Fitch Ratings reiterated its long-term Issuer Defaults Rating (IDR) at 'BBB+’ for Hancock Holding Company (HBHC - Analyst Report) and its main financial divisions. Concurrently, the rating agency also reiterated the short-term IDR at ‘F2.’ The outlook of the ratings remains stable.
Affirmations came at the back of Hancock’s traditional operating policy, which has helped the company retain its profitability even during the financial crisis. Over the past five years, Hancock’s mean return on assets (ROA) was impressive at 0.89%. Even though, Hancock’s second quarter 2012 ROA was 0.83% and efficiency ratio stood at 69.73%, Fitch anticipates both to recover based on expense management in the long-term.
Fitch noted that the Whitney acquisition has resulted in a more spread-out loan portfolio, greater growth prospects as well as the facility to cross-sell more products. Along with the gradual integration of the Whitney acquisition, Hancock is expected to continue its expense management.
Also the rating agency expects it to trim down its branches, resulting in reduced personnel and real estate expenses. Going ahead, Fitch can upgrade the ratings based on a rise in expected earnings, attributable to substantial loan-growth and cross selling.
Furthermore, continuously better operating results and superior capital ratios on a year-over-year basis were the other positives. The capital ratios declined after the closure of the Whitney Holding Corporation acquisition, which took place on June 4, 2011. Fitch anticipates the capital ratios to improve in the near to mid-term.
Hancock’s tangible common equity ratio stood at 8.72% as of June 30, 2012 compared with 8.09% as of June 30, 2011. Total risk-based capital ratio was 14.00% as of June 30, 2012 compared with12.80% as of June 30, 2011.
However, Fitch is of the opinion that the advantage of the rating outlook would diminish if the company seeks to perk up profitability over a longer term.
On the other hand, another acquisition of the same proportion as the Whitney deal, during a period when Hancock is reshuffling its own operations, can result in lower ratings. Ratings are primarily expected to be impacted by any deal which might result in a decline in capital ratios.
Ratings might suffer a mid to long-term dip if the company plans to improve growth further. As the lending markets are highly cluttered with competition, the company might considerably make price or terms and conditions more flexible to gain new businesses. This move might impact both profitability and credit costs on a long-term basis, which is anticipated to be detrimental to the ratings.
Hancock Holding Company currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. In the U.S. market, the company’s peers include Monarch Financial Holdings, Inc. and Eastern Virginia Bankshares Inc. (EVBS - Snapshot Report) .