Lower Cost Drives Hancock's Q1 Earnings Beat - Analyst Blog

Prudent expense management and lower provision drove Hancock Holding Co.'s HBHC first-quarter operating earnings of 58 cents per share. The results beat the Zacks Consensus Estimate by a penny and compared favorably with the year-ago figure of 56 cents.

Hancock was successful in reducing expenses during the quarter, aided by the ongoing branch rationalization process. Further, decline in provision for loan losses as well as improved credit quality and profitability ratios were tailwinds for the quarter. However, the pressure on top line continued due to fall in both non-interest income and net interest income. Further, capital ratios were a mixed bag.

Net income in the quarter was $49.1 million, up 1.0% from $48.6 million in the prior year quarter.

Performance in Detail

Hancock's total revenue came in at $231.8 million, down 5.5% from the prior-year quarter. However, it surpassed the Zacks Consensus Estimate of $226.0 million.

Net interest income (taxable equivalent) declined 4.8% from the year-ago quarter to $168.2 million. Moreover, net interest margin NIM fell 26 basis points from the prior-year quarter to 4.06%.

Non-interest income was $56.7 million, down 5.8% from the prior-year quarter. The decline mainly resulted due to decrease in all the components except a 17.8% rise in trust fees and 8.2% increase in investment and annuity fees.
 
Total operating expenses were $147.0 million, down 7.9% year over year. The fall was mainly due to decrease in personnel expense, equipment expense and other operating expense, partially offset by increase in other net real estate owned expense.

Total loans, amounted to $12.5 billion as of Mar 31, 2014, up 9.1% year over year. However, total deposits remained nearly unchanged at $15.3 billion as compared with the Mar 31, 2013 level.

Credit Quality

Credit quality considerably improved in the quarter. Net charge-offs from the non-covered loan portfolio were $4.0 million or 0.13% of average total loans, compared with $6.6 million or 0.23% of average total loans in the year-ago quarter. Moreover, total nonperforming assets were $179.7 million, down 21.6% year over year.

Further, provision for loan losses was $8.0 million, down 16.9% from the prior-year quarter.

Capital and Profitability Ratios

Hancock's capital ratios were a mixed bag and profitability ratios improved. As of Mar 31, 2014, Tier 1 leverage ratio was 9.42%, up from 9.28% as of Mar 31, 2013. However, Tier 1 risk-based capital ratio was 11.96%, declining from 12.78% as of Mar 31, 2013.

Return on average assets improved to 1.05% from 1.03% as of Mar 31, 2013. As of Mar 31, 2014, tangible common equity ratio was 9.24%, up from 9.14%.

Our Viewpoint

The pressure on Hancock's top line will likely persist, given the sluggish economic recovery and a still low interest rate scenario. Nevertheless, the company's cost containment and efficient organic growth strategies should continue to drive profitability in the quarters ahead.

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

Performance of Other Banks

Westamerica Bancorp. WABC is another bank which benefited from a decline in expense and provisions during the quarter. However, the company's earnings per share were in line with the Zacks Consensus Estimate primarily due to lower revenues.

Commerce Bancshares, Inc. CBSH and Northern Trust Corporation NTRS missed the Zacks Consensus Estimate primarily due to higher expenses.