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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995 .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
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Commission file number 0-13089
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Hancock Holding Company
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(Exact name of registrant as specified in its charter)
Mississippi 64-0693170
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Hancock Plaza, Gulfport, Mississippi 39501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 868-4715
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $3.33 PAR VALUE
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(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes X No
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Continued
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The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 3, 1996, was approximately $267,761,000. For purposes
of this calculation only, shares held by non-affiliates are deemed to consist
of (a) shares held by all shareholders other than directors and executive
officers of the registrant plus (b) shares held by directors and officers as to
which beneficial ownership has been disclaimed.
On December 31, 1995, the registrant had outstanding 8,880,905 shares of
common stock for financial statement purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1995, are incorporated by reference into Part II of this
report.
Portions of the definitive Proxy Statement used in connection with the
Registrant's Annual Meeting of Stockholders held on February 22, 1996, filed by
the Registrant on January 23, 1996, are incorporated by reference into Part III
of this report.
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CONTENTS
<TABLE>
<S> <C> <C>
PART 1
Item 1. Business 4
Item 2. Properties 37
Item 3. Legal Proceedings 38
Item 4. Submission of Matters to a Vote of Security
Holders 38
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 38
Item 6. Selected Financial Data 38
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 38
Item 8. Financial Statements and Supplementary Data 39
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 39
PART III
Item 10. Directors and Executive Officers of the
Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial
Owners and Management 40
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 40
</TABLE>
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PART I
ITEM 1 - BUSINESS
BACKGROUND AND CURRENT OPERATIONS
BACKGROUND
GENERAL:
Hancock Holding Company (the "Company"), organized in 1984 as a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended, is headquartered in Gulfport, Mississippi. The Company operates 73
banking offices and 102 automated teller machines ("ATM's") in the states of
Mississippi and Louisiana through three wholly-owned bank subsidiaries,
Hancock Bank, Gulfport, Mississippi ("Hancock Bank MS"), Hancock Bank of
Louisiana, Baton Rouge, Louisiana ("Hancock Bank LA"), and First National Bank
of Denham Springs, Denham Springs, Louisiana ("Denham"). Hancock Bank MS,
Hancock Bank LA and Denham are referred to collectively as the "Banks."
The Banks are community oriented and focus primarily on offering
commercial, consumer and mortgage loans and deposit services to individuals and
small to middle market businesses in their respective market areas. The
Company's operating strategy is to provide its customers with the financial
sophistication and breadth of products of a regional bank, while successfully
retaining the local appeal and level of service of a community bank. At
December 31, 1995, the Company had total assets of $2.2 billion and employed on
a full-time basis 819 persons in Mississippi and 478 persons in Louisiana.
Hancock Bank MS was originally chartered as Hancock County Bank in 1899.
Since its organization, the strategy of Hancock Bank MS has been to achieve a
dominant market share on the Mississippi Gulf Coast. Prior to a series of
acquisitions begun in 1985, growth was primarily internal and was accomplished
by concentrating branch expansions in areas of population growth where no
dominant financial institution previously served the market area. Economic
expansion on the Mississippi Gulf Coast has resulted primarily from growth of
military and government-related facilities, tourism, port facility activities,
industrial complexes and the gaming industry. Hancock Bank MS currently has
the largest market share in each of the four counties in which it operates:
Harrison, Hancock, Jackson and Pearl River. With assets of $1.4 billion at
December 31, 1995, Hancock Bank MS currently ranks as the fifth largest bank in
Mississippi.
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In August 1990, the Company formed Hancock Bank LA to assume the deposit
liabilities and acquire the consumer loan portfolio, corporate credit card
portfolio and non-adversely classified securities portfolio of American Bank
and Trust, Baton Rouge, Louisiana, ("AmBank"), from the Federal Deposit
Insurance Corporation ("FDIC"). Economic expansion in East Baton Rouge Parish
has resulted from growth in state government and related service industries,
educational and medical complexes, petrochemical industries, port facility
activities and transportation and related industries. With assets of $683
million at December 31, 1995, Hancock Bank LA is the fourth largest bank in
East Baton Rouge Parish.
In January 1995, the Company merged with First Denham Bancshares, Inc.
("Bancshares"), which owned 100% of the stock of First National Bank of Denham
Springs, Denham Springs, Louisiana. Denham Springs is a bedroom community of
Baton Rouge, Louisiana, and the merger enhanced the Company's ability to
attract and service customers working in East Baton Rouge Parish and living in
Livingston Parish. First National bank of Denham Springs currently operates
seven locations in Livingston Parish.
Beginning with the 1985 acquisition of the Pascagoula-Moss Point Bank
("PMP") in Pascagoula, Mississippi, the Company has acquired approximately
$884.8 million in assets and approximately $796.9 million in deposit
liabilities through selected acquisitions or purchase and assumption
transactions.
RECENT ACQUISITION ACTIVITY:
In August 1991, Hancock Bank MS acquired certain assets and deposit
liabilities of Peoples Federal Savings Association, Bay St. Louis, Mississippi,
from the RTC. As a result of this transaction, the Bank acquired assets of
approximately $39.0 million and deposit liabilities of approximately $38.5
million.
The Company borrowed $18,750,000 from Whitney National Bank, New Orleans,
Louisiana ("Whitney"), to partially fund the acquisition of Metropolitan
National Bank and AmBank in 1990. On November 28, 1991, the Company sold
1,552,500 shares of its common stock at $17 per share. This followed a
two-for-one stock split in the form of a 100% stock dividend on October 15,
1991, and an increase in authorized shares to 20,000,000. The
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net proceeds of this sale, after underwriting discount and expenses, of
approximately $24,700,000, were used to pay the principal and interest on
$18,500,000 of principal debt on the Whitney loan and increase Hancock Bank
LA's capital by $5,000,000.
In April 1994, the Company merged Hancock Bank of LA with First State
Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana ("Baker").
The merger was consummated by the exchange of all outstanding common stock of
Baker in return for 527,235 shares of common stock of the Company. The merger
was accounted for using the pooling-of-interests method; therefore, all prior
years' financial information has been restated.
On January 13, 1995, the Company merged with Bancshares, which owned
100% of the stock of Denham. The merger was in return for approximately
$4,000,000 cash and 774,098 shares of common stock of the Company. The merger
was accounted for using the purchase method. Bancshares had total assets of
approximately $111,000,000 and stockholders' equity of approximately
$11,300,000 as of December 31, 1994, and net earnings of approximately
$2,600,000 for the year then ended.
On February 1, 1995, the Company merged Hancock Bank LA with Washington
Bank and Trust Company, Franklinton, Louisiana ("Washington"). The merger was
consummated by the exchange of all outstanding common stock of Washington in
return for 542,650 shares of common stock of the Company. The merger was
accounted for using the pooling-of-interests method; therefore, all prior
years' financial information has been restated. Washington had total assets of
approximately $86,100,000 and stockholders' equity of approximately $12,400,000
as of December 31, 1994, and net earnings of approximately $1,300,000 for the
year then ended.
CURRENT OPERATIONS
LOAN PRODUCTION AND CREDIT REVIEW:
The Banks' primary lending focus is to provide commercial, consumer,
leasing and real estate loans to consumers and to small and middle market
businesses in their respective market areas. The Banks have no concentrations
of loans to particular borrowers or loans to any foreign
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entities. Each loan officer has Board approved loan limits on the principal
amount of secured and unsecured loans he or she can approve for a single
borrower without prior approval of a loan committee. All loans, however, must
meet the credit underwriting and loan policies of the Banks.
For Hancock Bank MS, all loans over an individual loan officer's Board
approved lending authority and below a regional approved limit must be approved
by his or her region's loan committee or by another loan officer with greater
lending authority. Both the regional loan committee and the Bank's senior loan
committee must review and approve any loan for a borrower whose total
indebtedness exceeds the region's approved limit. Each loan file is reviewed
by the Bank's loan review department to ensure proper documentation.
For Hancock Bank LA, all loans over an individual loan officer's Board
approved lending authority must be approved by his or her region's loan
committee or by another loan officer with greater lending authority. Both the
regional loan committee and the Bank's senior loan committee must review and
approve any loan for a borrower whose total indebtedness exceeds $500,000. Each
loan file is reviewed by the Bank's loan review department to ensure proper
documentation.
For Denham, all loans over an individual loan officer's Board approved
lending authority must be approved by an officer with a higher lending limit or
by the Bank's senior loan committee. The Company's loan committee must approve
aggregate lending relationships up to $750,000. Each loan file is reviewed by
the Bank's loan review department to ensure proper documentation.
LOAN REVIEW AND ASSET QUALITY:
Each Bank's portfolio of credit relationships aggregating $250,000 or
more is annually reviewed by the respective Bank to identify any deficiencies
and to take corrective actions as necessary. Periodically, selected credit
relationships aggregating less than $250,000 are reviewed. As a result of such
reviews, each Bank places on its Watchlist loans deemed to require close or
frequent review. All loans classified by a regulator are also placed on the
Watchlist. All Watchlist and past due loans are reviewed at least monthly by
the Banks' senior lending officers and monthly
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by the Banks' Board of Directors.
In addition, all loans to a particular borrower are reviewed, regardless
of classification, each time such borrower requests a renewal or extension of
any loan or requests a new loan. All lines of credit are reviewed annually
before renewal. The Banks currently have mechanisms in place that allow for at
least an annual review of the financial statements and the financial condition
of all borrowers, except borrowers with secured installment and residential
mortgage loans.
Consumer loans which become 60 days delinquent are reviewed by
management. Generally, a consumer loan which is delinquent 90 days is in
process of collection through repossession and liquidation of collateral or has
been deemed currently uncollectible. Loans deemed currently uncollectible are
charged-off against the reserve account. As a matter of policy, loans are
placed on a nonaccrual status where doubt exists as to collectibility.
The Banks follow the standard FDIC loan classification system. This
system provides management with (1) a general view of the quality of the
overall loan portfolio (each branch's loans and each commercial loan officer's
lending portfolio) and (2) information on specific loans that may need
individual attention.
The Banks hold nonperforming assets, consisting of real property,
vehicles and other items held for resale, which were acquired generally through
the process of foreclosure. At December 31, 1995, the book value of
nonperforming assets held for resale was approximately $1,086 thousand.
SECURITIES PORTFOLIO:
The Banks maintain portfolios of securities consisting primarily of U.S.
Treasury securities, U.S. government agency issues, mortgage-backed securities,
CMOs and tax-exempt obligations of states and political subdivisions. The
portfolios are designed to enhance liquidity while providing acceptable rates
of return. Therefore, the Banks invest only in high grade investment quality
securities with acceptable yields and generally with durations of less than 7
years.
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The Banks' policies limit investments to securities having a rating of
no less than "Baa" by Moody's Investors' Service, Inc., except for certain
obligations of Mississippi or Louisiana counties and municipalities.
DEPOSITS:
The Banks have several programs designed to attract depository accounts
offered to consumers and to small and middle market businesses at interest
rates generally consistent with market conditions. Additionally, the Banks
offer 102 ATMs: 61 ATMs at their 73 banking offices and 41 free-standing ATMs
at other locations. As members of regional and international ATM networks such
as "GulfNet," "PLUS" and "CIRRUS," the Banks offer customers access to their
depository accounts from regional, national and international ATM facilities.
Deposit flows are controlled by the Banks primarily through pricing and to a
certain extent through promotional activities. Management believes that the
rates it offers, which are posted weekly on deposit accounts, are generally
competitive with or, in some cases, slightly below other financial institutions
in the Banks' respective market areas.
TRUST SERVICES:
The Banks, through their respective Trust Departments, offer a full range
of trust services on a fee basis. The Banks act as executor, administrator or
guardian in administering estates. Also provided are investment custodial
services for individuals, businesses and charitable and religious
organizations. In their trust capacities, the Banks provide investment
management services on an agency basis and act as trustee for pension plans,
profit sharing plans, corporate and municipal bond issues, living trusts, life
insurance trusts and various other types of trusts created by or for
individuals, businesses and charitable and religious organizations. As of
December 31, 1995, the Trust Departments of the Banks had approximately $1.3
billion of assets under management, of which $893 billion were corporate
accounts and $444 million were personal, employee benefit, estate and other
trust accounts.
OPERATING EFFICIENCY STRATEGY:
The primary focus of the Company's operating strategy is to increase
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operating income and to reduce operating expense. Beginning in January of
1988, management has taken steps to improve operating efficiencies. As a
result, employees at Hancock Bank MS have been reduced from .78 per $1 million
in assets in February 1988 to .58 as of December 31, 1995. Since its
acquisition in August 1990, Hancock Bank LA employees have been reduced from
.97 per $1 million of assets to .56 as of December 31, 1995. Management
annually establishes an employee to asset goal for each Bank. The Banks also
have set an internal long range goal of at least covering total salary and
benefit costs by fee income. The ratio of fee income to total salary and
benefit costs is $.50 to $1.00 at Hancock Bank MS. Hancock Bank LA has a
higher level of fee income and through December 31, 1995, has achieved a ratio
of $.71 to $1.00.
OTHER ACTIVITIES:
Hancock Bank MS has seven subsidiaries through which it engages in the
following activities: providing consumer financing services; mortgage lending;
owning, managing and maintaining certain real property; providing general
insurance agency services; holding investment securities; marketing credit life
insurance; and providing discount brokerage services. The income of these
subsidiaries generally accounts for less than 10% of the Company's total income
annually.
During 1994, the Company began offering alternative investments through
a third party vendor. The Investment Center is now located in several branch
locations in Mississippi and Louisiana to accommodate the investment needs of
customers that fall outside the traditional commercial bank product line.
Hancock Bank MS also owns approximately 3,700 acres of timberland in
Hancock County, Mississippi, most of which was acquired through foreclosure in
the 1930's. Timber sales and oil and gas leases on this acreage generate less
than 1% of the Company's annual income.
COMPETITION:
The deregulation of the financial services industry, the elimination of
many previous distinctions between commercial banks and other financial
institutions and legislation enacted in Mississippi, Louisiana and other
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states allowing state-wide branching, multi-bank holding companies and regional
interstate banking has created a highly competitive environment for commercial
banking in the Company's market area. The principal competitive factors in the
markets for deposits and loans are interest rates paid and charged. The
Company also competes through the efficiency, quality, range of services and
products it provides, convenience of office and ATM locations and office hours.
In attracting deposits and in its lending activities, the Company
competes generally with other commercial banks, savings associations, credit
unions, mortgage banking firms, consumer finance companies, securities
brokerage firms, mutual funds, insurance companies and other financial
institutions. Many of these institutions have greater available resources than
the Company.
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SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
GENERAL:
The Company is subject to extensive regulation by the Board of Governors
of the Federal Reserve System (the "Federal Reserve") pursuant to the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). The
Company also is required to file certain reports with, and otherwise comply
with the rules and regulations of, the Securities and Exchange Commission (the
"Commission") under federal securities laws.
FEDERAL REGULATION:
The Bank Holding Company Act generally prohibits the Company from engaging
in activities other than banking, managing or controlling banks or other
permissible subsidiaries. Acquiring or obtaining control of any company engaged
in activities other than those activities determined by the Federal Reserve to
be so closely related to banking, managing or controlling banks as to be proper
incident thereto is also prohibited. In determining whether a particular
activity is permissible, the Federal Reserve considers whether the performance
of the activity can reasonably be expected to produce benefits to the public
that outweigh possible adverse effects. For example, making, acquiring or
servicing loans, leasing personal property, providing certain investment or
financial advice, performing certain data processing services, acting as agent
or broker in selling credit life insurance and performing certain insurance
underwriting activities have all been determined by regulations of the Federal
Reserve to be permissible activities. The Bank Holding Company Act does not
place territorial limitations on permissible bank-related activities of bank
holding companies. However, despite prior approval, the Federal Reserve has
the power to order a holding company or its subsidiaries to terminate any
activity or its control of any subsidiary when it has reasonable cause to
believe that continuation of such activity or control of such subsidiary
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that holding company.
The Bank Holding Company Act requires every bank holding company to
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obtain the prior approval of the Federal Reserve: (1) before it may acquire
ownership or control of any voting shares of any bank if, after such
acquisition, such bank holding company will own or control more than 5% of the
voting shares of such bank, (2) before it or any of its subsidiaries other than
a bank may acquire all of the assets of a bank, or (3) before it may merge with
any other bank holding company. In reviewing a proposed acquisition, the
Federal Reserve considers financial, managerial and competitive aspects. The
future prospects of the companies and banks concerned and the convenience and
needs of the community to be served must also be considered. The Federal
Reserve also reviews the indebtedness to be incurred by a bank holding company
in connection with the proposed acquisition to ensure that the holding company
can service such indebtedness without adversely affecting the capital
requirements of the holding company or its subsidiaries. The Bank Holding
Company Act further requires that consummation of approved acquisitions or
mergers must be delayed at least 30 days following the date of approval.
During such 30-day period, complaining parties may obtain a review of the
Federal Reserve's order granting its approval by filing a petition in the
appropriate United States Court of Appeals petitioning that the order be set
aside.
The Federal Reserve has adopted capital adequacy guidelines for use in its
examination and regulation of bank holding companies. The regulatory capital
of a bank holding company under applicable federal capital adequacy guidelines
is particularly important in the Federal Reserve's evaluation of a bank holding
company and any applications by the bank holding company to the Federal
Reserve. If regulatory capital falls below minimum guideline levels, a bank
holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open additional facilities. In
addition, a financial institution's failure to meet minimum regulatory capital
standards can lead to other penalties, including termination of deposit
insurance or appointment of a conservator or receiver for the financial
institution. There are two measures of regulatory capital presently applicable
to bank holding companies: (1) risk-based capital and (2) leverage capital
ratios.
The Federal Reserve rates bank holding companies by a component and
composite 1-5 rating system. The leverage ratios adopted by the Federal
Reserve require all but the most highly rated bank holding companies to
maintain Tier 1 Capital at 4% to 5% of total assets. Certain bank holding
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companies having a composite 1 rating and not experiencing or anticipating
significant growth may satisfy the Federal Reserve guidelines by maintaining
Tier 1 Capital of at least 3% of total assets. Tier 1 Capital for bank holding
companies includes: stockholders' equity, minority interest in equity accounts
of consolidated subsidiaries and qualifying perpetual preferred stock. In
addition, Tier 1 Capital excludes goodwill and other disallowed intangibles.
The Company's leverage ratio at December 31, 1995, was 9.28%.
The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under the risk-based capital
guidelines, assets are assigned to one of four risk categories: 0%, 20%, 50%
and 100%. As an example, U.S. Treasury securities are assigned to the 0% risk
category while most categories of loans are assigned to the 100% risk category.
A two-step process determines the risk weight of off-balance sheet items such
as standby letters of credit. First, the amount of the off-balance sheet item
is multiplied by a credit conversion factor of either 0%, 20%, 50% or 100%.
Then, the result is assigned to one of the four risk categories. At December
31, 1995, the Company's off-balance sheet items aggregated $237.4 million;
however, after the credit conversion these items represented $24.5 million of
balance sheet equivalents.
The primary component of risk-based capital is Tier 1 Capital, which is
essentially equal to common stockholders' equity plus a certain portion of
perpetual preferred stock. Tier 2 Capital, which consists primarily of the
excess of any perpetual preferred stock, mandatory convertible securities,
subordinated debt and general reserves for loan losses, is a secondary
component of risk-based capital. The risk-weighted asset base is equal to the
sum of the aggregate dollar values of assets and off-balance sheet items in
each risk category, multiplied by the weight assigned to that category. A
ratio of Tier 1 Capital to risk-weighted assets of at least 4% and a ratio of
Total Capital (Tier 1 and Tier 2) to risk-weighted assets of at least 8% must
be maintained by bank holding companies. At December 31, 1995, the Company's
Tier 1 and Total Capital ratios were 17.69% and 18.64%, respectively.
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Proposed regulations will increase capital requirements when as yet
undetermined levels of interest rate risk are exceeded. Because the Company's
liabilities generally reprice within periods of one year, interest rate risk
occurs when assets funded by such liabilities reprice at longer intervals. It
is not anticipated that such regulations will have a significant impact on the
Company's capital requirements.
The prior approval of the Federal Reserve must be obtained before the
Company may acquire substantially all the assets of any bank, or ownership or
control of any voting shares of any bank, if, after such acquisition, it would
own or control, directly or indirectly, more than 5% of the voting shares of
such bank. In no case, however, may the Federal Reserve approve an
acquisition of any bank located outside Mississippi unless such acquisition is
specifically authorized by the laws of the state in which the bank to be
acquired is located. The banking laws of Mississippi presently permit
out-of-state banking organizations to acquire Mississippi banking
organizations, provided the out-of-state banking organization's home state
grants similar privileges to banking organizations in Mississippi. This
reciprocity privilege is restricted to banking organizations in specified
geographic regions that encompass the states of Alabama, Arkansas, Florida,
Georgia, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South
Carolina, Tennessee, Texas, Virginia and West Virginia. In addition,
Mississippi banking organizations are permitted to acquire certain out-of-state
financial institutions. A bank holding company is additionally prohibited from
engaging in non-banking activities, or acquiring direct or indirect control of
more than 5% of the voting shares of any company engaged in non-banking
activities.
With the passage of The Interstate Banking and Branching Efficiency Act
of 1994, adequately capitalized and managed bank holding companies are
permitted to acquire control of banks in any state, subject to federal
regulatory approval, without regard to whether such a transaction is prohibited
by the laws of any state. Beginning June 1, 1997, federal banking regulators
may approve merger transactions involving banks located in different states,
without regard to laws of any state prohibiting such transactions; except that,
mergers may not be approved with respect to banks located in states that,
before June 1, 1997, enacted legislation prohibiting mergers by banks located
in such state with out-of-state institutions. Federal banking regulators may
permit an out-of-state bank to open new
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branches in another state if such state has enacted legislation permitting
interstate branching. The legislation further provides that a bank holding
company may not, following an interstate acquisition, control more than 10% of
nationwide insured deposits or 30% of deposits in the relevant state. States
have the right to adopt legislation to lower the 30% limit. Additional
provisions require that interstate activities conform to the Community
Reinvestment Act.
The Company is required to give the Federal Reserve prior written notice
of any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the proceeding
12 months, is equal to 10% or more of the Company's consolidated net worth.
The Federal Reserve may disapprove such a transaction if it determines that the
proposal constitutes an unsafe or unsound practice, would violate any law,
regulation, Federal Reserve order or directive or any condition imposed by, or
written agreement with, the Federal Reserve.
In November 1985, the Federal Reserve adopted its Policy Statement on Cash
Dividends Not Fully Covered by Earnings (the "Policy Statement"). The Policy
Statement sets forth various guidelines that the Federal Reserve believes that
a bank holding company should follow in establishing its dividend policy. In
general, the Federal Reserve stated that bank holding companies should pay
dividends only out of current earnings. It also stated that dividends should
not be paid unless the prospective rate of earnings retention by the holding
company appears consistent with its capital needs, asset quality and overall
financial condition.
The activities of the Company are also restricted by the provisions of the
Glass-Steagall Act of 1933 (the "Act"). The Act prohibits the Company from
owning subsidiaries engaged principally in the issue, floatation, underwriting,
public sale or distribution of securities. Regulators and legislators are
currently reviewing the interpretation, scope and application of the provisions
of the Act. The outcome of the current examination and the effect of the
outcome on the ability of bank holding companies to engage in securities
related activities cannot be predicted.
The Company is a legal entity separate and distinct from the Banks. There
are various restrictions that limit the ability of the Banks to
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finance, pay dividends or otherwise supply funds to the Company or other
affiliates. In addition, subsidiary banks of holding companies are subject to
certain restrictions on any extension of credit to the bank holding company or
any of its subsidiaries, on investments in the stock or other securities
thereof and on the taking of such stock or securities as collateral for loans
to any borrower. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with
extensions of credit, or leases or sales of property or furnishing of services.
BANK REGULATION:
The operations of the Banks are subject to state and federal statutes
applicable to state banks and national banks, respectively, and the regulations
of the Federal Reserve, the FDIC and the Office of the Comptroller of the
Currency ("OCC"). Such statutes and regulations relate to, among other things,
required reserves, investments, loans, mergers and consolidations, issuance of
securities, payment of dividends, establishment of branches and other aspects
of the Banks' operations.
Hancock Bank MS is subject to regulation and periodic examinations by
the FDIC and the State of Mississippi Department of Banking and Consumer
Finance. Hancock Bank LA is subject to regulation and periodic examinations by
the FDIC and the Office of Financial Institutions, State of Louisiana. Denham
is subject to regulation and periodic examinations by the OCC. These
regulatory authorities examine such areas as reserves, loan and investment
quality, management policies, procedures and practices and other aspects of
operations. These examinations are designed for the protection of the Banks'
depositors, rather than their stockholders. In addition to these regular
examinations, the Company and the Banks must furnish periodic reports to their
respective regulatory authorities containing a full and accurate statement of
their affairs.
As a result of the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), a financial institution
insured by the FDIC can be held liable for any losses incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (1) the
default of a commonly controlled FDIC-insured financial institution or (2) any
assistance provided by the FDIC to a commonly controlled financial
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institution in danger of default.
The Banks are members of the FDIC, and their deposits are insured as
provided by law by the Bank Insurance Fund ("BIF"). On December 19, 1991, the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was
enacted. The Federal Deposit Insurance Act, as amended by Section 302 of
FDICIA, calls for risk-related deposit insurance assessment rates. The risk
classification of an institution will determine its deposit insurance premium.
Assignment to one of three capital groups, coupled with assignment to one of
three supervisory sub-groups, determines which of the nine risk classifications
is appropriate for an institution.
Effective in the third quarter of 1995, the FDIC lowered banks' deposit
insurance premiums from 23 to 31 cents per hundred dollars in insured deposits
to a rate of 4 to 31 cents. The Banks have received a risk classification of
1A for assessment purposes. The Banks paid BIF premiums of 23 cents per
hundred dollars of insured deposits for the first five months of 1995 and 4
cents for the remaining seven months, which amounted to $2.2 million. The
decrease in 1995 rates resulted in $1.6 million FDIC premium reductions over
the 1994 level of $3.8 million. Premiums for the first and second quarters of
1996 have been reduced to 0 cents per hundred dollars of insured deposits.
Premiums on OAKAR deposits from the 1991 acquistion of Peoples Federal Savings
Association are insignificant.
In general, FDICIA subjects banks and bank holding companies to
significantly increased regulation and supervision. FDICIA increased the
borrowing authority of the FDIC in order to recapitalize the Bank Insurance
Fund, and the future borrowings are to be repaid by increased assessments on
FDIC member banks. Other significant provisions of FDICIA require a new
regulatory emphasis linking supervision to bank capital levels. Also, federal
banking regulators are required to take prompt regulatory action with respect
to depository institutions that fall below specified capital levels and to
draft non-capital regulatory measures to assure bank safety.
FDICIA contains a "prompt corrective action" section intended to resolve
problem institutions at the least possible long-term cost to the deposit
insurance funds. Pursuant to this section, the federal banking agencies are
required to prescribe a leverage limit and a risk-based capital requirement
indicating levels at which institutions will be deemed to be
-18-
<PAGE> 19
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." In the
case of a depository institution that is "critically undercapitalized" (a term
defined to include institutions which still have positive net worth), the
federal banking regulators are generally required to appoint a conservator or
receiver.
FDICIA further requires regulators to perform annual on-site bank
examinations, places limits on real estate lending and tightens audit
requirements. The new legislation eliminated the "too big to fail" doctrine,
which protects uninsured deposits of large banks, and restricts the ability of
undercapitalized banks to obtain extended loans from the Federal Reserve Board
discount window. FDICIA also imposes new disclosure requirements relating to
fees charged and interest paid on checking and deposit accounts. Most of the
significant changes brought about by FDICIA required new regulations.
In addition to regulating capital, the FDIC and the OCC have broad
authority to prevent the development or continuance of unsafe or unsound
banking practices. Pursuant to this authority, the FDIC and the OCC have
adopted regulations that restrict preferential loans and loan amounts to
"affiliates" and "insiders" of banks, require banks to keep information on
loans to major stockholders and executive officers and bar certain director and
officer interlocks between financial institutions. The FDIC also is authorized
to approve mergers, consolidations and assumption of deposit liability
transactions between insured banks and between insured banks and uninsured
banks or institutions to prevent capital or surplus diminution in such
transactions where the resulting, continuing or assumed bank is an insured
nonmember state bank, like Hancock Bank MS and Hancock Bank LA.
Although Hancock Bank MS and Hancock Bank LA are not members of the
Federal Reserve System, they are subject to Federal Reserve regulations that
require the Banks to maintain reserves against transaction accounts (primarily
checking accounts), money market deposit accounts and nonpersonal time
deposits. Because reserves generally must be maintained in cash or in
noninterest-bearing accounts, the effect of the reserve requirements is to
increase the cost of funds for the Banks. The Federal Reserve regulations
currently require that reserves be maintained against net transaction accounts
in the amount of 3% of the aggregate of such accounts up to $41.4
-19-
<PAGE> 20
million, or, if the aggregate of such accounts exceeds $41.4 million, $1.233
million plus 12% of the total in excess of $41.4 million. This regulation is
subject to an exemption from reserve requirements on a limited amount of an
institution's transaction accounts.
The foregoing is a brief summary of certain statutes, rules and
regulations affecting the Company and the Banks. It is not intended to be an
exhaustive discussion of all the statutes and regulations having an impact on
the operations of such entities.
EFFECT OF GOVERNMENTAL POLICIES:
The difference between the interest rate paid on deposits and other
borrowings and the interest rate received on loans and securities will comprise
most of a bank's earnings. However, due to recent deregulation of the
industry, the banking business is becoming increasingly dependent on the
generation of fees and service charges.
The earnings and growth of a bank will be affected by both general
economic conditions and the monetary and fiscal policy of the United States
Government and its agencies, particularly the Federal Reserve. The Federal
Reserve sets national monetary policy such as seeking to curb inflation and
combat recession. This is accomplished by its open-market operations in United
States Government securities, adjustments in the amount of reserves that
financial institutions are required to maintain and adjustments to the discount
rates on borrowings and target rates for federal funds transactions. The
actions of the Federal Reserve in these areas influence the growth of bank
loans, investments and deposits and also affect interest rates on loans and
deposits. The nature and timing of any future changes in monetary policies and
their potential impact on the Company cannot be predicted.
-20-
<PAGE> 21
STATISTICAL INFORMATION
The following tables and other material present certain statistical
information regarding the Company. This information is not audited and should
be read in conjunction with the Company's consolidated financial statements and
the accompanying notes.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY
AND INTEREST RATES AND DIFFERENTIALS
Net interest income, the difference between interest income and interest
expense, is the most significant component of the Banks earnings. For internal
analytical purposes, management adjusts net interest income to a "taxable
equivalent" basis using a 35% federal tax rate on tax exempt items (primarily
interest on municipal securities).
Another significant statistic in the analysis of net interest income is
the effective interest differential, which is the difference between the
average rate of interest earned on earning assets and the effective rate paid
for all funds, noninterest-bearing as well as interest-bearing. Since a
portion of the Bank's deposits do not bear interest, such as demand deposits,
the rate paid for all funds is lower than the rate on interest-bearing
liabilities alone. The rate differential for the years 1995 and 1994 was 5.10%
and 4.74%, respectively.
Recognizing the importance of interest differential to total earnings,
management places great emphasis on managing interest rate spreads. Although
interest differential is affected by national, regional, and area economic
conditions, including the level of credit demand and interest rates, there are
significant opportunities to influence interest differential through
appropriate loan and investment policies. These policies are designed to
maximize interest differential while maintaining sufficient liquidity and
availability of funds for purposes of meeting existing commitments and for
investment in loans and other investment opportunities that may arise.
-21-
<PAGE> 22
The following table shows interest income on interest-earning assets and
related average yields earned and interest expense on interest-bearing
liabilities and related average rates paid for the periods indicated:
Comparative Average Balances - Yields and Rates
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------ ------------------------------
Interest Average Interest Average Interest Average
Average Income or Yield or Average Income or Yield or Average Income or Yield or
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------- ---------- ------ ---------- ---------- ------ --------- --------- ------
ASSETS (Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities:
U.S. Treasury $257,228 $ 14,568 5.66% $ 316,232 $ 17,168 5.43% $ 292,239 $ 16,861 5.77%
U.S. government obligations 493,315 33,726 6.84% 423,555 24,772 5.85% 397,490 24,874 6.26%
Municipal obligations 57,001 5,426 9.52% 48,194 4,912 10.19% 43,656 5,200 11.91%
Other securities 87,606 6,231 7.11% 75,956 4,713 6.20% 85,712 4,775 5.57%
Federal funds sold & securities
purchased under agreements
to resell 99,559 5,820 5.85% 89,341 3,832 4.29% 125,204 3,603 2.88%
Interest-bearing time deposits
with other banks 500 31 6.20% 725 38 5.24% 1,095 45 4.11%
Net loans (2)(3) 1,000,907 98,029 9.79% 906,342 82,967 9.15% 847,526 80,644 9.52%
---------- -------- ------ ---------- --------- ------ ---------- -------- ------
Total interest-earning
assets/interest income (1) 1,996,116 163,831 8.21% 1,860,345 138,402 7.44% 1,792,922 136,002 7.59%
Less: Reserve for loan losses (16,532) --- (15,251) --- (15,644) ---
Noninterest-earning assets:
Cash and due from banks 104,854 --- 112,931 --- 105,931 ---
Property and equipment 37,786 --- 34,815 --- 34,596 ---
Other assets 93,302 --- 50,435 --- 46,708 ---
---------- -------- ------ ---------- -------- ----- ---------- -------- ------
Total assets $2,215,526 $163,831 7.39% $2,043,275 $138,402 6.77% $1,964,513 $136,002 6.92%
========== ======== ====== ========== ======== ====== ========== ======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings, NOW and money
market $ 739,091 $ 20,515 2.78% $ 755,888 $ 20,703 2.74% $ 718,597 $ 19,366 2.69%
Time 717,064 37,097 5.17% 657,587 27,490 4.18% 662,646 27,569 4.16%
Federal funds purchased 15,284 863 5.65% 18,622 754 4.05% 18,023 537 2.98%
Securities sold under
agreements to repurchase 53,924 2,219 4.12% 24,710 718 2.91% 22,480 484 2.15%
Long-term bonds 2,799 203 7.25% 3,656 256 7.00% 4,651 350 7.53%
Capital notes --- 265 0.00% 1,571 76 4.84% 1,319 90 6.82%
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Total interest-bearing
liabilities/interest
expense 1,528,162 61,162 4.00% 1,462,034 49,997 3.42% 1,427,716 48,396 3.39%
Noninterest-bearing liabilities:
Demand deposits 439,495 --- 393,120 --- 364,612 ---
Other liabilities 32,135 --- 13,183 --- 12,865 ---
Stockholders' equity 215,734 --- 174,938 --- 159,320 ---
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Total liabilities &
stockholders' equity $2,215,526 $ 61,162 2.76% $2,043,275 $ 49,997 2.45% $1,964,513 $ 48,396 2.46%
========== ======== ====== ========== ======== ====== ========== ======== ======
</TABLE>
-22-
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets $1,996,116 $1,860,345 $1,792,922
Interest-bearing liabilities $1,528,162 $1,462,034 $1,427,716
Interest income $163,831 $138,402 $136,002
Interest expense 61,162 49,997 48,396
-------- -------- --------
Interest income/interest-
earning assets 8.21% 7.44% 7.59%
Interest expense/interest-
bearing liabilities 4.00% 3.42% 3.39%
Interest spread 4.21% 4.02% 4.20%
Net interest income $102,669 $ 88,405 $ 87,606
======== ======== ========
Net interest margin 5.13% 4.75% 4.89%
</TABLE>
- ----------
(1) Includes tax equivalent adjustments to interest income of $2.3 million,
$2.1 million and $2.3 million in 1995, 1994 and 1993, respectively, using
a tax rate of 35%.
(2) Interest income includes fees on loans of $4.1 million in 1995, $3.2
million in 1994 and $3.3 million in 1993.
(3) Includes nonaccrual loans. See "Nonperforming Assets."
-23-
<PAGE> 24
The following table sets forth, for the periods indicated, a summary of
the changes in interest income on interest-earning assets and interest expense
on interest-bearing liabilities relating to rate and volume variances.
Nonaccrual loans are included in average amounts of loans and do not bear
interest for purposes of the presentation. Changes that are not solely due to
volume or rate are allocated to volume.
Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------------
1995 1994 1993
------------------------- --------------------------- ---------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- ----- ------ ---- -----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Investment securities:
U.S. Treasury $(3,327) $ 727 $(2,600) $ 1,301 $ (994) $ 307 $ 96 $ (3,834) $(3,738)
U.S. government obligations 4,761 4,193 8,954 1,528 (1,630) (102) 3,271 (2,382) 889
Municipal obligations (1) 837 (323) 514 463 (751) (288) (1,251) 11 (1,240)
Other securities 827 691 1,518 (602) 540 (62) 1,065 (1,072) (7)
Federal funds sold & securities
purchased under agreements
to resell 594 1,394 1,988 (1,536) 1,765 229 482 (1,074) (592)
Interest-bearing time deposits
with other banks (14) 7 (7) (19) 12 (7) (34) (2) (36)
Net loans (2) 9,261 5,801 15,062 5,459 (3,136) 2,323 4,898 (5,331) (433)
------- ------- ------- ------- -------- ------- ------- -------- -------
Total 12,939 12,490 25,429 6,594 (4,194) 2,400 8,527 (13,684) (5,157)
------- ------- ------- ------- -------- ------- ------- -------- -------
INTEREST EXPENSE
Deposits:
Savings, NOW and money
market (490) 302 (188) 978 359 1,337 2,171 (3,902) (1,731)
Time 3,097 6,510 9,607 (212) 133 (79) (702) (5,431) (6,133)
Federal funds purchased (189) 298 109 24 193 217 (97) (43) (140)
Securities sold under
agreements to repurchase 1,202 299 1,501 63 171 234 (1) (246) (247)
Long-term bonds (62) 9 (53) (69) (25) (94) (167) (111) (278)
Capital notes 265 (76) 189 12 (26) (14) 25 41 66
------- ------- ------- ------- -------- ------ ------- -------- -------
Total 3,823 7,342 11,165 796 805 1,601 1,229 (9,692) (8,463)
------- ------- ------- ------- -------- ------ ------- -------- -------
Increase (decrease) in
net interest income $ 9,116 $ 5,148 $14,264 $ 5,798 $ (4,999) $ 799 $ 7,298 $ (3,992) $ 3,306
======= ======= ======= ======= ======== ======= ======= ======== =======
</TABLE>
- ----------
(1) Yields on tax-exempt investments have been adjusted to a tax equivalent
basis utilizing a 35% tax rate.
(2) Interest earned includes fees on loans of $3.3 million in 1993, $3.2
million in 1994 and $4.1 million in 1995.
-24-
<PAGE> 25
RATE SENSITIVITY
To control interest rate risk, management regularly monitors the volume
of interest sensitive assets compared with interest sensitive liabilities over
specific time intervals. The Company's interest rate management policy is to
attempt to maintain a stable net interest margin in periods of interest rate
fluctuations. Interest sensitive assets and liabilities are those that are
subject to maturity or repricing within a given time period. Interest rate
risk is monitored, quantified and managed to produce a 5% or less impact on
short-term earnings.
The interest sensitivity gap is the difference between total interest
sensitive assets and liabilities in a given time period. At December 31, 1995,
the Company's cumulative interest sensitivity gap in the one year interval was
(18.44%) as compared to a cumulative interest sensitivity gap in the one year
interval of (15.80%) at December 31, 1994. The percentage reflects a higher
level of interest sensitive liabilities than assets repricing within one year.
Generally, when rate sensitive liabilities exceed rate sensitive assets, the
net interest margin is expected to be positively affected during periods of
decreasing interest rates and negatively affected during periods of increasing
rates.
The following tables set forth the Company's interest rate sensitivity
gap at December 31, 1995 and 1994:
-25-
<PAGE> 26
Analysis of Interest Sensitivity at December 31, 1995
<TABLE>
<CAPTION>
After Three
Within Through One After Five
Three Twelve Through Years and
Months Months Five Years Insensitive Total
--------- --------- ---------- ----------- ----------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Net loans $ 281,636 $ 103,346 $ 429,298 $ 220,697 $1,034,977
Securities and time deposits 181,199 137,057 219,763 311,837 849,856
Federal funds 153,725 -- -- -- 153,725
--------- --------- --------- --------- ----------
Total earning assets $ 616,560 $ 240,403 $ 649,061 $ 532,534 $2,038,558
========= ========= ========= ========= ==========
30.25% 11.79% 31.84% 26.12% 100.00%
========= ========= ========= ========= ==========
Interest-bearing deposits, excluding
CDs greater than $100,000 $ 566,967 $ 443,939 $ 234,772 $ 15 $1,245,693
CDs greater than $100,000 73,320 79,031 61,191 -- 213,542
Short-term borrowings 66,585 -- -- -- 66,585
Other borrowings 1,045 1,970 2,100 -- 5,115
--------- --------- --------- --------- ----------
Total interest-bearing funds 707,917 524,940 298,063 15 1,530,935
Interest-free funds -- -- -- 507,623 507,623
--------- --------- --------- --------- ----------
Funds supporting earning assets $ 707,917 $ 524,940 $ 298,063 $ 507,638 $2,038,558
========= ========= ========= ========= ==========
34.73% 25.75% 14.62% 24.90% 100.00%
========= ========= ========= ========= ==========
Interest sensitivity gap $ (91,357) $(284,537) $ 350,998 $ 24,896 --
Cumulative gap $ (91,357) $(375,894) $ (24,896) -- --
Percent of total earning assets (4.48%) (18.44%) (1.22)% -- --
========= ========= ========= ========= ==========
</TABLE>
Analysis of Interest Sensitivity at December 31, 1994
<TABLE>
<CAPTION>
After Three
Within Through One After Five
Three Twelve Through Years and
Months Months Five Years Insensitive Total
--------- --------- ---------- ----------- ----------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Net loans $ 236,825 $ 70,147 $ 400,668 $ 218,025 $ 925,665
Securities and time deposits 266,501 182,695 335,839 83,755 868,790
Federal funds 55,900 -- -- -- 55,900
--------- --------- --------- --------- ----------
Total earning assets $ 559,226 $ 252,842 $ 736,507 $ 301,780 $1,850,355
========= ========= ========= ========= ==========
30.22% 13.67% 39.80% 16.31% 100.00%
========= ========= ========= ========= ==========
Interest-bearing deposits, excluding
CD's greater than $100,000 $ 539,127 $ 397,897 $ 275,853 $ 253 $1,213,130
CD's greater than $100,000 62,228 48,754 61,310 230 172,522
Short-term borrowings 54,296 -- -- -- 54,296
Other borrowings 1,386 700 2,255 -- 4,341
--------- --------- --------- --------- ----------
Total interest-bearing funds 657,037 447,351 339,418 483 1,444,289
Interest-free funds -- -- -- 406,066 406,066
--------- --------- --------- --------- ----------
Funds supporting earning assets $ 657,037 $ 447,351 $ 339,418 $ 406,549 $1,850,355
========= ========= ========= ========= ==========
35.51% 24.18% 18.34% 21.97% 100.00%
========= ========= ========= ========= ==========
Interest sensitivity gap $ (97,811) $(194,509) $ 397,089 $(104,769) --
Cumulative gap $ (97,811) $(292,320) $ 104,769 -- --
Percent of total earning assets (5.29%) (15.80%) 5.66% -- --
========= ========= ========= ========= ==========
</TABLE>
-26-
<PAGE> 27
INCOME TAXES
The Company had income tax expense of $13.1 million and $10.5 million
for the years ended December 31, 1995 and 1994, respectively. This represents
effective tax rates of 32.6% and 31.2% for December 31, 1995 and 1994,
respectively; a greater portion of the Company's income in 1995 has been
generated from taxable sources contributing to the rise in the effective tax
rate.
PERFORMANCE AND EQUITY RATIOS
The following table sets forth, for the periods indicated, the
percentage of net income to average assets and average stockholders' equity,
the percentage of common stock dividends to net income and the percentage of
average stockholders' equity to average assets.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return on average assets (%) 1.22 1.13 1.27
Return on average stockholders' equity (%) 12.50 13.22 15.61
Dividend payout ratio (%) 32.06 31.90 28.03
Average stockholders' equity to average assets (%) 9.74 8.56 8.11
</TABLE>
SECURITIES PORTFOLIO
The Company generally purchases securities to be held-to-maturity, with
a maturity schedule that provides ample liquidity. Securities classified as
held-to-maturity are carried at amortized cost. Certain securities have been
classified as available-for-sale based on management's internal assessment of
the portfolio considering future liquidity, earning requirements and capital
position. The Company increased its available-for-sale portfolio during 1995
to approximate the dollar volume of excess capital over internal and regulatory
requirements. Generally, securities with market risk have been placed in this
category. The December 31, 1995, book value of the held-to-maturity portfolio
was $739 million and the market value was $749 million. The available-for-sale
portfolio balance was $110 million at December 31, 1995.
-27-
<PAGE> 28
The book values of securities classified as available-for-sale as of
December 31, 1995, 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
U.S. Treasury securities $ 1,493 $ --- $ ---
Other U.S. gov. obligations 61,470 --- ---
Municipal obligations 962 997 930
Other securities 544 --- ---
Mortgage-backed securities 5,140 --- ---
CMOs 34,695 19,385 27,314
Equity securities 4,993 --- ---
-------- ------- -------
$109,297 $20,382 $28,244
======== ======= =======
</TABLE>
The book value, book yield and market value of the debt securities
classified as available-for-sale as of December 31, 1995, by estimated
maturity, were as follows (in thousands):
<TABLE>
<CAPTION>
Book Value Yield (%) Market Value
---------- --------- ------------
<S> <C> <C> <C>
Due in one year or less $ 6,053 6.88 $ 5,968
Due after one year through five years 89,654 6.80 90,097
Due after five years through ten years 8,014 6.87 8,122
Due after ten years 583 6.80 597
-------- ---- --------
$104,304 6.81 $104,784
======== ==== ========
</TABLE>
The book values of securities classified as held-to-maturity as of
December 31, 1995, and 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
U.S. Treasury securities $239,892 $280,578 $282,629
Other U.S. gov. obligations 317,140 275,209 241,987
Municipal obligations 56,961 58,224 40,561
Other securities 11,027 15,747 13,316
Mortgage-backed securities 50,427 129,028 95,406
CMOs 63,082 88,807 87,171
-------- -------- --------
$738,529 $847,593 $761,070
======== ======== ========
</TABLE>
The book value, book yield and market value of the securities classified
as held-to-maturity as of December 31, 1995, by contractual maturity, were as
follows (in thousands):
<TABLE>
<CAPTION>
Book Value Yield (%) Market Value
---------- --------- ------------
<S> <C> <C> <C>
Due in one year or less $183,484 6.61 $184,132
Due after one year through five years 190,193 6.64 193,781
Due after five years through ten years 142,856 6.70 145,098
Due after ten years 221,996 6.65 226,486
-------- ---- --------
$738,529 6.64 $749,497
======== ==== ========
</TABLE>
-28-
<PAGE> 29
LOAN PORTFOLIO
The Banks' primary lending focus is to provide commercial, consumer and
real estate loans to consumers and to small and middle market businesses in
their respective market areas. Diversification in the loan portfolio is a
means of reducing the risks associated with economic fluctuations. The Banks
have no concentrations of loans to particular borrowers or loans to any foreign
entities.
Loan underwriting standards and loan loss reserve maintenance further
reduce the impact of credit risk to the Company. Loans are underwritten on the
basis of cash flow capacity and collateral market value. Generally, real
estate mortgage loans are made when the borrower produces sufficient cash flow
capacity and equity in the property to offset historical market devaluations.
The loan loss reserve adequacy is tested monthly based on historical losses
through different economic cycles and projected future losses specifically
identified.
The following table sets forth, for the periods indicated, the
composition of the loan portfolio of the Company:
<TABLE>
<CAPTION>
Loan Portfolio
--------------
December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
Residential mortgages 1-4 family $ 224,646 $214,247 $213,216 $211,931 $203,591
Residential mortgages multifamily 9,674 7,302 7,124 7,804 5,308
Home equity lines 11,825 11,740 13,147 12,873 12,205
Construction and development 41,602 35,719 24,234 18,454 14,729
Nonresidential 127,027 112,957 119,094 111,504 130,495
Commercial, industrial and other 176,942 119,997 160,385 157,797 147,560
Consumer 409,608 397,879 366,401 297,401 278,645
Lease financing and depository
institutions 13,811 10,074 6,673 6,079 9,733
Political subdivisions 14,394 12,806 11,668 12,791 15,655
Credit card 32,104 30,794 27,466 26,482 16,436
---------- -------- -------- -------- --------
1,061,633 953,515 949,408 863,116 834,357
Less, unearned income 26,656 27,850 26,396 22,393 20,385
---------- -------- -------- -------- --------
Net loans $1,034,977 $925,665 $923,012 $840,723 $813,972
========== ======== ======== ======== ========
</TABLE>
-29-
<PAGE> 30
Prior to July 1991, a correspondent bank of Hancock Bank MS issued
credit cards under the Bank's name to customers of Hancock Bank MS and retained
the outstanding receivables. In July 1991, Hancock Bank MS purchased, at par,
from its correspondent bank, certain credit cards with outstanding balances of
approximately $7.8 million and simultaneously transferred, at par, the cards
and balances to Hancock Bank LA. The resulting combined consumer and corporate
credit card portfolio aggregated approximately $11.5 million with approximately
17,700 cards outstanding. At December 31, 1995, the portfolio balance had
increased to approximately $32.1 million with approximately 36,000 cards
outstanding.
The following table sets forth, for the periods indicated, the
approximate maturity by type of the loan portfolio of the Company:
<TABLE>
<CAPTION>
Loan Maturity Schedule
----------------------
December 31, 1995 December 31, 1994
--------------------------------------- ---------------------------------------
Maturity Range Maturity Range
--------------------------------------- ---------------------------------------
After One After One
Within Through After Five Within Through After Five
One Year Five Years Years Total One Year Five Years Years Total
-------- ---------- ------ ----- -------- ---------- ----- -----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, industrial and
other $ 70,958 $ 77,897 $ 28,087 $ 176,942 $ 59,776 $ 50,459 $ 9,762 $119,997
Real estate - construction 20,227 14,685 6,690 41,602 18,885 11,597 5,237 35,719
All other loans 154,587 454,385 234,117 843,089 257,361 339,299 201,139 797,799
-------- -------- -------- -------- -------- -------- -------- --------
Total loans $245,772 $546,967 $268,894 $1,061,633 $336,022 $401,355 $216,138 $953,515
======== ======== ======== ========== ======== ======== ======== ========
</TABLE>
The sensitivity to interest rate changes of that portion of the
Company's loan portfolio that matures after one year is shown below:
Loan Sensitivity to Changes in Interest Rates
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
----------- -----------
(Amounts in thousands)
<S> <C> <C>
Commercial, industrial, and real estate construction
maturing after one year:
Fixed rate $150,111 $ 55,674
Floating rate 80,298 19,156
Other loans maturing after one year:
Fixed rate 559,592 476,321
Floating rate 25,860 66,342
-------- --------
Total $815,861 $617,493
======== ========
</TABLE>
-30-
<PAGE> 31
NONPERFORMING ASSETS
The following table sets forth nonperforming assets by type for the
periods indicated, consisting of nonaccrual loans, restructured loans, real
estate owned and loans past due 90 days or more and still accruing:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Real estate $ 2,406 $ 1,914 $ 1,888 $ 4,050 $ 5,121
Commercial, industrial and other 1,144 525 1,424 399 940
Consumer 1,176 1,287 1,322 1,735 1,335
Lease financing -- -- -- 22 --
Depository institutions -- -- -- -- --
Political subdivisions -- -- -- -- --
Restructured loans 611 614 482 194 111
------- ------- ------- ------- -------
Total nonperforming loans 5,337 4,340 5,116 6,400 7,507
Acquired real estate owned 140 -- -- -- --
Real estate owned 946 1,001 1,029 1,673 4,549
------- ------- ------- ------- -------
Total nonperforming assets $ 6,423 $ 5,341 $ 6,145 $ 8,073 $12,056
======= ======== ======= ======= =======
Loans 90+ days past due and still accruing $ 4,089 $ 2,692 $ 4,338 $ 7,356 $ 5,958
======= ======== ======= ======= =======
Ratios (%):
Nonperforming loans to net loans 0.52 0.47 0.55 0.76 0.92
Nonperforming assets to net loans and
real estate owned 0.62 0.58 0.67 0.96 1.47
Nonperforming loans to average net loans 0.53 0.48 0.60 0.80 0.97
Reserve for loan losses to nonperforming
loans 325.86 354.19 299.18 229.41 170.57
</TABLE>
The following table sets forth, for the periods indicated, the amount of
interest that would have been recorded on nonaccrual loans had the loans not
been classified as "nonaccrual" as well as the interest that would have been
recorded under the original terms of restructured loans:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 463 $ 340 $ 441 $ 603 $ 712
Restructured 60 56 45 17 10
------- ------- ------- ------- -------
Total $ 523 $ 396 $ 486 $ 620 $ 722
======= ======= ======= ======= =======
</TABLE>
Interest actually received on nonaccrual and restructured loans was
insignificant.
-31-
<PAGE> 32
LOAN LOSS, CHARGE-OFF AND RECOVERY EXPENSES
The following table sets forth, for the periods indicated, average net
loans outstanding, reserve for loan losses, amounts charged-off and recoveries
of loans previously charged-off:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Net loans outstanding at end of period $1,034,978 $925,665 $923,012 $840,723 $813,972
========== ======== ======== ======== ========
Average net loans outstanding $1,000,907 $904,342 $847,526 $796,018 $777,915
========== ======== ======== ======== ========
Balance of reserve for loan losses
at beginning of period $ 15,372 $ 15,306 $ 14,682 $ 12,805 $ 13,052
Loans charged-off:
Real estate 210 106 318 766 514
Commercial 636 637 2,218 2,516 2,853
Consumer 4,524 2,706 3,087 3,981 2,868
Lease financing 13 -- 53 2 --
Depository institutions -- -- -- -- --
Political subdivisions -- -- -- -- --
---------- -------- -------- -------- --------
Total charge-offs 5,383 3,449 5,676 7,265 6,235
---------- -------- -------- -------- --------
Recoveries of loans previously
charged-off:
Real estate 15 53 102 85 100
Commercial 971 570 695 430 413
Consumer 839 886 869 648 465
Lease financing 5 8 2 1 6
Depository institutions -- -- -- -- --
Political subdivisions -- -- -- -- --
---------- -------- -------- -------- --------
Total recoveries 1,830 1,517 1,668 1,164 984
---------- -------- -------- -------- --------
Net charge-offs 3,553 1,932 4,008 6,101 5,251
Provision for loan losses 4,425 1,998 4,632 7,978 5,004
Balance acquired through acquisition 1,147 -- -- -- --
--------- -------- -------- -------- --------
Balance of reserve for loan losses
at end of period $ 17,391 $ 15,372 $ 15,306 $ 14,682 $ 12,805
========== ======== ======== ======== ========
</TABLE>
The following table sets forth, for the periods indicated, certain
ratios related to the Company's charge-offs, reserve for loan losses and
outstanding loans:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratios (%):
Net charge-offs to average net loans 0.35 0.21 0.47 0.77 0.68
Net charge-offs to period-end net loans 0.34 0.21 0.43 0.73 0.65
Reserve for loan losses to average net loans 1.74 1.70 1.81 1.84 1.65
Reserve for loan losses to period-end net loans 1.68 1.66 1.66 1.75 1.57
Net charge-offs to loan loss reserve 20.43 12.57 26.19 41.55 41.01
Net charge-offs to loan loss provision 80.29 96.70 86.53 76.47 104.94
</TABLE>
-32-
<PAGE> 33
An allocation of the loan loss reserve by major loan category is set
forth in the following table. The allocation is not necessarily indicative of
the category of future losses, and the full reserve at December 31, 1995, is
available to absorb losses occurring in any category of loans.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------- ---------------- ----------------- ------------------ ------------------
Reserve % of Reserve % of Reserve % of Reserve % of Reserve % of
for Loans for Loans for Loans for Loans for Loans
Loan to Total Loan to Total Loan to Total Loan to Total Loan to Total
Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $ 2,000 39.08 $ 1,250 40.06 $ 1,250 39.69 $ 1,250 42.00 $ 1,250 43.90
Commercial, industrial
and other 5,250 19.32 5,000 14.98 5,000 18.82 4,750 20.47 4,250 20.73
Consumer 7,500 38.58 6,500 41.73 6,500 38.60 6,250 34.46 5,750 33.40
Credit card 500 3.02 500 3.23 500 2.89 500 3.07 500 1.97
Unallocated 2,141 -- 2,122 -- 2,056 -- 1,932 -- 1,055 --
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
$17,391 100.00 $15,372 100.00 $15,306 100.00 $14,682 100.00 $12,805 100.00
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
DEPOSITS AND OTHER DEBT INSTRUMENTS
The following table sets forth the distribution of the average deposit
accounts for the periods indicated and the weighted average interest rates on
each category of deposits:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------- --------------------------------- ----------------------------------
Percent Percent Percent
of of of
Amount Deposits Rate (%) Amount Deposits Rate (%) Amount Deposits Rate (%)
------ -------- -------- ------ -------- -------- ------ -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
accounts $ 439,495 23.18 -- $ 393,120 21.76 -- $ 364,612 20.88 --
NOW accounts 288,947 15.24 2.64 293,347 16.24 2.58 237,288 13.59 2.93
Money market and other
savings accounts 450,144 23.75 2.86 462,541 25.60 2.84 481,309 27.57 2.58
Time deposits 717,064 37.83 5.17 657,587 36.40 4.18 662,646 37.96 4.16
---------- ------ ---------- ------ ---------- ------
$1,895,650 100.00 $1,806,595 100.00 $1,745,855 100.00
========== ====== ========== ====== ========== ======
</TABLE>
The Banks traditionally price their deposits to position themselves in
the middle of the local market. The Banks' policy is not to accept brokered
deposits.
-33-
<PAGE> 34
Time certificates of deposit of $100,000 and over at December 31, 1995,
had maturities as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------
(Amounts in thousands)
<S> <C>
Three months or less $ 73,320
Over three through six months 25,290
Over six through twelve months 53,741
Over twelve months 61,191
--------
Total $213,542
========
</TABLE>
SHORT-TERM BORROWINGS
The following table sets forth certain information concerning the
Company's short-term borrowings, which consist of federal funds purchased and
securities sold under agreements to repurchase.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Federal funds purchased:
Amount outstanding at period-end $11,300 $29,150 $14,650
Weighted average interest at period-end 4.85% 5.63% 2.75%
Maximum amount at any month-end during period $16,325 $37,000 $27,725
Average amount outstanding during period $15,284 $18,622 $18,023
Weighted average interest rate during period 5.65% 4.05% 2.98%
Securities sold under agreements to repurchase:
Amount outstanding at period-end $55,285 $25,146 $31,148
Weighted average interest at period-end 4.33% 3.00% 2.50%
Maximum amount at any month-end during period $88,070 $43,096 $31,289
Average amount outstanding during period $53,924 $24,710 $22,480
Weighted average interest rate during period 4.12% 2.91% 2.15%
</TABLE>
LIQUIDITY
Liquidity represents an institution's ability to provide funds to
satisfy demands from depositors, borrowers and other commitments by either
converting assets into cash or accessing new or existing sources of incremental
funds. The principal sources of funds that provide liquidity are customer
deposits, payments of interest and principal on loans, maturities in and sales
of investment securities, earnings and borrowings. At December 31, 1995, cash
and due from banks, securities available-for-sale, federal funds sold and
repurchase agreements were in excess of 10% of total deposits at December 31,
1995.
The Company depends upon the dividends paid to it from the Banks as a
principal source of funds for its debt service requirements. As of December
-34-
<PAGE> 35
31, 1995, there was approximately $65 million available to be dividended to the
Company from the Banks.
CAPITAL RESOURCES
Risk-based and leverage capital ratios for the Company and the Banks for
the periods indicated are shown in the following table:
<TABLE>
<CAPTION>
Risk-Based Capital Ratios Tier 1 Leverage
-------------------------------------------------------- --------------------------
Total Tier 1 Ratio
-------------------------- -------------------------- --------------------------
December 31, December 31, December 31, December 31, December 31, December 31,
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Hancock Bank MS 17.98% 15.93% 17.18% 15.10% 9.26% 8.12%
Hancock Bank LA 22.35 19.77 21.10 19.77 9.61 9.43
Denham 11.50 -- 10.25 -- 7.38 --
Company 18.64 18.53 17.69 17.58 9.28 8.84
</TABLE>
Risk-based capital requirements are intended to make regulatory capital
more sensitive to risk elements of the Company. Currently, the Company is
required to maintain a minimum risk-based capital ratio of 8.0%, with not less
than 4.0% in Tier 1 capital. In addition, the Company must maintain a minimum
Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 3.0% based
upon the regulator's latest composite rating of the institution.
RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires the investment portfolio to be
classified into one of three reporting categories, held-to-maturity,
available-for-sale or trading. On December 29, 1995, as permitted by "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities" issued by the Financial Accounting Standards Board,
the Company reclassified securities with a book value of $67,789,000 and
unrealized gains of $251,000 from securities held-to-maturity to securities
available-for-sale. The Company's adoption of this statement in 1994 did not
have a material effect on its financial statements.
IMPACT OF INFLATION:
Unlike most industrial companies, the assets and liabilities of financial
-35-
<PAGE> 36
institutions such as the Banks are primarily monetary in nature. Therefore,
interest rates have a more significant effect on the Banks' performance than
the effect of general levels of inflation on the price of goods and services.
Interest rates earned and paid by the Banks are affected to a degree by the
rate of inflation, and noninterest income and expenses can be affected by
increasing rates of inflation; however, the Company believes that the effects
of inflation are generally manageable through asset/liability management.
-36-
<PAGE> 37
ITEM 2 - PROPERTIES
The Company's main offices are located at One Hancock Plaza, Gulfport,
Mississippi. The building has fourteen stories, of which seven are utilized by
the Company. The remaining seven stories are presently leased to outside
parties.
The building is leased from the City of Gulfport in connection with an
urban development revenue bond issue with a present balance of $2,035,000. The
lease payments by Hancock Bank MS, which are equivalent in amount to the
payments of principal and interest on the bonds, are used by the City to make
payments on the bonds. Hancock Bank MS, however, effectively has ownership of
the building since title will revert when all outstanding bonds have been paid.
For this reason, the Company carries the building as an asset and the bonds as
a long term payable on its balance sheet. The bonds mature at various dates
through 1997.
The following banking offices in Mississippi and Louisiana are held in
fee (number of locations shown in parenthesis):
Albany, LA (1) Gulfport, MS (6)
Angie, LA (1) Long Beach, MS (2)
Baker, LA (2) Lyman, MS (1)
Baton Rouge, LA (12) Moss Point, MS (2)
Bay St. Louis, MS (2) Mt. Hermon, LA (1)
Biloxi, MS (3) Ocean Springs, MS (2)
Bogalusa, LA (2) Pascagoula, MS (4)
Denham Springs, LA (4) Pass Christian, MS (1)
D'Iberville, MS (1) Picayune, MS (2)
Escatawpa, MS (1) Poplarville, MS (1)
Franklinton, LA (2) Walker, LA (1)
French Settlement, LA (1) Waveland, MS (1)
Gautier, MS (1)
The following banking offices in Mississippi and Louisiana are leased
under agreements with unexpired terms of from one to twelve years including
renewal options (number of locations shown in parenthesis):
Baton Rouge, LA (5) Pascagoula, MS (1)
Bay St. Louis, MS (2) Picayune, MS (2)
Biloxi, MS (1) Springfield, LA (1)
Diamondhead, MS (1) Vancleave, MS (1)
Gulfport, MS (5)
-37-
<PAGE> 38
In addition to the above, Hancock Bank MS owns land and other properties
acquired through foreclosures of loans. The major item is approximately 3,700
acres of timber land in Hancock County, Mississippi, which Hancock Bank MS
acquired by foreclosure in the 1930's.
ITEM 3 - LEGAL PROCEEDINGS
The Company is party to various legal proceedings arising in the
ordinary course of business. In the opinion of management, after consultation
with outside legal counsel, all such matters are adequately covered by
insurance or, if not so covered, are not expected to have a material adverse
effect on the financial condition of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The information under the caption "Market Information" on page 6 of the
Company's 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information under the caption "Consolidated Summary of Selected
Financial Information" on Page 7 of the Company's 1995 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on Pages 33 and 34 of the
Company's 1995 Annual Report to Stockholders is incorporated herein by
reference.
-38-
<PAGE> 39
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and
subsidiaries, and the independent auditors' report, appearing on Pages 18
through 32 of the Company's 1995 Annual Report to Stockholders is incorporated
herein by reference:
Consolidated Balance Sheets on Page 18
Consolidated Statements of Earnings on Page 19
Consolidated Statements of Stockholders' Equity on Page 20
Consolidated Statements of Cash Flow on Page 21
Notes to Consolidated Financial Statements on Pages 22 through 31
Independent Auditors' Report on Page 32
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent
accountants and auditors on any matter of accounting principles or practices or
financial statement disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Election of Directors" (Pages
2-7) and "Management Compensation" (Pages 15-20) in the Proxy Statement for the
Annual Meeting of Stockholders held February 22, 1996, which was filed by the
Registrant in definitive form with the Commission on January 23, 1996, and is
incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
For information concerning this item see "Management Compensation"
(Pages 15-20) in the Proxy Statement for the Annual Meeting of Stockholders
held February 22, 1996, which was filed by the Registrant in definitive form
with the Commission on January 23, 1996, and is incorporated herein by
reference.
-39-
<PAGE> 40
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this item see "Principal Stockholders" (Page
12) and "Election of Directors" (Pages 2-7) in the Proxy Statement for the
Annual Meeting of Stockholders held February 22, 1996, which was filed by the
Registrant in definitive form with the Commission on January 23, 1996, and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item see "Certain Transactions and
Relationships" (Page 21) in the Proxy Statement for the Annual Meeting of
Stockholders held February 22, 1996, which was filed by the Registrant in
definitive form with the Commission on January 23, 1996, and is incorporated
herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
HANCOCK HOLDING COMPANY AND CONSOLIDATED SUBSIDIARIES
(a) 1. and 2. Consolidated Financial Statements:
The following have been incorporated herein from the Company's 1995
Annual Report to Stockholders and are incorporated herein by reference:
- Independent Auditors' Report
- Consolidated Balance Sheets as of December 31, 1995 and 1994
- Consolidated Statements of Earnings for the three years ended December
31, 1995
- Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1995
- Consolidated Statements of Cash Flows for the three years ended
December 31, 1995
- Notes to Consolidated Financial Statements for the three years ended
December 31, 1995
All other financial statements and schedules are omitted as the required
information is inapplicable or the required information is presented in the
-40-
<PAGE> 41
consolidated financial statements or related notes.
(a) 3. Exhibits:
(2.1) Agreement and Plan of Merger dated May 30, 1985, among Hancock
Holding Company, Hancock Bank and Pascagoula-Moss Point Bank
(filed as Exhibit 2 to the Registrant's Form 8-K dated June 6,
1985, and incorporated herein by reference).
(2.2) Amendment dated July 9, 1985, to Agreement and Plan of Merger
dated May 30, 1985, among Hancock Holding Company, Hancock Bank
and Pascagoula-Moss Point Bank (filed as Exhibit 19 to
Registrant's Form 10-Q for the quarter ended June 30, 1985, and
incorporated herein by reference).
(2.3) Stock Purchase Agreement dated February 12, 1990, among Hancock
Holding Company, Metropolitan Corporation and Metropolitan
National Bank (filed as Exhibit 2.3 to Registrant's Form 10-K for
the year ended December 31, 1989, and incorporated herein by
reference).
(2.4) Modified Purchase and Assumption Agreement dated August 2, 1990,
among Hancock Bank of Louisiana and the Federal Deposit Insurance
Corporation, receiver of American Bank and Trust Company of Baton
Rouge, Louisiana (filed as Exhibit 2.1 to the Registrant's Form
10-Q for the quarter ended June 30, 1990, and incorporated herein
by reference).
(2.5) Agreement and Plan of Reorganization dated November 30, 1993,
among Hancock Holding Company, Hancock Bank of Louisiana and
First State Bank and Trust Company of East Baton Rouge Parish,
Baker, Louisiana (filed as Exhibit 2.5 to the Registrant's Form
10-K dated December 31, 1993).
(2.6) Agreement and Plan of Reorganization dated July 6, 1994, among
Hancock Holding Company and Washington Bancorp, Franklinton,
Louisiana (filed as Exhibit 2 to the Registrant's Form S-4,
Registration Number 33- 56505, dated November 16, 1994).
(2.7) Agreement and Plan of Reorganization dated August 20, 1994, among
-41-
<PAGE> 42
Hancock Holding Company and First Denham Bancshares, Inc., Denham
Springs, Louisiana (filed as Exhibit 2 to the Registrant's Form
S-4, Registration Number 33-56285, dated November 2, 1994).
(3.1) Amended and Restated Articles of Incorporation dated November 8,
1990 (filed as Exhibit 3.1 to the Registrant's Form 10-K for the
year ended December 31, 1990, and incorporated herein by
reference).
(3.2) Amended and Restated Bylaws dated November 8, 1990 (filed as
Exhibit 3.2 to the Registrant's Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference).
(3.3) Articles of Amendment to the Articles of Incorporation of Hancock
Holding Company, dated October 16, 1991 (filed as Exhibit 4.1 to
the Registrant's Form 10-Q for the quarter ended September 30,
1991).
(3.4) Articles of Correction, filed with Mississippi Secretary of State
on November 15, 1991 (filed as Exhibit 4.2 to the Registrant's
Form 10-Q for the quarter ended September 30, 1991).
(3.5) Articles of Amendment to the Articles of Incorporation of Hancock
Holding Company, adopted February 13, 1992 (filed as Exhibit 3.5
to the Registrant's Form 10-K for the year ended December 31,
1992, and incorporated herein by reference).
(3.6) Articles of Correction, filed with Mississippi Secretary of State
on March 2, 1992 (filed as Exhibit 3.6 to the Registrant's Form
10-K for the year ended December 31, 1992, and incorporated
herein by reference).
(4.1) Specimen stock certificate (reflecting change in par value from
$10.00 to $3.33, effective March 6, 1989) (filed as Exhibit 4.1
to the Registrant's Form 10-Q for the quarter ended March 31,
1989, and incorporated herein by reference).
(4.2) By executing this Form 10-K, the Registrant hereby agrees to
deliver to the Commission upon request copies of instruments
defining the rights of holders of long-term debt of the
Registrant or its consolidated subsidiaries or its unconsolidated
subsidiaries for which financial statements are required to be
filed, where the total amount of such securities authorized
thereunder does not exceed 10 percent of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
-42-
<PAGE> 43
(10.1) 1996 Long Term Incentive Plan (described on pages 8-12 of the
Registrant's definitive Proxy Statement for its annual
shareholders' meeting on February 22, 1996, filed with the
Registrant's definitive proxy materials on January 23, 1996, and
in full text at Exhibit A).
(10.2) Description of Hancock Bank Executive Supplemental Reimbursement
Plan, as amended (provided on page 19 of the Registrant's
definitive Proxy Statement for its annual shareholders' meeting
on February 22, 1996, filed with the Registrant's definitive
proxy materials on January 23, 1996, and incorporated herein by
reference).
(10.3) Description of Hancock Bank Automobile Plan (provided on page 19
of the Registrant's definitive Proxy Statement for its annual
shareholders' meeting on February 22, 1996, filed with the
Registrant's definitive proxy materials on January 23, 1996, and
incorporated herein by reference).
(10.4) Description of Deferred Compensation Arrangement for Directors
(provided on pages 15-20 of the Registrant's definitive Proxy
Statement for its annual shareholders' meeting on February 22,
1996, filed with the Registrant's definitive proxy materials on
January 23, 1996, and incorporated herein by reference).
(10.5) Site Lease Agreement between Hancock Bank and City of Gulfport,
Mississippi dated as of March 1, 1989 (filed as Exhibit 10.4 to
the Registrant's Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference).
(10.6) Project Lease Agreement between Hancock Bank and City of
Gulfport, Mississippi dated as of March 1, 1989 (filed as Exhibit
10.5 to the Registrant's Form 10-K for the year ended December
31, 1989, and incorporated herein by reference).
-43-
<PAGE> 44
(10.7) Deed of Trust dated as of March 1, 1989, from Hancock Bank to
Deposit Guaranty National Bank as trustee (filed as Exhibit 10.6
to the Registrant's Form 10-K for the year ended December 31,
1989, and incorporated herein by reference).
(10.8) Trust Indenture between City of Gulfport, Mississippi and Deposit
Guaranty National Bank dated as of March 1, 1989 (filed as
Exhibit 10.7 to the Registrant's Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference).
(10.9) Guaranty Agreement dated as of March 1, 1989, from Hancock Bank
to Deposit Guaranty National Bank as trustee (filed as Exhibit
10.8 to the Registrant's Form 10-K for the year ended December
31, 1989, and incorporated herein by reference).
(10.10) Bond Purchase Agreement dated as of February 23, 1989, among
Hancock Bank, J. C. Bradford and Co. and City of Gulfport,
Mississippi (filed as Exhibit 10.9 to the Registrant's Form 10-K
for the year ended December 31, 1989, and incorporated herein by
reference).
(13) Annual Report to Stockholders for the year ending December 31,
1995 (furnished for the information of the Commission only and
not deemed "filed" except for those portions which are
specifically incorporated herein by reference).
(21) Proxy Statement for the Registrant's Annual Meeting of
Shareholders on February 22, 1996 (deemed "filed" for the
purposes of this Form 10-K only for those portions which are
specifically incorporated herein by reference).
-44-
<PAGE> 45
(22) Subsidiaries of the Registrant.
<TABLE>
<CAPTION>
Jurisdiction Holder of
Name Of Incorporation Outstanding Stock (1)
---- ---------------- ---------------------
<S> <C> <C>
Hancock Bank Mississippi Hancock Holding Company
Hancock Bank of Louisiana Louisiana Hancock Holding Company
First National Bank of
Denham Springs Louisiana Hancock Holding Company
Hancock Bank Securities
Corporation Mississippi Hancock Bank
Hancock Insurance Agency Mississippi Hancock Bank
Town Properties, Inc. Mississippi Hancock Bank
The Gulfport Building, Inc.
of Mississippi Mississippi Hancock Bank
Harrison Financial Services,
Inc. Mississippi Hancock Bank
Hancock Mortgage Corporation Mississippi Hancock Bank and
Hancock Securities Corp.
Harrison Life Insurance Mississippi 79% owned by Hancock
Company Bank
Hancock Investment Services Mississippi Hancock Bank
</TABLE>
(1) All are 100% owned except as indicated.
(23) Independent Auditors' Consent.
(27) Selected financial data.
-45-
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HANCOCK HOLDING COMPANY
DATE March 26, 1996 /s/ Leo W. Seal, Jr.
-------------------------- ------------------------------
By Leo W. Seal, Jr., President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Leo W. Seal, Jr. President and Director March 26, 1996
- ------------------------------ (Principal Executive,
Leo W. Seal, Jr. Financial, and Accounting
Officer)
/s/ Joseph F. Boardman, Jr. Director, March 26, 1996
- ------------------------------ Chairman of the Board
Joseph F. Boardman, Jr.
/s/ Thomas W. Milner, Jr. Director March 26, 1996
- ------------------------------
Thomas W. Milner, Jr.
/s/ George A. Schloegel Director, March 26, 1996
- ------------------------------ Vice-Chairman of the Board
George A. Schloegel
/s/ Dr. Homer C. Moody, Jr. Director March 26, 1996
- ------------------------------
Dr. Homer C. Moody, Jr.
/s/ James B. Estabrook, Jr. Director March 26, 1996
- ------------------------------
James B. Estabrook, Jr.
/s/ Charles H. Johnson Director March 26, 1996
- ------------------------------
Charles H. Johnson
/s/ L. A. Koenenn, Jr. Director March 26, 1996
- ------------------------------
L. A. Koenenn, Jr.
/s/ Victor Mavar Director March 26, 1996
- ------------------------------
Victor Mavar
-46-
<PAGE> 47
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(2.1) Agreement and Plan of Merger dated May 30, 1985, among Hancock
Holding Company, Hancock Bank and Pascagoula-Moss Point Bank
(filed as Exhibit 2 to the Registrant's Form 8-K dated June 6,
1985, and incorporated herein by reference).
(2.2) Amendment dated July 9, 1985, to Agreement and Plan of Merger
dated May 30, 1985, among Hancock Holding Company, Hancock
Bank and Pascagoula-Moss Point Bank (filed as Exhibit 19 to
Registrant's Form 10-Q for the quarter ended June 30, 1985,
and incorporated herein by reference).
(2.3) Stock Purchase Agreement dated February 12, 1990, among
Hancock Holding Company, Metropolitan Corporation and
Metropolitan National Bank (filed as Exhibit 2.3 to
Registrant's Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference).
(2.4) Modified Purchase and Assumption Agreement dated August 2,
1990, among Hancock Bank of Louisiana and the Federal Deposit
Insurance Corporation, receiver of American Bank and Trust
Company of Baton Rouge, Louisiana (filed as Exhibit 2.1 to the
Registrant's Form 10-Q for the quarter ended June 30, 1990,
and incorporated herein by reference).
(2.5) Agreement and Plan of Reorganization dated November 30, 1993,
among Hancock Holding Company, Hancock Bank of Louisiana and
First State Bank and Trust Company of East Baton Rouge Parish,
Baker, Louisiana (filed as Exhibit 2.5 to the Registrant's
Form 10-K dated December 31, 1993).
(2.6) Agreement and Plan of Reorganization dated July 6, 1994, among
Hancock Holding Company and Washington Bancorp, Franklinton,
Louisiana (filed as Exhibit 2 to the Registrant's Form S-4,
Registration Number 33-56505, dated November 16, 1994).
(2.7) Agreement and Plan of Reorganization dated August 20, 1994,
among
<PAGE> 48
Hancock Holding Company and First Denham Bancshares, Inc.,
Denham Springs, Louisiana (filed as Exhibit 2 to the
Registrant's Form S-4, Registration Number 33-56285, dated
November 2, 1994).
(3.1) Amended and Restated Articles of Incorporation dated November
8, 1990 (filed as Exhibit 3.1 to the Registrant's Form 10-K
for the year ended December 31, 1990, and incorporated herein
by reference).
(3.2) Amended and Restated Bylaws dated November 8, 1990 (filed as
Exhibit 3.2 to the Registrant's Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference).
(3.3) Articles of Amendment to the Articles of Incorporation of
Hancock Holding Company, dated October 16, 1991 (filed as
Exhibit 4.1 to the Registrant's Form 10-Q for the quarter
ended September 30, 1991).
(3.4) Articles of Correction, filed with Mississippi Secretary of
State on November 15, 1991 (filed as Exhibit 4.2 to the
Registrant's Form 10-Q for the quarter ended September 30,
1991).
(3.5) Articles of Amendment to the Articles of Incorporation of
Hancock Holding Company, adopted February 13, 1992 (filed as
Exhibit 3.5 to the Registrant's Form 10-K for the year ended
December 31, 1992, and incorporated herein by reference).
(3.6) Articles of Correction, filed with Mississippi Secretary of
State on March 2, 1992 (filed as Exhibit 3.6 to the
Registrant's Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).
(4.1) Specimen stock certificate (reflecting change in par value
from $10.00 to $3.33, effective March 6, 1989) (filed as
Exhibit 4.1 to the Registrant's Form 10-Q for the quarter
ended March 31, 1989, and incorporated herein by reference).
(4.2) By executing this Form 10-K, the Registrant hereby agrees to
deliver to the Commission upon request copies of instruments
defining the rights of holders of long-term debt of the
Registrant or its consolidated subsidiaries or its
unconsolidated subsidiaries for which financial statements are
required to be filed, where the total amount of such
securities authorized thereunder does not exceed 10 percent of
the total assets of the Registrant and its subsidiaries on a
consolidated basis.
<PAGE> 49
(10.1) 1996 Long Term Incentive Plan (described on pages 8-12 of the
Registrant's definitive Proxy Statement for its annual
shareholders' meeting on February 22, 1996, filed with the
Registrant's definitive proxy materials on January 23, 1996,
and in full text at Exhibit A).
(10.2) Description of Hancock Bank Executive Supplemental
Reimbursement Plan, as amended (provided on page 19 of the
Registrant's definitive Proxy Statement for its annual
shareholders' meeting on February 22, 1996, filed with the
Registrant's definitive proxy materials on January 23, 1996,
and incorporated herein by reference).
(10.3) Description of Hancock Bank Automobile Plan (provided on page
19 of the Registrant's definitive Proxy Statement for its
annual shareholders' meeting on February 22, 1996, filed with
the Registrant's definitive proxy materials on January 23,
1996, and incorporated herein by reference).
(10.4) Description of Deferred Compensation Arrangement for Directors
(provided on pages 15-20 of the Registrant's definitive Proxy
Statement for its annual shareholders' meeting on February 22,
1996, filed with the Registrant's definitive proxy materials
on January 23, 1996, and incorporated herein by reference).
(10.5) Site Lease Agreement between Hancock Bank and City of
Gulfport, Mississippi dated as of March 1, 1989 (filed as
Exhibit 10.4 to the Registrant's Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference).
(10.6) Project Lease Agreement between Hancock Bank and City of
Gulfport, Mississippi dated as of March 1, 1989 (filed as
Exhibit 10.5 to the Registrant's Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference).
<PAGE> 50
(10.7) Deed of Trust dated as of March 1, 1989, from Hancock Bank to
Deposit Guaranty National Bank as trustee (filed as Exhibit
10.6 to the Registrant's Form 10-K for the year ended December
31, 1989, and incorporated herein by reference).
(10.8) Trust Indenture between City of Gulfport, Mississippi and
Deposit Guaranty National Bank dated as of March 1, 1989
(filed as Exhibit 10.7 to the Registrant's Form 10-K for the
year ended December 31, 1989, and incorporated herein by
reference).
(10.9) Guaranty Agreement dated as of March 1, 1989, from Hancock
Bank to Deposit Guaranty National Bank as trustee (filed as
Exhibit 10.8 to the Registrant's Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference).
(10.10) Bond Purchase Agreement dated as of February 23, 1989, among
Hancock Bank, J. C. Bradford and Co. and City of Gulfport,
Mississippi (filed as Exhibit 10.9 to the Registrant's Form
10-K for the year ended December 31, 1989, and incorporated
herein by reference).
(13) Annual Report to Stockholders for the year ending December 31,
1995 (furnished for the information of the Commission only and
not deemed "filed" except for those portions which are
specifically incorporated herein by reference).
(21) Proxy Statement for the Registrant's Annual Meeting of
Shareholders on February 22, 1996 (deemed "filed" for the
purposes of this Form 10-K only for those portions which are
specifically incorporated herein by reference).
<PAGE> 51
(22) Subsidiaries of the Registrant (included as part of this Form
10-K on page 45).
(23) Independent Auditors' Consent.
(27) Selected financial data.
<PAGE> 1
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
Amounts in thousands (except per share data)
<TABLE>
<CAPTION>
1995 1994 % Change
----------- ------------ -----------
<S> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net interest income $ 100,367 $ 86,282 16.32
Provision for loan losses 4,425 1,998 121.47
Earnings before income taxes 40,082 33,623 19.21
Net earnings 27,017 23,130 16.81
PER SHARE DATA:
Net earnings $ 3.05 $ 2.86 6.64
Cash dividends paid 0.96 0.92 4.35
Book value (period end) 25.24 22.49 12.23
Weighted average shares outstanding 8,853 8,099 9.31
Shares outstanding 12/31 8,880 8,105 9.56
BALANCE SHEET DATA (PERIOD END):
Securities $ 848,306 $ 867,340 (2.19)
Net loans 1,034,978 925,665 11.81
Reserve for loan losses 17,391 15,372 13.13
Total assets 2,234,286 2,026,929 10.23
Total deposits 1,927,681 1,775,664 8.56
Long-term bonds 2,035 2,955 (31.13)
Total stockholders' equity 224,179 182,277 22.99
BALANCE SHEET DATA (AVERAGE FOR THE YEAR):
Securities $ 895,150 $ 923,545 (3.07)
Net loans 1,000,907 906,342 10.43
Reserve for loan losses 16,532 15,251 8.40
Total assets 2,215,526 2,043,275 8.43
Total deposits 1,854,668 1,789,499 3.64
Long-term bonds 2,799 4,136 (32.33)
Total stockholders' equity 215,734 174,938 23.32
PERFORMANCE RATIOS (%):
Return on average assets 1.22 1.13 7.96
Return on average stockholders' equity 12.50 13.22 (5.45)
Reserve for loan losses to average net loans 1.74 1.70 2.35
Reserve for loan losses to non-performing loans 325.86 354.19 (8.00)
Net charge-offs to average net loans 0.35 0.21 66.67
Net interest margin 5.13 4.75 8.00
CAPITAL RATIOS (%): REQUIRED MINIMUM
----------------
Primary capital 10.03 9.02 --
Tier 1 leverage 9.28 8.84 3%-5%
Tier 1 risk-based 17.69 17.58 4%
Total risk-based 18.64 18.53 8%
</TABLE>
5
<PAGE> 2
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
DESCRIPTION OF BUSINESS
Hancock Holding Company (the "Company") is a bank holding company
headquartered in Gulfport, Mississippi with total consolidated assets of
approximately $2.2 billion at December 31, 1995. The Company operates a total
of 73 banking offices and 102 automated teller machines ("ATMs") in the states
of Mississippi and Louisiana through three wholly-owned bank subsidiaries,
Hancock Bank, Gulfport, Mississippi , Hancock Bank of Louisiana, Baton Rouge,
Louisiana and First National Bank of Denham Springs, Denham Springs, Louisiana
(the "Banks").
The Banks are community oriented and focus primarily on offering
commercial, consumer and mortgage loans and deposit services to individuals and
small to middle market businesses in their respective market areas. The
Company's operating strategy is to provide its customers with the financial
sophistication and breadth of products of a regional bank, while successfully
retaining the local appeal and level of service of a community bank.
SUMMARY OF QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1995 1994
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
-------- ------- ------- -------- -------- ------- ------- -------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 24,105 $ 25,147 $ 25,407 $ 25,708 $ 20,209 $ 20,953 $ 22,145 $ 22,975
Provision for loan losses 175 1,002 1,140 2,108 463 366 494 675
Earnings before income taxes 10,122 9,878 10,080 10,002 7,772 8,051 9,167 8,633
Net earnings 6,780 6,612 6,719 6,906 5,465 5,405 6,307 5,953
Net earnings per share $ 0.76 $ 0.75 $ 0.75 $ 0.79 $ 0.68 $ 0.66 $ 0.78 $ 0.74
</TABLE>
MARKET INFORMATION
The Company's common stock trades on the NASDAQ National Market System
under the symbol "HBHC" and is listed in the newspaper under NASDAQ market
quotations under "HancHd." The following table sets forth the high and low sale
prices of the Company's common stock as reported on the NASDAQ National Market
System. These prices do not reflect retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDENDS
SALE SALE PAID
------ ------ -----
<S> <C> <C> <C>
1995
1st Quarter $30.25 $28.75 $0.23
2nd Quarter $31.75 $29.25 $0.23
3rd Quarter $36.75 $30.75 $0.25
4th Quarter $38.00 $35.50 $0.25
1994
1st Quarter $33.00 $28.50 $0.23
2nd Quarter $29.75 $26.25 $0.23
3rd Quarter $30.00 $28.00 $0.23
4th Quarter $30.00 $28.50 $0.23
</TABLE>
On January 3, 1996, the high and low sale prices of the Company's common
stock as reported on the NASDAQ National Market System were $37.50 and $36.50,
respectively.
The principal source of funds to the Company to pay cash dividends are the
earnings of the Bank subsidiaries. Consequently, dividends are dependent upon
earnings, capital needs, regulatory policies and other policies affecting the
Banks. For example, federal and state banking laws and regulations restrict the
amount of dividends and loans a bank may make to its parent company. Dividends
paid to the Company by Hancock Bank are subject to approval by the Commissioner
of Banking and Consumer Finance of the State of Mississippi. The Company's
management does not expect regulatory restrictions to affect its policy of
paying cash dividends, although no assurance can be given that Hancock Holding
Company will continue to declare and pay regular quarterly cash dividends on
its common stock. However, since 1937, the Company or its predecessor has paid
regular cash dividends without interruption.
6
<PAGE> 3
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL INFORMATION
Amounts In Thousands (except for share and per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 97,626 $ 82,563 $ 80,176 $ 80,434 $ 84,554
Income on Federal Funds Sold 5,820 3,832 3,603 4,196 7,330
Interest and Dividends on Investments 58,083 49,884 49,936 53,898 46,531
----------- ---------- ------------ ----------- -----------
TOTAL INTEREST INCOME 161,529 136,279 133,715 138,528 138,415
----------- ---------- ------------ ----------- -----------
INTEREST EXPENSE:
Interest on Deposits 57,612 48,193 46,935 54,649 70,059
Interest on Federal Funds Purchased 3,082 1,472 1,021 1,408 3,366
Interest on Bonds and Notes 468 332 440 652 2,288
----------- ---------- ------------ ----------- -----------
TOTAL INTEREST EXPENSE 61,162 49,997 48,396 56,709 75,713
----------- ---------- ------------ ----------- -----------
NET INTEREST INCOME 100,367 86,282 85,319 81,819 62,702
Provision for Loan Losses 4,425 1,998 4,632 7,978 5,003
----------- ---------- ------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 95,942 84,284 80,687 73,841 57,699
Other Income 23,956 20,557 22,153 21,225 21,652
Other Expenses 79,816 71,218 67,450 65,935 60,892
----------- ---------- ------------ ----------- -----------
Earnings before Income Taxes 40,082 33,623 35,390 29,131 18,459
Income Taxes 13,065 10,493 10,528 7,721 4,576
----------- ---------- ------------ ----------- -----------
NET EARNINGS $ 27,017 $ 23,130 $ 24,862 $ 21,410 $ 13,883
=========== ========== ============ =========== ===========
PER COMMON SHARE:
Net Earnings $ 3.05 $ 2.86 $ 3.07 $ 2.65 $ 2.08
Cash Dividends .96 .92 .90 .68 .60
Stock Splits and Dividends 2 for 1
Weighted Average Number of Shares 8,852,809 8,099,162 8,092,885 8,092,885 6,664,885
RETURN ON AVERAGE ASSETS 1.22% 1.13% 1.27% 1.17% 0.84%
BALANCE SHEET DATA DECEMBER 31:
Total Assets $ 2,234,286 $2,026,929 $ 1,988,125 $ 1,899,709 $ 1,719,805
Total Deposits 1,927,681 1,775,664 1,759,189 1,693,255 1,512,365
Total Long-Term Debt and Capital Notes 2,035 2,955 4,300 5,727 7,898
Stockholders' Equity 224,179 182,277 166,712 148,822 132,731
</TABLE>
On August 9, 1991, Hancock Bank acquired certain assets and assumed the
liabilities of Peoples Federal Savings Association (PEOPLES). This acquisition
was accounted for as a purchase and the results of operations since the date of
acquisition have been included in the consolidated statements of earnings. On
April 29, 1994, the Company merged Hancock Bank of Louisiana, a wholly-owned
subsidiary of the Company, with First State Bank and Trust Company of East
Baton Rouge Parish, Baker, Louisiana (BAKER). On February 1, 1995, the Company
merged Hancock Bank of Louisiana with Washington Bank and Trust Company,
Franklinton, Louisiana (WASHINGTON). These mergers were accounted for using the
pooling-of-interest method, and, therefore, all prior years' financial
information has been restated. On January 13, 1995, the Company acquired First
Denham Bancshares, Inc., Denham Springs, Louisiana, which owned 100% of the
stock of First National Bank of Denham Springs (DENHAM). This acquisition was
accounted for using the purchase method and the results of operations since the
date of acquisition have been included in the consolidated statements of
earnings.
7
<PAGE> 4
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
ASSETS:
Cash and due from banks (non-interest bearing) $ 124,276,406 $ 120,531,961
Interest bearing time deposits with other banks 1,550,001 1,450,001
Securities available-for-sale (cost of $109,297,000 and $20,382,000) 109,776,725 19,747,208
Securities held-to-maturity (market value of $749,497,000
and $828,968,000) 738,528,901 847,592,567
Federal funds sold and securities purchased under agreements to resell 153,725,000 55,900,000
Loans 1,061,633,083 953,514,823
Less:
Reserve for loan losses (17,390,847) (15,372,230)
Unearned income (26,655,590) (27,849,928)
--------------- ---------------
Loans, net 1,017,586,646 910,292,665
Property and equipment 38,746,085 35,234,276
Other real estate 1,085,569 1,000,222
Accrued interest receivable 19,360,385 17,425,264
Other assets 29,650,269 17,755,227
--------------- ---------------
TOTAL ASSETS $ 2,234,285,987 $ 2,026,929,391
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 468,445,574 $ 390,012,303
Interest bearing savings, NOW, money market and other time 1,459,235,318 1,385,651,650
--------------- ---------------
Total Deposits 1,927,680,892 1,775,663,953
Federal funds purchased and securities sold under
agreements to repurchase 66,585,313 54,296,358
Other liabilities 13,806,265 11,737,195
Long-term bonds 2,035,000 2,955,000
--------------- ---------------
TOTAL LIABILITIES 2,010,107,470 1,844,652,506
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock-$3.33 par value per share;
20,000,000 shares authorized, 9,021,949 and 8,247,851 shares
issued and outstanding 30,043,090 27,465,344
Capital surplus 130,000,000 104,170,000
Undivided profits 63,823,349 51,056,611
Unrealized gain (loss) on securities available-for-sale 312,078 (415,070)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 224,178,517 182,276,885
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,234,285,987 $ 2,026,929,391
=============== ===============
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 5
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 97,626,040 $ 82,562,712 $ 80,176,352
Interest on:
U.S. Treasury securities 14,567,927 17,168,143 16,861,100
Obligations of other U.S. government agencies
and corporations 33,726,484 24,771,874 24,874,164
Obligations of states and political subdivisions 3,526,973 3,193,334 3,379,388
Interest on federal funds sold and securities purchased
under agreements to resell 5,820,225 3,831,582 3,603,493
Interest on time deposits and other 6,261,921 4,752,102 4,820,205
------------- ------------- -------------
Total interest income 161,529,570 136,279,747 133,714,702
------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits 57,612,465 48,192,868 46,934,652
Interest on federal funds purchased and securities
sold under agreements to repurchase 3,081,896 1,471,992 1,021,161
Interest on bonds and notes 468,029 332,051 439,833
------------- ------------- -------------
Total interest expense 61,162,390 49,996,911 48,395,646
------------- ------------- -------------
NET INTEREST INCOME 100,367,180 86,282,836 85,319,056
Provision for loan losses 4,424,701 1,998,367 4,631,983
------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 95,942,479 84,284,469 80,687,073
------------- ------------- -------------
NON-INTEREST INCOME:
Service charges on deposit accounts 15,040,119 12,389,600 11,822,927
Other service charges, commissions and fees 4,693,062 5,565,439 5,841,827
Securities gains (losses) (49,121) -- 783,468
Other 4,271,598 2,602,392 3,704,802
------------- ------------- -------------
Total non-interest income 23,955,658 20,557,431 22,153,024
------------- ------------- -------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 41,319,402 36,550,246 33,600,909
Net occupancy expense of premises 3,751,201 3,541,259 3,394,947
Equipment rentals, depreciation and maintenance 9,968,619 9,710,148 6,792,116
Other 24,777,018 21,416,772 23,662,010
------------- ------------- -------------
Total non-interest expense 79,816,240 71,218,425 67,449,982
------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 40,081,897 33,623,475 35,390,115
INCOME TAXES 13,065,000 10,493,058 10,528,049
------------- ------------- -------------
NET EARNINGS $ 27,016,897 $ 23,130,417 $ 24,862,066
============= ============= =============
NET EARNINGS PER COMMON SHARE $ 3.05 $ 2.86 $ 3.07
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 6
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED GAIN
COMMON STOCK (LOSS)
------------------------- ON SECURITIES
SHARES CAPITAL UNDIVIDED AVAILABLE-FOR
ISSUED AMOUNT SURPLUS PROFITS SALE
--------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993
As previously reported 7,705,201 $ 25,658,319 $ 84,168,834 $ 28,985,637 $ --
Merger with Washington accounted for
as a pooling-of-interest 542,650 1,807,025 8,198,587
--------- ------------ ------------- ------------ -----------
As restated 8,247,851 27,465,344 84,168,834 37,184,224 --
Net earnings 24,862,066
Cash dividends-$.90 per share (6,460,171)
Cash dividends paid by Baker (346,500)
Cash dividends paid by Washington (161,688)
Transfer from undivided profits 14,000,000 (14,000,000)
--------- ------------ ------------- ------------ -----------
BALANCE, DECEMBER 31, 1993 8,247,851 27,465,344 98,168,834 41,077,931 --
Unrealized gain on securities
available-for-sale 384,800
Net earnings 23,130,417
Cash dividends-$.92 per share (6,967,488)
Cash dividends paid by Baker (86,625)
Cash dividends paid by Washington (323,376)
Transfer from undivided profits 5,774,248 (5,774,248)
Change in unrealized gain on securities
available-for-sale (799,870)
Sale of common stock by subsidiary 226,918
--------- ------------ ------------- ------------ -----------
BALANCE, DECEMBER 31, 1994 8,247,851 27,465,344 104,170,000 51,056,611 (415,070)
Net earnings 27,016,897
Cash dividends-$.96 per share (8,661,027)
Change in unrealized loss on securities
available-for-sale 727,148
Merger with Denham accounted
for as a purchase 774,098 2,577,746 20,240,868
Transfer from undivided profits 5,589,132 (5,589,132)
--------- ------------ ------------- ------------ -----------
BALANCE, DECEMBER 31, 1995 9,021,949 $ 30,043,090 $ 130,000,000 $ 63,823,349 $ 312,078
========= ============ ============= ============ ===========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 7
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 27,016,897 $ 23,130,417 $ 24,862,066
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 4,343,507 4,440,327 3,931,838
Provision for loan losses 4,424,701 1,998,367 4,631,983
Provision for losses on real estate owned 179,119 104,625 174,796
Deferred income taxes (credit) (790,000) (519,611) 160,023
Losses (gains) on sales of securities 49,121 -- (783,468)
Decrease (increase) in interest receivable (1,130,794) (2,385,935) 1,671,538
Amortization of intangible assets 2,450,553 1,473,756 1,513,500
Increase (decrease) in interest payable 1,869,527 759,623 (552,262)
Other-net 680,968 (575,031) (7,591,250)
------------- ------------- -------------
Net cash provided by Operating Activities 39,093,599 28,426,538 28,018,764
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing time deposits (100,000) 624,000 3,598,000
Proceeds and maturities of securities held-to-maturity 394,491,517 279,469,817 296,403,777
Purchases of securities held-to-maturity (363,531,311) (359,108,402) (282,657,472)
Proceeds from sales and maturities of securities
available-for-sale 6,502,389 1,035,000 --
Purchase of securities available-for-sale 1,831,268 -- --
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell (96,725,000) 63,290,000 (31,885,000)
Net increase in loans (39,410,863) (6,321,335) (86,225,725)
Purchase of property and equipment, net (3,460,209) (3,900,479) (3,810,149)
Proceeds from sales of other real estate 628,300 1,660,589 386,096
Net cash received in connection with
purchase of Denham 7,872,000 -- --
------------- ------------- -------------
Net cash used in Investing Activities (91,901,909) (23,250,810) (104,190,473)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 54,419,827 16,474,901 65,932,897
Dividends paid (8,661,027) (7,377,489) (6,968,359)
Repayments of long-term bonds and notes (920,000) (1,345,000) (1,426,667)
Net increase in federal funds purchased,
securities sold under agreements to repurchase
and other temporary funds 11,713,955 8,497,427 9,407,950
------------- ------------- -------------
Net cash provided by Financing Activities 56,552,755 16,249,839 66,945,821
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 3,744,445 21,425,567 (9,225,888)
CASH AND DUE FROM BANKS, BEGINNING 120,531,961 99,106,394 108,332,282
------------- ------------- -------------
CASH AND DUE FROM BANKS, ENDING $ 124,276,406 $ 120,531,961 $ 99,106,394
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 8
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Hancock Holding Company (the "Company") is a bank
holding company headquartered in Gulfport, Mississippi operating in the states
of Mississippi and Louisiana through three wholly-owned bank subsidiaries,
Hancock Bank, Gulfport, Mississippi, Hancock Bank of Louisiana, Baton Rouge,
Louisiana and First National Bank of Denham Springs, Denham Springs, Louisiana
(the "Banks").
The Banks are community oriented and focus primarily on offering commercial,
consumer and mortgage loans and deposit services to individuals and small to
middle market businesses in their respective market areas. The Company's
operating strategy is to provide its customers with the financial
sophistication and breadth of products of a regional bank, while successfully
retaining the local appeal and level of service of a community bank.
CONSOLIDATION--The consolidated financial statements of the Company include
the accounts of the Company, the Banks, and other subsidiaries. Significant
intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SECURITIES--Securities are being accounted for in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115, which was adopted
effective January 1, 1994, requires the classification of securities into one
of three categories: Trading, Available-for-Sale, or Held-to-Maturity.
Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates this classification periodically. Trading
account securities are held for resale in anticipation of short-term market
movements. Debt securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity.
Securities not classified as held-to-maturity or trading are classified as
available-for-sale. The Company had no trading account securities during the
three years ended December 31, 1995. Held-to-maturity securities are stated at
amortized cost. Available-for-sale securities are stated at market value, with
unrealized gains and losses, net of income taxes, reported as a separate
component of stockholders' equity until realized.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity or, in the case of mortgage-backed securities, over the
estimated life of the security. Amortization, accretion and accrued interest
are included in interest income on securities. Realized gains and losses, and
declines in value judged to be other than temporary, are included in net
securities gains. Gains and losses on the sale of securities available-for-sale
are determined using the specific-identification method. The related income tax
provision (credit) on securities gains (losses) was $(17,000) in 1995 and
$270,000 in 1993.
RESERVE FOR LOAN LOSSES--The reserve for loan losses is a valuation account
available to absorb probable losses on loans. All losses are charged to the
reserve for loan losses when the loss actually occurs or when a determination
is made that a loss is likely to occur; recoveries are credited to the reserve
for loan losses at the time of recovery. Periodically during the year
management estimates the likely level of future losses to determine whether the
reserve is adequate to absorb reasonable anticipated losses in the existing
portfolio based on the Company's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral and current
economic conditions. Based on these estimates, the reserve for loan losses is
increased by charges to income and decreased by charge-offs (net of
recoveries).
PROPERTY AND EQUIPMENT--Property and equipment are recorded at amortized
cost. Depreciation is computed principally by the straight-line method based on
the estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the term of the lease or the asset's useful life.
INTANGIBLE ASSETS--Intangible assets, which amounted to $16,865,000 and
$3,588,000 at December 31, 1995 and 1994, respectively, include the values
assigned to the core deposits of acquired banks which are being amortized over
lives ranging from six to seven years using accelerated methods, and goodwill
which is being amortized over fifteen years.
OTHER REAL ESTATE--Other real estate acquired through foreclosure and bank
acquisitions is stated at the lower of cost or fair market value, net of the
costs of disposal. When a reduction to fair market value is required, it is
charged to the reserve for loan losses at the time of foreclosure and any
subsequent adjustments are charged to expense. Transfers from loans to other
real estate amounted to approximately $574,000, $1,600,000 and $910,000 in
1995, 1994 and 1993, respectively. Loans made in connection with the sale of
other real estate amounted to approximately $500,000, $900,000 and $1,200,000
in 1995, 1994 and 1993, respectively. Reserve balances associated with other
real estate amounted to $822,000 and $760,000 in 1995 and 1994, respectively.
22
<PAGE> 9
LOANS--Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
Interest on commercial and real estate mortgage loans is recorded as income
based upon the principal amount outstanding. Unearned income on installment
loans is credited to operations based on a method which approximates the
interest method. Where doubt exists as to collectibility of a loan, the accrual
of interest is discontinued and payments received are applied first to
principal. Upon such discontinuances, all unpaid accrued interest is reversed.
Interest income is recorded after principal has been satisfied and as payments
are received.
The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. The Company's impaired loans include troubled debt
restructurings, and performing and non-performing major loans in which full
payment of principal or interest is not expected. The Company calculates a
reserve required for impaired loans based on the present value of expected
future cash flows discounted at the loan's effective interest rate, or at the
loan's observable market price or the fair value of its collateral.
Generally, loans of all types which become 90 days delinquent are in the
process of collection through repossesion, foreclosure or have been deemed
currently uncollectible. Loans deemed currently uncollectible are charged-off
against the reserve account. As a matter of policy, loans are placed on a
non-accrual status where doubt exists as to collectibility.
TRUST FEES--Trust fees are recorded when received, which is the general
practice within the banking industry.
INCOME TAXES--Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of non-taxable income such as
interest on state and municipal securities) and deferred taxes on temporary
differences between the amount of taxable income and pre-tax financial income
and between the tax basis of assets and liabilities and their reported amounts
in the financial statements. Deferred taxes on temporary differences are
calculated at the currently enacted tax rates applicable to the period in which
the deferred tax assets and liabilities are expected to be realized or settled.
As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
NET EARNINGS PER COMMON SHARE--Net earnings per share of common stock is
computed by dividing net earnings by the weighted average number of shares of
common stock outstanding during the period, after giving retroactive effect to
stock dividends and shares issued in acquisitions accounted for as
pooling-of-interest.
CASH--For the purpose of presentation in the Statements of Cash Flows, cash
and cash equivalents are defined as those amounts included in the balance sheet
caption "Cash and Due from Banks."
NOTE 2--ACQUISITIONS
On April 29, 1994, the Company merged Hancock Bank of Louisiana, a
wholly-owned subsidiary of the Company, with First State Bank and Trust Company
of East Baton Rouge Parish, Baker, Louisiana (BAKER). The merger was
consummated by the exchange of all outstanding common stock of BAKER in return
for approximately 527,000 shares of common stock of the Company. The merger was
accounted for using the pooling-of-interest method.
On February 1, 1995, the Company merged Hancock Bank of Louisiana, a
wholly-owned subsidiary of the Company, with Washington Bank and Trust Company
(WASHINGTON). The merger was consummated by the exchange of all outstanding
common stock of WASHINGTON in return for approximately 543,000 shares of common
stock of the Company. The merger was accounted for using the
pooling-of-interest method, therefore all prior years' financial information
has been restated. Net interest income and net earnings of the separate
companies for the periods preceding the acquisition were as follows (in
thousands):
<TABLE>
<CAPTION>
JANUARY 1,1995 YEARS ENDED
THROUGH DECEMBER 31,
JANUARY 31, 1995 1994 1993
---------------- ------- -------
<S> <C> <C> <C>
Net interest income:
Company $ 7,535 $82,050 $81,060
Washington 372 4,232 4,259
------- ------- -------
Combined $ 7,907 $86,282 $85,319
======= ======= =======
Net Earnings:
Company $ 2,382 $21,795 $23,368
Washington 144 1,335 1,494
------- ------- -------
Combined $ 2,526 $23,130 $24,862
======= ======= =======
</TABLE>
23
<PAGE> 10
On January 13, 1995, the Company acquired First Denham Bancshares, Inc., for
approximately $4,000,000 cash and 774,000 shares of common stock of the
Company. First Denham Bancshares, Inc. owned 100% of the stock of First
National Bank of Denham Springs (DENHAM). The acquisition was accounted for
using the purchase method and the results of operations since January 13, 1995
are included in the consolidated statements of earnings. The excess of the
purchase price over the value of the net tangible assets acquired was assigned
to goodwill and is being amortized over 15 years.
The following unaudited proforma consolidated results of operations (after
restatement for the pooling referred to above) give effect to the acquisition
of DENHAM as though it had occurred on January 1, 1994 (amounts in thousands,
except for share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994
------- -------
<S> <C> <C>
Net interest income after provision for loan losses $96,221 $91,580
Net earnings $27,092 $24,610
Net earnings per common share $3.05 $2.77
</TABLE>
The unaudited proforma information is not necessarily indicative either of
results of operations that would have occurred had the purchase been made as of
January 1, 1994 or of future results of operations of the combined companies.
In connection with the 1995 acquisition, liabilities were assumed as follows
(in thousands):
<TABLE>
<S> <C>
Fair value of tangible and intangible assets, excluding cash $120,407
Cash acquired, net of amount paid 7,872
Market value of common stock issued (22,819)
--------
Liabilities assumed $105,460
========
</TABLE>
NOTE 3--SECURITIES
The book and market values of securities classified as available-for-sale as
of December 31, 1995 and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------------------- -------------------------------------
GROSS GROSS GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
-------- ----- -------- -------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 1,493 $ 2 $ 3 $ 1,492 $ -- $ -- $ -- $ --
Other U.S. gov. obligations 61,470 659 353 61,776 -- -- -- --
Municipal obligations 962 5 -- 967 997 -- 26 971
Other securities 544 -- 52 492 -- -- -- --
Mortgage-backed securities 5,140 101 21 5,220 -- -- -- --
CMO's 34,695 372 230 34,837 19,385 134 743 18,776
Equity securities 4,993 -- -- 4,993 -- -- -- --
-------- ----- -------- -------- ------- ------ -------- -------
$109,297 $,139 $ 659 $109,777 $20,382 $ 134 $ 769 $19,747
======== ===== ======== ======== ======= ====== ======== =======
</TABLE>
The book value and market value of the debt securities classified as
available-for-sale at December 31, 1995, by estimated maturity, were as follows
(in thousands):
<TABLE>
<CAPTION>
BOOK MARKET
VALUE VALUE
--------- --------
<S> <C> <C>
Due in one year or less $ 6,053 $ 5,968
Due after one year through five years 89,654 90,097
Due after five years through ten years 8,014 8,122
Due after ten years 583 597
-------- --------
$104,304 $104,784
======== ========
</TABLE>
24
<PAGE> 11
The book and market values of securities classified as held-to-maturity as of
December 31, 1995 and 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------------------- --------------------------------------
GROSS GROSS GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
----- ----- ------ ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.Treasury securities $239,892 $ 4,074 $ 70 $243,896 $280,578 $ 362 $ 5,030 $275,910
Other U.S. gov. obligations 317,140 1,977 417 318,700 275,209 194 6,644 268,759
Municipal obligations 56,961 2,319 1,232 58,048 58,224 968 1,324 57,868
Other securities 11,027 1,891 -- 12,918 15,747 92 521 15,318
Mortgage-backed securities 50,427 3,881 1,706 52,602 129,028 349 4,129 125,248
CMO's 63,082 301 50 63,333 88,807 57 2,999 85,865
-------- ------- -------- -------- -------- ------ ------- --------
$738,529 $14,443 $ 3,475 $749,497 $847,593 $2,022 $20,647 $828,968
======== ======= ======== ======== ======== ====== ======= ========
</TABLE>
The book value and market value of securities classified as held-to-maturity
as of December 31, 1995, by contractual maturity, were as follows (in
thousands):
<TABLE>
<CAPTION> BOOK MARKET
VALUE VALUE
-------- --------
<S> <C> <C>
Due in one year or less $183,484 $184,132
Due after one year through five years 190,193 193,781
Due after five years through ten years 142,856 145,098
Due after ten years 221,996 226,486
-------- --------
$738,529 $749,497
======== ========
</TABLE>
Proceeds from sales of securities were $13,543,000 in 1995 and $9,765,000 in
1993. Gross gains of $16,000 in 1995 and $810,000 in 1993 and gross losses of
$65,000 in 1995 and $27,000 in 1993 were realized on those sales. There were no
sales of securities in 1994.
On December 31, 1993, the Company reclassified securities with a book value
of $28,244,000 and unrealized gains of $592,000 from investment securities to
securities held-for-sale. On January 1, 1994, the Company reclassified these
same securities to securities available-for-sale. On December 29, 1995 as
permitted by A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities issued by the Financial
Accounting Standards Board, the Company reclassified securities with a book
value of $67,789,000 and unrealized gains of $251,000 from securities
held-to-maturity to securities available-for-sale.
Securities with a book value of approximately $387,000,000 at December 31,
1995 and $384,000,000 at December 31, 1994, were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other
purposes as required or permitted by law.
The Company's collateralized mortgage obligations (CMO's) generally consist
of first and second tranche sequential pay and/or planned amortization class
(PAC) instruments. Interest income on CMO's and mortgage-backed securities is
generally included with interest on obligations of other U.S. government
agencies and corporations due to their guarantees of the underlying mortgages.
NOTE 4-LOANS
Loans consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Real estate loans-primarily mortgage $ 414,774 $ 381,965
Commercial and industrial loans 176,770 119,032
Loans to individuals for household, family and
other consumer expenditures 441,712 428,673
Leases 13,570 10,074
Other loans 14,807 13,771
----------- -----------
$ 1,061,633 $ 953,515
=========== ===========
</TABLE>
25
<PAGE> 12
Changes in the reserve for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1 $ 15,372 $ 15,306 $ 14,682
Balance acquired through acquisition 1,147 -- --
Recoveries 1,830 1,517 1,668
Loans charged off (5,383) (3,449) (5,676)
Provision charged to operating expense 4,425 1,998 4,632
----------- ---------- ----------
Balance at December 31 $ 17,391 $ 15,372 $ 15,306
=========== ========== ==========
</TABLE>
The Company generally makes loans in its market areas of South Mississippi
and Southeastern Louisiana. Loans are made in the normal course of business to
its directors and executive officers, and their associates on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons. Such loans did not involve
more than normal risk of collectibility or contain other unfavorable features.
The balance of loans to related parties at December 31, 1995 and 1994 was
approximately $5,017,000 and $5,971,000, respectively.
Non-accrual and renegotiated loans amounted to approximately 1% of total
loans at December 31, 1995 and 1994. The amount of interest not accrued on
these loans did not have a significant effect on earnings in 1995, 1994 or
1993.
The Company's impaired loans amounted to approximately 1/2% of total loans
at December 31, 1995 and the related reserve amount was not significant at that
date. There was no significant change in these amounts during the year ended
December 31, 1995. Interest income recognized on these loans amounted to
approximately $300,000 for the year ended December 31, 1995.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- ----------
<S> <C> <C>
Land, buildings and leasehold improvements $ 41,207 $ 39,849
Furniture, fixtures and equipment 35,179 33,984
----------- ----------
76,386 73,833
Less accumulated depreciation and amortization 37,640 38,599
----------- ----------
$ 38,746 $ 35,234
=========== ==========
</TABLE>
NOTE 6--LONG-TERM BONDS
Long-term bonds consist of Urban Development Refunding Revenue Bonds, with
interest at 7% to 7.25%. Interest is payable semi-annually. Principal payments
are payable in the amount of $985,000 in 1996 and $1,050,000 in 1997.
The Urban Development Refunding Revenue Bonds are obligations of Hancock
Bank and are collateralized by land and buildings with a book value of
$11,400,000. The Bank has deposited with the bond trustee U.S. Treasury
securities whose principal maturities and interest payments will be sufficient
to service all future principal and interest payments due on the Urban
Development Refunding Revenue Bonds.
NOTE 7--STOCKHOLDER'S EQUITY
Earnings per common share is based on the weighted average number of shares
outstanding of approximately 8,853,000 in 1995, 8,099,000 in 1994 and 8,093,000
in 1993, reduced by shares of stock owned by subsidiaries. At December 31,
1995, these subsidiaries owned 141,044 shares of stock.
Stockholders' equity of the Company includes the undistributed earnings of
the subsidiary Banks. Dividends are payable only out of undivided profits or
current earnings. Moreover, dividends to the Company's stockholders can
generally be paid only from dividends paid to the Company by the Banks which,
with respect to Hancock Bank, are subject to approval by the Commissioner of
Banking and Consumer Finance of the State of Mississippi. The amount of capital
of the subsidiary banks available for dividends at December 31, 1995 was
approximately $65,000,000.
26
<PAGE> 13
The Company and its bank subsidiaries are required to maintain certain
minimum capital levels. At December 31, 1995, the Company and the banks were in
compliance with their respective statutory minimum capital requirements.
Following is a summary of the actual capital levels at December 31, 1995:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS TIER 1 LEVERAGE
------------------------- ---------------
TOTAL TIER 1 RATIO
------ ------ -----
<S> <C> <C> <C>
Hancock Bank 17.98% 17.18% 9.26%
Hancock Bank of Louisiana 22.35 21.10 9.61
First National Bank of Denham Springs 11.50 10.25 7.38
Company 18.64 17.69 9.28
</TABLE>
Risk-based capital requirements are intended to make regulatory capital
more sensitive to risk elements of the Company. Currently, the Company and its
bank subsidiaries are required to maintain a minimum risk-based capital ratio
of 8.0%, with not less than 4.0% in Tier 1 capital. In addition, the Company
and its bank subsidiaries must maintain a minimum Tier 1 leverage ratio (Tier 1
capital to total assets) of at least 3.0% based upon the regulators latest
composite rating of the institutions.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required each federal banking agency to implement prompt corrective
actions for institutions that it regulates. The rules provide that an
institution is "well capitalized" if its total risk-based capital ratio is 10%
or greater, its Tier 1 risked-based capital ratio is 6% or greater, its
leverage is 5% or greater and the institution is not subject to a capital
directive. Under this regulation, the Company and each of its subsidiary banks
are deemed to be "well capitalized" as of December 31, 1995 based upon the most
recent notifications from their regulators. There are no conditions or events
since those notifications that management believes would change their
classifications.
NOTE 8--INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method as required by
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes." The cumulative effect of this accounting change did not have a
significant effect on the Company's financial statements and was recorded in
income tax expense in the year ended December 31, 1993.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995
and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
Deferred tax assets: 1995 1994
---------- ----------
<S> <C> <C>
Postretirement benefit obligation $ 653 $ 442
Reserve for loan losses not currently deductible 4,750 4,310
Reserve for other real estate not currently deductible 312 291
Deferred compensation 670 618
Lease accounting 117 117
Unrealized loss on securities available-for-sale -- 220
Other 353 125
---------- ----------
$ 6,855 $ 6,123
---------- ----------
Deferred tax liabilities:
Tax over book depreciation (3,537) (3,306)
Core deposit intangible (355) (770)
Prepaid pension (772) (716)
Unrealized gain on securities available-for-sale (168) --
Market discount accretion (618) (516)
---------- ----------
(5,450) (5,308)
---------- ----------
Net deferred tax asset $ 1,405 $ 815
========== ==========
</TABLE>
27
<PAGE> 14
Income taxes consist of the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Currently payable $ 13,855 $ 11,013 $ 10,368
Deferred (790) (520) 160
----------- ---------- ----------
$ 13,065 $ 10,493 $ 10,528
=========== ========== ==========
</TABLE>
Income taxes amounted to less than the amounts computed by applying the
U.S. Federal income tax rate of 35% to earnings before income taxes. The
reasons for these differences are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
-------- -- -------- -- -------- --
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at statutory rate $ 14,029 35 $11,768 35 $ 12,387 35
Increases (decreases) in taxes resulting from:
Tax exempt interest income (1,355) (3) (1,245) (4) (1,294) (4)
Miscellaneous items - net 391 1 (30) - (565) (1)
-------- -- -------- -- -------- --
Income tax expense $ 13,065 33 $10,493 31 $ 10,528 30
======== == ======== == ======== ==
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLANS
The Company has a non-contributory pension plan covering substantially all
salaried full-time employees who have been employed by the Company the required
length of time. The Company's current policy is to contribute annually the
minimum amount that can be deducted for federal income tax purposes. The
benefits are based upon years of service and employee's compensation during the
last five years of employment. Data relative to the pension plan follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
Actuarial present value of benefit obligations: 1995 1994
-------- --------
<S> <C> <C>
Vested benefit obligation $ 19,611 $ 17,835
======== ========
Accumulated benefit obligation $ 19,674 $ 17,892
======== ========
Projected benefit obligation for service
rendered to date ($21,491) ($20,545)
Plan assets at fair value 20,878 17,892
-------- --------
Projected benefit obligation in excess of
plan assets (613) (2,653)
Remaining unrecognized portion of net
obligation being amortized over 15 years 274 320
Unrecognized prior service cost 843 935
Unrecognized net loss from past experience
different from that assumed 1,858 3,404
-------- --------
Prepaid pension cost included in other assets $ 2,362 $ 2,006
======== ========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
Net pension expense included the following
(income) expense components: 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 836 $ 818 $ 698
Interest cost on projected benefit obligation 1,555 1,463 1,369
Return on plan assets (2,411) (93) (1,158)
Net amortization and deferral 1,275 (1,112) (89)
------- ------ ------
Net pension expense $ 1,255 $ 1,076 $ 820
======= ======= =======
</TABLE>
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
was 7.75% in 1995 and 1994. The expected rate of return on plan assets was 8%
in 1995 and 1994. The plan's assets consist primarily of U.S. government and
agency obligations, certificates of deposit and other fixed income obligations.
The Company sponsors two defined benefit postretirement plans other than
the pension plan that cover full time employees who have reached 45 years of
age. One plan provides medical benefits and the other provides life insurance
benefits. The postretirement health care plan is contributory, with retiree
contributions adjusted annually and subject to certain employer contribution
maximums; the life insurance plan in noncontributory. The actuarial and
recorded liabilities
28
<PAGE> 15
for these postretirement benefits, none of which have been funded, are as
follows at December 31, 1995 and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ 1,397 $ 2,052
Fully eligible active plan participants 1,155 1,103
Other active plan participants 933 1,417
------- -------
3,485 4,572
Unrecognized transition obligation (2,293) (2,436)
Unrecognized net (loss) gain 675 (873)
------- -------
Accrued postretirement benefit cost $ 1,867 $ 1,263
</TABLE> ======= =======
Net periodic postretirement benefit costs for 1995, 1994 and 1993 included
the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Amortization of unrecognized net gain (loss) $ 55 $ 18 $ (5)
Service cost-benefits attributed to service
during the year 264 200 162
Interest costs on accumulated postretirement
benefit obligations 390 266 254
Amortization of transition obligation
over 20 years 143 143 143
---- ---- ----
Net periodic postretirement benefit cost $852 $627 $554
==== ==== ====
</TABLE>
For measurement purposes in 1995, a 9.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed. The rate was assumed
to decrease gradually to 5.5% for 2003 and remain at that level thereafter. In
1994, rates of 9.5% and 5% were assumed, and in 1993, rates of 12% and 5.5%
were assumed. The health care cost trend rate assumption has an affect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by 1% in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1995, by $405,000 and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for the year then ended by $98,000. The weighted average discount rate
used in determining the accumulated postretirement benefit obligation was 7.5%
in 1995, 8.5% in 1994 and 7% in 1993.
The Company has a non-contributory profit sharing plan covering
substantially all salaried full-time employees who have been employed the
required length of time. Contributions are made at the discretion of the Board
of Directors and amounted to $456,000 in 1995, $413,000 in 1994 and $450,000 in
1993.
In addition, the Company has an employee stock purchase plan that is
designed to provide the employees of the Company a convenient means of
purchasing common stock of the Company. Substantially all salaried, full-time
employees , with the exception of Leo W. Seal, Jr., who have been employed by
the Company the required length of time are eligible to participate, if they so
elect. The Company contributes an amount equal to 25% of each participant's
contribution, which contribution cannot exceed 5% of the employee's base pay.
The Company's contribution amounted to $58,000 in 1995, $52,000 in 1994 and
$45,000 in 1993.
The postretirement plans relating to health care payments and life
insurance and the stock purchase plan are not guaranteed and are subject to
immediate cancellation and/or amendment. These plans are predicated on future
Company profit levels that will justify their continuance. Overall health care
costs are also a factor in the level of benefits provided and continuance of
these postretirement plans. There are no vested rights under the postretirement
health or life insurance plans.
NOTE 10--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH, SHORT-TERM INVESTMENTS AND FEDERAL FUNDS SOLD--For those short-term
instruments, the carrying amount is a reasonable estimate of fair value.
SECURITIES--For securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
LOANS--The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
DEPOSITS--The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
29
<PAGE> 16
LONG-TERM BONDS AND NOTES--Rates currently available to the Company for
debt with similar terms and remaining maturities are used to estimate fair
value of existing debt.
COMMITMENTS--The fair value of commitments to extend credit was not
significant.
The estimated fair values of the Company's financial instruments are as
follows at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1995 1994
-----------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash, short-term investments
and federal funds sold $ 279,551 $ 279,551 $ 177,882 $ 177,882
Securities available-for-sale 109,777 109,777 19,747 19,747
Securities held-to-maturity 738,529 749,497 847,593 828,968
Loans 1,034,978 1,024,316 925,665 920,093
Less: Reserve for loan losses (17,391) (17,391) (15,372) (15,372)
---------- ---------- --------- ----------
Loans, net of reserve 1,017,587 1,006,925 910,293 904,721
Financial liabilities:
Deposits $1,927,681 $ 1,932,198 $1,775,664 $1,772,827
Federal funds purchased, etc. 66,585 66,585 54,296 54,296
Long-term bonds 2,035 2,014 2,955 2,700
</TABLE>
NOTE 11--OFF-BALANCE-SHEET RISK
In the normal course of business, the Company enters into financial
instruments, such as commitments to extend credit and letters of credit, to
meet the financing needs of its customers which are not reflected in the
accompanying consolidated financial statements until they are funded or related
fees are incurred or received. These instruments involve, to varying degrees,
elements of credit risk not reflected in the consolidated balance sheets. The
contract amounts of these instruments reflect the Company's exposure to credit
loss in the event of nonperformance by the other party on whose behalf the
instrument has been issued. The Company undertakes the same credit evaluation
in making commitments and conditional obligations as it does for
on-balance-sheet instruments and may require collateral or other credit support
for off-balance-sheet financial instruments. These obligations are summarized
below as of December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Commitments to extend credit $209,000 $165,000
Letters of credit 5,500 10,600
</TABLE>
Approximately $154,000,000 of commitments to extend credit at December 31,
1995, were at variable rates and the remainder were at fixed rates. Most
commitments to extend credit at December 31, 1994, were at variable rates. The
difference between the interest rates on commitments to extend credit and
market rates is reflected in the consolidated financial statements over the
terms of the related loans when, and if, they are made.
A commitment to extend credit is an agreement to lend to a customer as long
as the conditions established in the agreement have been satisfied. A
commitment to extend credit generally has a fixed expiration date or other
termination clauses and may require payment of a fee by the borrower. Since
commitments often expire without being fully drawn, the total commitment
amounts do not necessarily represent future cash requirements of the Company.
The Company continually evaluates each customer's creditworthiness on a
case-by-case basis. Occasionally, a credit evaluation of a customer requesting
a commitment to extend credit results in the Company obtaining collateral to
support the obligation.
Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing a letter of credit is essentially the same as that involved
in extending a loan.
NOTE 12--CONTINGENCIES
The Company is party to various legal proceedings arising in the ordinary
course of business. In the opinion of management, after consultation with
outside legal counsel, all such matters are adequately covered by insurance or,
if not so covered, are not expected to have a material adverse effect on the
financial condition of the Company.
30
<PAGE> 17
NOTE 13--SUPPLEMENTAL INFORMATION
The following is selected supplemental information for the years ended
December 31, 1995, 1994, and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -------------
<S> <C> <C> <C>
Other non-interest income:
Trust fee income $ 2,525 $ 2,500 $ 2,600
Other non-interest expense:
Deposit insurance premium expense 2,221 4,164 3,766
Postage expense 2,354 2,319 1,670
Interest paid 60,910 49,260 48,771
Income taxes paid 13,600 10,951 11,100
</TABLE>
NOTE 14--SUMMARIZED FINANCIAL INFORMATION OF HANCOCK HOLDING COMPANY (PARENT
COMPANY ONLY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---------- -------------
<S> <C> <C>
ASSETS:
Investment in subsidiaries 224,137,396 $181,971,705
Other 42,250 317,171
------------ ------------
$224,179,646 $182,288,876
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accrued expenses 1,133 --
Stockholders' equity 224,178,513 182,288,876
=========== ============
$224,179,646 $182,288,876
=========== ============
</TABLE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Dividends received from subsidiaries $ 9,112,361 $ 7,297,502 $ 6,343,450
Excess equity in earnings of subsidiaries over dividends received 18,201,558 16,046,640 18,552,302
Interest and other expenses (398,472) (327,632) (56,738)
Income tax credit 101,450 113,907 23,052
------------ ----------- -----------
Net earnings $ 27,016,897 $ 23,130,417 $ 24,862,066
============ ============ ============
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities-principally
dividends from subsidiaries $ 10,054,361 $ 6,928,267 $ 6,291,142
------------ ------------ ------------
Cash Flows from Financing Activities-principally
dividends paid (10,028,311) (6,967,488) (6,460,169)
------------ ------------ ------------
Net increase (decrease) in cash 26,050 (39,221) (169,027)
Cash, Beginning 74,124 113,345 282,372
------------ ------------ ------------
Cash, Ending $ 100,174 $ 74,124 $ 113,345
============ ============ ============
</TABLE>
31
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND STOCKHOLDERS
HANCOCK HOLDING COMPANY
GULFPORT, MISSISSIPPI
We have audited the accompanying consolidated balance sheets of Hancock
Holding Company and subsidiaries as of December 31, 1995 and 1994, and the
related statements of earnings, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Hancock Holding Company and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
January 12, 1996
32
<PAGE> 19
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
The Company's net income was $27.0 million, $3.05 per share, for the year
ended December 31, 1995, compared with $23.1 million, or $2.86 per share, for
the year ended December 31, 1994. The increase in net income can be attributed
to the acquisition of DENHAM which accounted for $1.4 million or 35 % of the
$3.9 million increase and an increase in the net interest margin from an
average of 4.75% in 1994 to 5.13% in 1995. The Banks' balance sheets are
liability sensitive with deposits repricing faster than loans and investment
securities. Non-interest income increased $3.4 million or 16.5% while
non-interest expenses increased 12.1% or $8.6 million. This included the
contribution by DENHAM of $2.6 million of non-interest income and $6.6 million
of non-interest expenses. The provision for loan loss increased from $2 million
to $4.4 million in 1995 as a result of increased loan charge-off activity and
increased loan volume. The loan loss reserve balance was 1.74% of average loans
and represented 326% of non-performing loan balances at December 31, 1995.
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
The Company's net income decreased to $23.1 million, $2.86 per share, for
the year ended December 31, 1994, compared to $24.9 million, or $3.07 per
share, for the year ended December 31, 1993. The merger of WASHINGTON was
accounted for using the pooling-of-interest method, therefore all prior
financial information has been restated. The change in net income was
attributable in part to a 6% increase in non-interest expense and an 8% decline
in non-interest income. Rising interest rates lowered the net interest margin
causing net interest income to rise only slightly from the previous year even
though earning assets grew 9%. A lower level of loan charge-offs in 1994
reduced loan loss expense from $4.6 million in 1993 to $2.0 million in 1994.
The loan loss reserve balance was 1.70% of average loans in 1994 and
represented 354% of non-performing loans at December 31, 1994. The net interest
margin declined to 4.75% from 4.87% in 1993. The Company's balance sheet is
liability sensitive as deposits tend to reprice faster than loans and
investment securities. Therefore, in a rising interest rate environment the
Company's net interest margin will decline.
FINANCIAL CONDITION
SECURITIES
The Company generally purchases securities to be held to maturity, with a
maturity schedule that provides ample liquidity. Securities classified as
held-to-maturity are carried at amortized cost. Certain securities have been
classified as available-for-sale based on management's internal assessment of
the portfolio considering future liquidity and earning requirements. The
December 31, 1995 book value of the held-to-maturity portfolio was $739 million
and the market value was $749 million. The available-for-sale portfolio balance
was $110 million at December 31, 1995.
LOANS
Average loans outstanding increased $94 million in 1995 bringing the
December 31, 1995, net loan portfolio balances to $1 billion or 51% of earning
assets. Loans acquired through the transaction accounted for as a purchase
amounted to $72 million or 77% of the increase. Non-performing loans were $5.3
million or less than 1% of the December 31, 1995, loan balances. Restructured
loans were insignificant and the amount of interest not accrued on
non-performing loans did not significantly effect earnings in 1995, 1994 or
1993. The Company generally makes loans in its market areas of South
Mississippi and Southeastern Louisiana.
DEPOSITS
Deposits increased $152 million bringing the total to $1.9 billion on
December 31, 1995. Savings and time deposit balances increased 5%. Deposits
acquired through the transaction accounted for as a purchase amounted to $105
million or 69% of the increase. Deposits are the Company's primary source of
funds supporting its earning assets base.
33
<PAGE> 20
LIQUIDITY
Liquidity represents the Company's ability to provide funds to satisfy
demands from depositors, borrowers and other commitments by either converting
assets to cash or accessing new or existing sources of funds. The principal
sources of funds which provide liquidity are customer deposits, payments of
principal and interest on loans, maturities and sales of securities, earnings
and borrowings. During 1994, the Company established a line of credit with the
Federal Home Loan Bank in excess of $30 million, providing an additional
liquidity source. At December 31, 1995, cash and due from banks, securities
available-for-sale, federal funds sold and repurchase agreements were in excess
of 20% of total deposits.
CAPITAL RESOURCES
Composite ratings by the respective regulatory authorities of the Company
and Banks, establish minimum capital levels. Currently, the Company and the
Banks are required to maintain minimum risk-based capital ratios of 8%, with
not less that 4% in Tier 1 capital. Additionally, the Company and the Banks
must maintain minimum Tier 1 leverage ratios of at least 3%, subject to
increase to at least 4% to 5%, depending on the composite rating. As of
December 31, 1995, the Company and the Banks capital balances were in excess of
current regulatory minimum requirements.
RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," requires the investment portfolio to be classified into one
of three reporting categories, held-to-maturity, available-for-sale, or
trading. On December 29, 1995 as permitted by A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities issued by the Financial Accounting Standards Board, the Company
reclassified securities with a book value of $67,789,000 and unrealized gains
of $251,000 from securities held-to-maturity to securities available-for-sale.
The Company's adoption of this Statement in 1994 did not have a material
effect on its financial statements.
34
<PAGE> 21
GLOSSARY OF FINANCIAL TERMS
BOOK VALUE PER COMMON SHARE--Total stockholders' equity divided by common
shares outstanding.
CHARGE-OFFS--Loan balances written off against the reserve for possible loan
losses, once a loan is deemed to be uncollectible.
CORE DEPOSITS--Deposits that are traditionally stable, including all deposits
other than time deposits of $100,000 or more.
EARNING ASSETS--Interest- or dividend-bearing assets, including loans and
securities.
EARNINGS PER SHARE--Net income divided by weighted average common shares
outstanding.
FEDERAL FUNDS--Generally one-day loans of excess reserves from one bank to
another. When a bank buys (borrows) federal funds, these funds are called
"federal funds purchased." When it sells (lends) them, they are called "federal
funds sold."
FORECLOSED ASSETS--Property, including OREO, acquired because the borrower
defaulted on the loan.
LEVERAGE RATIO--A ratio of equity to assets adjusted for goodwill and other
disallowed intangibles.
NET INTEREST INCOME--The difference between interest income on earning assets
and interest expense on interest-bearing liabilities.
NET INTEREST MARGIN--Taxable-equivalent net interest income as a percentage of
average earning assets for the period.
NET INTEREST SPREAD--The difference between the yield on earning assets and the
cost of funds.
NON-PERFORMING ASSETS--Non-performing loans plus foreclosed assets.
NON-PERFORMING LOANS--Loans which interest income is not currently recognized
because of the borrower's financial problems (non-accrual loans), or loans
which have been restructured.
OTHER REAL ESTATE OWNED (OREO)--Real estate which the bank takes or to which it
assumes title in order to sell the property, obtained as the result of a loan
default.
POOLING-OF-INTERESTS METHOD--An accounting method that, following a merger,
restates historical financial information of the surviving company as if the
two entities were always one.
PROVISION FOR LOAN LOSSES--A charge against current-period earnings which
reflects actual and expected loan losses.
PURCHASE ACCOUNTING METHOD--An accounting method that adds the fair market
value of assets and liabilities acquired to those of the acquirer at the time
of the acquisition. Historical information of the acquirer is not restated.
RESERVE FOR LOAN LOSSES--A balance sheet account which is an estimation of
future loan losses. The provision for possible loan losses is added to the
reserve account each quarter. Charge-offs decrease the reserve. Recoveries on
loans previously charged off increase the reserve.
RETURN ON ASSETS--Net income as a percentage of average total assets for the
period. The return on assets measures profitability in terms of how efficiently
assets are being utilized.
RETURN ON EQUITY--Net income as a percentage of average total equity. The
return on equity measures profitability in terms of how efficiently equity or
capital is being invested.
RISK-BASED CAPITAL--The amount of capital (Tier 1 plus Tier 2 capital) required
by federal regulatory standards, based on a risk-weighting of assets. For
example, more capital is required for an unsecured loan than for investments in
U.S. Treasury securities. The minimum ratio of capital to risk-weighted assets
is 8%.
TAXABLE-EQUIVALENT BASIS--The result of adding to income earned on tax-free
loans and investments the amount necessary to make yields comparable to yields
on taxable assets.
TIER 1 CAPITAL--Common stockholders' equity less goodwill and other disallowed
intangibles.
TIER 2 CAPITAL--Tier 1 Capital, plus reserve for possible loan losses (limited
to a certain percentage of risk-weighted assets).
35
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
HANCOCK HOLDING COMPANY HANCOCK BANK OF MISSISSIPPI HANCOCK BANK OF LOUISIANA HANCOCK BANK OFFICES
CORPORATE OFFICERS SENIOR MANAGEMENT BOARD OF DIRECTORS WASHINGTON PARISH
J.F. Boardman, Jr., Chairman Leo W. Seal, Jr., President and Bruce R. Easterly Roy Richard, President
A.F. Dantzler, Chairman, C.E.O. A. Bridger Eglin W.C. Byrd, Executive V.P.
Executive Committee George A. Schloegel, Vice A.T. Furr, Jr.** Angie
George A. Schloegel, Vice Chairman Rufus D. Hayes ** Bogalusa, Austin Street
Chairman Theresa M. Johnson, Executive Richard M. Hill, M.D. Bogalusa, Columbia Street
Leo W. Seal, Jr., President and V.P. & Treasurer J.C. Keller, Sr.** Franklinton, Eastgate
C.E.O. Charles A. Webb, Jr., Executive J.B. Olinde Franklinton, Washington Street
Theresa M. Johnson, Executive V.P. & Secretary John H. Pace Mount Hermon
V.P. & Treasurer C. Stanley Bailey, Executive George A. Schloegel
Charles A. Webb, Jr., Executive V.P. and C.F.O. Leo W. Seal, Jr.** FIRST NATIONAL BANK
V.P. & Secretary James R. Ginn, V.P. & C.R.O. Mansel S. Slaughter, Sr.** OF DENHAM SPRINGS
C. Stanley Bailey, Executive John M. Hairston, V.P. Jose R. Tarajano, Sr. BOARD OF DIRECTORS
V.P. and C.F.O. Charles A. Webb, Jr.
Robert G. Chatham, V.P. & HANCOCK BANK OFFICES Bruce R. Easterly
Auditor MISSISSIPPI **Advisory Director Robert E. Easterly
James R. McIlwain, V.P. and A. Bridger Eglin
General Counsel ONE HANCOCK PLAZA DIVISION WASHINGTON PARISH G.C. Mercier
James R. Ginn, V.P. & C.R.O. Alfred G. Rath, V.P. & ADVISORY BOARD John H. Pace
John M. Hairston, V.P. Division Manager William R. Powers
Allen I. Rushing, V.P. & Sr. William Arlt George A. Schloegel
Trust Officer BILOXI-OCEAN SPRINGS DIVISION Gerald L. Foret, M.D. Leo W. Seal, Jr.*
David L. Biliter, V.P. G.H. English, V.P. & Truett C. Jones Ruben Spillman, Sr.
Division Manager Robert E. Magee Thomas L. Sullivan, Sr.
HANCOCK BANK OF MISSISSIPPI Biloxi Main Roy Richard Huey Taylor
BOARD OF DIRECTORS AND D'Iberville Ronald B. Simmons Oscar P. Waldrep, Jr., D.D.S.
ADVISORY DIRECTORS East Ocean Springs Don N. Spiers Charles A. Webb, Jr.
Edgewater Alcous E. Stewart W.E. Wild, Jr.
Alton G. Bankston Ocean Springs Elton Thomas
Frank E. Bertucci Popps Ferry Walter E. Tisdale, D.D.S. FIRST NATIONAL BANK
J.F. Boardman, Jr.* St. Martin Donald D. White OF DENHAM SPRINGS
Robert E. Easterly Vancleave MANAGEMENT
James B. Estabrook, Jr.* HANCOCK BANK OF LOUISIANA
Robert P. Fant CENTRAL DIVISION MANAGEMENT Robert E. Easterly, Chairman,
Douglass L. Fontaine S.S. Domino, V.P. & President & C.E.O.
Donald R. Green Division Manager A. Bridger Eglin, President Steven D. Barnett, Senior V.P.
R.K. Hollister, Jr. Courthouse Road Robert E. Easterly, Chief Robert A. Seals, Jr., Senior
Charles H. Johnson* Dedeaux Road Operating Officer V.P.
L.A. Koenenn, Jr.* Long Beach Irwin Felps, Senior V.P.
L. Boyd Letcher, Jr. Lyman Charles Ray Pourciau, V.P. FIRST NATIONAL BANK OFFICES
Victor Mavar* Mississippi City Arnold Wethey, V.P. Denham Springs
T.W. Milner, Jr.* Northeast Albany
H.C. Moody, Jr., D.V.M.* Norwood Village HANCOCK BANK OFFICES French Settlement
Roy Newman Pineville Road EAST BATON ROUGE PARISH South Range
Robert J. Occhi U.S. Naval CBCenter Springfield
Gordon L. Redd, Jr. U.S. Naval Home Irwin Felps, Senior V.P. Walker
Robert M. Riemann WalMart SuperCenter Charles Ray Pourciau, V.P. Watson
George A. Schloegel* Airline
Leo W. Seal, Jr.* EASTERN DIVISION Baker SUBSIDIARIES
Christine L. Smilek T. Moreno Jones, Senior V.P. & Bluebonnet
George T. Watson Division Manager Broadmoor HANCOCK INSURANCE AGENCY
Charles A. Webb, Jr. Bayou Casotte Brownfields Betsy Ashman, V.P.
Doctors Plaza Central
*Hancock Holding Company Escatawpa College HANCOCK MORTGAGE CORPORATION
Director Gautier Coursey Diane Havard, V.P.
Kreole Essen
PEARL RIVER COUNTY Market Street Florida East HANCOCK INVESTMENT SERVICES,
ADVISORY BOARD Moss Point Greenwell Springs INC.
Pascagoula Main Highland David L. Biliter, President
L. Hudson Holliday Triangle Mid-City
Oren C. Smith Vancleave One American Place HARRISON FINANCE COMPANY
B.J. Stegall Plank Betsy Ashman, V.P.
P.A. Tims, Jr. WESTERN DIVISION Sherwood
David F. Travis L. Clinton Necaise, V.P. & Tara GULFPORT
Jon Williams Division Manager Wooddale Don Norris, Assistant V.P.
Bay St. Louis Main & Manager
JACKSON COUNTY ADVISORY BOARD Bay 90
Diamondhead PICAYUNE
Thad R. Brumfield, Jr. Kiln H.G. Dean, Jr., Assistant
M. Duane Cronier Pass Christian V.P. & Manager
Douglass L. Fontaine Stennis Space Center
R.K. Hollister, Jr. Waveland PASCAGOULA
James R. Horne Buford L. Tolbert,
Theresa M. Johnson PEARL RIVER DIVISION Assistant V.P. & Manager
T. Moreno Jones Edward L. Hilliard, V.P. &
W.P. Keene Division Manager
Harry D. Lane Picayune Downtown
John A. McKinney Picayune Northside
Carl A. Megehee Picayune Southside
Picayune West Canal
Poplarville
</TABLE>
26
<PAGE> 1
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
Hancock Holding Company on Form S-8 (No. 2-99863) and on Form S-3 (No.
33-31782) of our report dated January 12, 1996, incorporated by reference in
this Annual Report on Form 10-K for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
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