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Lower Revenues Drag Hancock Q4 Earnings

Zacks Equity Research

Hancock Holding Co.’s (HBHC) fourth-quarter operating earnings of 55 cents per share missed the Zacks Consensus Estimate by a penny due to fall in revenues. However, this was up 1.9% from the year-ago quarter figure of 54 cents.

Lower-than-expected results were due to decline in revenues, partly offset by a slight drop in operating expenses and significant decline in provision for loan losses. Further, credit quality and profitability ratios improved and capital ratios were a mixed bag in the quarter.

After considering certain non-recurring expenses, net income in the quarter was $34.7 million, down 26.2% year over year.

For the full year 2013, operating earnings were $2.22 per share, up 4.2% year over year. Moreover, this outpaced the Zacks Consensus Estimate of $2.09.

Performance in Detail

On an operating basis, Hancock’s total revenue came in at $234.5 million, down 8.2% from the prior-year quarter. However, it surpassed the Zacks Consensus Estimate of $233.0 million.

For 2013, total revenue (operating basis) was $968.248 million, down 4.6% year over year. However, it outpaced the Zacks Consensus Estimate of $942.0 million.

Net interest income (taxable equivalent) declined 8.2% from the year-ago quarter to $178.1 million. Moreover, net interest margin (NIM) fell 39 basis points from the prior-year quarter to 4.09%.

Non-interest income (excluding securities transaction gain) was $58.9 million, down 8.4% from the prior-year quarter. The decline mainly resulted from decrease in secondary mortgage market operations, service charges on deposit accounts as well as other income, partially offset by higher trust fees.

Total operating expenses were $157.1 million, down 0.5% year over year. The fall was mainly due to decrease in personnel expense, net occupancy expense and other real estate owned expense, partially offset by increase in other operating expense.

Total loans, excluding loans held for sale, amounted to $12.3 billion as of Dec 31, 2013, up 6.4% year over year. However, total deposits fell 2.4% from Dec 31, 2012 level to $15.4 billion.

Credit Quality

Credit quality considerably improved in the quarter. Net charge-offs from the non-covered loan portfolio were $5.2 million or 0.17% of average total loans, compared with $28.0 million or 0.97% of average total loans in the year-ago quarter. Moreover, total nonperforming assets were $185.9 million, down 27.4% year over year.

Further, provision for loan losses was $7.3 million, down 73.9% from the prior-year quarter.

Capital and Profitability Ratios

Hancock’s capital ratios were a mixed bag and profitability ratios improved. As of Dec 31, 2013, Tier 1 leverage ratio was 9.36%, up from 9.11% as of Dec 31, 2012. However, Tier 1 risk-based capital ratio was 11.87%, declining from 12.64% as of Dec 31, 2012.

On an operating basis, return on average assets improved to 0.99% from 0.97% as of Dec 31, 2012. As of Dec 31, 2013, tangible common equity ratio was 9.00%, up from 8.77%.

Performance of Other Southeast Banks

F.N.B. Corp.’s (FNB) fourth-quarter operating earnings were in line with the Zacks Consensus Estimate. Rise in revenues, growth in loans and deposit balances, strong capital ratios and an improved asset quality were the positives. However, higher operating expenses and deteriorating profitability ratios were headwinds.

First Horizon National Corp.’s (FHN) fourth-quarter 2013 earnings per share outpaced the Zacks Consensus Estimate. Results reflected lower-than-anticipated expenses on the back of prudent expense management. However, lower-than-expected revenues were a concern.

BancorpSouth, Inc.’s (BXS) fourth-quarter 2013 earnings per share beat the Zacks Consensus Estimate by a penny. Results benefited from increased net interest revenue, lower expenses and the absence of provision for credit losses. These positives were partially offset by decline in non-interest revenues.

Our Viewpoint

Hancock’s consistent capital deployment program makes it an attractive option for yield-seeking investors. Further, we expect the company’s organic and inorganic growth strategies to be successful on the back of a stable liquidity position. However, persistently rising operating expenses, a low rate environment and increased regulations will likely dent Hancock’s performance in the near term.

At present, Hancock carries a Zacks Rank #3 (Hold).

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