Hancock Holding Company
's (
HBHC
) third-quarter 2012 operating earnings of 58 cents per share
came in line with Zacks Consensus Estimate. Moreover, this
compares favorably with the earnings of 55 cents in the prior
quarter.
After considering certain non-recurring items, Hancock's net
income came in at $47.0 million or 55 cents per share. This was
also higher than the previous quarter's net income of $39.3
million or 46 cents per share.
Stable net interest income was partially offset by lower
non-interest income and higher operating expenses in the quarter.
Robust capital position and loan growth were also among the
positives. Conversely, mixed movements in asset quality and
reduced deposits were the major headwinds.
Performance in Detail
On an operating basis, Hancock's total revenue was $252.1
million, down 0.8% from $254.0 million in the previous quarter.
Moreover, total revenue surpassed the Zacks Consensus Estimate of
$242.0 million by 4.2%.
Net interest income (taxable equivalent) remained almost flat
sequentially at $180.1 million. However, net interest margin
(NIM) hiked 6 basis points from the prior quarter to 4.54%. The
growth was fuelled by positive changes in funding sources and
lower funding costs along with favorable changes in the asset
mix.
Non-interest income (excluding securities transaction gain) stood
at $62.8 million, decreasing 1.1% from $63.6 million in the prior
quarter. The fall was driven by decreases in service charges on
deposit accounts, insurance fees as well as investment &
annuity fees, bankcard fees and trust fees, partly offset by
higher income from secondary mortgage operations and other
income.
Non-interest expense, excluding merger related expenses, was
$169.8 million, up 1.0% sequentially. The improvement was mainly
due to higher amortization of intangibles and debt early
redemptions.
Efficiency ratio was recorded at 64.3%, down from 65.7% in the
previous quarter. The decline reflects improvement in
profitability.
Asset Quality
Credit quality displayed mixed results in the reported quarter.
Provision for loan losses came in at $8.1 million, climbing
nearly 0.9% from the previous quarter, but dropping 12.5% from
the year-ago quarter.
However, net charge-offs from the non-covered loan portfolio
were $9.7 million as of September 30, 2012, down 4.7% from $10.2
million as of June 30, 2012 but soaring 24.3% from $7.8 million
as of September 30, 2011.
Further, the ratio of allowance for loan losses to period-end
loans stood at 1.19% at the end of the quarter as against 1.27%
at the end of the prior quarter and 1.06% at the end of the
prior-year quarter. Non-performing assets were $298.5 million, up
from $271.0 million in the previous quarter and $231.0 million in
the year-ago quarter.
Loans and Deposits
Total loans for the quarter under review were $11.4 billion,
climbing 3.2% from the previous quarter. All the loan portfolios
except construction and land development loans increased, leading
to the expansion in total loans. Average total loans stood at
$11.3 billion, rising 1.1% from the last quarter.
Total deposits were $14.77 billion, dropping 1.1% from $14.9
billion in the prior quarter. The decline was primarily due to
lower levels of interest-bearing transaction and savings deposit,
interest-bearing public fund deposits and time deposits.
Moreover, average deposits fell nearly 2% from the previous
quarter to $14.8 billion.
Profitability and Capital Metrics
Hancock's capital ratios improved in the quarter. As of September
30, 2012, tier 1 leverage ratio was 9.11% versus 8.71% in the
previous quarter and 8.28% in the year-ago quarter. Likewise,
tier 1 risk-based capital ratio was 12.30% compared with 12.18%
as of June 30, 2012 and 11.91% as of September 30, 2011.
On an operating basis, return on average assets improved to 1.07%
in the reported quarter from 1.00% in the prior quarter and 0.92%
in the prior-year quarter. As of September 30, 2012, tangible
common equity ratio was 9.09%, up from 8.72% in the prior quarter
and from 8.56% in the year-ago quarter.
Guidance
Management expects NIM to remain pressurized in the near term
given significant asset repricing and inability to bring down
funding costs. Further, the incremental cost savings is
expected to benefit the remaining quarter of the current
year.
Total operating expenses (excluding amortization of
intangibles) is anticipated to be in the range of $149-$153
million. Moreover, the opportunities to generate new loans
remain competitive. Management expects loan growth, albeit at a
moderating pace, in the subsequent quarters.
Our Viewpoint
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
concern.
Nevertheless, we are apprehensive about the impacts of the
prevailing low interest rate environment, sluggish economic
growth and stringent regulatory landscape on the company's
financials in the subsequent quarters.
Hancock currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating. Other Zacks #3 Rank bank stocks include
Bank of America Corporation
(
BAC
).
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