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Hancock Holding Company’s (HBHC - Analyst Report) third-quarter operating earnings of 56 cents per share beat the Zacks Consensus Estimate by a penny. However, this was 3.4% below the year-ago quarter figure of 58 cents.

Better-than-expected results benefited from a slight rise in fee income, fall in provision for credit losses and lower-than-expected operating expenses, partially offset by decline in net interest income. Further, credit quality improved, capital ratios were a mixed bag and profitability ratios deteriorated in the said quarter.

After considering certain non-recurring expenses, net income in the quarter came in at $33.2 million, down 29.3% year over year.  

Performance in Detail

On an operating basis, Hancock’s total revenue came in at $244.7 million, down 2.9% from the prior-year quarter. However, it surpassed the Zacks Consensus Estimate of $232.0 million.

Net interest income (taxable equivalent) came in at $174.1 million, down 3.3% year over year. Also, net interest margin (NIM) fell 31 basis points from the prior-year quarter to 4.23%.

Non-interest income (excluding securities transaction gain) was $63.1 million, up 0.3% from $62.8 million in the prior-year quarter. The marginal rise was primarily driven by rise in trust fees, bank card and ATM fees as well as other income. These factors were partially offset by decrease in both service charges on deposit accounts and insurance fees.

Total operating expenses were $161.3 million, down 1.9% year over year. The fall was mainly due to decrease in personnel expense, net occupancy expense and other real estate owned expense.

Efficiency ratio increased to 64.95% from 64.33% in the previous-year quarter. Increase in efficiency ratio indicates deterioration in profitability.

Total loans, excluding loans held for sale, amounted to $11.7 billion, up 2.6% from the previous-year quarter. Total deposits were $15.1 billion, nudging up 1.9% on a year-over-year basis.

Credit Quality

Credit quality considerably improved in the quarter. Net charge-offs from the non-covered loan portfolio were $5.4 million or 0.18% of average total loans, compared with $9.7 million or 0.34% of average total loans in the year-ago quarter. Moreover, total nonperforming assets were $215.9 million, falling 27.7% year over year.

Further, provision for loan losses was $7.6 million, down 6.6% from the prior-year quarter.

Capital and Profitability Ratios

Hancock’s capital ratios were a mixed bag and profitability ratios declined. As of Sep 30, 2013, Tier 1 leverage ratio was 9.17%, in line with the year-ago quarter level. However, Tier 1 risk-based capital ratio was 12.16%, declining from 12.49% as of Sep 30, 2012.

On an operating basis, return on average assets deteriorated to 0.99% from 1.07% in the prior-year quarter. As of Sep 30, 2013, tangible common equity ratio was 8.68%, down from 9.09% in the year-ago quarter.

Other Developments

In Jul 2013, Hancock announced its plan to divest 10 of the 40 branches that were slated to close by this year-end. These branches are part of Whitney Holding Corporation, which the company acquired in Jun 2011. The sale of branches is still subject to regulatory approvals and other customary closing conditions. Further, the sale’s financial impact will be reflected in Hancock’s fourth-quarter 2013 and first-quarter 2014 results.

In Aug 2013, Hancock completed the shuttering of 26 branches across its five-state footprint.

Performance of Other Southeast Banks

F.N.B. Corporation’s (FNB - Snapshot Report) third-quarter operating earnings marginally beat the Zacks Consensus Estimate. Better-than-expected results were driven by rise in net interest income, partially offset by higher operating expenses and decline in non-interest income.

Synovus Financial Corporation (SNV - Analyst Report) reported third-quarter earnings that were in line with the Zacks Consensus Estimate. Lower expenses and a significant improvement in credit quality were the tailwinds. However, decline in the top line due to fall in net interest as well as non-interest income was a negative.

Regions Financial Corporation’s (RF - Analyst Report) third-quarter earnings, on the other hand, missed the Zacks Consensus Estimate. Lower-than-expected results were due to fall in non-interest income and higher non-interest expenses, partially offset by increased net interest income.

Our Viewpoint

Hancock’s consistent capital deployment program makes it an attractive option for yield-seeking investors. Further, we expect the company’s organic and inorganic growth strategies to be successful on the back of a stable liquidity position. However, persistently rising operating expenses, a low rate environment and increased regulations will likely dent Hancock’s performance in the near term.

At present, Hancock carries a Zacks Rank #3 (Hold).

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