DBRS Confirms Hancock Holding Company at A (low); Maintains Stable Trend and Withdraws Ratings

DBRS, Inc. (DBRS) has today confirmed the ratings of Hancock Holding Company (Hancock or the Company), including its Issuer & Senior debt rating of A (low). At the same time, DBRS maintained the Stable trend on all ratings. Subsequent to the confirmation, DBRS withdrew the ratings of Hancock. The decision to withdraw the ratings was made at DBRS’s discretion.

The confirmation and Stable trend reflect the Company’s top-tier Gulf coast regional banking franchise, its relatively sound asset quality, and solid capital and liquidity positions. Ratings also consider Hancock’s pressured, yet resilient earnings capacity and its commercial real estate (CRE), albeit decreasing, concentration.

Hancock operates a deeply entrenched Gulf coast franchise in five states, with strong deposit market shares in southern Louisiana and coastal Mississippi. Specifically, the Company has the number three deposit position in Louisiana with 9% market share and the top five position in Mississippi with 6% market share. On a more granular metropolitan statistical area basis, Hancock has the dominant deposit position in Gulfport, Mississippi (48% of deposits), along with the number two position in New Orleans, Louisiana (16%) and the number three position in Baton Rouge, Louisiana (11%).

Reflecting the resiliency in its earnings generation capacity, Hancock did not report a quarterly loss during the recent steep recession or in the subsequent slow and uneven economic recovery. That said earnings remain pressured, and its ROA and ROE metrics fall just below the medians of the Company’s similarly rated peers. For 9M13, earnings increased by 23% YoY to $128.6 million, driven by a $30.2 million decline in one-time non-interest expense items, as well as declines in many operating expense line items, including personnel, net occupancy and other real estate owned. However, on an adjusted core basis, the Company’s improvement in income for 9M13 was less pronounced increasing by 3.5% to $142.2 million YoY, as decreasing core expenses outpaced declining operating revenues.

As with many banks, Hancock’s spread income remains pressured by modest loan growth, and a strained, yet stabilizing core net interest margin (NIM). Reflecting macroeconomic headwinds, the continued run-off of the Company’s covered loan portfolio, and higher than normal pay-downs and payoffs, period-end loans increased by only 0.5% QoQ and 2.6% YoY. Excluding Hancock’s covered portfolio, loans were up 0.8%, QoQ and 4.3%, YoY. Similar to other banks that have made acquisitions over the past few years, the Company’s net interest income continues to benefit from purchase accounting adjustments, which represented a sizable 86 bps of its reported NIM of 4.23%. Importantly, the core NIM appears to be stabilizing, down only one bp to 3.37% QoQ.

Core non-interest income has been relatively consistent over the last four quarters. Meanwhile, although improved, on a YoY basis, adjusted core non-interest expense still remains relatively high. Indeed, Hancock’s DBRS calculated efficiency ratio was 68% for 9M13. Positively, the Company’s continuing branch rationalization, and efficiency and process improvement initiatives will benefit future earnings.

Hancock’s asset quality remains relatively sound and continues to stabilize. Specifically, non-performing assets decreased $578,000 or 0.3% during 3Q13, and represented 1.83% of loans and OREO, at September 30, 2013. Meanwhile, non-covered net charge-offs represented a very low 0.18% of average loans 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.

DBRS notes that the Company has a relatively large CRE and construction loan book that represents 32.7% of total loans (period-end), which DBRS considers a concentration. Importantly, this loan book has decreased by 3.0% YoY, and its credit quality is sound.

The Company’s funding profile remains solid, underpinned by its low loan to deposit ratio of 78.0%. During 3Q13, Hancock’s deposits declined 0.7% on a period-end basis and 1.2% on an average basis. Benefitting the Company’s NIM, is its large level of non-interest bearing deposits, which represented 36.4% of total deposits at September 30, 2013.

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 Tier 1 risk-based capital ratio was 12.07% and Total risk-based capital ratio was 13.52%. DBRS notes that the Company is utilizing some if its excess capital to buyback 5% of its outstanding common stock through an accelerated share repurchase.

Headquartered in Gulfport, Mississippi, Hancock reported $18.8 billion in consolidated assets as of September 30, 2013.

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

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other applicable methodologies include the DBRS Criteria: Intrinsic and Support Assessments and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities. These can be found at: http://www.dbrs.com/about/methodologies

[Amended on June 19, 2014, to reflect actual methodologies used, and inserted the name of the Rating Committee Chair.]

The sources of information used for this rating include company documents, the Federal Reserve, the Federal Deposit Insurance Corporation and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Mark Nolan
Rating Committee Chair: Roger Lister
Initial Rating Date: 1 November 2005
Most Recent Rating Update: 27 February 2013

For additional information on this rating, please refer to the linking document under Related Research.