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Yesterday, Hancock Holding Company (“HBHC”) pre-announced significant increases in provisions for energy loans. HBHC, a $22.8 billion (assets) bank which is based in Mississippi and has large operations in Texas and Louisiana, now expects that its provision for losses in the first quarter will total approximately $58-$62 million, potentially bringing the reserve up to ~8.5% of energy loans. Just over two months ago, HBHC management guided $11-$15 million in quarterly provisions for 2016, which they stated would include money to build the bank’s reserve, not just keep it stable from quarter-to-quarter.

To highlight the difficulty of relying on management guidance, yesterday’s pre-announcement represents an increase in its loss estimate of 3x-4x in just 2 months. 

6%+ yield

In a press release disseminated last night, the bank noted that the changes were as a result of risk rating downgrades on over $300 million in outstanding energy credits, which will require an additional $45 million in provisions. The downgrades included the results of the shared national credit review, which means that we can expect additional provisions from other banks participating on those loans.

Note, on December 17, 2015 HBHC pre-announced increased energy provisions for the 4th quarter, bringing its reserve for energy loans up to ~5%. At the time, HBHC estimated that charge-offs from energy-related credits would range from $50-$75 million over the remainder of the cycle. Given yesterday’s announcement and the prolonged weakness in energy prices, it seems highly likely that the bank’s charge-offs will be higher.

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