DBRS Comments on Hancock’s 3Q13 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 the A (low) Issuer & Senior Debt rating, are unchanged following the release of 3Q13 financial results. All ratings of the Company have a Stable trend. Hancock reported net income of $33.2 million for the quarter, down from $46.9 million for 2Q13, and $47.0 million for 3Q12. The sequential earnings decline primarily reflected $20.9 million (pre-tax) of non-core expenses related to the Company’s expense reduction initiative.

Importantly, Hancock’s operating fundamentals remained sound in 3Q13; reflecting sustained loan growth, continued asset quality stabilization, and the maintenance of solid liquidity and capital positions. Importantly, Hancock continues to focus on its expense reduction initiative, and has targeted a $50 million reduction in annualized 1Q13 expenses, in part through the sale or closing of branches across its footprint. Indeed, on August 30, 2013, the Company had closed 26 banking locations.

Hancock’s 3Q13 revenues (TE basis) increased by a modest 0.6% sequentially, driven by a 1.3% increase in net interest income to $174.1 million, partially offset by a 1.3% decrease in non-interest income to $63.1 million. Higher spread income was driven by a 6 basis point widening of net interest margin (NIM) to 4.23%, despite a 0.7% decline in average earning assets. The improved NIM mostly reflected higher QoQ net purchase accounting adjustments. On a core basis, excluding purchase accounting adjustments, the Company’s NIM was relatively stable, down only one bp sequentially to 3.37%. Despite a 1.7% increase in average loans, lower average earning assets reflected a 6.5% decrease in average securities. Higher average loans were driven by increased levels of average commercial and real estate loans (up 2.0%) and average residential mortgage loans (up 2.6%).

On a QoQ basis, the Company’s lower non-interest income mostly reflected a decline in secondary mortgage market operations revenues (down 40.4%), as Hancock retained more of its residential mortgage production on its balance sheet. Partially offsetting this headwind, the Company reported higher levels of deposit service charges (up 3.3%) and bank card and ATM fees (up 7.2%).

For 3Q13, non-interest expenses were up 12.3% QoQ to $182.2 million, driven by the aforementioned efficiency initiative charges. Excluding these non-core charges, Hancock’s adjusted non-interest expenses were well managed, down 0.6% to $161.3 million. Personnel expense, the Company’s largest expense component, declined 0.9% during 3Q13.

Hancock’s asset quality remained relatively sound and continued to stabilize. Specifically, non-performing assets decreased $578,000 or 0.3%, QoQ, and represented 1.83% of loans and OREO, at September 30, 2013, down slightly from 1.84% at June 30, 2013. Meanwhile, non-covered net charge-offs represented a very low 0.18% of average assets for 3Q13, down from 0.24% 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 loan to deposit ratio of 77.9%. During the quarter, Hancock’s deposits declined 0.7% on a period-end basis and 1.2% on an average basis.

The Company’s capital position is sound and provides solid loss absorption capacity. At September 30, 2013, Hancock’s tangible common equity ratio was a high 8.68%, its estimated Tier 1 risk-based capital ratio was 12.16% and estimated Total risk-based capital ratio was 13.62%.

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

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