Hancock's (HBHC) Q4 Earnings Miss on Lower Revenues - Analyst Blog

Hancock Holding Company (HBHC) reported fourth-quarter operating earnings of 56 cents per share, lagging the Zacks Consensus Estimate of 58 cents. However, the bottom line compared favorably with 55 cents earned in the prior-year quarter.

For 2014, total operating earnings came in at $2.32 per share, missing the Zacks Consensus Estimate of $2.50. However, it was 4.5% above the year-ago figure.

Results reflected a weak top-line performance with a fall in both net interest and non-interest income. While credit quality and profitability displayed a mixed picture, capital ratios deteriorated. However, effective cost-control measures and impressive growth in loans and deposits acted as tailwinds.

Net income came in at $40.1 million or 48 cents per share compared with $34.7 million or 41 cents per share in the prior-year quarter. Core income amounted to $41.5 million or 50 cents per share, compared with $32.8 million or 39 cents per share in the prior-year quarter.

For 2014, net income increased to $175.7 million or $2.10 per share from $163.4 million or $1.93 per share in 2013. Moreover, core income for the year rose 31.5% to $159.2 million or $1.90 per share in 2014.

Performance in Detail

Hancock’s fourth-quarter net revenue summed $220.5 million, down 3% from the prior-year quarter. It also lagged the Zacks Consensus Estimate of $224 million.

Total net revenue for 2014 came in at $893.3 million, down 4.7% from 2013. Moreover, it came slightly below the Zacks Consensus Estimate of $897 million.
 
Net interest income (taxable equivalent) declined 2.9% year over year to $163.6 million. Further, net interest margin (“NIM”) fell 46 basis points (bps) year over year to 3.63%.

Non-interest income totaled $57 million, down 3.3% from the prior-year quarter. The reduction was due to a fall in all components, except investment and annuity fees as well as income from secondary mortgage market operations. Branch closures during the year led to a decline in service charges and branch fees.

Total operating expenses decreased 8.3% year over year to $144.1 million. The fall was attributable to a decline in all expense components.

As of Dec 31, 2014, total loans grew 12.7% year over year to $13.9 billion. Further, total deposits rose 7.9% year over year to $16.6 billion.

Credit Quality

Credit quality continued to demonstrate mixed figures during the quarter. Net charge-offs from the non-covered loan portfolio came in at $2.6 million or 0.08% of average total loans, compared with $5.2 million or 0.17% of average total loans in the year-ago quarter. Moreover, total nonperforming assets amounted to $148.1 million, down 20.3% year over year.

However, net provision for loan losses rose 32.6% year over year to $9.7 million.

Capital and Profitability Ratios

Hancock’s capital ratios deteriorated, whereas profitability ratios represented a mixed bag during the quarter. As of Dec 31, 2014, Tier 1 leverage ratio stood at 9.17%, down from 9.34% as of Dec 31, 2013. Further, Tier 1 risk-based capital ratio came in at 11.22%, down from 11.76% as of Dec 31, 2013.

Return on average assets stood at 0.79%, up from 0.74% as of Dec 31, 2013. However, as of Dec 31, 2014, tangible common equity ratio came in at 8.59%, down from 9.00% as of Dec 31, 2013.

Capital Deployment Activities

Hancock repurchased 1,224,279 shares worth around $38 million during the quarter. This share repurchase was part of the new common stock buyback program authorized by the company’s board of directors in July, under which, up to 5% or approximately 4 million shares can be bought back on or before Dec 31, 2015.

Year-to-date, the company has purchased 1,529,542 shares worth nearly $48 million, which represents almost 37% of the total repurchase authorization.

Near-Term Outlook

Hancock expects growth initiatives undertaken in the prior quarters to continue accelerating its core revenue growth and core earnings per share in 2015. However, operating earnings per share is anticipated to remain relatively flat due to lower purchase accounting revenues, which will likely continue to decline.

Non-interest expenses are projected to trend higher owing to seasonality and expenses incurred for undertaking the aforementioned initiatives.

Pressure on NIM is expected to continue. However, core NIM is expected to be stable, while core net interest income is predicted to increase.

Provision for loan losses, subject to continued downward pressure on oil prices, may rise. However, net charge-offs are not expected to increase significantly.

End of period loans are expected to grow within 8–12% in 2015, with the exception of energy loans, which are expected to experience limited growth.    

Our Viewpoint

A lingering low interest rate environment and economic sluggishness are expected to keep Hancock’s margins under pressure. Further, the company’s significant exposure to real estate portfolio makes it vulnerable to the risk of further deterioration in real estate prices. Moreover, the company remains troubled by strict regulatory reforms.

However, with slow but steady improvement in the housing market, prudent cost-control measures, efforts in streamlining business and efficient capital deployment activities, the company is expected to remain profitable in the quarters ahead.

At present, Hancock carries a Zacks Rank #4 (Sell).

Among other Southeast banks, Regions Financial Corporation (RF) reported fourth-quarter 2014 earnings from continuing operations of 14 cents per share, which missed the Zacks Consensus Estimate by 7 cents. Lower revenues led to the earnings miss.

Popular, Inc.’s (BPOP) fourth-quarter earnings of 41 cents per share lagged the Zacks Consensus Estimate of 48 cents.

IberiaBank Corp. (IBKC) is expected to report results on Jan 28.

 

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