Hancock Reports In-Line 3Q - Analyst Blog

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.


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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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