

 

84,365 

 

 

77,501 

Weighted average shares outstanding-diluted

 

 

84,624 

 

 

77,672 





See notes to unaudited consolidated financial statements.

6


 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three months Ended



 

March 31,

(in thousands)

 

2017

 

2016

Net income

 

$

49,014 

 

$

3,839 

Other comprehensive income:

 

 

 

 

 

 

Net change in unrealized gain on securities available for sale and hedges

 

 

1,184 

 

 

28,972 

Reclassification of net losses realized and included in earnings

 

 

1,387 

 

 

1,091 

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

 

 

650 

 

 

798 

Other comprehensive income before income taxes

 

 

3,221 

 

 

30,861 

Income tax expense

 

 

1,201 

 

 

11,332 

Other comprehensive income net of income taxes

 

 

2,020 

 

 

19,529 

Comprehensive income

 

$

51,034 

 

$

23,368 



See notes to unaudited consolidated financial statements.

7


 

Hancock Holding Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

 



 

Common Stock

 

Capital

 

Retained

 

Income (Loss),

 

 

 

(in thousands, except per share data)

 

Shares issued

 

Amount

 

Surplus

 

Earnings

 

net

 

Total

Balance, December 31, 2015

 

87,491 

 

$

291,346 

 

$

1,424,448 

 

$

777,944 

 

$

(80,595)

 

$

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

 

 —

 

 

 —

 

 

3,660 

 

 

 —

 

 

 —

 

 

3,660 

Balance, March 31, 2016

 

87,491 

 

$

291,346 

 

$

1,428,108 

 

$

762,652 

 

$

(61,066)

 

$

2,421,040 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

87,495 

 

$

291,358 

 

$

1,698,253 

 

$

850,689 

 

$

(120,532)

 

$

2,719,768 

Net income

 

 —

 

 

 —

 

 

 —

 

 

49,014 

 

 

 —

 

 

49,014 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,020 

 

 

2,020 

Comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

49,014 

 

 

2,020 

 

 

51,034 

Cash dividends declared ($0.24 per common share)

 

 —

 

 

 —

 

 

 —

 

 

(20,793)

 

 

 —

 

 

(20,793)

Common stock activity, long-term incentive plan

 

 —

 

 

 —

 

 

12,815 

 

 

43 

 

 

 —

 

 

12,858 

Issuance of stock from dividend reinvestment and stock purchase plan

 

 —

 

 

 —

 

 

755 

 

 

 —

 

 

 —

 

 

755 

Balance, March 31, 2017

 

87,495 

 

$

291,358 

 

$

1,711,823 

 

$

878,953 

 

$

(118,512)

 

$

2,763,622 



See notes to unaudited consolidated financial statements.

8


 

 Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 

 

 

Three months Ended



 

March 31,

(in thousands)

 

2017

 

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

49,014 

 

$

3,839 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

6,915 

 

 

7,199 

Provision for loan losses

 

 

15,991 

 

 

60,036 

(Gain) loss on other real estate owned

 

 

(54)

 

 

416 

Deferred tax expense (benefit)

 

 

7,156 

 

 

(8,041)

Increase in cash surrender value of life insurance contracts

 

 

(3,636)

 

 

(1,208)

Loss (gain) on disposal of other assets

 

 

229 

 

 

(2,111)

Net decrease (increase) in loans held for sale

 

 

13,966 

 

 

(3,308)

Net amortization of securities premium/discount

 

 

7,323 

 

 

5,799 

Amortization of intangible assets

 

 

4,705 

 

 

5,124 

Amortization of FDIC indemnification asset

 

 

1,100 

 

 

1,613 

Stock-based compensation expense

 

 

4,209 

 

 

4,050 

Decrease in interest payable and other liabilities

 

 

(33,323)

 

 

(8,438)

Net payments to FDIC for loss share claims

 

 

(1,131)

 

 

(302)

Decrease in FDIC loss share receivable

 

 

902 

 

 

557 

Decrease in other assets

 

 

21,362 

 

 

27,488 

Other, net

 

 

1,600 

 

 

143 

Net cash provided by operating activities

 

 

96,328 

 

 

92,856 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from sales of securities available for sale

 

 

 —

 

 

47,774 

Proceeds from maturities of securities available for sale

 

 

81,116 

 

 

86,966 

Purchases of securities available for sale

 

 

(60,484)

 

 

(167,419)

Proceeds from maturities of securities held to maturity

 

 

92,684 

 

 

86,632 

Purchases of securities held to maturity

 

 

(87,847)

 

 

(236,117)

Net decrease in short-term investments

 

 

9,428 

 

 

414,004 

Net increase in loans

 

 

(273,466)

 

 

(289,324)

Purchases of property and equipment

 

 

(7,329)

 

 

(1,550)

Proceeds from sales of property and equipment

 

 

17 

 

 

 —

Proceeds from sales of other real estate

 

 

3,099 

 

 

4,316 

Cash paid for acquisition, net of cash received

 

 

(322,708)

 

 

 —

Other, net

 

 

(39,588)

 

 

3,567 

Net cash used in investing activities

 

 

(605,078)

 

 

(51,151)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net increase in deposits

 

 

99,583 

 

 

307,254 

Net increase (decrease) in short-term borrowings

 

 

385,777 

 

 

(322,857)

Repayments of long-term debt

 

 

(4,475)

 

 

(19,551)

Net proceeds from issuance of long-term debt

 

 

41 

 

 

66 

Dividends paid

 

 

(20,793)

 

 

(19,131)

Cash paid for taxes with forfeited shares of stock

 

 

(163)

 

 

(127)

Proceeds from exercise of stock options

 

 

8,650 

 

 

 —

Proceeds from dividend reinvestment and stock purchase plan

 

 

755 

 

 

 —

Other, net

 

 

 —

 

 

(134)

Net cash provided (used in) by financing activities

 

 

469,375 

 

 

(54,480)

NET DECREASE IN CASH AND DUE FROM BANKS

 

 

(39,375)

 

 

(12,775)

CASH AND DUE FROM BANKS, BEGINNING

 

 

372,689 

 

 

303,874 

CASH AND DUE FROM BANKS, ENDING

 

$

333,314 

 

$

291,099 

SUPPLEMENTAL INFORMATION FOR NON-CASH

 

 

 

 

 

 

INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Assets acquired in settlement of loans

 

$

1,031 

 

$

1,662 



See notes to unaudited consolidated financial statements.

 

9


 

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.  The Company has also evaluated all subsequent events for potential recognition and disclosure through the filing of this Form 10-Q.  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, 2016.  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.  The presentation of loan disclosures has been modified from prior filings as discussed in Note 4 – Loans and Allowance for Loan Losses.  Select Stockholders’ Equity line items in the Consolidated Balance Sheets and Statements of Changes in Stockholders’ Equity have been modified to simplify the presentation as discussed in Note 7 – Stockholders’ Equity.  Presentation of derivatives contracts cleared through a central clearing counterparty has been revised prospectively to reflect netting of variation margin as settlements to the derivative assets and liabilities rather than collateral, effective January 3, 2017, as discussed in Note 6 – Derivatives.  These changes in presentation 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, 2016.   



 

2.  Acquisition



On March 10, 2017, the Company, through its banking subsidiary, Whitney Bank (“Whitney”), completed the acquisition of certain assets and liabilities, including nine branches, from First NBC Bank (“FNBC”).  This in-market transaction strengthens our position in the Greater New Orleans area.  Whitney paid approximately $323 million in cash consideration ($326 million cash paid net of $3 million in branch cash acquired), including a $41.6 million transaction premium for the earnings stream acquired. 



The transaction was accounted for as a business combination and therefore, assets acquired and liabilities assumed were recorded at estimated fair values on the acquisition date. 

10


 

The following table provides the assets purchased and liabilities assumed.



Fair value of net assets acquired at date of acquisition -  March 10, 2017



 

 

 

(in thousands)

 

 

 

ASSETS

 

 

 

Cash and due from banks

 

$

2,856 

Total loans

 

 

1,211,523 

Property and equipment

 

 

12,332 

Accrued interest receivable

 

 

2,969 

Identifiable intangible assets

 

 

3,900 

Other assets

 

 

63 

    Total identifiable assets

 

$

1,233,643 



 

 

 

LIABILITIES

 

 

 

Deposits

 

$

398,171 

Short-term borrowings

 

 

510,749 

Long-term debt

 

 

93,120 

Other liabilities

 

 

1,607 

    Total liabilities

 

$

1,003,647 

    Net identifiable assets acquired

 

 

229,996 

    Goodwill

 

 

95,568 

    Net assets acquired

 

$

325,564 





The loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses.  The acquired loans were considered to be performing (“purchased credit performing”) based on such factors as past due status, nonaccrual status and are accounted for under Accounting Standards Codification (“ASC”) 310-20.  The difference at the acquisition date between the fair value and the contractual amounts due (the “fair value discount”) of $52.7 million will be accreted into income over the estimated lives of the loan pools established in the valuation.



The Company assumed approximately $604 million borrowings in the acquisition, consisting of both short-term and long-term Federal Home Loan Bank (“FHLB”) borrowings. The short-term borrowings consist of $460 million in variable-rate term notes; $200 million matures in 2025 and $260 million matures in 2026.  These notes re-price quarterly and may be re-paid at the Company’s option, either in whole or in-part, on any quarterly re-pricing date.  Also included in short-term borrowings are $51 million in fixed-rate term notes that mature in 2017.  The long-term borrowings include $93.1 million in fixed-rate term notes: $88 million that mature in 2018,  $3.2 million that mature in 2019, and $1.9 million that mature in 2023.  



Identifiable intangible assets consist of core deposit intangibles totaling $3.9 million that will be amortized using sum of years’ digits over the asset’s life of eight years.  Goodwill totaling $95.6 million represents the excess of the consideration paid over the fair value of the net assets acquired and is expected to be deductible for federal income tax purposes.  There were no other changes to goodwill during the reporting period.



The operating results of the Company for the three months ended March 31, 2017 include the results from the operations acquired in the FNBC transaction since March 10, 2017.  FNBC’s operations contributed approximately $5.1 million in revenue, net of interest expense, and an estimated $2.9 million in net income for the period from the acquisition date, excluding the impact of merger related expense noted below.



Merger-related charges of $6.5 million associated with the FNBC acquisition are included in noninterest expense for 2017.  These expenses were primarily for professional fees, totaling $4.6 million, and $1.5 million in costs related to branch and office consolidations, in addition to marketing and promotion expenses, and retention and severance costs.  The Company expects to incur additional merger-related expense in the second quarter of 2017 with branch consolidation and operations conversion.

11


 









3.  Securities

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







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

March 31, 2017

 

December 31, 2016



 

 

 

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

 

$

76,049 

 

$

 —

 

$

1,553 

 

$

74,496 

 

$

56,751 

 

$

 —

 

$

1,923 

 

$

54,828 

Municipal obligations

 

 

251,416 

 

 

157 

 

 

10,537 

 

 

241,036 

 

 

253,228 

 

 

113 

 

 

11,186 

 

 

242,155 

Residential mortgage-backed securities

 

 

1,568,001 

 

 

10,377 

 

 

18,961 

 

 

1,559,417 

 

 

1,620,191 

 

 

10,592 

 

 

19,428 

 

 

1,611,355 

Commercial mortgage-backed securities

 

 

450,197 

 

 

211 

 

 

22,360 

 

 

428,048 

 

 

425,750 

 

 

 —

 

 

23,159 

 

 

402,591 

Collateralized mortgage obligations

 

 

192,372 

 

 

491 

 

 

599 

 

 

192,264 

 

 

202,580 

 

 

490 

 

 

591 

 

 

202,479 

Corporate debt securities

 

 

3,500 

 

 

 —

 

 

 —

 

 

3,500 

 

 

3,500 

 

 

 —

 

 

 —

 

 

3,500 



 

$

2,541,535 

 

$

11,236 

 

$

54,010 

 

$

2,498,761 

 

$

2,562,000 

 

$

11,195 

 

$

56,287 

 

$

2,516,908 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

March 31, 2017

 

December 31, 2016



 

 

 

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 

 

$

 —

 

$

55 

 

$

49,945 

 

$

50,000 

 

$

 —

 

$

44 

 

$

49,956 

Municipal obligations

 

 

734,075 

 

 

3,345 

 

 

17,604 

 

 

719,816 

 

 

648,093 

 

 

2,147 

 

 

20,175 

 

 

630,065 

Residential mortgage-backed securities

 

 

830,522 

 

 

3,481 

 

 

1,980 

 

 

832,023 

 

 

862,162 

 

 

4,329 

 

 

3,068 

 

 

863,423 

Commercial mortgage-backed securities

 

 

75,722 

 

 

 —

 

 

4,348 

 

 

71,374 

 

 

75,739 

 

 

 —

 

 

4,038 

 

 

71,701 

Collateralized mortgage obligations

 

 

812,193 

 

 

1,588 

 

 

9,519 

 

 

804,262 

 

 

864,226 

 

 

1,420 

 

 

10,674 

 

 

854,972 



 

$

2,502,512 

 

$

8,414 

 

$

33,506 

 

$

2,477,420 

 

$

2,500,220 

 

$

7,896 

 

$

37,999 

 

$

2,470,117 



The following table presents the amortized cost and estimated fair value of debt securities at March 31, 2017 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

 

$

4,711 

 

$

4,735 

Due after one year through five years

 

 

40,658 

 

 

41,205 

Due after five years through ten years

 

 

1,025,204 

 

 

999,011 

Due after ten years

 

 

1,470,962 

 

 

1,453,810 

  Total available for sale debt securities

 

$

2,541,535 

 

$

2,498,761 



 

 

 

 

 

 



 

Amortized

 

Fair

Debt Securities Held to Maturity

 

Cost

 

Value

Due in one year or less

 

$

10,520 

 

$

10,624 

Due after one year through five years

 

 

124,250 

 

 

125,558 

Due after five years through ten years

 

 

838,244 

 

 

817,979 

Due after ten years

 

 

1,529,498 

 

 

1,523,259 

  Total held to maturity securities

 

$

2,502,512 

 

$

2,477,420 

The Company held no securities classified as trading at March 31, 2017 or December 31, 2016.    

12


 

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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

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

 

$

74,460 

 

 

1,553 

 

$

 —

 

$

 —

 

$

74,460 

 

$

1,553 

Municipal obligations

 

 

228,433 

 

 

10,537 

 

 

 —

 

 

 —

 

 

228,433 

 

 

10,537 

Residential mortgage-backed securities

 

 

1,051,706 

 

 

18,885 

 

 

3,110 

 

 

76 

 

 

1,054,816 

 

 

18,961 

Commercial mortgage-backed securities

 

 

403,123 

 

 

22,360 

 

 

 —

 

 

 —

 

 

403,123 

 

 

22,360 

Collateralized mortgage obligations

 

 

78,217 

 

 

599 

 

 

 —

 

 

 —

 

 

78,217 

 

 

599 



 

$

1,835,939 

 

$

53,934 

 

$

3,110 

 

$

76 

 

$

1,839,049 

 

$

54,010 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 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

 

$

54,788 

 

$

1,923 

 

$

 —

 

$

 —

 

$

54,788 

 

$

1,923 

Municipal obligations

 

 

228,588 

 

 

11,186 

 

 

 —

 

 

 —

 

 

228,588 

 

 

11,186 

Residential mortgage-backed securities

 

 

1,087,644 

 

 

19,359 

 

 

3,738 

 

 

69 

 

 

1,091,382 

 

 

19,428 

Commercial mortgage-backed securities

 

 

402,591 

 

 

23,159 

 

 

 —

 

 

 —

 

 

402,591 

 

 

23,159 

Collateralized mortgage obligations

 

 

83,701 

 

 

591 

 

 

 —

 

 

 —

 

 

83,701 

 

 

591 



 

$

1,857,312 

 

$

56,218 

 

$

3,738 

 

$

69 

 

$

1,861,050 

 

$

56,287 



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







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

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

 

$

49,946 

 

$

55 

 

$

 —

 

$

 —

 

$

49,946 

 

$

55 

Municipal obligations

 

 

454,266 

 

 

17,331 

 

 

7,269 

 

 

273 

 

 

461,535 

 

 

17,604 

Residential mortgage-backed securities

 

 

279,443 

 

 

1,980 

 

 

 —

 

 

 —

 

 

279,443 

 

 

1,980 

Commercial mortgage-backed securities

 

 

71,373 

 

 

4,348 

 

 

 —

 

 

 —

 

 

71,373 

 

 

4,348 

Collateralized mortgage obligations

 

 

506,593 

 

 

6,343 

 

 

104,011 

 

 

3,176 

 

 

610,604 

 

 

9,519 



 

$

1,361,621 

 

$

30,057 

 

$

111,280 

 

$

3,449 

 

$

1,472,901 

 

$

33,506 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 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

U.S. Treasury and government agency securities

 

$

49,956 

 

$

44 

 

$

 —

 

$

 —

 

$

49,956 

 

$

44 

Municipal obligations

 

 

494,470 

 

 

19,706 

 

 

11,750 

 

 

469 

 

 

506,220 

 

 

20,175 

Residential mortgage-backed securities

 

 

278,369 

 

 

3,068 

 

 

 —

 

 

 —

 

 

278,369 

 

 

3,068 

Commercial mortgage-backed securities

 

 

71,701 

 

 

4,038 

 

 

 —

 

 

 —

 

 

71,701 

 

 

4,038 

Collateralized mortgage obligations

 

 

618,739 

 

 

7,296 

 

 

115,375 

 

 

3,378 

 

 

734,114 

 

 

10,674 



 

$

1,513,235 

 

$

34,152 

 

$

127,125 

 

$

3,847 

 

$

1,640,360 

 

$

37,999 

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.

13


 

There were no sales of securities for the three months ended March 31, 2017. Proceeds from the sales of securities were approximately $47.8 million with a gross gain of $0.3 million for the three months ended March 31, 2016, respectively

Securities with carrying values totaling $4.0 billion at March 31, 2017 and $3.8 billion at December 31, 2016 were pledged as collateral primarily to secure public deposits or securities sold under agreements to repurchase.



4.  Loans and Allowance for Loan Losses

The presentation of loan disclosures has been modified from prior filings to eliminate segmentation of Acquired (2011 Whitney Holding Corporation transaction) and FDIC Acquired (2009 Peoples First Community Bank transaction) due to the significantly reduced size of these portfolios.  The revised presentation reflects purchased credit impaired (“PCI”) loan information in select tables.  PCI loans include the total FDIC Acquired portfolio and the portion of the Acquired portfolio deemed credit impaired at acquisition. In addition, the revised presentation includes further segmentation of the commercial real estate portfolio between owner occupied and income producing loans due to the significant differences in risk characteristics of these loans and to conform more closely to regulatory concentration segments and general industry practices.  All prior period information has been reclassified to conform to the current period presentation.  

The Company generally makes loans in its market areas of south Mississippi, southern and central Alabama, south Louisiana, the Houston, Texas areas and the northern, central and panhandle regions of Florida. Loans, net of unearned income, by portfolio are presented in the table below.







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,

(in thousands)

 

2017

 

2016



 

 

 

 

 

 

Commercial non-real estate

 

$

8,074,287 

 

$

7,613,917 

Commercial real estate - owner occupied

 

 

2,047,451 

 

 

1,906,821 

 Total commercial & industrial

 

 

10,121,738 

 

 

9,520,738 

Commercial real estate - income producing

 

 

2,505,104 

 

 

2,013,890 

Construction and land development

 

 

1,252,667 

 

 

1,010,879 

Residential mortgages

 

 

2,266,263 

 

 

2,146,713 

Consumer

 

 

2,059,096 

 

 

2,059,931 

Total loans

 

$

18,204,868 

 

$

16,752,151 





The following briefly describes the composition of each loan category.



Commercial and industrial



Commercial and industrial loans are made available to businesses for working capital (including financing of inventory and receivables), business expansion, to facilitate the acquisition of a business, and the purchase of equipment and machinery, including equipment leasing. These loans are primarily made based on the identified cash flows of the borrower and, when secured, have the added strength of the underlying collateral.



Commercial non-real estate loans may be secured by the assets being financed or other business assets such as accounts receivable, inventory, ownership or commodity interests, and may incorporate a personal or corporate guarantee; however, some short-term loans may be made on an unsecured basis, including a small portfolio of corporate credit cards, generally issued as a part of overall customer relationships.



Commercial real estate – owner occupied loans consist of commercial mortgages on properties where repayment is generally dependent on the cash flow from the ongoing operations and activities of the borrower.  Like commercial non-real estate, these loans are primarily made based on the identified cash flows of the borrower, but also have the added strength of the value of underlying real estate collateral.  



Commercial real estate – income producing



Commercial real estate – income producing loans consist of loans secured by commercial mortgages on properties where the loan is made to real estate developers or investors and repayment is dependent on the sale, refinance, or income generated from the operation of the property.  Properties financed include retail, office, multifamily, senior housing, hotel/motel, skilled nursing facilities and other commercial properties. 





14


 

Construction and land development



Construction and land development loans are made to facilitate the acquisition, development, improvement and construction of both commercial and residential-purpose properties.  Such loans are made to builders and investors where repayment is expected to be made from the sale, refinance or operation of the property or to businesses to be used in their business operations.  This portfolio also includes a small amount of residential construction loans and loans secured by raw land not yet under development.   



Residential Mortgages



Residential mortgages consist of closed-end loans secured by first liens on 1- 4 family residential properties. The portfolio includes both fixed and adjustable rate loans, although most longer-term, fixed-rate loans originated are sold in the secondary mortgage market.  



Consumer



Consumer loans include second lien mortgage home loans, home equity lines of credit and nonresidential consumer purpose loans. Nonresidential consumer loans include both direct and indirect loans.   Direct nonresidential consumer loans are made to finance the purchase of personal property, including automobiles, recreational vehicles and boats, and for other personal purposes (secured and unsecured), and deposit account secured loans. Indirect nonresidential loans include automobile financing provided to the consumer through an agreement with automobile dealerships.  Consumer loans also include a small portfolio of credit card receivables issued on the basis of applications received through referrals from the Bank’s branches, online and other marketing efforts.    



Allowance for Loan Losses

The following schedule shows activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2017 and 2016, as well as the corresponding recorded investment in loans at the end of each period.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Commercial

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 



 

Commercial

 

real estate-

 

Total

 

real estate-

 

Construction

 

 

 

 

 

 

 

 

 



 

 

non-real 

 

owner

 

commercial &

 

income

 

and land

 

Residential

 

 

 

 

 

 

(in thousands)

 

estate

 

occupied

 

industrial

 

producing

 

development

 

mortgages

 

Consumer

 

Total



 

Three months ended March 31, 2017



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

147,052 

 

$

11,083 

 

$

158,135 

 

$

13,509 

 

$

6,271 

 

$

25,361 

 

$

26,142 

 

$

229,418 

Purchased credit impaired activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(54)

 

 

(59)

 

 

(139)

 

 

(252)

Recoveries

 

 

 

 

75 

 

 

77 

 

 

 —

 

 

23 

 

 

 

 

29 

 

 

134 

Net provision for loan losses

 

 

(46)

 

 

(182)

 

 

(228)

 

 

(40)

 

 

(92)

 

 

(7)

 

 

(39)

 

 

(406)

Decrease in FDIC loss share receivable

 

 

(31)

 

 

 —

 

 

(31)

 

 

 —

 

 

 —

 

 

(1,696)

 

 

(103)

 

 

(1,830)

Non-purchased credit impaired activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(24,791)

 

 

(29)

 

 

(24,820)

 

 

(7)

 

 

(37)

 

 

(289)

 

 

(8,539)

 

 

(33,692)

Recoveries

 

 

936 

 

 

200 

 

 

1,136 

 

 

375 

 

 

448 

 

 

108 

 

 

1,714 

 

 

3,781 

Net provision for loan losses

 

 

8,147 

 

 

375 

 

 

8,522 

 

 

(226)

 

 

161 

 

 

383 

 

 

7,557 

 

 

16,397 

Ending balance

 

$

131,269 

 

$

11,522 

 

$

142,791 

 

$

13,611 

 

$

6,720 

 

$

23,806 

 

$

26,622 

 

$

213,550 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

15,017 

 

$

76 

 

$

15,093 

 

$

1,114 

 

$

 

$

94 

 

$

199 

 

$

16,501 

Amounts related to purchased credit impaired loans

 

 

411 

 

 

787 

 

 

1,198 

 

 

213 

 

 

283 

 

 

13,286 

 

 

1,019 

 

 

15,999 

Collectively evaluated for impairment

 

 

115,841 

 

 

10,659 

 

 

126,500 

 

 

12,284 

 

 

6,436 

 

 

10,426 

 

 

25,404 

 

 

181,050 

Total allowance

 

$

131,269 

 

$

11,522 

 

$

142,791 

 

$

13,611 

 

$

6,720 

 

$

23,806 

 

$

26,622 

 

$

213,550 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

231,988 

 

$

3,894 

 

$

235,882 

 

$

13,599 

 

$

1,592 

 

$

3,236 

 

$

2,149 

 

$

256,458 

Purchased credit impaired loans

 

 

6,693 

 

 

12,468 

 

 

19,161 

 

 

7,669 

 

 

4,326 

 

 

138,260 

 

 

9,951 

 

 

179,367 

Collectively evaluated for impairment

 

 

7,835,606 

 

 

2,031,089 

 

 

9,866,695 

 

 

2,483,836 

 

 

1,246,749 

 

 

2,124,767 

 

 

2,046,996 

 

 

17,769,043 

Total loans

 

$

8,074,287 

 

$

2,047,451 

 

$

10,121,738 

 

$

2,505,104 

 

$

1,252,667 

 

$

2,266,263 

 

$

2,059,096 

 

$

18,204,868 



15


 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Commercial

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 



 

Commercial

 

real estate-

 

Total

 

real estate-

 

Construction

 

 

 

 

 

 

 

 

 



 

non-real 

 

owner

 

commercial &

 

income

 

and land

 

Residential

 

 

 

 

 

 

(in thousands)

 

estate

 

occupied

 

industrial

 

producing

 

development

 

mortgages

 

Consumer

 

Total



 

Three months ended March 31, 2016



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan  losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

109,428 

 

$

9,858 

 

$

119,286 

 

$

6,041 

 

$

5,642 

 

$

25,353 

 

$

24,857 

 

$

181,179 

Purchased credit impaired activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

 —

 

 

(28)

 

 

(28)

 

 

(1)

 

 

(18)

 

 

 —

 

 

 —

 

 

(47)

Recoveries

 

 

 

 

35 

 

 

38 

 

 

 

 

35 

 

 

 

 

39 

 

 

114 

Net provision for loan losses

 

 

 

 

(194)

 

 

(187)

 

 

(109)

 

 

(151)

 

 

1,130 

 

 

(1,179)

 

 

(496)

Decrease in FDIC loss share receivable

 

 

(17)

 

 

 —

 

 

(17)

 

 

 —

 

 

 —

 

 

(2,153)

 

 

(19)

 

 

(2,189)

Non-purchased credit impaired activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(17,667)

 

 

(783)

 

 

(18,450)

 

 

(115)

 

 

(110)

 

 

(175)

 

 

(5,843)

 

 

(24,693)

Recoveries

 

 

809 

 

 

41 

 

 

850 

 

 

144 

 

 

605 

 

 

301 

 

 

1,494 

 

 

3,394 

Net provision for loan losses

 

 

52,096 

 

 

5,667 

 

 

57,763 

 

 

1,632 

 

 

(1,627)

 

 

235 

 

 

2,529 

 

 

60,532 

Ending balance

 

$

144,659 

 

$

14,596 

 

$

159,255 

 

$

7,593 

 

$

4,376 

 

$

24,692 

 

$

21,878 

 

$

217,794 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

26,502 

 

$

67 

 

$

26,569 

 

$

1,272 

 

$

185 

 

$

125 

 

$

16 

 

$

28,167 

Amounts related to purchased credit impaired loans

 

 

439 

 

 

906 

 

 

1,345 

 

 

605 

 

 

523 

 

 

16,641 

 

 

1,388 

 

 

20,502 

Collectively evaluated for impairment

 

 

117,718 

 

 

13,623 

 

 

131,341 

 

 

5,716 

 

 

3,668 

 

 

7,926 

 

 

20,474 

 

 

169,125 

Total allowance

 

$

144,659 

 

$

14,596 

 

$

159,255 

 

$

7,593 

 

$

4,376 

 

$

24,692 

 

$

21,878 

 

$

217,794 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

201,029 

 

$

6,018 

 

$

207,047 

 

$

8,681 

 

$

14,072 

 

$

883 

 

$

58 

 

$

230,741 

Purchased credit impaired loans

 

 

12,659 

 

 

15,864 

 

 

28,523 

 

 

11,185 

 

 

8,930 

 

 

161,078 

 

 

12,177 

 

 

221,893 

Collectively evaluated for impairment

 

 

6,931,718 

 

 

1,901,465 

 

 

8,833,183 

 

 

1,732,879 

 

 

1,072,412 

 

 

1,839,006 

 

 

2,048,010 

 

 

15,525,490 

  Total loans

 

$

7,145,406 

 

$

1,923,347 

 

$

9,068,753 

 

$

1,752,745 

 

$

1,095,414 

 

$

2,000,967 

 

$

2,060,245 

 

$

15,978,124 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





Impaired Loans

The following table shows the composition of nonaccrual loans by portfolio class.  Purchased credit impaired loans accounted for in pools with an accretable yield are considered to be performing and are excluded from the table. 







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,

(in thousands)

 

2017

 

2016

Commercial non-real estate

 

$

198,137 

 

$

249,037 

Commercial real estate - owner occupied

 

 

11,167 

 

 

14,413 

 Total commercial & industrial

 

 

209,304 

 

 

263,450 

Commercial real estate - income producing

 

 

13,348 

 

 

13,954 

Construction and land development

 

 

3,561 

 

 

4,550 

Residential mortgages

 

 

23,012 

 

 

23,665 

Consumer

 

 

13,424 

 

 

12,351 

 Total loans

 

$

262,649 

 

$

317,970 



16


 

Nonaccrual loans include loans modified in troubled debt restructurings (“TDRs”) of $112.6 million and $81.9 million at March 31, 2017 and December 31, 2016, respectively.  Total TDRs, both accruing and nonaccruing, were $159.9 million as of March 31, 2017 and $121.7 million at December 31, 2016.  All TDRs are individually evaluated for impairment.

The table below details TDRs that were modified during the three months ended March 31, 2017 and March 31, 2016 by portfolio class. 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three months Ended

($ in thousands)

 

March 31, 2017

 

 

 

March 31, 2016



 

 

 

 

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

Commercial non-real estate

 

 

 

$

38,659 

 

 

$

38,659 

 

 

 

11 

 

 

$

51,246 

 

 

$

51,246 

Commercial real estate - owner occupied

 

 

 

 

656 

 

 

 

656 

 

 

 

 —

 

 

 

 —

 

 

 

 —

 Total commercial & industrial

 

10 

 

 

 

39,315 

 

 

 

39,315 

 

 

 

11 

 

 

 

51,246 

 

 

 

51,246 

Commercial real estate - income producing

 

 

 

 

5,527 

 

 

 

5,527 

 

 

 

 —

 

 

 

 —

 

 

 

 —

Construction and land development

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 —

Residential mortgages

 

 

 

 

250 

 

 

 

250 

 

 

 

 —

 

 

 

 —

 

 

 

 —

Consumer

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 —

Total loans

 

13 

 

 

$

45,092 

 

 

$

45,092 

 

 

 

11 

 

 

$

51,246 

 

 

$

51,246 



The TDRs during the three months ended March 31, 2017 reflected in the table above include $27.4 million of loans with extended amortization terms or other payment concessions, $10.7 million of loans with significant covenant waivers and $6.9 million with other modifications.  The TDRs during the three months ended March 31, 2016 include $26.8 million of loans with extended terms or other payment concessions and $24.6 million of other modifications.

No TDRs that subsequently defaulted within twelve months of modification were recorded in the three months ended March 31, 2017 or 2016. 

17


 

The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at March 31, 2017 and December 31, 2016.  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, 2017



 

Recorded investment

 

 

Recorded investment

 

 

Unpaid

 

 

 

(in thousands)

 

without an allowance

 

 

with an allowance

 

 

principal balance

 

 

Related allowance

Commercial non-real estate

$

120,166 

 

$

111,822 

 

$

244,153 

 

$

15,017 

Commercial real estate - owner occupied

 

2,801 

 

 

1,093 

 

 

4,265 

 

 

76 

 Total commercial & industrial

 

122,967 

 

 

112,915 

 

 

248,418 

 

 

15,093 

Commercial real estate - income producing

 

5,740 

 

 

7,859 

 

 

13,934 

 

 

1,114 

Construction and land development

 

1,576 

 

 

16 

 

 

2,556 

 

 

Residential mortgages

 

2,158 

 

 

1,078 

 

 

3,761 

 

 

94 

Consumer

 

1,243 

 

 

906 

 

 

2,149 

 

 

199 

Total loans

$

133,684 

 

$

122,774 

 

$

270,818 

 

$

16,501 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



December 31, 2016



 

Recorded investment

 

 

Recorded investment

 

 

Unpaid

 

 

 

(in thousands)

 

without an allowance

 

 

with an allowance

 

 

principal balance

 

 

Related allowance

Commercial non-real estate

$

150,650 

 

$

120,612 

 

$

295,445 

 

$

28,187 

Commercial real estate - owner occupied

 

4,261 

 

 

2,007 

 

 

6,646 

 

 

246 

 Total commercial & industrial

 

154,911 

 

 

122,619 

 

 

302,091 

 

 

28,433 

Commercial real estate - income producing

 

10,447 

 

 

4,929 

 

 

15,708 

 

 

466 

Construction and land development

 

1,106 

 

 

832 

 

 

2,903 

 

 

38 

Residential mortgages

 

2,877 

 

 

1,470 

 

 

4,865 

 

 

91 

Consumer

 

 —

 

 

2,154 

 

 

2,155 

 

 

267 

Total loans

$

169,341 

 

$

132,004 

 

$

327,722 

 

$

29,295 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31, 2017

March 31, 2016



 

Average

 

Interest

 

Average

 

 

Interest



 

recorded

 

income

 

recorded

 

 

income

(in thousands)

 

investment

 

recognized

 

investment

 

 

recognized

Commercial non-real estate

 

$

251,625 

 

$

337 

 

$

141,326 

 

$

182 

Commercial real estate - owner occupied

 

 

5,081 

 

 

 

 

5,713 

 

 

14 

 Total commercial & industrial

 

 

256,706 

 

 

341 

 

 

147,039 

 

 

196 

Commercial real estate - income producing

 

 

14,487 

 

 

43 

 

 

9,902 

 

 

22 

Construction and land development

 

 

1,766 

 

 

 —

 

 

14,149 

 

 

 —

Residential mortgages

 

 

3,792 

 

 

 

 

889 

 

 

Consumer

 

 

2,152 

 

 

 

 

105 

 

 

Total loans

 

$

278,903 

 

$

388 

 

$

172,084 

 

$

221 











18


 

Aging Analysis

The tables below present the age analysis of past due loans by portfolio class at March 31, 2017 and December 31, 2016.  Purchased credit 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, 2017

 

past due

 

past due

 

past due

 

past due

 

Current

 

Loans

 

still accruing

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

52,677 

 

$

15,530 

 

$

60,536 

 

$

128,743 

 

$

7,945,544 

 

$

8,074,287 

 

$

245 

Commercial real estate - owner occupied

 

 

3,907 

 

 

1,726 

 

 

5,578 

 

 

11,211 

 

 

2,036,240 

 

 

2,047,451 

 

 

35 

 Total commercial & industrial

 

 

56,584 

 

 

17,256 

 

 

66,114 

 

 

139,954 

 

 

9,981,784 

 

 

10,121,738 

 

 

280 

Commercial real estate - income producing

 

 

4,365 

 

 

1,688 

 

 

4,814 

 

 

10,867 

 

 

2,494,237 

 

 

2,505,104 

 

 

185 

Construction and land development

 

 

14,845 

 

 

343 

 

 

2,944 

 

 

18,132 

 

 

1,234,535 

 

 

1,252,667 

 

 

25 

Residential mortgages

 

 

18,104 

 

 

5,104 

 

 

15,655 

 

 

38,863 

 

 

2,227,400 

 

 

2,266,263 

 

 

 —

Consumer

 

 

16,446 

 

 

5,537 

 

 

7,736 

 

 

29,719 

 

 

2,029,377 

 

 

2,059,096 

 

 

100 

Total

 

$

110,344 

 

$

29,928 

 

$

97,263 

 

$

237,535 

 

$

17,967,333 

 

$

18,204,868 

 

$

590 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded



 

 

 

 

 

 

Greater than

 

 

 

 

 

 

 

 

investment



 

30-59 days

 

60-89 days

 

90 days

 

Total

 

 

 

Total

 

> 90 days and

December 31, 2016

 

past due

 

past due

 

past due

 

past due

 

Current

 

Loans

 

still accruing

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

19,722 

 

$

1,909 

 

$

68,505 

 

$

90,136 

 

$

7,523,781 

 

$

7,613,917 

 

$

384 

Commercial real estate - owner occupied

 

 

3,008 

 

 

581 

 

 

6,310 

 

 

9,899 

 

 

1,896,922 

 

 

1,906,821 

 

 

52 

 Total commercial & industrial

 

 

22,730 

 

 

2,490 

 

 

74,815 

 

 

100,035 

 

 

9,420,703 

 

 

9,520,738 

 

 

436 

Commercial real estate - income producing

 

 

838 

 

 

50 

 

 

5,026 

 

 

5,914 

 

 

2,007,976 

 

 

2,013,890 

 

 

216 

Construction and land development

 

 

694 

 

 

171 

 

 

5,300 

 

 

6,165 

 

 

1,004,714 

 

 

1,010,879 

 

 

1,563 

Residential mortgages

 

 

24,599 

 

 

8,816 

 

 

14,369 

 

 

47,784 

 

 

2,098,929 

 

 

2,146,713 

 

 

Consumer

 

 

18,621 

 

 

7,441 

 

 

9,147 

 

 

35,209 

 

 

2,024,722 

 

 

2,059,931 

 

 

823 

Total

 

$

67,482 

 

$

18,968 

 

$

108,657 

 

$

195,107 

 

$

16,557,044 

 

$

16,752,151 

 

$

3,039 



Credit Quality Indicators

The following tables present the credit quality indicators by segments and portfolio class of loans at March 31, 2017 and December 31, 2016. 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2017

(in thousands)

 

Commercial non-real estate

 

Commercial real estate - owner-occupied

 

Total commercial & industrial

 

Commercial real estate - income producing

 

Construction and land development

 

Total commercial

 

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

6,839,049 

 

$

1,840,799 

 

$

8,679,848 

 

$

2,292,057 

 

$

1,139,772 

 

$

12,111,677 

 

Pass-Watch

 

 

296,914 

 

 

46,048 

 

 

342,962 

 

 

141,063 

 

 

93,309 

 

 

577,334 

 

Special Mention

 

 

182,128 

 

 

55,919 

 

 

238,047 

 

 

30,360 

 

 

8,311 

 

 

276,718 

 

Substandard

 

 

744,326 

 

 

104,685 

 

 

849,011 

 

 

41,614 

 

 

11,275 

 

 

901,900 

 

Doubtful

 

 

11,870 

 

 

 —

 

 

11,870 

 

 

10 

 

 

 —

 

 

11,880 

 

Total

 

$

8,074,287 

 

$

2,047,451 

 

$

10,121,738 

 

$

2,505,104 

 

$

1,252,667 

 

$

13,879,509 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2016

(in thousands)

 

Commercial non-real estate

 

Commercial real estate - owner-occupied

 

Total commercial & industrial

 

Commercial real estate - income producing

 

Construction and land development

 

Total commercial

 

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

6,364,348 

 

$

1,719,114 

 

$

8,083,462 

 

$

1,873,644 

 

$

968,505 

 

$

10,925,611 

 

Pass-Watch

 

 

203,311 

 

 

47,676 

 

 

250,987 

 

 

78,309 

 

 

22,592 

 

 

351,888 

 

Special Mention

 

 

181,763 

 

 

40,299 

 

 

222,062 

 

 

22,492 

 

 

4,142 

 

 

248,696 

 

Substandard

 

 

846,793 

 

 

99,732 

 

 

946,525 

 

 

39,434 

 

 

15,640 

 

 

1,001,599 

 

Doubtful

 

 

17,702 

 

 

 —

 

 

17,702 

 

 

11 

 

 

 —

 

 

17,713 

 

Total

 

$

7,613,917 

 

$

1,906,821 

 

$

9,520,738 

 

$

2,013,890 

 

$

1,010,879 

 

$

12,545,507 

 



19


 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016

(in thousands)

 

Residential mortgage

 

Consumer

 

Total

 

Residential mortgage

 

Consumer

 

Total

 

Performing

 

$

2,243,251 

 

$

2,045,572 

 

$

4,288,823 

 

$

2,123,048 

 

$

2,046,757 

 

$

4,169,805 

 

Nonperforming

 

 

23,012 

 

 

13,524 

 

 

36,536 

 

 

23,665 

 

 

13,174 

 

 

36,839 

 

Total

 

$

2,266,263 

 

$

2,059,096 

 

$

4,325,359 

 

$

2,146,713 

 

$

2,059,931 

 

$

4,206,644 

 





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 are of sufficient risk to cause concern.  This category is reserved for credits that display negative performance trends.  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 the 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.

   

Purchased Credit Impaired Loans

Changes in the carrying amount of purchased credit impaired loans and related accretable yield are presented in the following table for the three months ended March 31, 2017 and the year ended December 31, 2016.







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016



 

Carrying

 

 

 

 

Carrying

 

 

 



 

Amount

 

Accretable

 

 

Amount

 

Accretable

 

(in thousands)

 

of Loans

 

Yield

 

 

of Loans

 

Yield

 

Balance at beginning of period

 

$

190,915 

 

$

113,686 

 

 

$

225,838 

 

$

129,488 

 

Payments received, net

 

 

(16,422)

 

 

(1,477)

 

 

 

(55,194)

 

 

(11,024)

 

Accretion

 

 

4,874 

 

 

(4,874)

 

 

 

20,271 

 

 

(20,271)

 

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

 

 

 —

 

 

4,318 

 

 

 

 —

 

 

5,358 

 

Net transfers to (from) nonaccretable difference to accretable yield

 

 

 —

 

 

3,422 

 

 

 

 —

 

 

10,135 

 

Balance at end of period

 

$

179,367 

 

$

115,075 

 

 

$

190,915 

 

$

113,686 

 



Loans Acquired in an FDIC-Assisted Transaction and the Related FDIC Loss Share Receivable



Loans purchased in the 2009 acquisition of Peoples First Community Bank were covered by two loss share agreements between the FDIC and the Company.  The loss share agreement covering the non-single family portfolio expired in December 2014 and is now in a

20


 

three-year recovery period where 80% of recoveries on reimbursed losses are due to the FDIC.  The loss share agreement covering the single family portfolio expires in December 2019.  As of March 31, 2017 and March 31, 2016, loans totaling $143.8 million and $168.1 million, respectively, were covered by the single family loss share agreement, providing considerable protection against credit risk.



The receivable arising from the loss share agreements (referred to as the “FDIC loss share receivable” on our consolidated statements of financial condition) is measured separately from the covered loans because the agreements are not contractually part of the loans and are not transferable should the Company choose to dispose of the loans.

The following schedule shows activity in the loss share receivable for the three months ended March 31, 2017 and 2016.







 

 

 

 

 

 



 

 

 

 

 

 



 

Three months Ended



 

March 31,

 

March 31,

(in thousands)

 

2017

 

2016

Beginning Balance

 

$

16,219 

 

$

29,868 

Amortization

 

 

(1,100)

 

 

(1,613)

Charge-offs, write-downs and other recoveries

 

 

(1,231)

 

 

(1,005)

External expenses qualifying under loss share agreement

 

 

131 

 

 

465 

Changes due to changes in cash flow projections

 

 

(1,830)

 

 

(2,189)

Net payments to FDIC

 

 

1,131 

 

 

302 

Ending balance

 

$

13,320 

 

$

25,828 





Residential Mortgage Loans in Process of Foreclosure



Included in loans are $7.5 million and $10.1 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of March 31, 2017 and December 31, 2016, respectively.  Of these loans, $3.7 million and $4.9 million, respectively, are covered by the FDIC loss share agreement.  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 $3.1 million of foreclosed single family residential properties in other real estate owned as of March 31, 2017 and December 31, 2016.  Of these foreclosed properties, $0.7 million and $0.9 million as of March 31, 2017 and December 31, 2016, respectively, are also covered by the FDIC loss share agreement.



5.  Securities Sold under Agreements to Repurchase

Included in short-term borrowings at March 31, 2017 was $444.8 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 limited.



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 and fixed-rate brokered deposits.  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 its net risk exposure resulting from such agreements.  The Bank also enters into risk participation agreements under which it 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, 2017 and December 31, 2016.  Effective January 3, 2017, the Company’s central clearing counterparty amended its rulebook to legally characterize variation margin accounts as settlements, rather than being reflected separately as collateral.  As a result of that change, the Company began prospectively reflecting derivative assets

21


 

and liabilities net of the central clearing counterparty derivative margin account.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

March 31, 2017

 

December 31, 2016

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Derivative (1)

 

 

 

Derivative (1)

(in thousands)

 

Type of Hedge

 

 

Notional or Contractual Amount

 

Assets

 

Liabilities

 

Notional or Contractual Amount

 

Assets

 

Liabilities

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

Cash Flow

 

$

850,000 

 

$

37 

 

$

8,958 

 

$

1,100,000 

 

$

 —

 

$

7,787 

Interest rate swaps

 

Fair Value

 

 

138,000 

 

 

 —

 

 

397 

 

 

 —

 

 

 —

 

 

 —



 

 

 

$

988,000 

 

$

37 

 

$

9,355 

 

$

1,100,000 

 

$

 —

 

$

7,787 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps (2)

 

N/A

 

$

970,658 

 

$

16,679 

 

$

16,901 

 

$

979,391 

 

$

18,405 

 

$

18,362 

Risk participation agreements

 

N/A

 

 

100,777 

 

 

41 

 

 

105 

 

 

84,732 

 

 

50 

 

 

105 

Forward commitments to sell residential mortgage loans

 

N/A

 

 

78,398 

 

 

207 

 

 

1,183 

 

 

75,676 

 

 

900 

 

 

221 

Interest rate-lock commitments on residential mortgage loans

 

N/A

 

 

61,655 

 

 

1,020 

 

 

188 

 

 

46,840 

 

 

189 

 

 

228 

Foreign exchange forward contracts

 

N/A

 

 

54,666 

 

 

651 

 

 

610 

 

 

56,152 

 

 

771 

 

 

729 



 

 

 

$

1,266,154 

 

$

18,598 

 

$

18,987 

 

$

1,242,791 

 

$

20,315 

 

$

19,645 

Total derivatives

 

 

 

$

2,254,154 

 

$

18,635 

 

$

28,342 

 

$

2,342,791 

 

$

20,315 

 

$

27,432 

Less:  netting adjustment (3)

 

 

 

 

 

 

 

(3,676)

 

 

(15,465)

 

 

 

 

 

 —

 

 

 —

Total derivative assets/liabilities

 

 

 

 

 

 

$

14,959 

 

$

12,877 

 

 

 

 

$

20,315 

 

$

27,432 

(1)

Derivative assets and liabilities are reported at fair value in 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.



(3)

Represents balance sheet netting of derivative assets and liabilities for variation margin collateral held or placed with the same central clearing counterparty.  See offsetting assets and liabilities for further information.





Cash Flow Hedges of Interest Rate Risk

The Company is party to various interest rate swap agreements designated 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 swap agreements expire as follows:  notional amount of $200 million expires in 2017;  $200 million expire in 2018; $250 million expire in 2019; and $200 million expires in 2020.    

During the terms of the swap agreements, the effective portion of changes in the fair value of the derivative instruments are recorded in Accumulated Other Comprehensive Income (“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 Note 7.  There was no ineffective portion of the change in fair value of the derivative recognized directly in earnings.



Fair Value Hedges of Interest Rate Risk 



During 2017, the Company entered into interest rate swap agreements that modify the Company’s exposure to interest rate risk by effectively converting a portion of the Company’s brokered certificates of deposit from fixed rates to variable rates. The maturities and call features of these interest rate swaps match the features of the hedged deposits.  As interest rates fall, the decline in the value of the certificates of deposit is offset by the increase in the value of the interest rate swaps.  Conversely, as interest rates rise, the value of the underlying deposits increase, but the value of the interest rate swaps decrease, resulting in no impact on earnings.  Interest expense is adjusted by the difference between the fixed and floating rates for the period the swaps are in effect.  Hedge ineffectiveness on these transactions results in an increase or decrease of noninterest income. 

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

22


 

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 $0.5 million and ($0.1) million for the three months ended March 31, 2017 and 2016, respectively.  The impact to interest income from cash flow hedges was $0.1 million and $0.3 million for the three months ended March 31, 2017 and 2016, respectively.  The fair value hedge reduced interest expense on deposits by $141,000 and reduced noninterest income by $15,000 due to ineffectiveness.   

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, 2017,  the aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position was $21.2 million

23


 

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.  Agreements with certain bilateral counterparties require both parties to maintain collateral in the event the fair values of derivative instruments exceed established exposure thresholds.  For centrally cleared derivatives, the Company is subject to initial margin posting and daily variation margin exchange with the central clearinghouses.  As noted above, effective January 3, 2017, the Company began to reflect its derivative assets and liabilities net of the central clearing party variation margin account in the statement of financial position.  Offsetting information in regards to all derivative assets and liabilities, including accrued interest, subject to these master netting agreements at March 31, 2017 and December 31, 2016 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, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

5,498 

 

$

(3,639)

 

$

1,859 

 

$

1,859 

 

$

 —

 

$

 —



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

21,162 

 

$

(15,499)

 

$

5,663 

 

$

1,859 

 

$

5,620 

 

$

(1,816)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

4,788 

 

$

 —

 

$

4,788 

 

$

4,788 

 

$

 —

 

$

 —



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

26,846 

 

$

 —

 

$

26,846 

 

$

4,788 

 

$

19,095 

 

$

2,963 



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



7.    Stockholders’ Equity



The presentation of the components of shareholders’ equity was modified from prior filings to consolidate treasury stock into surplus in the consolidated balance sheets and statements of changes in shareholders’ equity in order to simplify the presentation.  Additional information on treasury stock is reflected in the commons shares outstanding section below.





Common Shares Outstanding



Shares outstanding exclude treasury shares of 1.0 million and 1.3 million at March 31, 2017 and December 31, 2016, respectively, with a first-in-first-out cost basis of $17.3 million and $24.1 million at March 31, 2017 and December 31, 2016, respectively.  Shares outstanding also exclude unvested restricted share awards of 1.9 million and 2.0 million at March 31, 2017 and December 31, 2016, respectively.

24


 

Accumulated Other Comprehensive Income (Loss)

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







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Available

 

HTM Securities

 

 

 

 

 

 

 



 

for Sale

 

Transferred

 

Employee

 

Cash

 

 

 

(in thousands)

 

Securities

 

from AFS

 

Benefit Plans

 

Flow Hedges

 

Total

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)

Balance, December 31, 2016

 

$

(28,679)

 

$

(14,392)

 

$

(72,501)

 

$

(4,960)

 

$

(120,532)

Other comprehensive income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gain (loss)

 

 

2,319 

 

 

 —

 

 

 —

 

 

(1,135)

 

 

1,184 

Reclassification of net losses realized and included in earnings

 

 

 —

 

 

 —

 

 

1,387 

 

 

 —

 

 

1,387 

Amortization of unrealized net loss on securities transferred to HTM

 

 

 —

 

 

650 

 

 

 —

 

 

 —

 

 

650 

Income tax expense (benefit)

 

 

843 

 

 

266 

 

 

504 

 

 

(412)

 

 

1,201 

Balance, March 31, 2017

 

$

(27,203)

 

$

(14,008)

 

$

(71,618)

 

$

(5,683)

 

$

(118,512)



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.  Subject to certain thresholds, unrealized losses on employee benefit plans will be reclassified into income as pension and post-retirement costs are recognized over the remaining service period of plan participants.  Accumulated gains/losses on the cash flow hedge of the variable-rate loans described in Note 6 will be reclassified into income over the life of the hedge.  Gains (losses) in AOCI are net of deferred income taxes. 

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







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

Amount reclassified from AOCI (a) 

 

March 31,

 

Affected line item on

(in thousands)

 

 

2017

 

 

2016

 

the income statement

Gain on sale of AFS securities

 

$

 —

 

$

346 

 

Securities transactions

Tax effect

 

 

 —

 

 

(127)

 

Income taxes

Net of tax

 

 

 —

 

 

219 

 

Net income

Amortization of unrealized net loss on securities transferred to HTM

 

 

(650)

 

 

(798)

 

Interest income

Tax effect

 

 

266 

 

 

292 

 

Income taxes

Net of tax

 

 

(384)

 

 

(506)

 

Net income

Amortization of defined benefit pension and post-retirement items

 

 

(1,387)

 

 

(1,437)

 

Employee benefits expense (b)

Tax effect

 

 

504 

 

 

525 

 

Income taxes

Net of tax

 

 

(883)

 

 

(912)

 

Net income

Total reclassifications, net of tax

 

$

(1,267)

 

$

(1,199)

 

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).

 



25


 

8.  Other Noninterest Income

Components of other noninterest income are as follows.

























 

 

 

 

 

 



 

 

 

 

 

 



 

Three months Ended



 

March 31,

(in thousands)

 

2017

 

2016

Income from bank-owned life insurance

 

$

2,652 

 

$

2,550 

Credit related fees

 

 

2,878 

 

 

2,357 

Derivative income

 

 

465 

 

 

(139)

Net gain on sale of assets

 

 

4,125 

 

 

1,766 

Safety deposit box income

 

 

449 

 

 

478 

Other miscellaneous

 

 

2,306 

 

 

2,334 

Total other noninterest income

 

$

12,875 

 

$

9,346 















9.  Other Noninterest Expense

Components of other noninterest expense are as follows.





 

 

 

 

 

 



 

 

 

 

 

 

 

 

Three months Ended



 

March 31,

(in thousands)

 

2017

 

2016

Advertising

 

$

3,077 

 

$

2,357 

Ad valorem and franchise taxes

 

 

3,036 

 

 

2,303 

Printing and supplies

 

 

1,178 

 

 

1,111 

Insurance expense

 

 

817 

 

 

835 

Travel expense

 

 

1,059 

 

 

949 

Entertainment and contributions

 

 

1,783 

 

 

1,632 

Tax credit investment amortization

 

 

1,212 

 

 

1,743 

Other miscellaneous

 

 

6,468 

 

 

5,779 

Total other noninterest expense

 

$

18,630 

 

$

16,709 



 

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. 

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)

 

2017

 

2016

Numerator:

 

 

 

 

 

 

Net income to common shareholders

 

$

49,014 

 

$

3,839 

Net income allocated to participating securities - basic and diluted

 

 

1,156 

 

 

97 

Net income allocated to common shareholders - basic and diluted

 

$

47,858 

 

$

3,742 

Denominator:

 

 

 

 

 

 

Weighted-average common shares - basic

 

$

84,365 

 

$

77,501 

Dilutive potential common shares

 

 

259 

 

 

171 

Weighted-average common shares - diluted

 

$

84,624 

 

$

77,672 

Earnings per common share:

 

 

 

 

 

 

Basic

 

$

0.57 

 

$

0.05 

Diluted

 

$

0.57 

 

$

0.05 



26


 

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 15,986 and 656,623, respectively, for the three months ended March 31, 2017 and March 31, 2016

 

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,

 

2017

 

2016

 

2017

 

2016

Service cost

 

$

3,750 

 

$

3,265 

 

$

48 

 

$

29 

Interest cost

 

 

4,123 

 

 

4,988 

 

 

180 

 

 

206 

Expected return on plan assets

 

 

(8,750)

 

 

(8,891)

 

 

 —

 

 

 —

Amortization of net loss

 

 

1,435 

 

 

1,468 

 

 

(48)

 

 

(31)

Net periodic benefit cost

 

$

558 

 

$

830 

 

$

180 

 

$

204 



 

 

 

 

 

 

 

 

 

 

 

 



No contribution is required in 2017 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. 

 

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, 2016.  Effective January 1, 2017, the Company prospectively adopted accounting guidance intended to improve the accounting for employee share-based payments.  The Company elected to account for forfeitures as they occur. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.    

A summary of option activity for the three months ended March 31, 2017 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, 2017

 

456,258 

 

$

35.91 

 

 

 

$

3,734 

Exercised/Released

 

(256,611)

 

 

33.71 

 

 

 

 

3,270 

Cancelled/Forfeited

 

(538)

 

 

32.09 

 

 

 

 

Expired

 

(689)

 

 

44.91 

 

 

 

 

 

Outstanding at March 31, 2017

 

198,420 

 

$

38.74 

 

2.91 

 

$

1,728 

Exercisable at March 31, 2017

 

177,151 

 

$

39.83 

 

2.64 

 

$

1,392 



The total intrinsic value of options exercised for the three months ended March 31, 2017 was $3.3 million.  There was no total intrinsic value of options exercised for the three months ended March 31, 2016.

27


 

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, 2017 and changes during the three months ended March 31, 2017, is presented in the following table.



 

 

 

 

 



 

 

 

 

 



 

 

 

 

Weighted



 

 

 

 

Average



 

Number of

 

 

Grant Date



 

Shares

 

 

Fair Value

Nonvested at January 1, 2017

 

2,152,119 

 

$

32.12 

Granted

 

49,558 

 

 

40.82 

Vested

 

(9,607)

 

 

31.81 

Forfeited

 

(20,446)

 

 

32.51 

Nonvested at March 31, 2017

 

2,171,624 

 

$

32.32 



As of March 31, 2017,  there was $52.7 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, 2017 and 2016 was $0.5 million and $0.9 million, respectively.    

During the three months ended March 31, 2017, the Company granted 23,489 performance shares subject to a total shareholder return (“TSR”) performance metric with a grant date fair value of $42.92 per share and 23,489 performance shares subject to a core earnings per share performance metric with a grant date fair value of $38.26 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. 

28


 

13Fair 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, 2017

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agency securities

 

$

 —

 

$

74,496 

 

$

 —

 

$

74,496 

Municipal obligations

 

 

 —

 

 

241,036 

 

 

 —

 

 

241,036 

Corporate debt securities

 

 

 —

 

 

3,500 

 

 

 —

 

 

3,500 

Residential mortgage-backed securities

 

 

 —

 

 

1,559,417 

 

 

 —

 

 

1,559,417 

Commercial mortgage-backed securities

 

 

 —

 

 

428,048 

 

 

 —

 

 

428,048 

Collateralized mortgage obligations

 

 

 —

 

 

192,264 

 

 

 —

 

 

192,264 

Total available for sale securities

 

 

 —

 

 

2,498,761 

 

 

 —

 

 

2,498,761 

Derivative assets (1)

 

 

 —

 

 

14,959 

 

 

 —

 

 

14,959 

Total recurring fair value measurements - assets

 

$

 —

 

$

2,513,720 

 

$

 —

 

$

2,513,720 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

$

 —

 

$

12,877 

 

$

 —

 

$

12,877 

Total recurring fair value measurements - liabilities

 

$

 —

 

$

12,877 

 

$

 —

 

$

12,877 



(1)

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







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2016

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agency securities

 

$

 —

 

$

54,828 

 

$

 —

 

$

54,828 

Municipal obligations

 

 

 —

 

 

242,155 

 

 

 —

 

 

242,155 

Corporate debt securities

 

 

 —

 

 

3,500 

 

 

 —

 

 

3,500 

Residential mortgage-backed securities

 

 

 —

 

 

1,611,355 

 

 

 —

 

 

1,611,355 

Commercial mortgage-backed securities

 

 

 —

 

 

402,591 

 

 

 —

 

 

402,591 

Collateralized mortgage obligations

 

 

 —

 

 

202,479 

 

 

 —

 

 

202,479 

Total available for sale securities

 

 

 —

 

 

2,516,908 

 

 

 —

 

 

2,516,908 

Derivative assets (1)

 

 

 —

 

 

20,315 

 

 

 —

 

 

20,315 

Total recurring fair value measurements - assets

 

$

 —

 

$

2,537,223 

 

$

 —

 

$

2,537,223 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

$

 —

 

$

27,432 

 

$

 —

 

$

27,432 

Total recurring fair value measurements - liabilities

 

$

 —

 

$

27,432 

 

$

 —

 

$

27,432 



(1)

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



Securities classified as level 2 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

29


 

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 years.  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, 2017

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Collateral-dependent impaired loans

 

$

 —

 

$

143,327 

 

$

 —

 

$

143,327 

Other real estate owned

 

 

 —

 

 

 —

 

 

9,295 

 

 

9,295 

Total nonrecurring fair value measurements

 

$

 —

 

$

143,327 

 

$

9,295 

 

$

152,622 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2016

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Collateral-dependent impaired loans

 

$

 —

 

$

169,888 

 

$

 —

 

$

169,888 

Other real estate owned

 

 

 —

 

 

 —

 

 

13,968 

 

 

13,968 

Total nonrecurring fair value measurements

 

$

 —

 

$

169,888 

 

$

13,968 

 

$

183,856 



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.

30


 

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 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.

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, 2017 and December 31, 2016.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2017



 

 

 

 

 

 

 

 

 

 

Total Fair

 

Carrying

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Value

 

Amount

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

384,587 

 

$

 —

 

$

 —

 

$

384,587 

 

$

384,587 

Available for sale securities

 

 

 —

 

 

2,498,761 

 

 

 —

 

 

2,498,761 

 

 

2,498,761 

Held to maturity securities

 

 

 —

 

 

2,477,420 

 

 

 —

 

 

2,477,420 

 

 

2,502,512 

Loans, net

 

 

 —

 

 

143,327 

 

 

17,580,123 

 

 

17,723,450 

 

 

17,991,318 

Loans held for sale

 

 

 —

 

 

20,883 

 

 

 —

 

 

20,883 

 

 

20,883 

Derivative financial instruments

 

 

 —

 

 

14,959 

 

 

 —

 

 

14,959 

 

 

14,959 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

 —

 

$

 —

 

$

19,927,363 

 

$

19,927,363 

 

$

19,922,020 

Federal funds purchased

 

 

16,321 

 

 

 —

 

 

 —

 

 

16,321 

 

 

16,321 

Securities sold under  agreements to repurchase

 

 

444,788 

 

 

 —

 

 

 —

 

 

444,788 

 

 

444,788 

FHLB short-term borrowings

 

 

1,660,823 

 

 

 —

 

 

 —

 

 

1,660,823 

 

 

1,660,823 

Long-term debt

 

 

 —

 

 

524,039 

 

 

 —

 

 

524,039 

 

 

525,082 

Derivative financial instruments

 

 

 —

 

 

12,877 

 

 

 —

 

 

12,877 

 

 

12,877 





31


 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

December 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

 

$

450,866 

 

$

 —

 

$

 —

 

$

450,866 

 

$

450,866 

Available for sale securities

 

 

 —

 

 

2,516,908 

 

 

 —

 

 

2,516,908 

 

 

2,516,908 

Held to maturity securities

 

 

 —

 

 

2,470,117 

 

 

 —

 

 

2,470,117 

 

 

2,500,220 

Loans, net

 

 

 —

 

 

169,888 

 

 

16,326,961 

 

 

16,496,849 

 

 

16,522,733 

Loans held for sale

 

 

 —

 

 

34,064 

 

 

 —

 

 

34,064 

 

 

34,064 

Derivative financial instruments

 

 

 —

 

 

20,315 

 

 

 —

 

 

20,315 

 

 

20,315 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

 —

 

$

 —

 

$

19,430,939 

 

$

19,430,939 

 

$

19,424,266 

Federal funds purchased

 

 

2,275 

 

 

 —

 

 

 —

 

 

2,275 

 

 

2,275 

Securities sold under  agreements to repurchase

 

 

358,131 

 

 

 —

 

 

 —

 

 

358,131 

 

 

358,131 

FHLB short-term borrowings

 

 

865,000 

 

 

 —

 

 

 —

 

 

865,000 

 

 

865,000 

Long-term debt

 

 

 —

 

 

435,747 

 

 

 —

 

 

435,747 

 

 

436,280 

Derivative financial instruments

 

 

 —

 

 

27,432 

 

 

 —

 

 

27,432 

 

 

27,432 



 





14.  Recent Accounting Pronouncements



Accounting Standards Adopted in 2017



In March 2016, the FASB issued Accounting Standards Update (“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 were effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods and we adopted the guidance effective January 1, 2017.  In accordance with the standard, the Company elected to account for forfeitures of stock-based compensation as they occur and will now reclass dividends paid on forfeited shares to compensation expense from retained earnings.    Classification of shares forfeited for taxes are reflected in the statement of cash flows as a financing rather than operating activity, with all historical periods restated.  In addition, the Company began recognizing excess tax benefits and tax deficiencies during the period to income (rather than in equity) on a prospective basis.  Our adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations, however, the change in treatment  of excess tax benefits and tax deficiencies could result in volatility of future earnings, depending on changes in stock prices



Issued but Not Yet Adopted Accounting Standards



In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,” which amends the amortization period for certain purchased callable debt securities held at a premium.  The amendments require the premium to be amortized to the earliest call date.  The amendments do not, however, require an accounting change for securities held at a discount; instead, the discount continues to be amortized to maturity.  The amendments in this ASU more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities.  These amendments are effective for fiscal years, and for interim period within those fiscal years, beginning after December 15, 2018.  Early adoption is permitted, including adoption in an interim period.  If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retain earnings as of the beginning of the period of adoption.  The Company is currently assessing this pronouncement and is considering early adoption, but it is not expected to have a material impact on the Company’s financial condition or results of operations.



In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715):  Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost.  The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.  The amendments also allow only the service cost component to be eligible for capitalization when applicable.  These amendments are effective for public business entities for annual periods beginning after December

32


 

15, 2017, including interim periods within those annual periods.  Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance, meaning early adoption should be within the first interim period if an employer issues interim financial statements.  Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption.  The amendments should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.  The Company is currently assessing this pronouncement and the impact of adoption, but it is not expected to have a material impact on the Company’s financial condition or results of operations.



In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.  Under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  Additionally, ASU No. 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test.  This ASU is effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The ASU should be applied using a prospective method.  The Company is currently assessing this pronouncement and is considering early adoption, but it is not expected to have a material impact on the Company’s financial condition or results of operations.



In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) – Clarifying the Definition of a Business,” which addresses stakeholders’ concerns that the current definition of a business is applied too broadly and analyzing transactions under the current definition is difficult and costly.  Under the amended guidance, a transaction is initially subject to a screening process to determine whether a “set” (i.e. an integrated set of assets and activities) does not qualify as a business.  Under the screen, if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or in a group of similar identifiable assets, the set is deemed not to be a business.  Further evaluation is required only if the transferred set does not meet the screen.  Under the further evaluation, to be considered a business, a set must include, at a minimum, an input and a substantive process that, together, significantly contribute to the ability to create output.  The amendment also narrows the definition of the term “output” so that it is consistent with the manner in which outputs are described in Topic 606, Revenue from Contracts with Customers.  The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods.  Early application is permitted under certain circumstances.  The amendments should be applied prospectively on or after the effective date.  The Company is currently assessing this pronouncement and the impact of adoption.



In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other than Inventory,” which addresses stakeholders’ concerns that the limited amount of authoritative guidance has led to diversity in practice and is a source of complexity in financial reporting and results in an unfaithful representation of the economics of an intra-entity asset transfer.  The amendment eliminates the exception to the United States generally accepted accounting principle (“U.S. GAAP”) of comprehensive recognition of current and deferred income taxes that prohibits recognizing current and deferred income tax consequences for an intra-equity asset transfer (excluding the transfer of inventory) until the asset has been sold to an outside party.  The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods.  Early adoption is permitted, including adoption in an interim period.  The amendments should be applied using a retrospective transition method to each period presented.  The Company is currently assessing this pronouncement and the impact of adoption; however, the adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

   

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments provide guidance on eight specific cash flow issues, including debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned), life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle.  The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The amendments should be applied using a retrospective transition method to each period presented.  This guidance is not expected to have a material impact on the Company’s financial condition or results of operations.





33


 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credits Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The ASU, more commonly referred to as Current Expected Credit Losses, or CECL, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.  Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.  Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.  In addition, the ASU amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration.  The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.  Early application is permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company has begun the process of implementation and currently is not planning to early adopt.  The Company expects the guidance will result in an increase in the allowance for loan losses given the change from covering losses inherent in the portfolio to covering losses over the remaining expected life of the portfolio and the nonaccretable difference on purchased credit impaired loans moving to an allowance (offset by an increase in the carrying value of the related loans). The guidance will also result in the establishment of an allowance for credit loss on held to maturity debt securities.  The amount of the increase in these allowances will be impacted by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.



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.  The Company is currently assessing this pronouncement and the impact of adoption by reviewing its existing lease contracts and service contracts that may include embedded leases.  The Company expects a gross-up of its Consolidated Balance Sheets as a result of recognizing lease liabilities and right of use assets; the extent of such is under evaluation.  The Company does not expect material changes to the recognition of operating lease expense in its consolidated results of operations.



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; however, the 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)” 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. Most revenue associated with financial instruments, including interest and loan origination fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are also excluded from the scope.  Subsequent to issuance of the revenue recognition guidance, the FASB has issued several updates that deferred by one year the effective date for revenue recognition guidance; clarified its guidance for performing the principal-versus-agent analysis; clarified guidance for identifying performance obligations allowing entities to ignore immaterial promised goods and services in the context of a contract with a customer and other clarifying guidance and technical corrections.  Entities can elect to adopt the guidance either on a full or modified retrospective basis.  Full retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the earliest comparative period presented.  Modified retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance.  The standard will be effective for the Company for annual reporting periods beginning after December 15, 2017.  The Company is still in process of gathering an inventory and evaluating all contracts with customers and does not plan to early adopt the guidance. The Company is also in the process of evaluating the transition method election and the impact of the guidance to noninterest income and on presentation and disclosures. The preliminary analysis suggests this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.



34


 



15.  Subsequent Event



On April 28, 2017, the Company announced that its banking subsidiary, Whitney Bank, entered into a purchase and assumption agreement with the FDIC (“Agreement”), which acted as the receiver for the Louisiana Office of Financial Institutions (OFI) following the OFI's determination to close FNBC.   Pursuant to the Agreement, Whitney Bank acquired selected assets and liabilities of FNBC from the FDIC. 



Under the Agreement, Whitney acquired approximately $1.6 billion in deposits, which were primarily in the form of transaction and savings accounts, and purchased approximately $1.0 billion in cash, securities, loans, and other assets, primarily at book value, for a transaction premium of $35 million. The FDIC made a payment to Whitney Bank of $655 million for the net liabilities assumed. These amounts are subject to adjustment based upon final settlement with the FDIC pursuant to the  Agreement.



Whitney will continue to operate the former FNBC banking premises for a period of time. Whitney will have the right for a 90-day period to purchase at fair market value any owned FNBC banking premises (and purchase at fair market value certain related assets) and will have the right for a 60-day period to assume the leases for any leased premises (and purchase at fair market value certain related assets).



The terms of the Agreement require the FDIC to indemnify Whitney against certain liabilities of FNBC and its affiliates not assumed or otherwise purchased by Whitney.  Neither the Company nor Whitney Bank acquired any assets, common stock, preferred stock or debt, or assumed any other obligations, of FNBC Bank Holding Company or FNBC

35


 

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

OVERVIEW



Non-GAAP Financial Measures



Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP measures used to describe Hancock’s performance.  A reconciliation of those measures to GAAP measures are provided within the appropriate section of this Item. 



Consistent with Securities and Exchange Commission Industry Guide 3, the Company presents net interest income, net interest margin and efficiency ratios on a fully taxable equivalent (“te”) basis. The te basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 35% to increase tax-exempt interest income to a taxable-equivalent basis. The Company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.



Over the past several quarters we have disclosed our focus on strategic initiatives that were designed to replace declining levels of purchase accounting income from acquisitions with improvement in core income, which the Company defines as income excluding net purchase accounting income. The Company presents core income non-GAAP measures including core net interest income and core net interest margin, core revenue and core pre-tax, pre-provision profit.  These measures are provided to assist the reader with a  better understanding of 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.



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 acquired operations.  We define Core Net Interest Margin as reported core net interest income, annualized, expressed as a percentage of average earning assets.  



We define Core Revenue as core net interest income and noninterest income less the amortization of the FDIC loss share receivable related to loans acquired in an FDIC assisted transaction and other nonoperating revenues.  



We define Core Pre-Provision Net Revenue as core revenue less noninterest expense, excluding intangible amortization and other nonoperating items. Management believes that core pre-tax, pre-provision net revenue is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.



Acquisition

On March 10, 2017, the Company completed the transaction with FNBC, whereby the Company acquired approximately $1.2 billion in loans (net of fair value discount or “loan mark”), 9 branch locations with $398 million in deposits, and assumed $604 million in FHLB borrowings.  This in-market transaction strengthens our position in the Greater New Orleans area.  The operational conversion of the branch locations is expected to occur in mid-May 2017 with the simultaneous closure of 10 overlapping branches.  The transaction was originally announced on December 30, 2016.  For additional information on the transaction, see Notes to Consolidated Financial Statements – Note 2 Acquisition.  

Subsequent Event



On April 28, 2017, the Company announced that its banking subsidiary, Whitney Bank, entered into a purchase and assumption agreement with the FDIC (Agreement), which acted as the receiver for the Louisiana Office of Financial Institutions (OFI) following the OFI’s determination to close FNBC.  Pursuant to the Agreement, Whitney Bank acquired selected assets and liabilities of FNBC from the FDIC.  Management believes this in-market transaction is low risk and will be financially compelling, helping us achieve our long term goals.    



Under the Agreement, Whitney acquired/assumed the following assets and liabilities:



·

Approximately $1.6 billion in deposits, primarily transaction and savings accounts

·

Approximately $1.0 billion in cash, securities, loans, and other assets, primarily at book value

·

The FDIC made a cash payment to Whitney Bank of $655 million (net of a transaction premium of $35 million) for the net liabilities assumed



Whitney will continue to operate the former FNBC banking premises for a period of time. Whitney will have the right for a 90-day period to purchase at fair market value any owned FNBC banking premises (and purchase at fair market value certain related assets) and will have the right for a 60-day period to assume the leases for any leased premises (and purchase at fair market value certain related assets).

36


 



The terms of the Agreement require the FDIC to indemnify Whitney against certain liabilities of FNBC and its affiliates not assumed or otherwise purchased by Whitney. Neither the Company nor Whitney Bank acquired any assets, common stock, preferred stock or debt, or assumed any other obligations, of FNBC Bank Holding Company or FNBC

Recent Economic and Industry Developments

Current Economic Environment

Most of Hancock’s market area reflected a modest to moderate expansion in economic activity during the first quarter according to the Federal Reserve’s Summary of Commentary on Current Economic Conditions (“Beige Book”).  Energy-related businesses operating mainly in Hancock’s south Louisiana and Houston, Texas markets again showed improvement in the current quarter. Demand for oil field services improved with oil and gas activity growing, though activity remains well below third-quarter 2014 levels.  There is concern, however, that the accelerated pace may not be sustainable.  While overall outlooks are positive, continued volatility in the sector is expected.

The commercial real estate market continued to improve in most of our footprint, with growing demand for office and industrial space in certain market areas.  Commercial construction activity also increased in these sectors.  Continued improvement is expected in the commercial real estate market.  The Houston market is the exception to this positive outlook with weak demand for office space and construction.

The residential real estate market experienced slow and steady growth across the Company’s footprint outside of the Houston area during the quarter, with construction activity up year-over-year.   Home prices increased modestly, with buyers remaining price sensitive. Apartment demand was strong in all markets excluding Houston, where rents were flat to down.   New home sales and construction activity are expected to remain flat or improve slightly over the next three months in all of our markets.

Retail sales activity and consumer spending were mixed with merchants expecting sales to remain flat.  Auto sales increased throughout the Company’s footprint and tourism and hospitality activity was strong.  Employment increased at a moderate pace over the reporting period, while wage increases remained steady in the 2 to 3 percent range.  Energy companies indicated that hiring had picked up in the first quarter; however, some companies in the exploration and production sector continued to note layoffs.    

Loan demand across the geographic markets that Hancock serves improved.  Loan volumes increased primarily in commercial and industrial loans and real estate (commercial and residential) loans, with consumer loans decreasing.  Outlooks were mostly optimistic, with anticipation of stronger loan demand and business activity six months from now.  Overall, the economic outlook is more positive than in previous periods.

Highlights of First Quarter 2017 Financial Results

Net income in the first quarter of 2017 was $49.0 million, or $0.57 per diluted common share, compared to $51.8 million, or $0.64 per diluted common share, in the fourth quarter of 2016.  Net income was $3.8 million, or $0.05 per diluted common share, in the first quarter of 2016.  The first quarter of 2017 included a full quarter impact of the 6.3 million shares issued in the mid-December 2016 common stock offering ($0.04 per share impact), $6.5 million of acquisition costs related to the FNBC transaction ($0.05 per share) partially offset by a $4.4 million gain from the sale of selected Hancock Horizon funds ($0.03 per share).  The first quarter of 2016 included a $60.0 million ($0.49 per share) provision for credit losses primarily related to the recent energy cycle.

Highlights of the Company’s first quarter 2017 results (compared to fourth quarter 2016):

·

Includes a partial quarter impact from the acquisition of selected assets and liabilities of FNBC totaling $2.9 million, or $0.03 per share, excluding the acquisition costs noted above

·

Acquired 9 branches from FNBC; operational conversion expected in mid-May 2017, with the simultaneous closure of 10 overlapping branches

·

Total loans up $1.5 billion; includes $1.2 billion from the FNBC transaction (net of the fair value discount, or “loan mark”)

·

Energy loans comprise 7.1% of total loans, down from 8.4%; allowance for the energy portfolio totals $83.7 million, or 6.5% of energy loans

·

Total deposits up $498 million; includes $398 million assumed in the FNBC transaction

·

Purchased $604 million of FHLB advances from FNBC

·

Core pre-provision net revenue of $93.3 million, up $6.1 million, or 7%

37


 

·

Net interest margin (“NIM”) of 3.37% up 11 basis points (bps); core NIM up 10 bps to 3.29%

·

Tangible common equity ratio down 70 bps to 7.94%; reflects partial use of capital raised in December 2016

The total allowance for loan losses was $213.6 million at March 31, 2017, down $15.9 million from December 31, 2016 and $4.2 million from March 31, 2016.  The ratio of the allowance for loan losses to period-end loans was 1.17% at March 31, 2017, down from 1.37% at December 31, 2016, and 1.36% at March 31, 2016, due largely to the addition of the FNBC loans.  There is no allowance for loan losses on the loans purchased from FNBC; however, a 4% loan mark has been applied to these loans.  The allowance for credits in the energy portfolio totaled $83.7 million, or 6.5% of energy loans, at March 31, 2017, down from $106.5 million, or 7.5% of energy loans, at December 31, 2016.







RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the first quarter of 2017 was $190.0 million, a $14.7 million, or 8% increase from the fourth quarter of 2016. Core net interest income was up $13.9 million. 

Net interest income (te) for the first quarter of 2017 increased $21.8 million, or 13%, compared to the first quarter of 2016, while core net interest income was up $22.9 million, or 14%.  Interest earned on earning asset growth and improved yields were the primary drivers in increased net interest income.    The following table details the components of our net interest income and net interest margin.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three months Ended



 

 

March 31, 2017

 

December 31, 2016

 

March 31, 2016

(dollars in millions)

 

 

Volume

 

Interest

 

Rate

 

Volume

 

Interest

 

Rate

 

Volume

 

Interest

 

Rate

Average earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & real estate loans (te) (a)

 

 

$

13,058.7 

 

$

130.4 

 

4.04 

%

 

$

12,182.5 

 

$

116.8 

 

3.81 

%

 

$

11,713.2 

 

$

111.7 

 

 

3.83 

%

Residential mortgage loans

 

 

 

2,185.9 

 

 

21.3 

 

3.90 

 

 

 

2,085.1 

 

 

20.7 

 

3.98 

 

 

 

2,058.5 

 

 

21.3 

 

 

4.13 

 

Consumer loans

 

 

 

2,058.5 

 

 

26.6 

 

5.24 

 

 

 

2,056.3 

 

 

26.5 

 

5.13 

 

 

 

2,077.1 

 

 

26.3 

 

 

5.10 

 

Loan fees & late charges

 

 

 

 

 

 

(0.1)

 

 

 

 

 

 

 

 

(0.5)

 

 

 

 

 

 

 

 

(0.8)

 

 

 

 

Total loans (te) (a) (b)

 

 

 

17,303.1 

 

 

178.2 

 

4.16 

 

 

 

16,323.9 

 

 

163.5 

 

3.99 

 

 

 

15,848.8 

 

 

158.5 

 

 

4.02 

 

Loans held for sale

 

 

 

21.3 

 

 

0.2 

 

4.08 

 

 

 

32.4 

 

 

0.3 

 

3.59 

 

 

 

14.8 

 

 

0.2 

 

 

4.28 

 

US Treasury and government agency securities

 

 

 

116.3 

 

 

0.6 

 

2.04 

 

 

 

97.9 

 

 

0.5 

 

1.93 

 

 

 

50.1 

 

 

0.2 

 

 

1.67 

 

Mortgage-backed securities and collateralized mortgage obligations

 

 

 

3,975.2 

 

 

22.1 

 

2.22 

 

 

 

4,017.9 

 

 

21.0 

 

2.09 

 

 

 

4,132.8 

 

 

22.9 

 

 

2.21 

 

Municipals (te) (a)

 

 

 

942.1 

 

 

9.0 

 

3.84 

 

 

 

819.3 

 

 

7.9 

 

3.86 

 

 

 

339.1 

 

 

3.6 

 

 

4.27 

 

Other securities

 

 

 

3.7 

 

 

 —

 

1.96 

 

 

 

4.1 

 

 

 —

 

1.79 

 

 

 

6.1 

 

 

 —

 

 

1.85 

 

Total securities (te) (a) (c)

 

 

 

5,037.3 

 

 

31.7 

 

2.52 

 

 

 

4,939.2 

 

 

29.4 

 

2.38 

 

 

 

4,528.1 

 

 

26.7 

 

 

2.36 

 

Total short-term investments

 

 

 

408.3 

 

 

0.7 

 

0.74 

 

 

 

166.7 

 

 

0.2 

 

0.49 

 

 

 

519.0 

 

 

0.6 

 

 

0.47 

 

Total earning assets (te) (a)

 

 

$

22,770.0 

 

$

210.8 

 

3.74 

%

 

$

21,462.2 

 

$

193.4 

 

3.59 

%

 

$

20,910.7 

 

$

186.0 

 

 

3.57 

%

Average interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction and savings deposits

 

 

$

6,897.7 

 

$

4.5 

 

0.27 

%

 

$

6,761.9 

 

$

4.3 

 

0.25 

%

 

$

6,815.7 

 

$

4.7 

 

 

0.28 

%

Time deposits

 

 

 

2,340.0 

 

 

5.1 

 

0.89 

 

 

 

2,298.8 

 

 

5.2 

 

0.90 

 

 

 

2,258.9 

 

 

4.9 

 

 

0.88 

 

Public funds

 

 

 

2,547.9 

 

 

3.2 

 

0.50 

 

 

 

2,317.0 

 

 

2.5 

 

0.43 

 

 

 

2,173.5 

 

 

2.1 

 

 

0.38 

 

Total interest-bearing deposits

 

 

 

11,785.6 

 

 

12.8 

 

0.44 

 

 

 

11,377.7 

 

 

12.0 

 

0.42 

 

 

 

11,248.1 

 

 

11.7 

 

 

0.42 

 

Short-term borrowings

 

 

 

2,127.3 

 

 

2.9 

 

0.56 

 

 

 

1,367.5 

 

 

1.1 

 

0.33 

 

 

 

1,564.8 

 

 

1.0 

 

 

0.26 

 

Long-term debt

 

 

 

458.0 

 

 

5.1 

 

4.42 

 

 

 

453.1 

 

 

4.9 

 

4.36 

 

 

 

483.3 

 

 

5.1 

 

 

4.20 

 

Total borrowings

 

 

 

2,585.3 

 

 

8.0 

 

1.24 

 

 

 

1,820.6 

 

 

6.0 

 

1.33 

 

 

 

2,048.1 

 

 

6.1 

 

 

1.19 

 

Total interest-bearing liabilities

 

 

 

14,370.9 

 

 

20.8 

 

0.59 

%

 

 

13,198.3 

 

 

18.0 

 

0.55 

%

 

 

13,296.2 

 

 

17.8 

 

 

0.54 

%

Net interest-free funding sources

 

 

 

8,399.1 

 

 

 

 

 

 

 

 

8,263.9 

 

 

 

 

 

 

 

 

7,614.5 

 

 

 

 

 

 

 

Total cost of funds

 

 

$

22,770.0 

 

$

20.8 

 

0.37 

%

 

$

21,462.2 

 

$

18.0 

 

0.34 

%

 

$

20,910.7 

 

$

17.8 

 

 

0.34 

%

Net interest spread (te) (a)

 

 

 

 

 

$

190.0 

 

3.15 

%

 

 

 

 

$

175.4 

 

3.05 

%

 

 

 

 

$

168.2 

 

 

3.03 

%

Net interest margin

 

 

$

22,770.0 

 

$

190.0 

 

3.37 

%

 

$

21,462.2 

 

$

175.4 

 

3.26 

%

 

$

20,910.7 

 

$

168.2 

 

 

3.23 

%



(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.

The reported net interest margin was 3.37% for the first quarter of 2017, up 11 bps from the fourth quarter of 2016.  The core net interest margin for the first quarter of 2017 was 3.29% or 10 bps above the fourth quarter of 2016.  The core loan yield, which excludes purchase accounting adjustments, was up 16 bps and the yield on the investment portfolio increased 14 bps, partially offset

38


 

by a 3 bp increase in the cost of funds.  The increase in loan yields was mainly related to higher-yielding loans acquired in the FNBC transaction, plus the full quarter impact of the increase in market rates by the Federal Reserve in December 2016.  The improved yields on investment securities resulted from a decrease in premium amortization as prepayments on mortgage-backed securities slowed. Also, the average balance of higher-yielding municipal bonds in the securities portfolio has increased by over $600 million over the past four quarters, including $123 million in the current quarter.  The increase in the cost of funds was primarily related to a $760 million, or 56% increase in short-term borrowings, along with an increase in the rate paid on these borrowings from 33 bps to 56 bps. 

Compared to the first quarter of 2016, the net interest margin increased 14 bps and the core margin was up 17 bps.  The major factors in these increases are largely the same as for the comparison to the fourth quarter of 2016.

The overall reported yield on earning assets was 3.74% in the first quarter of 2017, up 17 bps from the first quarter of 2016, due to improving yields on loans and investment securities attributable to the same factors as the linked-quarter.  The $603 million increase in higher-yielding municipal securities ($123 million in the first quarter) improved the mix of the portfolio. 

Due to the significant contribution from purchase accounting accretion related to assets acquired in business combinations, management believes that non-GAAP measures of 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.





 

 

 

 

 

 

 

 

 

 

 

 



 

Three months Ended



 

March 31,

 

December 31,

 

March 31,

(dollars in millions)

 

2017

 

2016

 

2016

Net interest income

 

$

181.7 

 

 

$

167.8 

 

 

$

162.8 

 

Taxable-equivalent adjustment (te) (a)

 

 

8.3 

 

 

 

7.6 

 

 

 

5.4 

 

Net interest income (te) (a)

 

 

190.0 

 

 

 

175.4 

 

 

 

168.2 

 

Purchase accounting adjustments

 

 

 

 

 

 

 

 

 

 

 

 

Loan discount accretion

 

 

5.0 

 

 

 

4.3 

 

 

 

6.4 

 

Bond premium amortization   

 

 

(0.4)

 

 

 

(0.5)

 

 

 

(0.7)

 

Net purchase accounting accretion

 

 

4.6 

 

 

 

3.8 

 

 

 

5.7 

 

Core net interest income (te) (a)

 

$

185.4 

 

 

$

171.6 

 

 

$

162.5 

 

Average earning assets

 

$

22,770.0 

 

 

$

21,462.2 

 

 

$

20,910.7 

 

Net interest margin - reported

 

 

3.37 

%

 

 

3.26 

%

 

 

3.23 

%

Net purchase accounting adjustments

 

 

0.08 

%

 

 

0.07 

%

 

 

0.11 

%

Core net interest margin

 

 

3.29 

%

 

 

3.19 

%

 

 

3.12 

%



(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 2017, the Company recorded a total provision for loan losses of $16.0 million, up $1.5 million from the fourth quarter of 2016 and down $44.0 million from the first quarter of 2016The first quarter of 2016 included 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 purchased credit impaired portfolio was a  credit of $0.4 million for the three months ended March 31, 2017 as compared to a credit of $0.7 million for the three months ended December 31, 2016 and a credit of $0.5 million for the three months ended March 31, 2016The credits to provision for the purchased credit impaired portfolio were primarily due to reductions in expected losses in the remaining portfolio related to the Peoples First Community Bank purchase. 

Noninterest Income

Noninterest income totaled $63.5 million for the first quarter of 2017, down $2.4 million, or 4%, from the fourth quarter of 2016 and up $5.3 million, or 9%, compared to the first quarter of 2016.  Included in the first quarter of 2017 is a $4.4 million gain related to the sale of selected Hancock Horizon funds, classified as nonoperating, while the fourth quarter of 2016 included a $3.3 million gain on the sale of bank property.  Besides the impact of these gains, the largest component of the linked-quarter decrease is a $3.0 million decline in derivative income. 

39


 

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)

 

 

2017

 

2016

 

2016

Service charges on deposit accounts

 

 

$

19,206 

 

$

18,694 

 

$

18,383 

Trust fees

 

 

 

11,211 

 

 

11,764 

 

 

11,224 

Bank card and ATM fees

 

 

 

12,468 

 

 

12,317 

 

 

11,348 

Investment and annuity fees

 

 

 

4,599 

 

 

4,212 

 

 

4,933 

Secondary mortgage market operations

 

 

 

3,567 

 

 

4,277 

 

 

2,912 

Insurance commissions and fees

 

 

 

665 

 

 

866 

 

 

1,307 

Amortization of FDIC loss share receivable

 

 

 

(1,100)

 

 

(1,240)

 

 

(1,613)

Income from bank-owned life insurance

 

 

 

2,652 

 

 

2,448 

 

 

2,550 

Credit related fees

 

 

 

2,878 

 

 

2,617 

 

 

2,357 

Derivative income

 

 

 

465 

 

 

3,455 

 

 

(139)

Net gain on sale of assets

 

 

 

(227)

 

 

3,257 

 

 

1,766 

Safety deposit box income

 

 

 

449 

 

 

381 

 

 

478 

Other miscellaneous

 

 

 

2,306 

 

 

2,556 

 

 

2,334 

Securities transactions

 

 

 

 —

 

 

289 

 

 

346 

Total noninterest operating income

 

 

$

59,139 

 

$

65,893 

 

$

58,186 

Nonoperating income items

 

 

 

4,352 

 

 

 —

 

 

 —

Total noninterest income

 

 

$

63,491 

 

$

65,893 

 

$

58,186 



Service charges on deposits totaled $19.2 million for the first quarter of 2017, up $0.5 million, or 3%, from the fourth quarter of 2016 and up $0.8 million, or 4%, from the first quarter of 2016. These increases were primarily due to an increase in consumer overdraft fees.

Bank card and ATM fees totaled $12.5 million for the quarter ended March 31, 2017, compared to $12.3 million in the fourth quarter of 2016.  Compared to the first quarter of 2016, bank card and ATM fees were up $1.1 million, or 10% due to an increase in credit card and merchant fees.  

Secondary mortgage market operations fee income decreased $0.7 million, or 17%, from the fourth quarter of 2016, but were up $0.7 million, or 22%, compared to the first quarter of 2016. The linked-quarter decline was due to the higher rate environment, which led to lower production, resulting in a lower percentage of loans sold into the secondary market. The increase over the prior-year quarter resulted from a 50% increase in loan production, partially offset by a lower percentage of loans sold.  Mortgage loan originations for the first quarter of 2017 totaled $345 million, compared to $376 million in the fourth quarter of 2016 and $226 million in the first quarter of 2016. 



Trust, investment and annuity fees and insurance commissions and fees totaled $16.5 million in the first quarter of 2017, down $0.4 million linked quarter and down $1.0 million compared to the first quarter of 2016. Trust fees decreased due to the sale of the Hancock Horizon funds mentioned above. Investment and annuity fees were down due to a change in the mix of products sold.  In the current interest rate environment, customer demand for longer-term annuity products has been replaced for shorter duration products which result in lower upfront commissions.  Additionally, the Company has shifted its focus more towards recurring products that pay no upfront commissions but generate additional revenue over time.  Insurance commissions were down compared to both the fourth and the first quarters of 2016, due to changes in ancillary sales methodology, decreased seasonal demand and residual claims related to major flooding in Louisiana in 2016.  

Income from bank-owned life insurance increased $0.2 million, or 8% compared to the fourth quarter of 2016 and was up $0.1 million, or 4%, compared to the first quarter of 2016, due to increases in the amount of bank-owned policies and the proceeds from death benefit claims. 

Income on our customer interest rate derivative program resulted in a $0.5 million net gain for the first quarter of 2017 compared to a $3.5 million net gain in the fourth quarter of 2016 and a $0.1 million net loss in the first quarter of 2016.  This income is volatile in nature and is dependent upon both customer sales activity and market value adjustments due to interest rate movement. 

 





40


 

Noninterest Expense

Noninterest expense for the first quarter of 2017 was $163.5 million, up $7.3 million, or 5%, from the fourth quarter of 2016, and up $7.5 million, or 5%, from the first quarter of 2016.  Excluding nonoperating expense items, noninterest expense for the first three months of 2017 totaled $157.1 million, an increase of $0.8 million, or less than 1% linked quarter and up $6.0 million, or 4% from the first quarter of 2016.    



Nonoperating expenses in the first quarter of 2017 consisted of acquisition costs associated with the FNBC transaction. There were no nonoperating expenses in the fourth quarter of 2016.  Nonoperating expenses for the first quarter of 2016 totaling $5.0 million were almost all related to separation costs included in personnel expenses due to an efficiency initiative and technology enhancements. 

The components of noninterest expense and nonoperating expense are presented in the following tables for the indicated periods.























 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2017

 

2016

 

2016

Operating expense

 

 

 

 

 

 

 

 

 

Compensation expense

 

$

73,005 

 

$

74,258 

 

$

69,438 

Employee benefits

 

 

16,007 

 

 

13,293 

 

 

15,303 

Personnel expense

 

 

89,012 

 

 

87,551 

 

 

84,741 

Net occupancy expense

 

 

10,762 

 

 

10,478 

 

 

10,356 

Equipment expense

 

 

3,708 

 

 

3,460 

 

 

3,774 

Data processing expense

 

 

15,395 

 

 

15,452 

 

 

14,207 

Professional services expense

 

 

6,649 

 

 

7,644 

 

 

7,440 

Amortization of intangibles

 

 

4,705 

 

 

4,766 

 

 

5,124 

Telecommunications and postage

 

 

3,467 

 

 

3,229 

 

 

3,361 

Deposit insurance and regulatory fees

 

 

6,490 

 

 

6,084 

 

 

5,397 

Other real estate expense, net

 

 

(13)

 

 

615 

 

 

445 

Advertising

 

 

2,947 

 

 

3,029 

 

 

2,357 

Ad valorem and franchise taxes

 

 

3,036 

 

 

1,830 

 

 

2,303 

Printing and supplies

 

 

1,174 

 

 

1,112 

 

 

1,111 

Insurance expense

 

 

817 

 

 

808 

 

 

835 

Travel expense

 

 

1,044 

 

 

1,218 

 

 

949 

Entertainment and contributions

 

 

1,767 

 

 

1,803 

 

 

1,632 

Tax credit investment amortization

 

 

1,212 

 

 

(174)

 

 

1,743 

Other miscellaneous

 

 

4,907 

 

 

7,378 

 

 

5,279 

Total operating expense

 

$

157,079 

 

$

156,283 

 

$

151,054 

Nonoperating expense items

 

 

6,463 

 

 

 —

 

 

4,978 

Total noninterest expense

 

$

163,542 

 

$

156,283 

 

$

156,032 















 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2017

 

2016

 

2016

Nonoperating expense

 

 

 

 

 

 

 

 

 

Personnel expense

 

$

107 

 

$

 —

 

$

3,974 

Professional services expense

 

 

4,627 

 

 

 —

 

 

181 

Advertising

 

 

130 

 

 

 —

 

 

 —

Other expense

 

 

1,599 

 

 

 —

 

 

823 

Total nonoperating expenses

 

$

6,463 

 

$

 —

 

$

4,978 













41


 

The following discussion of the components of noninterest expenses excludes nonoperating expenses for each period. 

Personnel expense totaled $89.0 million for the first quarter of 2017, up $1.5 million, or 2% linked quarter, primarily due to reset of payroll taxes in the first quarter of each year.    Year over year, personnel expense was up $4.3 million, or 5%, due to normal merit increases and increased bonus and incentive compensation.

Occupancy and equipment expenses totaled $14.5 million in the first quarter of 2017, up $0.5 million, or 4%, from the fourth quarter of 2016 and up $0.3 million, or 2%, compared to the first quarter of 2016 due, in part, to costs related to acquired branches



Net gains on ORE dispositions exceeded ORE expense by $13 thousand compared to $0.6 million of net expense in the fourth quarter of 2016. Management does not expect this level of ORE expense to be sustainable in future quarters.



All other expenses, excluding amortization of intangibles and nonoperating expense items, totaled $48.9 million for the first quarter of 2017, down $0.5 million, or 1%, from the fourth quarter of 2016.  These expenses totaled $46.6 million in the first quarter of 2016.  The major components of the year-over-year increase were a $1.2 million, or 8%, increase in data processing expense related to efficiency initiatives and a $1.1 million increase in deposit insurance related to asset growth and an increased level of criticized loans.













Income Taxes

The effective income tax rate for the first quarter of 2017 was approximately 25.3%, compared to 22.5% in the first quarter of 2016. The impact of the new accounting standard for employee share-based compensation prospectively adopted beginning January 1, 2017, resulted in a 0.6% decrease in the effective tax rate for the first quarter.  The impact of stock compensation on the effective tax rate will vary quarter to quarter, depending upon the Company’s share price and the number of shares vesting or options exercised during the period.  Management expects the effective tax rate for 2017 will be in the range of 25% to 27%, excluding the impact of employee share-based compensation. 

The Company’s effective tax rate varies from the 35% federal statutory rate primarily because of tax-exempt income and tax credits.  Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the BOLI 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”) and Federal and State New Market Tax Credit (“NMTC”) 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. 

The Company has invested in NMTC projects through investments in its own Community Development Entity (“CDE”), as well as, other unrelated CDEs.  These investments will generate approximately $104 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 totaling $7.8 million, $5.6 million and $3.2 million for 2018, 2019, and 2020, respectively.

42


 

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)

 

2017

 

2016

 

2016

Taxes computed at statutory rate

 

$

22,977 

 

$

22,034 

 

$

1,734 

Tax credits:

 

 

 

 

 

 

 

 

 

QZAB/QSCB

 

 

(642)

 

 

(689)

 

 

(697)

NMTC - Federal and State

 

 

(1,679)

 

 

(1,920)

 

 

(1,830)

LIHTC

 

 

 —

 

 

 

 

(12)

Other

 

 

 —

 

 

(107)

 

 

 —

Total tax credits

 

 

(2,321)

 

 

(2,710)

 

 

(2,539)

State income taxes, net of federal income tax benefit

 

 

843 

 

 

296 

 

 

293 

Tax-exempt interest

 

 

(4,673)

 

 

(4,219)

 

 

(3,053)

Bank owned life insurance

 

 

(947)

 

 

(853)

 

 

(890)

Impact from interim estimated effective tax rate

 

 

1,880 

 

 

(3,035)

 

 

5,382 

Employee share-based compensation

 

 

(434)

 

 

 

 

 

Other, net

 

 

(690)

 

 

(391)

 

 

188 

Income tax expense

 

$

16,635 

 

$

11,122 

 

$

1,115 

 





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,



 

2017

 

2016

 

2016

Common Share Data

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.57 

 

$

0.64 

 

$

0.05 

Diluted

 

$

0.57 

 

$

0.64 

 

$

0.05 

Cash dividends paid

 

$

0.24 

 

$

0.24 

 

$

0.24 

Book value per share (period-end)

 

$

32.70 

 

$

32.29 

 

$

31.24 

Tangible book value per share (period-end)

 

$

23.19 

 

$

23.87 

 

$

21.90 

Weighted average number of shares (000s):

 

 

 

 

 

 

 

 

 

Basic

 

 

84,365 

 

 

78,820 

 

 

77,501 

Diluted

 

 

84,624 

 

 

79,067 

 

 

77,672 

Period-end number of shares (000s)

 

 

84,517 

 

 

84,235 

 

 

77,508 

Market data:

 

 

 

 

 

 

 

 

 

High sales price

 

$

49.50 

 

$

45.50 

 

$

25.84 

Low sales price

 

$

41.71 

 

$

31.73 

 

$

20.01 

Period-end closing price

 

$

45.55 

 

$

43.10 

 

$

22.96 

Trading volume (000s) (a)

 

 

45,119 

 

 

43,664 

 

 

56,319 



(a)

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





43


 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2017

 

2016

 

2016

Income Statement:

 

 

 

 

 

 

 

 

 

Interest income

 

$

202,515 

 

$

185,867 

 

$

180,641 

Interest income (te) (a)

 

 

210,813 

 

 

193,383 

 

 

185,984 

Interest expense

 

 

20,824 

 

 

18,069 

 

 

17,805 

Net interest income (te) (a)

 

 

189,989 

 

 

175,314 

 

 

168,179 

Provision for loan losses

 

 

15,991 

 

 

14,455 

 

 

60,036 

Noninterest income

 

 

63,491 

 

 

65,893 

 

 

58,186 

Noninterest expense (excluding amortization of intangibles)

 

 

158,837 

 

 

151,517 

 

 

150,908 

Amortization of intangibles

 

 

4,705 

 

 

4,766 

 

 

5,124 

Income before income taxes

 

 

65,649 

 

 

62,953 

 

 

4,954 

Income tax expense

 

 

16,635 

 

 

11,122 

 

 

1,115 

Net income

 

$

49,014 

 

$

51,831 

 

$

3,839 









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended



 

 

March 31,

 

 

December 31,

 

 

March 31,



 

 

2017

 

 

2016

 

 

2016

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.80 

%

 

 

0.88 

%

 

 

0.07 

%

Return on average common equity

 

 

7.27 

%

 

 

8.19 

%

 

 

0.64 

%

Return on average tangible common equity

 

 

9.92 

%

 

 

11.42 

%

 

 

0.91 

%

Earning asset yield (te) (a)

 

 

3.74 

%

 

 

3.59 

%

 

 

3.57 

%

Total cost of funds

 

 

0.37 

%

 

 

0.34 

%

 

 

0.34 

%

Net interest margin (te) (a)

 

 

3.37 

%

 

 

3.26 

%

 

 

3.23 

%

Noninterest income to total revenue (te) (a)

 

 

25.05 

%

 

 

27.32 

%

 

 

25.70 

%

Efficiency ratio (b)

 

 

61.16 

%

 

 

62.82 

%

 

 

64.47 

%

Average loan/deposit ratio

 

 

89.90 

%

 

 

86.31 

%

 

 

86.69 

%

FTE employees (period-end)

 

 

3,819 

 

 

 

3,724 

 

 

 

3,819 

 

Capital Ratios

 

 

 

 

 

 

 

 

 

 

 

 

Common stockholders' equity to total assets

 

 

10.84 

%

 

 

11.34 

%

 

 

10.61 

%

Tangible common equity ratio (c)

 

 

7.94 

%

 

 

8.64 

%

 

 

7.69 

%



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

(b) The efficiency ratio is noninterest expense to total net interest (te) and noninterest income, excluding amortization of purchased intangibles and nonoperating items.

(c) The tangible common equity ratio is common shareholders’ equity less intangible assets divided by total assets less intangible assets.

44


 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

December 31,

 

March 31,

($ in thousands)

 

2017

 

2016

 

2016

Asset Quality Information

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans (a)

 

$

262,649 

 

 

$

317,970 

 

 

$

237,303 

 

Restructured loans - still accruing

 

 

47,267 

 

 

 

39,818 

 

 

 

45,620 

 

Total nonperforming loans

 

 

309,916 

 

 

 

357,788 

 

 

 

282,923 

 

Other real estate (ORE) and foreclosed assets

 

 

17,156 

 

 

 

18,943 

 

 

 

24,032 

 

Total nonperforming assets

 

$

327,072 

 

 

$

376,731 

 

 

$

306,955 

 

Accruing loans 90 days past due (a)

 

$

590 

 

 

$

3,039 

 

 

$

9,226 

 

Net charge-offs - non-purchased credit impaired

 

 

29,911 

 

 

 

20,424 

 

 

 

21,299 

 

Net charge-offs - purchased credit impaired

 

 

118 

 

 

 

(256)

 

 

 

(67)

 

Allowance for loan losses

 

 

213,550 

 

 

 

229,418 

 

 

 

217,794 

 

Provision for loan losses

 

 

15,991 

 

 

 

14,455 

 

 

 

60,036 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming assets to loans, ORE and foreclosed assets

 

 

1.79 

%

 

 

2.25 

%

 

 

1.92 

%

Accruing loans 90 days past due to loans

 

 

0.00 

%

 

 

0.02 

%

 

 

0.06 

%

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

 

 

1.80 

%

 

 

2.26 

%

 

 

1.98 

%

Net charge-offs - non-purchased credit impaired to average loans

 

 

0.70 

%

 

 

0.50 

%

 

 

0.54 

%

Allowance for loan losses to period-end loans

 

 

1.17 

%

 

 

1.37 

%

 

 

1.36 

%

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

 

 

68.77 

%

 

 

63.58 

%

 

 

74.55 

%



(a)

Nonaccrual loans and accruing loans past due 90 days or more do not include purchased credit impaired loans with an accretable yield. Included in nonaccrual loans are $112.6 million, $81.9 million, and $18.3 million in restructured loans at March 31, 2017December 31, 2016, and March 31, 2016, respectively.  Purchased credit impaired loans include loans covered by an FDIC loss share agreement totaling $143.8 million, $148.0 million and $168.1 million as of March 31, 2017,  December 31, 2016, and March 31, 2016, respectively. 



45


 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 



 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

(in thousands)

 

2017

 

2016

 

2016

 

2016

 

2016

Period-End Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans, net of unearned income (a)

 

$

18,204,868 

 

$

16,752,151 

 

$

16,070,821 

 

$

16,035,796 

 

$

15,978,124 

Loans held for sale

 

 

20,883 

 

 

34,064 

 

 

42,545 

 

 

42,297 

 

 

24,001 

Securities

 

 

5,001,273 

 

 

5,017,128 

 

 

4,843,112 

 

 

4,806,370 

 

 

4,667,837 

Short-term investments

 

 

51,273 

 

 

78,177 

 

 

128,920 

 

 

153,159 

 

 

151,551 

Earning assets

 

 

23,278,297 

 

 

21,881,520 

 

 

21,085,398 

 

 

21,037,622 

 

 

20,821,513 

Allowance for loan losses

 

 

(213,550)

 

 

(229,418)

 

 

(236,061)

 

 

(226,086)

 

 

(217,794)

Goodwill

 

 

716,761 

 

 

621,193 

 

 

621,193 

 

 

621,193 

 

 

621,193 

Other intangible assets, net

 

 

86,952 

 

 

87,757 

 

 

92,523 

 

 

97,409 

 

 

102,414 

Other assets

 

 

1,616,566 

 

 

1,614,250 

 

 

1,545,677 

 

 

1,533,652 

 

 

1,482,044 

Total assets

 

$

25,485,026 

 

$

23,975,302 

 

$

23,108,730 

 

$

23,063,790 

 

$

22,809,370 

Noninterest-bearing deposits

 

$

7,722,279 

 

$

7,658,203 

 

$

7,543,041 

 

$

7,151,416 

 

$

7,108,598 

Interest-bearing transaction and savings deposits

 

 

7,162,760 

 

 

6,910,466 

 

 

6,620,373 

 

 

6,754,513 

 

 

7,043,484 

Interest-bearing public funds deposits

 

 

2,595,263 

 

 

2,563,758 

 

 

2,394,148 

 

 

2,354,234 

 

 

2,152,903 

Time deposits

 

 

2,441,718 

 

 

2,291,839 

 

 

2,327,915 

 

 

2,556,706 

 

 

2,351,165 

Total interest-bearing deposits

 

 

12,199,741 

 

 

11,766,063 

 

 

11,342,436 

 

 

11,665,453 

 

 

11,547,552 

Total deposits

 

 

19,922,020 

 

 

19,424,266 

 

 

18,885,477 

 

 

18,816,869 

 

 

18,656,150 

Short-term borrowings

 

 

2,121,932 

 

 

1,225,406 

 

 

1,075,956 

 

 

1,095,107 

 

 

1,100,787 

Long-term debt

 

 

525,082 

 

 

436,280 

 

 

463,710 

 

 

468,028 

 

 

471,245 

Other liabilities

 

 

152,370 

 

 

169,582 

 

 

194,460 

 

 

220,421 

 

 

160,148 

Stockholders' equity

 

 

2,763,622 

 

 

2,719,768 

 

 

2,489,127 

 

 

2,463,365 

 

 

2,421,040 

Total liabilities & stockholders' equity

 

$

25,485,026 

 

$

23,975,302 

 

$

23,108,730 

 

$

23,063,790 

 

$

22,809,370 







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three Months Ended



 

March 31,

 

December 31,

 

March 31,

(in thousands)

 

2017

 

2016

 

2016

Average Balance Sheet

 

 

 

 

 

 

 

 

 

Total loans, net of unearned income (a)

 

$

17,303,044 

 

$

16,323,897 

 

$

15,848,770 

Loans held for sale

 

 

21,328 

 

 

32,398 

 

 

14,822 

Securities (b)

 

 

5,037,286 

 

 

4,939,240 

 

 

4,528,090 

Short-term investments

 

 

408,343 

 

 

166,653 

 

 

518,986 

Earning assets

 

 

22,770,001 

 

 

21,462,188 

 

 

20,910,668 

Allowance for loan losses

 

 

(226,503)

 

 

(237,316)

 

 

(183,264)

Goodwill and other intangible assets

 

 

729,766 

 

 

711,255 

 

 

726,094 

Other assets

 

 

1,483,242 

 

 

1,501,403 

 

 

1,479,017 

Total assets

 

$

24,756,506 

 

$

23,437,530 

 

$

22,932,515 

Noninterest-bearing deposits

 

$

7,462,258 

 

$

7,534,392 

 

$

7,033,680 

Interest-bearing transaction and savings deposits

 

 

6,897,660 

 

 

6,761,923 

 

 

6,815,703 

Interest-bearing public fund deposits

 

 

2,547,874 

 

 

2,316,997 

 

 

2,173,435 

Time deposits

 

 

2,340,066 

 

 

2,298,843 

 

 

2,258,936 

Total interest-bearing deposits

 

 

11,785,600 

 

 

11,377,763 

 

 

11,248,074 

Total deposits

 

 

19,247,858 

 

 

18,912,155 

 

 

18,281,754 

Short-term borrowings

 

 

2,127,256 

 

 

1,367,504 

 

 

1,564,804 

Long-term debt

 

 

458,050 

 

 

453,068 

 

 

483,348 

Other liabilities

 

 

190,253 

 

 

187,385 

 

 

170,862 

Stockholders' equity

 

 

2,733,089 

 

 

2,517,418 

 

 

2,431,747 

Total liabilities & stockholders' equity

 

$

24,756,506 

 

$

23,437,530 

 

$

22,932,515 



(a)

Includes nonaccrual loans.

(b)

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







46


 

Reconciliation of reported to core net interest income (te) and core net interest margin









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three months ended



 

March 31,

 

 

 

December 31,

 

 

 

September 30,

 

 

 

June 30,

 

 

 

March 31,

 

($ in thousands)

 

2017

 

 

 

2016

 

 

 

2016

 

 

 

2016

 

 

 

2016

 

Net interest income

$

181,691 

 

 

$

167,798 

 

 

$

163,513 

 

 

$

164,969 

 

 

$

162,836 

 

Tax-equivalent adjustment (te)(a)

 

8,298 

 

 

 

7,516 

 

 

 

6,784 

 

 

 

6,196 

 

 

 

5,343 

 

Net interest income (te)

$

189,989 

 

 

$

175,314 

 

 

$

170,297 

 

 

$

171,165 

 

 

$

168,179 

 

Purchase accounting adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net loan discount accretion (b)

 

5,017 

 

 

 

4,302 

 

 

 

5,206 

 

 

 

5,878 

 

 

 

6,358 

 

    Net investment premium amortization (c)

 

(454)

 

 

 

(524)

 

 

 

(581)

 

 

 

(636)

 

 

 

(720)

 

Net purchase accounting adjustments

 

4,563 

 

 

 

3,778 

 

 

 

4,625 

 

 

 

5,242 

 

 

 

5,638 

 

Net interest income (te) - core

$

185,426 

 

 

$

171,536 

 

 

$

165,672 

 

 

$

165,923 

 

 

$

162,541 

 

Average earning assets

$

22,770,001 

 

 

$

21,462,188 

 

 

$

21,197,406 

 

 

$

21,147,029 

 

 

$

20,910,668 

 

Net interest margin - reported

 

3.37 

%

 

 

3.26 

%

 

 

3.20 

%

 

 

3.25 

%

 

 

3.23 

%

Net purchase accounting adjustments

 

0.08 

%

 

 

0.07 

%

 

 

0.08 

%

 

 

0.10 

%

 

 

0.11 

%

Net interest margin - core

 

3.29 

%

 

 

3.19 

%

 

 

3.12 

%

 

 

3.15 

%

 

 

3.12 

%









Core revenue (te) and core pre-tax, pre-provision net revenue (te)







 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three months ended



 

March 31,

 

 

December 31,

 

 

September 30,

 

 

June 30,

 

 

March 31,

(in thousands)

 

2017

 

 

2016

 

 

2016

 

 

2016

 

 

2016

Net interest income

$

181,691 

 

$

167,798 

 

$

163,513 

 

$

164,969 

 

$

162,836 

Noninterest income

 

63,491 

 

 

65,893 

 

 

63,008 

 

 

63,694 

 

 

58,186 

Total revenue

$

245,182 

 

$

233,691 

 

$

226,521 

 

$

228,663 

 

$

221,022 

Tax-equivalent adjustment (a)

 

8,298 

 

 

7,516 

 

 

6,784 

 

 

6,196 

 

 

5,343 

Purchase accounting adjustments - revenue (d)

 

(3,463)

 

 

(2,538)

 

 

(3,088)

 

 

(3,716)

 

 

(4,026)

Nonoperating revenue

 

(4,352)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Core revenue (te)

$

245,665 

 

$

238,669 

 

$

230,217 

 

$

231,143 

 

$

222,339 

Noninterest expense

 

(163,542)

 

 

(156,283)

 

 

(149,058)

 

 

(150,942)

 

 

(156,032)

Intangible amortization

 

4,705 

 

 

4,766 

 

 

4,886 

 

 

5,005 

 

 

5,124 

Nonoperating items

 

6,463 

 

 

 —

 

 

 —

 

 

 —

 

 

4,978 

Core pre-tax, pre-provision net revenue (te)

$

93,291 

 

$

87,152 

 

$

86,045 

 

$

85,206 

 

$

76,409 



(a)

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

(b)

Includes net loan discount accretion arising from business combinations.

(c)

Includes net investment premium amortization arising from business combinations.

(d)

Includes net loan discount accretion and net investment premium amortization as defined in (b) and (c) and amortization of the FDIC loss share receivable related to an FDIC assisted transaction.



 

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

47


 

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 20.29% at March 31, 2017, compared to 23.46% at December 31, 2016 and 25.47% at March 31, 2016The total amount of free securities at March 31, 2017 decreased by $156 million compared to year-end, while total securities were up slightly.  The decrease from March 31, 2016 is mainly attributable to pledging requirements related to a $502 million, or 22%, increase in public fund deposits resulting from certain deposit growth initiatives implemented in 2015.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

Liquidity Metrics

 

2017

 

2016

 

2016

 

2016

 

2016

Free securities / total securities

 

20.29 

%

 

23.46 

%

 

23.97 

%

 

28.39 

%

 

25.47 

%

Core deposits / total deposits

 

92.93 

%

 

93.22 

%

 

93.03 

%

 

91.99 

%

 

92.95 

%

Wholesale funds / core deposits

 

14.30 

%

 

9.18 

%

 

8.76 

%

 

9.03 

%

 

9.07 

%

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

 

89.90 

%

 

86.31 

%

 

85.64 

%

 

85.80 

%

 

86.69 

%

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 excluding 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 92.93% at March 31, 2017, compared to 93.22% at December 31, 2016 and 92.95% at March 31, 2016.  Brokered deposits totaled $800 million as of March 31, 2017, a $106 million, or 15%, increase from December 31, 2016, and up $69 million compared to March 31, 2016.  The Company use of brokered deposits as a funding source is subject to strict parameters regarding the amount term and interest rate.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings from customers provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, the Bank has a line of credit with the FHLB that is secured by blanket pledges of certain mortgage loans. At March 31, 2017, the Bank had borrowed $1.8 billion from the FHLB and had approximately $2.8 billion available under this line. The Bank also has unused borrowing capacity at the Federal Reserve’s discount window of approximately $2.1 billion. The Company did not have any outstanding borrowings with the Federal Reserve at any date in the last 12 months

Wholesale funds, which are comprised of short-term borrowings and long-term debt, were 14.30% of core deposits at March 31, 2017, compared to 9.18% at December 31, 2016 and 9.07% at March 31, 2016Both the linked-quarter and year-over-year increases were primarily due to an increase in FHLB borrowings.  FHLB borrowings totaled $1.8 billion at March 31, 2017 compared to $865 million at December 31, 2016.  The Company acquired approximately $600 million in FHLB borrowings as part of the FNBC transaction. FHLB borrowings were $675 million at March 31, 2016Partially offsetting these increases was growth in core deposits.  Core deposits totaled $18.5 billion at March 31, 2017, compared to $18.1 billion at December 31, 2016 and $17.3 billion at March 31, 2016. The Company has established an internal target range for wholesale funds to be less than 25% of core deposits.    

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 2017 was 89.90%, compared to a range between 85.64% and 86.69% for the prior four quarters. The increase in the loan-to-deposit ratio from prior periods reflects the impact on quarter-to-date averages of the $1.2 billion of loans and $0.4 billion of deposits acquired in the FNBC transaction that closed in first quarter 2017.    The increase in the loan-to-deposit ratio was anticipated pursuant to this transaction.  The Company has established an internal target range for the loan-to-deposit ratio from 83% to 87% and expects it to be more in-line with its target in the next few quarters.

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, 2017 and 2016

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 in an amount sufficient to fund a minimum of at least six quarters of anticipated common stockholder dividends. 

48


 



The April 28, 2017 FDIC transaction for the acquisition of selected assets and liabilities of FNBC provides additional low cost funding and liquidity for the Company.  Whitney Bank assumed approximately $1.6 billion in deposits, primarily transaction and savings accounts, purchased approximately $1.0 billion in cash, securities, loans, and other assets, and received a cash payment of $655 million from the FDIC for the net liabilities assumedThese amounts are subject to adjustments based upon final settlement with the FDIC pursuant to the agreement.

CAPITAL RESOURCES



Stockholders’ equity totaled $2.8 billion at March 31, 2017,  up $44 million, or 2% compared to December 31, 2016 and up $343 million, or 14% from the same period prior year.  The tangible common equity ratio was 7.94% at March 31, 2017, compared to 8.64% at December 31, 2016 and 7.69% at March 31, 2016. The decline in the ratio from year end was due to the effect of the net assets acquired in the FNBC transaction. The year-over-year increase was due to the $259 million stock issuance in the fourth quarter of 2016, mostly offset by $1.0 billion in organic loan growth in addition to the FNBC asset acquisition.    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.



At March 31, 2017, 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 Basel III requirements which were effective January 1, 2015, including the fully phased-in conservation buffer. Bank ratios reflect a $240 million capital contribution to support the FNBC acquisition.  See the Supervision and Regulation section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for further discussion of the Company’s capital requirements.

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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Well-

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,



 

Capitalized

 

2017

 

2016

 

2016

 

2016

 

2016

Total capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hancock Holding Company

 

10.00 

%

 

11.91 

%

 

13.21 

%

 

12.15 

%

 

11.96 

%

 

11.75 

%

Whitney Bank

 

10.00 

%

 

11.52 

%

 

11.57 

%

 

11.81 

%

 

11.70 

%

 

11.56 

%

Tier 1 common equity capital (to risk weighted assets)   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hancock Holding Company

 

6.50 

%

 

10.16 

%

 

11.26 

%

 

10.09 

%

 

9.94 

%

 

9.69 

%

Whitney Bank

 

6.50 

%

 

10.49 

%

 

10.39 

%

 

10.56 

%

 

10.48 

%

 

10.30 

%

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hancock Holding Company

 

8.00 

%

 

10.16 

%

 

11.26 

%

 

10.09 

%

 

9.94 

%

 

9.69 

%

Whitney Bank

 

8.00 

%

 

10.49 

%

 

10.39 

%

 

10.56 

%

 

10.48 

%

 

10.30 

%

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hancock Holding Company

 

5.00 

%

 

8.79 

%

 

9.56 

%

 

8.35 

%

 

8.22 

%

 

8.14 

%

Whitney Bank

 

5.00 

%

 

9.09 

%

 

8.83 

%

 

8.76 

%

 

8.69 

%

 

8.68 

%



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. 

 

49


 



BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $5.0 billion at March 31, 2017, down $16 million from December 31, 2016 and $333 million from March 31, 2016.  During the first quarter of 2017, the Company purchased approximately $131 million of mortgage-backed securities and municipal securities at an average yield of 3.26%.  At March 31, 2017, securities available for sale and securities held to maturity each totaled $2.5 billion. 

The securities portfolio consists mainly of residential and commercial 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 effective duration for the overall portfolio of between two and five years.  The effective duration calculates the price sensitivity to changes in interest rates.  At March 31, 2017, the average maturity of the portfolio was 5.80 years with an effective duration of 5.0 years and a weighted-average yield of 2.35%. Management simulations indicate that the effective duration would increase to 5.13 years with a 100 bps increase in the yield curve and to 5.19 years with a 200 bps increase.  At December 31, 2016, the average maturity of the portfolio was 5.79 years with an effective duration of 5.07 years and a weighted-average yield of 2.35%.  The average maturity of the portfolio at March 31, 2016 was 5.01 years, while the duration was 3.69 years, and the weighted average yield was 2.43%.

Loans

Total loans at March 31, 2017 were $18.2 billion, up approximately $1.5 billion, or 9%, from December 31, 2016, and up $2.2 billion, or 14%, compared to March 31, 2016.  The increase includes approximately $1.2 billion from the FNBC transaction (net of the loan mark of 4%).  Excluding the impact of FNBC, loans grew $267 million, or 2% linked-quarter.  Loans to energy-related companies decreased $123 million during the first quarter. 

There was growth throughout the markets across our footprint and in our mortgage and equipment finance lines of business.  The following table shows the composition of our loan portfolio.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 



 

 

March 31,

 

 

December 31,

 

 

September 30,

 

 

June 30,

 

 

March 31,

(in thousands)

 

 

2017

 

 

2016

 

 

2016

 

 

2016

 

 

2016

Total loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate

 

$

8,074,287 

 

$

7,613,917 

 

$

7,133,928 

 

$

7,132,519 

 

$

7,145,406 

Commercial real estate - owner occupied

 

 

2,047,451 

 

 

1,906,821 

 

 

1,901,825 

 

 

1,916,200 

 

 

1,923,347 

    Total commercial and industrial

 

 

10,121,738 

 

 

9,520,738 

 

 

9,035,753 

 

 

9,048,719 

 

 

9,068,753 

Commercial real estate - income producing

 

 

2,505,104 

 

 

2,013,890 

 

 

1,990,309 

 

 

2,024,471 

 

 

1,752,745 

Construction and land development

 

 

1,252,667 

 

 

1,010,879 

 

 

946,592 

 

 

880,588 

 

 

1,095,414 

Residential mortgages

 

 

2,266,263 

 

 

2,146,713 

 

 

2,037,162 

 

 

2,017,650 

 

 

2,000,967 

Consumer

 

 

2,059,096 

 

 

2,059,931 

 

 

2,061,005 

 

 

2,064,368 

 

 

2,060,245 

    Total loans

 

$

18,204,868 

 

$

16,752,151 

 

$

16,070,821 

 

$

16,035,796 

 

$

15,978,124 



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.

50


 

The following tables provide detail of the more significant industry concentrations for our commercial and industrial loan portfolio, which is based on NAICS codes, and property type concentrations of our commercial real estate – income producing portfolios.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 



 

March 31,

 

 

December 31,

 

 

September 30,

 

 

June 30,

 

 

March 31,

 



 

2017

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 



 

 

 

 

Pct of

 

 

 

 

 

Pct of

 

 

 

 

 

Pct of

 

 

 

 

 

Pct of

 

 

 

 

 

Pct of

 

($ in thousands)

 

 Balance

 

Total

 

 

 Balance

 

Total

 

 

 Balance

 

Total

 

 

 Balance

 

Total

 

 

 Balance

 

Total

 

Commercial & industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mining, Quarrying, and Oil and Gas Extraction (a)

 

$

1,211,006 

 

12 

%

 

$

1,320,294 

 

14 

%

 

$

1,311,480 

 

15 

%

 

$

1,382,496 

 

15 

%

 

$

1,462,000 

 

16 

%

Health Care and Social Assistance

 

 

1,076,164 

 

11 

 

 

 

1,010,135 

 

11 

 

 

 

953,900 

 

10 

 

 

 

900,604 

 

10 

 

 

 

885,268 

 

10 

 

Real Estate and Rental and Leasing

 

 

1,119,937 

 

11 

 

 

 

975,821 

 

10 

 

 

 

980,484 

 

11 

 

 

 

986,502 

 

11 

 

 

 

1,017,602 

 

11 

 

Public Administration

 

 

839,005 

 

 

 

 

796,742 

 

 

 

 

717,629 

 

 

 

 

686,179 

 

 

 

 

641,210 

 

 

Manufacturing (a)

 

 

769,118 

 

 

 

 

729,926 

 

 

 

 

637,194 

 

 

 

 

655,493 

 

 

 

 

661,242 

 

 

Retail Trade (a)

 

 

755,059 

 

 

 

 

682,775 

 

 

 

 

632,175 

 

 

 

 

645,073 

 

 

 

 

634,866 

 

 

Finance and Insurance

 

 

478,473 

 

 

 

 

507,339 

 

 

 

 

451,469 

 

 

 

 

463,953 

 

 

 

 

443,409 

 

 

Wholesale Trade (a)

 

 

490,569 

 

 

 

 

486,940 

 

 

 

 

461,133 

 

 

 

 

452,973 

 

 

 

 

539,927 

 

 

Construction

 

 

519,663 

 

 

 

 

478,926 

 

 

 

 

447,206 

 

 

 

 

441,160 

 

 

 

 

433,209 

 

 

Transportation and Warehousing (a)

 

 

556,468 

 

 

 

 

468,377 

 

 

 

 

428,936 

 

 

 

 

422,649 

 

 

 

 

439,101 

 

 

Educational Services

 

 

428,248 

 

 

 

 

421,035 

 

 

 

 

421,114 

 

 

 

 

429,810 

 

 

 

 

365,227 

 

 

Professional, Scientific, and Technical Services (a)

 

 

362,610 

 

 

 

 

340,323 

 

 

 

 

339,642 

 

 

 

 

320,319 

 

 

 

 

337,248 

 

 

Other Services (except Public Administration)

 

 

342,155 

 

 

 

 

308,802 

 

 

 

 

292,669 

 

 

 

 

292,482 

 

 

 

 

285,867 

 

 

Accommodation and Food Services

 

 

338,241 

 

 

 

 

270,693 

 

 

 

 

295,625 

 

 

 

 

294,607 

 

 

 

 

290,283 

 

 

Other (a)

 

 

835,022 

 

 

 

 

722,610 

 

 

 

 

665,097 

 

 

 

 

674,419 

 

 

 

 

632,294 

 

 

Total commercial & industrial loans

 

$

10,121,738 

 

100 

%

 

$

9,520,738 

 

100 

%

 

$

9,035,753 

 

100 

%

 

$

9,048,719 

 

100 

%

 

$

9,068,753 

 

100 

%



(a) The Company's energy related lending portfolio includes certain balances within each of these selected industry categories as the definition is based on source of revenue.  The energy related lending portfolio totaled $1.3 billion, $1.4 billion, $1.4 billion, $1.5 billion, and $1.6 billion at March 31, 2017, December 31, 2016,  September 30, 2016, June 30, 2016, and March 31, 2016, respectively.

At March 31, 2017, commercial and industrial (“C&I”) loans, including both non-real estate and owner occupied real estate secured loans, totaled approximately $10 billion, an increase of $601 million, or 6%, from December 31, 2016.  Included in C&I are $1.3 billion in energy-related loans, which are comprised of credits to both the exploration and production segment and the support services segment.  Energy loans comprised 7.1% of total loans at March 31, 2017.  The $123 million linked-quarter decrease in the energy portfolio resulted from payoffs and paydowns of approximately $160 million and charge-offs of approximately $23 million, partially offset by approximately $60 million in net increases.

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, 2017 totaling approximately $2.2 billion, or 12% of total loans, were down $5 million compared to December 31, 2016 and down $20 million from March 31, 2016.  Approximately $813 million of shared national credits were with energy-related customers at March 31, 2017, down approximately $121 million from December 31, 2016 and down $162 million from March 31, 2016.



Commercial real estate – income producing loans totaled approximately $2.5 billion at March 31, 2017, an increase of $491 million, or 24%, from December 31, 2016.  The majority of the increases in commercial real estate – income producing loans and construction and land development loans were related to the FNBC transaction.  The following table details commercial real estate – income producing by property types for the last five quarters.    

51


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 



 

March 31,

 

 

December 31,

 

 

September 30,

 

 

June 30,

 

 

March 31,

 



 

2017

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 



 

 

 

 

Pct of

 

 

 

 

 

Pct of

 

 

 

 

 

Pct of

 

 

 

 

 

Pct of

 

 

 

 

 

Pct of

 

($ in thousands)

 

 Balance

 

Total

 

 

 Balance

 

Total

 

 

 Balance

 

Total

 

 

 Balance

 

Total

 

 

 Balance

 

Total

 

Commercial real estate - income producing loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

565,673 

 

23 

%

 

$

466,168 

 

23 

%

 

$

483,026 

 

24 

%

 

$

505,146 

 

25 

%

 

$

478,249 

 

27 

%

Office

 

 

482,121 

 

19 

 

 

 

371,029 

 

19 

 

 

 

382,191 

 

19 

 

 

 

360,677 

 

18 

 

 

 

362,755 

 

21 

 

Multifamily

 

 

444,188 

 

18 

 

 

 

346,612 

 

17 

 

 

 

314,539 

 

16 

 

 

 

366,608 

 

18 

 

 

 

183,868 

 

10 

 

Industrial

 

 

307,170 

 

12 

 

 

 

289,482 

 

14 

 

 

 

292,037 

 

15 

 

 

 

285,897 

 

14 

 

 

 

264,006 

 

15 

 

Hotel/Motel

 

 

268,138 

 

11 

 

 

 

179,016 

 

 

 

 

129,209 

 

 

 

 

131,750 

 

 

 

 

96,776 

 

 

Other

 

 

437,814 

 

17 

 

 

 

361,583 

 

19 

 

 

 

389,307 

 

20 

 

 

 

374,393 

 

18 

 

 

 

367,091 

 

21 

 

Total commercial real estate - income producing loans

 

$

2,505,104 

 

100 

%

 

$

2,013,890 

 

100 

%

 

$

1,990,309 

 

100 

%

 

$

2,024,471 

 

100 

%

 

$

1,752,745 

 

100 

%



Construction and land development loans, totaling approximately $1.3 billion at March 31, 2017, increased approximately $242 million from December 31, 2016.  Residential mortgages increased $120 million, while consumer loans decreased $0.8 million during the first three months of 2017.



Allowance for Loan Losses and Asset Quality

The Company's total allowance for loan losses was $213.6 million at March 31, 2017, compared to $229.4 million at December 31, 2016.   The decrease is due to a net release of allowance in the energy segment of $23 million, due primarily to charge-offs, offset by an increase in non-energy allowance of $7 million.  Energy prices have remained relatively stable over the last two quarters and criticized levels have declined.  There is no allowance for loan losses on the loans purchased from FNBC; however, a 4% loan mark has been applied to those loans.  The allowance for credits in the energy portfolio totaled $83.7 million, or 6.5% of energy loans, at March 31, 2017, down from $106.5 million, or 7.5% of energy loans, at December 31, 2016.    Management believes the allowance level for the energy portfolio, as built in previous quarters, remains adequate.

The allowance maintained on the non-purchased credit impaired portion of the loan portfolio totaled $197.6 million, a $13.5 million linked-quarter decrease. The ratio of the allowance to period-end loans was 1.17% at March 31, 2017, compared to 1.37% at December 31, 2016.  Nearly half of the decline is due to the addition of $1.2 billion loans acquired from FNBC that were accounted for as acquired performing loans under which loans are recorded at fair value with no carryover allowance. 

During the first quarter of 2017, Hancock recorded a total provision for loan losses of $16.0 million, up $1.5 million from $14.5 million in the fourth quarter of 2016. 

Net charge-offs from the non-purchased credit impaired loan portfolio were $29.9 million, or 0.70% of average total loans on an annualized basis, in the first quarter of 2017 compared to $20 million, or 0.50% of average total loans in the fourth quarter of 2016.  Included in the first quarter’s total are approximately $23 million in charge-offs related to energy credits.  Energy charge-offs were approximately $12 million in the fourth quarter of 2016. 

The following table provides a breakout of the Company’s allowance for loan losses for the energy portfolio, allocated by sector at March 31, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

(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)

 

$

425 

 

 

$

21.2 

 

 

 

 

5.0 

%

Midstream

 

 

81 

 

 

 

2.7 

 

 

 

 

3.3 

 

Support - drilling

 

 

166 

 

 

 

14.4 

 

 

 

 

8.6 

 

Support - nondrilling

 

 

617 

 

 

 

45.4 

 

 

 

 

7.4 

 

Total

 

$

1,289 

 

 

$

83.7 

 

 

 

 

6.5 

%



52


 

Management continues to closely monitor the impact that the sustained decrease in oil and natural gas 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 previously noted, even with improving oil prices, management expect a continued lag in the recovery of energy service and support credits.  Reserve-based lending credits are showing signs of improvement given the stabilization in oil prices, and we expect improvement in land-based services and non-drilling services in the Gulf of Mexico to follow.  However, as new information becomes available, additional risk rating downgrades could occur, which could lead to additional loan loss provisions, a higher allowance for loan losses, and additional charge-offs.  Management believes that any additional losses will be manageable and that capital will remain solid.  Based upon information currently available, management is maintaining the estimate that net charge-offs from energy-related credits could approximate $65 million to $95 million over the duration of the cycle, which started in the fourth quarter of 2014.  To date, the Company has recorded approximately $65 million in energy-related net charge-offs since the start of the cycle, including $23 million in the first quarter of 2017.  See Item 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for further discussion of the Company’s energy portfolio and its potential impact on the allowance for loan losses.

53


 

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)

 

2017

 

2016

 

2016

 

Allowance for loan losses at beginning of period

 

$

229,418 

 

$

236,061 

 

$

181,179 

 

Loans charged-off:

 

 

 

 

 

 

 

 

 

 

Non-purchased credit impaired loans (a):

 

 

 

 

 

 

 

 

 

 

Commercial non real estate

 

 

24,791 

 

 

15,116 

 

 

17,667 

 

Commercial real estate - owner-occupied

 

 

29 

 

 

159 

 

 

783 

 

 Total commercial & industrial

 

 

24,820 

 

 

15,275 

 

 

18,450 

 

Commercial real estate - income producing

 

 

 

 

155 

 

 

115 

 

Construction and land development

 

 

37 

 

 

137 

 

 

110 

 

Residential mortgages

 

 

289 

 

 

132 

 

 

175 

 

Consumer

 

 

8,539 

 

 

8,696 

 

 

5,843 

 

Total non-purchased credit impaired charge-offs

 

 

33,692 

 

 

24,395 

 

 

24,693 

 

Purchased credit impaired loans:

 

 

 

 

 

 

 

 

 

 

Commercial non real estate

 

 

 —

 

 

 —

 

 

 —

 

Commercial real estate - owner-occupied

 

 

 —

 

 

 —

 

 

28 

 

 Total commercial & industrial

 

 

 —

 

 

 —

 

 

28 

 

Commercial real estate - income producing

 

 

 —

 

 

 —

 

 

 

Construction and land development

 

 

54 

 

 

 —

 

 

18 

 

Residential mortgages

 

 

59 

 

 

232 

 

 

 —

 

Consumer

 

 

139 

 

 

 —

 

 

 —

 

Total purchased credit impaired charge-offs

 

 

252 

 

 

232 

 

 

47 

 

Total charge-offs

 

 

33,944 

 

 

24,627 

 

 

24,740 

 

Recoveries of loans previously charged-off:

 

 

 

 

 

 

 

 

 

 

Non-purchased credit impaired loans (a):

 

 

 

 

 

 

 

 

 

 

Commercial non real estate

 

 

936 

 

 

1,260 

 

 

809 

 

Commercial real estate - owner-occupied

 

 

200 

 

 

193 

 

 

41 

 

 Total commercial & industrial

 

 

1,136 

 

 

1,453 

 

 

850 

 

Commercial real estate - income producing

 

 

375 

 

 

316 

 

 

144 

 

Construction and land development

 

 

448 

 

 

303 

 

 

605 

 

Residential mortgages

 

 

108 

 

 

362 

 

 

301 

 

Consumer

 

 

1,714 

 

 

1,537 

 

 

1,494 

 

Total non-purchased credit impaired recoveries

 

 

3,781 

 

 

3,971 

 

 

3,394 

 

Purchased credit impaired loans:

 

 

 

 

 

 

 

 

 

 

Commercial non real estate

 

 

 

 

39 

 

 

 

Commercial real estate - owner-occupied

 

 

75 

 

 

106 

 

 

35 

 

 Total commercial & industrial

 

 

77 

 

 

145 

 

 

38 

 

Commercial real estate - income producing

 

 

 —

 

 

 —

 

 

 

Construction and land development

 

 

23 

 

 

263 

 

 

35 

 

Residential mortgages

 

 

 

 

 

 

 

Consumer

 

 

29 

 

 

77 

 

 

39 

 

Total purchased credit impaired recoveries

 

 

134 

 

 

488 

 

 

114 

 

Total recoveries

 

 

3,915 

 

 

4,459 

 

 

3,508 

 

Net charge-offs - non-purchased credit impaired loans

 

 

29,911 

 

 

20,424 

 

 

21,299 

 

Net charge-offs - purchased credit impaired loans

 

 

118 

 

 

(256)

 

 

(67)

 

Total net charge-offs

 

 

30,029 

 

 

20,168 

 

 

21,232 

 

Provision for loan losses before FDIC benefit - purchased credit impaired loans

 

 

(2,236)

 

 

(1,611)

 

 

(2,685)

 

Benefit attributable to FDIC loss share agreement

 

 

1,830 

 

 

930 

 

 

2,189 

 

Provision for loan losses non-purchased credit impaired loans

 

 

16,397 

 

 

15,136 

 

 

60,532 

 

Provision for loan losses, net

 

 

15,991 

 

 

14,455 

 

 

60,036 

 

Increase (decrease) in FDIC loss share receivable

 

 

(1,830)

 

 

(930)

 

 

(2,189)

 

Allowance for loan losses  at end of period

 

$

213,550 

 

$

229,418 

 

$

217,794 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

Gross charge-offs - non-purchased credit impaired to average loans

 

 

0.79 

%

 

0.59 

%

 

0.62 

%

Recoveries - non-purchased credit impaired to average loans

 

 

0.09 

%

 

0.10 

%

 

0.09 

%

Net charge-offs - non-purchased credit impaired to average loans

 

 

0.70 

%

 

0.50 

%

 

0.54 

%

Allowance for loan losses to period-end loans

 

 

1.17 

%

 

1.37 

%

 

1.36 

%



(a)

Non-purchased credit impaired loans includes originated and acquired loans.

54


 

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)

 

2017

 

2016

 

Loans accounted for on a nonaccrual basis: (a)

 

 

 

 

 

 

 

Commercial  non-real estate

 

$

94,725 

 

$

170,703 

 

Commercial non-real estate - restructured

 

 

103,412 

 

 

78,334 

 

Total commercial non-real estate

 

 

198,137 

 

 

249,037 

 

Commercial real estate - owner occupied

 

 

9,587 

 

 

13,432 

 

Commercial real estate - owner-occupied - restructured

 

 

1,580 

 

 

981 

 

Total commercial real estate - owner-occupied

 

 

11,167 

 

 

14,413 

 

Total commercial & industrial

 

 

209,304 

 

 

263,450 

 

Commercial real estate - income producing

 

 

7,159 

 

 

13,147 

 

Commercial real estate - income producing - restructured

 

 

6,189 

 

 

807 

 

Total commercial real estate - income producing

 

 

13,348 

 

 

13,954 

 

Construction and land development

 

 

3,009 

 

 

3,652 

 

Construction and land development - restructured

 

 

552 

 

 

898 

 

Total construction and land development

 

 

3,561 

 

 

4,550 

 

Residential mortgage

 

 

22,171 

 

 

22,814 

 

Residential mortgage - restructured

 

 

841 

 

 

851 

 

Total residential mortgage

 

 

23,012 

 

 

23,665 

 

Consumer

 

 

13,390 

 

 

12,351 

 

Consumer - restructured

 

 

34 

 

 

 —

 

Total consumer

 

 

13,424 

 

 

12,351 

 

Total nonaccrual loans

 

$

262,649 

 

$

317,970 

 

Restructured loans - still accruing:

 

 

 

 

 

 

 

Commercial non-real estate

 

$

42,757 

 

$

32,887 

 

Commercial real estate - owner occupied

 

 

146 

 

 

493 

 

Total commercial & industrial

 

 

42,903 

 

 

33,380 

 

Commercial real estate - income producing

 

 

3,926 

 

 

5,939 

 

Construction and land development

 

 

 —

 

 

 —

 

Residential mortgage

 

 

237 

 

 

259 

 

Consumer

 

 

201 

 

 

240 

 

Total restructured loans - still accruing

 

 

47,267 

 

 

39,818 

 

Total nonperforming loans

 

 

309,916 

 

 

357,788 

 

ORE and foreclosed assets

 

 

17,156 

 

 

18,943 

 

Total nonperforming assets (b)

 

$

327,072 

 

$

376,731 

 

Loans 90 days past due still accruing

 

$

590 

 

$

3,039 

 

Total restructured loans

 

$

159,875 

 

$

121,689 

 

Ratios:

 

 

 

 

 

 

 

Nonperforming assets to loans plus ORE and foreclosed assets

 

 

1.79 

%

 

2.25 

%

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

 

 

68.77 

%

 

63.58 

%

Loans 90 days past due still accruing to loans

 

 

0.00 

%

 

0.02 

%



(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 the remaining life of the loan.  

(b)

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

Nonperforming assets totaled $327 million at March 31, 2017, down $50 million from December 31, 2016 and up $20 million from March 31, 2016.  During the first quarter of 2017, total nonperforming loans decreased approximately $48 million, while foreclosed and surplus real estate (ORE) and other foreclosed assets decreased approximately $2 million.  Nonperforming assets as a percent of total loans, ORE and other foreclosed assets was 1.79% at March 31, 2017, down 46 bps from December 31, 2016, and down 13 bps from March 31, 2016. 

55


 

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, were $51 million at March 31, 2017. This total was down $27 million from the prior quarter and down $100 million from March 31, 2016.  These assets are highly volatile on a daily basis depending upon movement in customer loan and deposit accounts.  Average short-term investments of $408 million for the first quarter of 2017 were up $242 million compared to the fourth quarter of 2016, but down $111 million compared to the first quarter of 2016. 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 $19.9 billion at March 31, 2017, up $498 million, or 3% from December 31, 2016, and up $1.3 billion, or 7%, from March 31, 2016.  Average deposits for the first quarter of 2017 were $19.2 billion, up $336 million, or 2%, from the fourth quarter of 2016 and up $1.0 billion, or 5%, from the first quarter of 2016. The FNBC transaction added $398 million to deposits during the first quarter and approximately $90 million to the quarter-to-date average. The FNBC transaction and greater utilization of the Company’s brokered deposits program accounted for most of the growth in deposits compared to year end.  Because of seasonality throughout the year, year-over-year comparisons of deposit levels are more useful than those compared to the prior quarter especially at year end when deposits level are typically higher, due in part to public fund deposits of tax collections.  Deposit growth initiatives that were implemented during 2015 continue to have a positive impact on deposit levels.



Noninterest-bearing demand deposits were $7.7 billion at March 31, 2017, up $64 million, or 1%, linked quarter, and were up $614 million year-over-year. The FNBC transaction added $46.2 million in noninterest-bearing demand deposits in the first quarter of 2017. Noninterest-bearing demand deposits comprised 38.8% of total deposits at March 31, 2017, compared to 39.4% at December 31, 2016, and 38.1% at March 31, 2016.  Net active noninterest-bearing accounts increased by almost 3,000 in the first quarter of 2017 compared to less than 1,000 in the first quarter of 2016.



Interest-bearing transaction and savings accounts of $7.2 billion at March 31, 2017, increased $252 million, or 4%, compared to the fourth quarter of 2016.  Deposits assumed in the FNBC transaction added $330 million to this category, while the first quarter saw some declines in commercial money market balances. 

Interest-bearing public fund deposits totaled $2.6 billion at March 31, 2017, up slightly from December 31, 2016. This category was up $442 million, or 21% compared to March 31, 2016.  Time deposits, other than public funds, totaled $2.4 billion at March 31, 2017.  The $150 million increase from December 31, 2016 was primarily due to an increase in brokered CDs. 

Short-Term Borrowings

At March 31, 2017, short-term borrowings totaled $2.1 billion, up $897 million from December 31, 2016, as FHLB borrowings increased $796 million, and securities sold under agreements to repurchase increased $87 million, or 24%.  Year over year, short-term borrowings increased $1.0 billion, primarily due to an increase in FHLB borrowings.  Average quarter-to-date short-term borrowings of $2.1 billion in the first quarter of 2017 were up $760 million, or 56% compared to the fourth quarter of 2016, and up $562 million, or 36% compared to the first quarter of 2016. The increased borrowings reflect the funding needs related to the loans acquired in the FNBC transaction and organic growth in the loan portfolio.  Customer repurchase agreements and FHLB borrowings are the major sources of short-term borrowings. Customer repurchase agreements 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 single family and commercial real estate loans included in the bank’s loan portfolio, subject to specific criteria.

 

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

56


 

meet credit standards established in the underlying contract and has not violated other contractual conditions.  Loan commitments 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, 2017 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

 

$

6,294,528 

 

$

2,836,701 

 

$

1,679,376 

 

$

895,677 

 

$

882,774 

Letters of credit

 

 

352,001 

 

 

255,405 

 

 

77,356 

 

 

19,240 

 

 

 —

Total

 

$

6,646,529 

 

$

3,092,106 

 

$

1,756,732 

 

$

914,917 

 

$

882,774 



 

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, 2016

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.



  

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. Forward looking statements that we may make include statements regarding balance sheet and revenue growth, the provision for loans losses, loan growth expectations, management’s predictions about charge-offs for loans, including energy-related credits, the impact of changes in oil and gas prices on our energy portfolio, and the downstream impact on businesses that support the energy sector, especially in the Gulf Coast region, the impact of the FNBC transaction on our performance and financial condition, deposit trends, credit quality trends, net interest margin trends, future expense levels, success of revenue-generating initiatives, projected tax rates, future profitability, improvements in expense to revenue (efficiency) ratio, purchase accounting impacts such as accretion levels, possible repurchases of shares under stock buyback

programs, and the financial impact of regulatory requirements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “forecast,” “goals,” “targets,” “initiatives,” “focus,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.    



57


 

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements.  Additional factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and in other periodic reports that we file with the SEC.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our net income is materially dependent on net interest income.  The Company’s primary market risk is interest rate risk which stems from uncertainty with respect to absolute and relative levels of future market interest rates that affect our financial products and services.  In order to manage the exposures to interest rate risk, management measures the sensitivity of 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 various net interest income simulations.  The Company’s balance sheet is asset sensitive over a two-year period due to a larger volume of rate sensitive assets than rate sensitive liabilities.  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. 

The table below presents the results of simulations run as of March 31, 2017 for year 1 and year 2, assuming the indicated instantaneous and sustained parallel shift in the yield curve at the measurement date. The results demonstrate an increase in net interest income as rates rise and a decline should rates fall as 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 (te)



(basis points)

 

Year 1

 

Year 2



(50)

 

(0.63)

%

 

(1.33)

%



+100

 

2.69 

%

 

2.70 

%



+200

 

5.36 

%

 

5.09 

%



+300

 

7.52 

%

 

6.72 

%



Note: Decrease in interest rates limited to 50 basis points 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, 2016 included in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

Item 4. Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).  Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2017, the Company’s disclosure controls and procedures were effective.

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, 2017, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.









58


 

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, 2016

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.

There were no purchases made by the issuer or any affiliated purchaser of the issuer’s equity securities for the three months ended March 31, 2017.



Item 6.  Exhibits.

(a)  Exhibits:







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Exhibit

 

 

 

Filed

 

Incorporated by Reference

Number

 

Description

 

Herewith

 

Form

 

Exhibit

 

Filing Date

2.1 

 

Purchase Agreement by and between Whitney Bank and First NBC Bank

 

 

 

8-K

 

1.1

 

1/1/2017

3.1 

 

Composite Articles of the Company

 

 

 

10-K

 

3.1

 

2/24/2017

3.2 

 

Amended and Restated Bylaws

 

 

 

10-K

 

3.2

 

2/24/2017

10.1 

 

First Amendment to Credit Agreement and Waiver

 

 

 

10-Q

 

10.4

 

5/9/2016

10.2 

 

Form of Performance Stock Award Agreement (TSR) (approved in 2017)

 

X

 

 

 

 

 

 

10.3 

 

Form of Performance Stock Award Agreement (EPS) (approved in 2017)

 

X

 

 

 

 

 

 

31.1 

 

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

 

X

 

 

 

 

 

 

31.2 

 

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

 

X

 

 

 

 

 

 

32.1 

 

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

 

X

 

 

 

 

 

 

32.2 

 

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

 

X

 

 

 

 

 

 

101 

 

XBRL Interactive Data.

 

X

 

 

 

 

 

 







59


 

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 52017



60