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Hancock Holding Company’s (HBHC - Analyst Report) first-quarter 2013 operating earnings came in at 56 cents per share, lagging the Zacks Consensus Estimate of 61 cents. However, this compares favorably with the year-ago earnings of 21 cents.

After considering certain non-recurring items, Hancock’s net income came in at $48.6 million compared with $47.0 million in the prior quarter. However, earnings per share post adjustments remained same as the operating income per share. This compares favorably with 54 cents earned in the previous quarter.

Quarterly results were adversely affected by reduced top line and increased expenses along with decline in loans and deposits. These were partially mitigated by improved capital ratios.  

Performance in Detail

On an operating basis, Hancock’s total revenue came in at $245.5 million, down 3.9% from $255.4 million in the prior quarter. However, it surpassed the Zacks Consensus Estimate of $243.0 million by 1.1%.

Net interest income (taxable equivalent) came in at $176.7 million, down 3.3% from the prior quarter. Moreover, net interest margin (NIM) fell 16 basis points from the prior quarter to 4.32%.

Non-interest income (excluding securities transaction gain) stood at $60.2 million, decreasing 6.4% from $64.3 million in the prior quarter. The decline was primarily driven by reduced service charges on deposit accounts, bank card fees, investment & annuity fees, ATM fees, secondary mortgage market operations and other income, partially offset by increase in trust fees, insurance fees and bankcard fees.

Non-interest expenses stood at $159.6 million, increasing 1.2% sequentially. The rise was mainly due to higher personnel expense, equipment expense and other operating expense, partially offset by decrease in net occupancy expenses and amortization of intangibles.

Efficiency ratio increased to 64.17% from 60.78% in the previous quarter. The increase reflects deterioration in profitability.

Credit Quality

Credit quality displayed mixed results in the quarter. Provision for loan losses came in at $9.6 million, plunging 65.9% from the prior quarter.

Also, net charge-offs from the non-covered loan portfolio reached $6.6 million or 0.23% of average total loans, compared with $28.0 million or 0.97% of average total loans in the previous quarter.

Moreover, non-performing assets were $229.3 million, down 10.5% sequentially from $256.1 million.

However, the ratio of allowance for loan losses to period-end loans stood at 1.20%, compared with 1.18% in the prior quarter.

Loans and Deposits

Total loans, excluding loans held for sale, reached $11.5 billion, falling 0.8% from the previous quarter. All the loan portfolios, except construction and land development loans and residential mortgage loans, decreased during the quarter, leading to a contraction in total loans. Average total loans stood at $11.5 billion, falling 0.12% from the last quarter.

Total deposits were $15.3 billion, down 3.1% on a sequential basis. The fall was primarily due to lower levels of noninterest bearing deposits, interest bearing transaction and savings deposits, interest bearing public fund deposits and time deposits. However, average deposits rose 1.2% from the previous quarter to $15.3 billion.

Capital and Profitability Ratios

Hancock’s capital ratios improved in the quarter. As of Mar 31, 2013, tier 1 leverage ratio was 9.37% versus 9.10% in the previous quarter and 8.18% in the year-ago quarter. Likewise, tier 1 risk-based capital ratio was 13.03% compared with 12.65% as of Dec 31, 2012 and 11.52% as of Mar 31, 2012.

On an operating basis, return on average assets improved to 1.03% in the reported quarter from 0.99% in the prior quarter and 0.39% in the prior-year quarter. As of Mar 31, 2013, tangible common equity ratio was 9.14%, up from 8.77% in the prior quarter and 8.27% in the year-ago quarter.

Guidance

Management expects effective tax rate in the range of 26%–28% in 2013.

Performance of Other South-east Banks

Synovus Financial Corporation’s (SNV - Analyst Report) net income earnings came in line with the Zacks Consensus Estimate. Decline in non-interest expenses and a marked improvement in credit quality were partially offset by reduced top-line performance.

Regions Financial Corp’s (RF - Analyst Report) earnings from continuing operations marginally beat the Zacks Consensus Estimate. Results benefited from a fall in non-interest expenses, reflecting effective cost control measures.

First Horizon National Corp.’s (FHN - Analyst Report) earnings were in line with the Zacks Consensus Estimate. The results were driven by lower non-interest expenses, partially offset by declining net interest income and non-interest income.

Our Viewpoint
Hancock’s consistent dividend policy makes it an attractive option for yield-seeking investors. However, the prevailing low interest-rate environment, sluggish economic growth and stringent regulatory landscape are expected to hamper the company’s financials going forward.

Hancock currently carries a Zacks Rank #4 (Sell).

 

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