Hancock Holding Company 's ( HBHC )
second quarter 2012 operating earnings of 55 cents per share lagged
the Zacks Consensus Estimate by 2 cents. However, this compares
favorably with the prior quarter's earnings of 47 cents.
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After considering certain non-recurring items, Hancock's net
income came in at $39.3 million or 46 cents per share. This was
significantly higher than the previous quarter net income of $18.5
million or 21 cents per share.
Stable net interest income coupled with higher non-interest income
and falling operating expenses were the primary highlights of the
quarter. Moreover, robust capital position was amongst the
positives. However, mixed movements in asset quality, slight
decline in loan balances and reduced deposits were the major
Performance in Detail
On an operating basis, Hancock's total revenue was $254.0 million,
up 0.3% from $253.2 million in the previous quarter. Moreover,
total revenue surpassed the Zacks Consensus Estimate of $240.0
Net interest income (taxable equivalent) inched up 0.6%
sequentially to $180.3 million. The increase was mainly
attributable to lower funding costs. Similarly, net interest margin
(NIM) hiked 5 basis points from the prior quarter to 4.48%. Growth
was fueled by positive changes in funding sources and lower funding
costs, which were partly offset by the reduced securities portfolio
Non-interest income, excluding securities transaction gains, stood
at $63.6 million, climbing 3.3% from $61.5 million in the prior
quarter. The rise was driven by higher service charges on deposit
accounts, increased insurance fees along with higher ATM fees as
well as mounted investment & annuity fees. These were partially
mitigated by lower bankcard fees, a decline in trust fees along
with reduced accretion of indemnification asset and other
Non-interest expense, excluding merger related expenses, was
$168.1 million, dipping 2.0% from the previous quarter. The fall
was mainly due to lower amortization of intangibles, reduced
personnel expenses and declining occupancy costs, partly offset by
higher equipment costs and rise in other miscellaneous
Credit quality displayed mixed movements in the reported quarter.
Provision for loan losses came in at $8.0 million, dropping 19.9%
from the previous quarter and 12.2% from the year-ago quarter.
However, net charge-offs from the non-covered loan portfolio were
$10.2 million as of June 30, 2012, surging 44.8% as of March 31,
2012 and 23.9% as of June 30, 2011.
Further, the ratio of allowance for loan losses to period-end
loans stood at 1.27% at the end of the second quarter as against
1.28% at the end of the prior quarter and 1.00% at the end of the
prior-year quarter. Non-performing assets were $271.0 million, down
from $287.6 in the previous quarter but up from $258.2 million in
the year-ago quarter.
Loans and Deposits
Total loans for the quarter under review were $11.08 billion,
slightly declining 0.5% from the previous quarter. All the loan
portfolios except commercial real estate loans declined, leading to
the marginal dip in total loans. Average total loans stood at
$11.14 billion, marginally dipping 0.5% from the last
Total deposits were $14.9 billion, dropping 3.3% from $15.4
billion in the prior quarter. The decline was primarily due to
lower levels of both non-interest-bearing deposits and interest
bearing deposits. Moreover, average deposits fell nearly 1% from
previous quarter to $15.2 billion.
Profitability and Capital Metrics
Hancock's capital ratios remained stable in the quarter. As of
June 30, 2012, tier 1 leverage ratio was 8.62% versus 8.27% in the
previous quarter and 13.77% in the year-ago quarter. Likewise, tier
1 risk-based capital ratio was 11.98% compared with 11.53% as of
March 31, 2012 and 11.05% as of June 30, 2011.
On an operating basis, return on average assets improved to 1.00%
in the reported quarter from 0.85% in the prior quarter and 0.92%
in the prior-year quarter. As of June 30, 2012, tangible common
equity ratio was 8.72%, up from 8.27% in the prior quarter and from
8.09% in the year-ago quarter.
The management expects NIM to remain comparatively stable over the
subsequent quarters. However, overall fee income is anticipated to
decline nearly $2.5 million per quarter in the upcoming quarters,
resulting from the restrictions imposed due to the Durbin
Amendment. The restrictions became effective for Hancock as of the
Further, the incremental cost savings is expected to benefit the
remaining quarters of the current year. Total operating expenses
(excluding amortization of intangibles) is anticipated to be in the
range of $149-$153 million. Management expects tax rate to remain
around 25% for 2012.
In addition, the company anticipates provision for loan losses and
other credit quality metrics to remain in line with performances in
the past few quarters. Moreover, given the opportunities to
generate new loans remains strong, management remains positive
regarding loan growth in the second half of 2012.
We believe that Hancock's consistent dividend policy makes it an
attractive asset for yield-seeking investors. Moreover, we are
quite impressed with the company's decent top-line growth. However,
escalating operating expenses remain a major cause of
Nevertheless, we are concerned about the impacts of the prevailing
low interest rate environment, sluggish economic growth and
stringent regulatory landscape on the company's financials in the
Hancock currently retains a Zacks #4 Rank, which translates into a
short-term Sell rating. One of its peers, Farmers Capital
Bank Corporation ( FFKT ),
retains a Zacks #1 Rank, which translates into a short-term Strong