Hancock's (HBHC) Weak Top Line Hurts Q3 Earnings
Hancock Holding Company’s HBHC third-quarter 2015 operating earnings of 52 cents per share came in line with the Zacks Consensus Estimate. However, earnings fell 7.1% year over year.
Hancock Holding Company - Earnings Surprise | FindTheBest
Results reflected weak top-line performance led by lower net interest income, partly mitigated by higher non-interest income. Further, higher expenses and an energy-led rise in provisions were on the downside. Overall asset quality represented a mixed bag. Nonetheless, the company witnessed appreciable growth in loans and deposits.
Net income came in at $41.2 million, down 11.6% year over year.
Performance in Detail
Hancock’s net revenue summed $217 million, down 2% year over year. Further, it lagged the Zacks Consensus Estimate of $219.9 million.
Net interest income declined 4% year over year to $156.8 million. Moreover, net interest margin (“NIM”) fell 53 basis points (bps) year over year to 3.28%.
Non-interest income (including securities transactions gains) totaled $60.2 million, up 3.9% year over year. The rise was driven by an increase in investment & annuity fees, insurance fees, as well as higher revenues from secondary mortgage operations and other income. These were, however, partly offset by a fall in service charges on deposit accounts, and bank card & ATM fees.
Total operating expenses inched up 1.4% year over year to $151.2 million. The rise was triggered by an increase in all expense components except lower equipment and amortization costs.
As of Sep 30, 2015, total loans grew 10.6% year over year to $14.8 billion. Further, total deposits rose 10.8% year over year to $17.4 billion.
Credit Quality
Credit quality represented a mixed bag during the quarter. Net charge-offs from the non-covered loan portfolio came in at $3.5 million or 0.09% of average total loans, down from $6.4 million or 0.19% of average total loans in the year-ago quarter.
However, net provision for loan losses rose 6.5% year over year to $10.1 million. Moreover, total nonperforming assets jumped 40.2% year over year to $206.3 million.
Capital and Profitability Ratios
Hancock witnessed weakness in capital and profitability ratios during the quarter. As of Sep 30, 2015, Tier 1 leverage ratio was 8.86%, down from 9.48% as of Sep 30, 2014. Further, Tier 1 risk-based capital ratio came in at 10.60%, down from 11.59% as of Sep 30, 2014.
Return on average assets was 0.76%, down from 0.94% as of Sep 30, 2014. Moreover, as of Sep 30, 2015, return on average common equity (operating) was 6.70% compared with 8.02% as of Sep 30, 2014.
Outlook
Management expects core revenues to improve in the near term, as and when revenue initiatives undertaken in the prior quarters mature. Notably, core net interest margin is expected to stabilize. However, margin pressure is likely to continue.
Based on current trends, loans are expected to grow within 8–9% for full-year 2015 and 8–10% for 2016. Additionally, the company foresees a considerable rise in loan loss provisions, triggered by further ratings downgrade in the energy portfolio. However, no material losses are anticipated.
Expenses are projected to rise modestly in the near term. Further, the effective income tax rate is anticipated in a range of 25–27% for 2015.
Our Viewpoint
We believe Hancock’s organic and inorganic growth strategies will pay off going forward, supported by its efforts to restructure and streamline business. Moreover, the company’s steady liquidity and capital positions remain impressive.
Nevertheless, a stressed core NIM amid the persistent low interest rate environment, along with sizeable exposure to the energy sector, can restrict the company’s profitability. At the same time, increased regulatory burden will likely strain the company’s performance in the quarters ahead.
At present, Hancock carries a Zacks Rank #3 (Hold).
Among others in the space, Bank of the Ozarks, Inc. OZRK and First Horizon National Corporation FHN came out with third-quarter earnings per share of 52 cents and 29 cents, respectively. While Bank of the Ozarks’ earnings were in line with the Zacks Consensus Estimate, First Horizon delivered a positive earnings surprise of 31.8%.
On the other hand, BancorpSouth, Inc.’s BXS third-quarter earnings per share of 36 cents lagged the Zacks Consensus Estimate by a penny.
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