Well, looking at the panel, one problem that jumps at me is how you would construct it. You talk about Hank having a pained expression and hunching his shoulders, creating the sense that he's terrified. Like you say, he's thinking "That's it, I'm caught." But the key thing you're missing in justifying this kind of reaction from Hank is Mr. Bungle.
Where is he in this panel? Is he off-panel? If he's off-panel, then the line "What did you say?" loses all menace. For all we know, it's just an innocent question by someone who genuinely didn't hear what Hank said. Making it seem rather silly that he's so scared.
What you'd really need, I think, is to have this as two seperate panels. One a close-up of Mr. Bungle as he has spun around, looking enraged (or eyes narrowed and sinister, if you're wanting to go with a more subtle menace), saying "What did you say!?" Then a seperate panel with sweaty, nervous Hank's pathetic response, which could also give you a pretty strong page turn mini-cliffhanger, if you saved Hank's comeback for Page 4.
That would also solve the other main problem I spotted with the panel: too much is happening in it. With one single image, the artist is supposed to convey in Hank's expression the blind panic of being seemingly caught, his thought process as he tried to think a way out of the sticky situation, and his embarassment as he comes up with his lame "do-rag" excuse. If you put the focus on Bungle for "What did you say?", then by the time you cut back to Hank for his line, the only expression the artist needs to worry about is his nervous embarassment as he trails off about do-rags.
I don't know if that's what you saw wrong with this, Steve, but that's what jumped out at me. I hope that helps, Adam.