TEXT-Fitch Affirms Hancock Holding Company's IDRs at 'BBB+/F2' Following Mid-Tier Regional Peer Review

Thu Feb 14, 2013 6:45pm EST

CHICAGO, February 14 (Fitch) Fitch Ratings has affirmed the long-term and short-term Issuer Default Ratings (IDRs) of Hancock Holding Company and its subsidiaries at 'BBB+/F2'. The Outlook remains Stable. A full list of ratings follows at the end of this release.

Fitch reviewed Hancock Holding Company as part of a peer review that included 16 mid-tier regional banks. The banks in the peer review include: Associated Banc-Corp., Bank of Hawaii Corporation, BOK Financial Corporation, Cathay General Bancorp, Cullen/Frost Bankers, Inc., East West Bancorp, Inc., First Horizon National Corporation, First National of Nebraska, Inc., First Niagara Financial Group, Inc., Fulton Financial Corporation, Hancock Holding Company, People's United Financial, Inc., Synovus Financial Corp., TCF Financial Corporation, UMB Financial Corp., Webster Financial Corporation. Refer to the release titled 'Fitch Takes Rating Actions on Its Mid-Tier Regional Bank Group Following Industry Peer Review' for a discussion of rating actions taken on the entire mid-tier regional groups.

The mid-tier regional group is comprised of banks with total assets ranging from $10 billion to $36 billion. IDRs for this group is relatively dispersed with a low of 'BB-' and a high of 'A+'. Mid-tier regional banks typically lag their large regional bank counterparts by asset size, geographic footprint and product/revenue diversification.

As such mid-tier regional banks are more susceptible to idiosyncratic risks such as geographic or single name concentrations. Fitch's mid-tier regional bank group has fairly homogenous business strategies. The institutions are mostly reliant on spread income from loans and investments. With limited opportunity to improve fee-based income in the near term, Fitch expects that mid-tier banks will continue to face greater earnings headwinds in 2013 than larger institutions with greater revenue diversification. Share repurchases is common theme amongst the mid-tier banks. As mid-tier banks face earnings headwinds, institutions have begun repurchasing common shares to improve shareholder returns. Fitch anticipates continued repurchase activity in 2013 as the return on equity lags historical norms for the group. In addition to share repurchases, Fitch has observed that some mid-tier banks have looked to their investment portfolio to improve returns. Most notably, CLOs and CMBS have become more popular amongst mid-tier banks. Although such securities are beneficial to yields and returns, Fitch notes that such purchases can be a negative ratings driver if the risks are not properly measured, monitored and controlled. Asset quality continues to improve throughout the banking sector. Both nonperforming assets (NPAs) and net charge-offs (NCOs) are down significantly year over year. Fitch anticipates further asset quality improvement as nonperforming loan (NPL) inflow slows. Reserve levels have also declined as asset quality improves, which has been beneficial to earnings in 2013. Fitch expects further reserve releases in 2013 but at a slower pace.

RATING ACTION AND RATIONALE

Hancock Holding Company's (HBHC) ratings were affirmed at 'BBB+'. The Outlook remains Stable. Fitch's rating action is reflective of HBHC's conservative operating philosophy, satisfactory operating performance, and good capital ratios. Given that HBHC has over the last couple of years been focused on integrating the operations of Whitney Holding Corporation into its operations, Fitch believes that HBHC's franchise has been enhanced through a more diversified loan portfolio, incremental opportunities for growth, as well as the ability to cross-sell additional products to existing customers. Additionally, Fitch believes that the continued integration will afford HBHC the opportunity to realize additional cost savings which should provide a modest boost to earnings. Fitch would note, however, that a more meaningful pickup in earnings generation is predicated on significant loan growth and cross-selling, both of which Fitch believes are more intermediate term to potentially longer-term opportunities. R

ATING DRIVERS AND SENSITIVITIES - IDRs and VRs Fitch believes there is limited upside potential to HBHC's ratings or Rating Outlook should the company continue to improve profitability over a very extended period through both cost savings as well as loan growth, all while maintaining good capital ratios. Risks to the ratings include the pursuit of another large acquisition, or if Fitch were to surmise that the company was reducing pricing and terms and conditions to win large amounts of new business, which could impact profitability and credit costs over time.

RATING DRIVERS AND SENSITIVITIES - Support Ratings and Support Floor Ratings:

All of the mid-tier regional banks in the peer group have Support Ratings of '5' and Support Floor Ratings of 'NF'. In Fitch's view, the mid-tier banks are not considered systemically important and therefore, Fitch believes the probability of support is unlikely. IDRs and VRs do not incorporate any government support for any of the banks in the mid-tier regional bank peer group.

RATING DRIVERS AND SENSITIVITIES - Subordinated Debt and Other Hybrid Securities:

Subordinated debt and hybrid capital instruments issued by the banks are notched down from the issuers' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. The ratings of subordinated debt and hybrid securities are sensitive to any change in the banks' VRs or to changes in the banks' propensity to make coupon payments that are permitted but not compulsory under the instruments' documentation.

RATING DRIVERS AND SENSITIVITIES - Holding Company:

All of the entities reviewed in the mid-tier regional bank group have a bank holding company structure with the bank as the main subsidiary. All subsidiaries are considered core to parent holding company supporting equalized ratings between bank subsidiaries and bank holding companies. IDRs and VRs are equalized with those of its operating companies and banks reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

RATING DRIVERS AND SENSITIVITIES - Subsidiary and Affiliated Company Rating:

All of the entities reviewed in the mid-tier regional bank group factor in a high probability of support from parent institutions to its subsidiaries. This reflects the fact that performing parent banks have very rarely allowed subsidiaries to default. It also considers the high level of integration, brand, management, financial and reputational incentives to avoid subsidiary defaults.

Fitch has affirmed the following ratings: Hancock Holding Company

--Long-term IDR at 'BBB+'; Stable Outlook;

--Short-term IDR at 'F2';

--Viability at 'bbb+';

--Support at '5';

--Support floor at 'NF'. Hancock Bank

--Long-term IDR at 'BBB+'; Stable Outlook;

--Long-term deposits at 'A-';

--Short-term deposits at 'F1';

--Short-term IDR at 'F2';

--Viability at 'bbb+';

--Support at '5';

--Support floor at 'NF'. Whitney Bank

--Long term IDR at 'BBB+'; Stable Outlook;

--Short-term IDR at 'F2';

--Long-term deposits at 'A-';

--Short-term Deposits at 'F1';

--Subordinated debt at 'BBB';

--Viability at 'bbb+'.

--Support at '5'

--Support Floor at 'NF'

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