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On Sep 30, 2013, we reaffirmed our Neutral recommendation on Hancock Holding Company (HBHC - Analyst Report). This was based on the company’s efficient organic and inorganic growth strategies, backed by a stable liquidity position. However, we remain concerned about the persistent rise in operating expenses, a still low interest rate environment and stringent regulatory requirements.

 Why Neutral?

On Jul 25, Hancock Holding reported second-quarter 2013 earnings per share of 55 cents, in line with the Zacks Consensus Estimate. Results benefited from a marginal rise in fee income and a decline in operating expenses. However, a fall in net interest income and a rise in provision for loan losses were the headwinds.

The Zacks Consensus Estimate for 2013 increased 0.4% to $2.24 per share over the last 60 days. Further, for 2014, the Zacks Consensus Estimate remained unchanged at $2.37 per share over the same time period. Hence, Hancock Holding currently carries a Zacks Rank #3 (Hold).

Hancock Holding is focused on organic growth strategy, which is evident from the rise in its deposits as well as net interest income over the last few years. Continuous progress in deposit mix, backed by rising average non-interest-bearing deposit accounts, remains the company’s key strength. Further, Hancock Holding continues to expand through acquisitions. Given its favorable liquidity and capital position, we believe that there is scope for meaningful acquisitions going forward.

However, despite taking measures to improve efficiency, mounting non-interest expenses remain a major cause of concern for Hancock Holding. Further, expenses are likely to rise further owing to increased regulatory compliance costs as well as the company’s expansion strategies. Moreover, pressure on core net interest margin is expected to continue owing to sluggish economic recovery and the company’s asset-sensitive balance sheet position.

Other Stocks to Consider

Some better-performing banks include SY Bancorp Inc. (SYBT - Snapshot Report), Simmons First National Corporation (SFNC - Snapshot Report) and City Holding Co. (CHCO - Snapshot Report). While SY Bancorp and Simmons First National Corporation carry a Zacks Rank #1 (Strong Buy), City Holding has a Zacks Rank #2 (Buy).

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