DBRS Comments on Q4 ‘09 Preliminary Earnings of Hancock Holding Company – Senior at A (low)

DBRS has today commented on the Q4 2009 preliminary earnings performance of Hancock Holding Company (Hancock or the Company). Hancock’s Issuer & Senior Debt at A (low) with a Stable trend are unaffected by the preliminary quarterly results.

Hancock continues to benefit from fairly resilient economies within its footprint, many of which have been bolstered by the rebuilding efforts related to Hurricane Katrina. Hancock reported net income of $31.8 million for the quarter, up from $15.2 million for the prior quarter and $8.3 million for Q4 2008. On a sequential quarterly basis, the increase in earnings reflected a 109% increase in non-interest income, a 5% increase in net interest income, partially offset by a 17% increase in provisions for loan loss reserves and a 14% increase in non-interest expense. The increase in non-interest income mostly reflected a $34 million acquisition related gain associated with Hancock’s December 2009 FDIC facilitated acquisition of select assets and liabilities of Peoples First Community Bank (Peoples). Hancock’s higher net interest income reflected an 11 basis points (bps) widening of net interest margin (NIM), and a 2% increase in average earning assets. The company’s higher NIM, which has widened since Q1 2009, reflected higher earning asset yields and lower funding costs. The sizeable increase in non-interest expense reflected a $3.7 million non-core, merger related expense and higher core other operating and personnel expenses, mostly related to the Peoples acquisition. For additional information regarding the Peoples acquisition please see DBRS’s press release published on December 21, 2009, titled “DBRS Confirms Hancock Holding Company – Senior at A (low) after Peoples First Acquisition; Stable Trend”.

Despite the steep downturn in the national economy, Hancock’s asset quality remains sound. Although the acquired Peoples’ loan portfolio likely contains significant loss content, this risk is mostly mitigated by the Company’s loss sharing agreement with the FDIC. Reflective of the People’s acquisition, Hancock’s non-performing assets (NPAs) increased to 4.1% of loans, at December 31, 2009, from 1.06% at September 30, 2009. DBRS notes that on an absolute basis, nonaccrual loans increased by $160 million, reflecting the addition of $165 million of nonaccruals related to Peoples. Positively, Hancock’s legacy loan portfolio nonaccruals decreased by $5 million during the quarter. Net charge-offs (NCOs) remain manageable and were flat versus the prior quarter, representing 1.24% of average loans. The bulk of the Company’s Q4 2009 NCOs was commercial/real estate loans and to a far lesser extent, residential mortgages, direct consumer and finance company loans. DBRS anticipates that future asset quality deterioration associated with the Hancock legacy loan portfolio will be manageable in scope, due to the continuing post-Hurricane Katrina rebuilding efforts within Hancock’s footprint.

Although Hancock’s deposit composition reflected an increase in jumbo time deposits, due to the Peoples’ acquisition, Hancock’s core liquidity position remains solid. The Company’s securities portfolio, which represents 19% of total assets, access to the Federal Home Loan Bank and Federal Reserve, round out its liquidity profile.

The Company’s capital base remains solid and provides ample loss absorption capacity. At December 31, 2009, Hancock’s tangible common equity ratio was a high 8.85%.

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.