DBRS Comments on Hancock’s 2Q13 Results; Ratings Unchanged - Senior at A (low); Stable Trend

DBRS, Inc. (DBRS) has today commented that its ratings for Hancock Holding Company (Hancock or the Company), including it’s A (low) Issuer & Senior Debt rating, are unchanged following the release of its 2Q13 financial results. All ratings of the Company have a Stable trend. Hancock reported net income of $46.9 million for the quarter, down from $48.6 million for 1Q13, and up from $39.3 million for 2Q12. Sequential earnings reflected a decrease in net interest income, due to a lower level of total purchase accounting loan accretion on acquired loans in 2Q13. Partially offsetting, non-interest income improved QoQ. For the quarter, earnings equated to a 0.99% return on average assets and 7.82% return on average common equity, modestly below the linked quarter’s returns.

During 2Q13 the Company’s operating fundamentals remained sound; reflecting loan growth, continued asset quality stabilization, and solid liquidity and capital positions. Although impacted by somewhat volatile components, earnings remain resilient. Importantly, Hancock continues to focus on its expense initiative, and has targeted a $50 million reduction in annualized 1Q13 expenses, mostly through the sale or closing of forty branches across its footprint. To this end, the Company announced the sale of ten of the forty branches in 3Q13.

Hancock’s 2Q13 net interest income (TE basis) decreased 2.8% sequentially to $171.8 million, due to a 15 basis points (bps) narrowing of net interest margin (NIM) to 4.17%. The narrower NIM mostly reflected a lower level of total purchase accounting loan accretion on acquired loans. On a core basis, excluding total net purchase accounting adjustments, NIM narrowed by just 3 bps to 3.38%, sequentially. Average earning assets were relatively unchanged sequentially; however, average loans were up $93.3 million or 0.8%, driven by higher levels of average commercial & real estate loans (up $134 million). Perhaps signaling solid loan growth in 3Q13, DBRS notes that the bulk of 2Q13 loan growth was in the latter half of the quarter.

On a linked-quarter basis, non-interest income, increased 6.1% to $63.9 million and represented 27.1% of total revenues. Although the improvement in fee items was broad-based, the bulk of the increase was due to higher levels of trust fees (up 12.8%), deposit service charges (up 4.5%), investment & annuity fees (up 13.4%), and insurance fees (up 21.3%). Higher levels of trust fees, investment/annuity fees, and insurance fees were due, in part, to some seasonality and higher stock market values. The improvement in deposit service charges reflected two more days in the quarter.

For 2Q13, total expenses were up $2.6 million to $162.3 million, sequentially, attributable mostly to a $2.6 million increase in OREO expense. Meanwhile, personnel expense, the Company’s largest expense component was down 0.4% to $87.6 million.

Hancock’s asset quality remained relatively sound and reflected sustained improvement in 2Q13. Specifically, non-performing assets decreased $12.8 million, or 5.6%, QoQ, and represented 1.84% of loans and OREO, at June 30, 2013, down from 1.98% at March 31, 2013. Meanwhile, non-covered net charge-offs represented a low 0.24% of average loans for 2Q13. Finally, DBRS notes that Hancock’s allowance for loan losses remains adequate at 1.18% of loans.

The Company’s funding profile remains solid, underpinned by its low average loan to deposit ratio of 76.4%. During the quarter, Hancock’s deposits declined 0.6% on a period-end basis and 0.7% on an average basis.

The Company’s capital position remains sound and provides solid loss absorption capacity. At June 30, 2013, Hancock’s tangible common equity ratio was a relatively high 8.52%, its estimated Tier 1 risk-based capital ratio was 12.15% and estimated Total risk-based capital ratio was 13.63%. DBRS notes that on April 30, 2013, the Company announced that the board of directors authorized the repurchase of up to 5% of its outstanding common stock. In 2Q13, Hancock utilized $115 million of capital to execute an accelerated share repurchase program.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on May the 23rd, 2014 to remove unnecessary disclosures.]