Hancock Holding Company’s (HBHC - Analyst Report) fourth-quarter 2015 operating earnings of 19 cents per share surpassed the Zacks Consensus Estimate of 16 cents. However, earnings compared unfavorably with the prior-year figure of 56 cents.

Hancock Holding Company (HBHC - Analyst Report) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

For 2015, total operating earnings came in at $1.77 per share, beating the Zacks Consensus Estimate of $1.75. However, the figure fell 24% year over year.

Results reflected slight improvement in revenues led by higher non-interest income, largely mitigated by lower net interest income. Growth in loans and deposits continued to be strong. However, higher expenses and an energy-led rise in provisions were on the downside.

Net income came in at $15.3 million, down 62% year over year. The decline was mainly triggered by a decrease in purchase accounting income and increase in energy allowance. For 2015, net income was $131.5 million, down 25% year over year.

Performance in Detail

Hancock’s net revenue summed $218.1 million, marginally up year over year. However, it lagged the Zacks Consensus Estimate of $224.0 million.

For 2015, net revenue came in at $862.1 million, down 2% year over year. Also, it missed the Zacks Consensus Estimate of $876.0 million.
 
Net interest income declined 2% year over year to $158.4 million. Moreover, net interest margin (“NIM”) fell 42 basis points (bps) year over year to 3.21%.

Non-interest income (including securities transactions gains/losses) totaled $59.7 million, up 5% year over year. The rise was driven by an increase in bank card & ATM fees, secondary mortgage market operations, insurance commissions and fees and other income. These were, however, partly offset by a fall in service charges on deposit accounts, trust fees, and investment & annuity fees.

Total operating expenses climbed 8% year over year to $156.0 million. The rise was triggered by an increase in all expense components except lower equipment and amortization costs.

As of Dec 31, 2015, total loans grew 13% year over year to $15.7 billion. Further, total deposits rose 11% year over year to $18.3 billion.

Credit Quality

Credit quality deteriorated during the quarter. Net charge-offs from the non-covered loan portfolio came in at $7.9 million or 0.21% of average total loans, up from $2.6 million or 0.08% of average total loans in the year-ago quarter.

Moreover, net provision for loan losses rose significantly year over year to $50.2 million. Also, total nonperforming assets jumped 29% year over year to $191.1 million.

Capital and Profitability Ratios

Hancock witnessed weakness in capital and profitability ratios during the quarter. As of Dec 31, 2015, Tier 1 leverage ratio was 8.55%, down from 9.17% as of Dec 31, 2014. Further, Tier 1 risk-based capital ratio came in at 10.02%, down from 11.23% as of Dec 31, 2014.

Return on average assets was 0.27%, down from 0.79% as of Dec 31, 2014. Moreover, as of Dec 31, 2015, return on average common equity (operating) was 2.48% compared with 7.33% as of Dec 31, 2014.

Share Repurchase

During the quarter, Hancock repurchased 173,114 shares at an average price of $27.59 under the 5% stock buyback authorization announced in late August 2015.

Outlook
  
Management expects core revenues to improve in the near term, as and when revenue initiatives undertaken in the prior quarters mature. Core revenue growth is anticipated within 9–10% in 2016. Also, core net interest margin is expected to improve 3–5 bps. However, margin pressure is likely to continue.

Based on current trends, loans are expected to grow within 7–9% for 2016. Additionally, the company predicts loan loss provisions in a range of $11–$15 million per quarter in 2016. Also, core pre-tax, pre-provision growth is projected to be around 25% (assuming no additional rate hikes in 2016) compared to 2014.

Expenses are anticipated to be flat to down in the first quarter of 2016. For 2016, expenses are expected to rise 2% or less.
 
Our Viewpoint

We believe Hancock’s organic and inorganic growth strategies will pay off going forward, supported by its efforts to restructure and streamline business. Moreover, the company’s steady liquidity and capital positions remain impressive.

Nevertheless, a stressed core NIM amid the persistent low interest rate environment, along with sizeable exposure to the energy sector, can restrict the company’s profitability. At the same time, increased regulatory burden will likely strain the company’s performance in the quarters ahead.

At present, Hancock carries a Zacks Rank #4 (Sell).

Among others in the space, Bank of the Ozarks, Inc. (OZRK - Analyst Report) and First Horizon National Corporation (FHN - Analyst Report) came out with fourth-quarter earnings per share of 57 cents and 20 cents, respectively. While Bank of the Ozarks’ earnings surpassed the Zacks Consensus Estimate, First Horizon delivered a negative earnings surprise of 4.8%.

Moreover, BancorpSouth, Inc. (BXS - Analyst Report) is slated to report results on Jan 25.