DBRS Comments on Q2 Results of Hancock Holding Company - Senior at A (low); Trend Remains Stable

DBRS has today commented that the ratings of Hancock Holding Company (Hancock or the Company), including its Issuer & Senior Debt rating of A (low), are unaffected by the Company’s Q2 2009 earnings results. The trend on all ratings remains Stable.

Unlike many of its peers across the country, Hancock continues to benefit from the resilient economies within its footprint, many of which have been bolstered by the rebuilding efforts related to Hurricane Katrina. Although the Company’s credit fundamentals continue to be pressured by the recession, Q2 2009 results remain within expectations for its ratings.

Reflecting the recession, the Company reported net income of $13.7 million for Q2 2009, down from $14.0 million for the prior quarter and down from $20.9 million for Q2 2008. On a linked quarter basis, earnings were pressured by a 1.0 times (x) increase in provisions for loan loss reserves and a 4.3% increase in non-interest expense. Partially offsetting these headwinds was a 5.8% increase in net interest income, which benefited from a 28 basis points (bps) widening of net interest margin (NIM) to 3.78%, and an 18.8% increase in noninterest income. On an annual quarter basis, earnings were pressured by a 5.0x increase in provisions for loan loss reserves, and an 11.6% increase in noninterest expense, somewhat offset by a 9.3% increase in net interest income, bolstered by higher levels of average earning assets, and a 9.8% increase in noninterest income.

On a sequential and annual quarter basis, higher levels of noninterest income reflected higher service charges on deposit accounts, along with increased fees related to secondary mortgage market operations, credit cards and ATMs. The increase in NIM during the first quarter reflected lower deposit costs. Higher noninterest expenses on both a sequential and annual quarter basis mostly reflected the Company’s Q2 2009 $3.4 million FDIC special assessment charge.

In light of the recession, Hancock’s credit deterioration remains manageable. At June 30, 2009, the Company’s non-performing assets (NPAs) were moderate and remained relatively flat at 1.01% of loans, compared to 1.04% at March 31, 2009. Reflecting management’s proactive approach in expediting the resolution of problem credits, net charge-offs were up during the quarter at 1.5% of average loans compared to 0.67% for Q1 2009. The increase in NCOs reflected higher levels of land development, commercial real estate, and direct consumer loans. DBRS notes that Hancock’s allowance for loan loss reserves to NPAs remains adequate at 117.1%. Given the considerable economic headwinds, DBRS believes that further erosion in Hancock’s asset quality is likely. However, the increase should be manageable in scope, due to the continuing post-Hurricane Katrina rebuilding efforts within Hancock’s footprint.

Hancock’s liquidity position continues to be sound and underpinned by a strong core deposit base, which represents 116% (at March 31, 2009) of net loans. The Company’s securities portfolio, which represents 23% of total assets, access to the Federal Home Loan Bank and Federal Reserve discount window, round out its liquidity profile.

The Company’s capital base remains solid and provides ample loss absorption capacity. At June 30, 2009, Hancock’s tangible common equity ratio was a high 8.06%, up from 7.92% at March 31, 2009.

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

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.