DBRS Comments on Q4 Earnings of Hancock Holding Company -- Senior at A (low)

DBRS has commented today on the Q4 2008 earnings of Hancock Holding Company (Hancock or the Company). The Company reported net income of $8.3 million for the quarter, down from $16.0 million for the prior quarter and $16.6 million for Q4 2007. On a sequential quarterly basis, earnings were pressured by a 1.1 times increase in provisions for loan loss reserves, of which 26% was for reserve build, a 48 basis point (bp) narrowing of its net interest margin (NIM) to 3.51% and a $1.2 million securities loss. On an annual quarterly basis, earnings were negatively impacted by a 3.7 times increase in provisions for loan loss reserves, a 53 bps narrowing of NIM, and a 4.2% decrease in recurrent non-interest income (excludes securities losses), partially offset by a 5.4% decrease in non-interest expenses. Hancock’s franchise strengths and credit fundamentals remain unchanged, and its ratings, including its A (low) rated senior obligations and Stable trend, remain unaffected.

Reflecting the deepening recession, non-performing assets (NPAs) rose to 0.83% of loans from 0.59% at September 30, 2008, and 0.43% at December 31, 2007. DBRS notes that the bulk of the sequential quarterly increase in NPAs was related to real estate development projects in Louisiana. Net charge-offs (NCOs) increased to 1.20% of average loans from 0.42% for Q3 2008 and 0.26% for Q4 2007. The sequential quarterly increase in NCOs mostly reflected construction and development exposures. Although DBRS believes that further erosion in Hancock’s asset quality is likely, the increase will be somewhat restrained in scope by the continuing post-Hurricane Katrina rebuilding efforts within Hancock’s footprint.

On a sequential quarterly basis, Hancock’s NIM narrowed by 48 bps, as asset yields continued to decline and funding costs edged up. Elevated funding costs reflected higher deposit rates related to deposit campaigns in three new markets, New Orleans, Mobile and Pensacola.

Hancock’s liquidity and capital positions remain sound. Core deposits amount to approximately 107% (at September 30, 2008) of net loans. The Company’s liquidity profile also reflects a good-quality securities portfolio, which represents 23% of total assets and access to the Federal Home Loan Bank and Federal Reserve discount window. Capital remains adequate, as evidenced by the Company’s tangible common equity ratio of 7.62%.

Hancock, with $7.2 billion in assets, has a well-established community banking franchise in its legacy markets of southern Mississippi and central and southeastern Louisiana, and more recent markets of Alabama and Florida.

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

The applicable methodology is Rating Banks and Bank Holding Companies operating in the United States, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.