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Tickers in this Article: HBHC, CMA, KEY, STI
Hancock Holding Company (Nasdaq:HBHC) announced weak fourth quarter earnings, shocking investors who had assumed the conservative bank was an oasis in the stormy financial sector. Despite the weak quarter, the bank should get through the credit cycle better off than its peers.

Hancock Holding Company is the parent company of four local south eastern subsidiary banks - the Hancock Banks of Florida, Mississippi, Louisiana and Alabama. Total assets are $7.7 billion.

Profitable Quarter
Hancock was profitable in the quarter. Its net income was $8.3 million (26 cents per share), down about 50% from the same quarter last year. Asset quality deteriorated in the quarter and the bank recorded a provision for loan losses of $17.1 million. Net charge offs for the quarter were $12.6 million (1.20%) of average loans.

Hancock said that $5.9 million (70%) of the increase in charge offs was in the construction and land development loan category. This category of loans represents 13.7% of the banks loan portfolio, or $585.4 million at the end of 2008.

Hancock seemed to have escaped the brunt of the deteriorating economy in 2008. When it released third quarter earnings in October 2008, the biggest problem the company had to deal with was the 30% growth in loan activity and the need to reserve adequately for that increase. The bank charged off a miniscule $4.2 million in loans and non-performing assets as a percent of total loans was only 0.59%. Back then Carl J. Chaney, the CEO of Hancock, felt good enough to boast that "the company remains a pillar of strength and stability and stands ready to weather the current economic storm.''

TARP's R Not US
Hancock even felt strong enough that in November 2008, it turned down an investment from the U.S. Treasury as part of the Capital Purchase Program of the Troubled Asset Relief Program (TARP). The bank said it was "an extremely sound, well-capitalized institution" in explaining the refusal. (TARP is the government's attempt to forestall a deep, extended recession. Will it work? Read more in Liquidity And Toxicity: Will TARP Fix The Financial System?)

There were some bright spots in the report. Hancock saw deposits grow by $516 million in the quarter, as anxious customers withdrew funds from what they considered less secure institutions and moved the money to Hancock. Also, non-performing assets as a percent of total loans was only 0.83% at the end of 2008.

Some of its peers have fared much worse in 2008. Comerica Inc. (NYSE:CMA) just reported its fourth quarter and saw non-performing assets as a percent of total loans and foreclosed property reach 1.94% at year end. This was approximately 2.5 times the amount of problem loans at Hancock.

Suntrust Banks (NYSE:STI) saw its non-performing loans as a percent of total loans jump to 3.1% at the end of 2008, and cut its dividend from 54 cents to 10 cents per quarter.

KeyCorp (NYSE:KEY), another large regional bank ended the quarter on December 31, 2008 with $1.4 billion in non-performing assets on its balance sheet. This represented 1.91% of total loans.

Premium Valuation
Even after the surprise quarter, Hancock maintains a premium valuation. The company had a tangible book value per share of $17.02 at the end of 2008. The stock trades at around $27 per share giving a price to tangible book value of 1.6. (The P/B ratio can be an easy way to determine a company's value, but it isn't magic! Learn more in Value By The Book and Digging Into Book Value.)

If you are investor who has to have some money invested in financials, Hancock still represents a safe play in a dangerous sector, and should get through the credit cycle in better shape than some other regional banks.

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