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, 1996.
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 ____________ .
Commission file number 0-13089
HANCOCK HOLDING COMPANY
(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0693170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
ONE HANCOCK PLAZA, GULFPORT, MISSISSIPPI 39501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 868-4715
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $3.33 PAR VALUE
(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
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
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of January 2, 1997, was
approximately $367,105,000. 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, 1996, the registrant had outstanding
10,725,102 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, 1996 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 Shareholders
held on February 20, 1997, filed by the Registrant on January 21,
1997, are incorporated by reference into Part III of this report.
<PAGE>
CONTENTS
PART I
Item 1. Business 4
Item 2. Properties 38
Item 3. Legal Proceedings 39
Item 4. Submission of Matters to a Vote of Security
Holders 39
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 40
Item 6. Selected Financial Data 40
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 40
Item 8. Financial Statements and Supplementary Data 40
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 41
PART III
Item 10. Directors and Executive Officers of the
Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial
Owners and Management 41
Item 13. Certain Relationships and Related
Transactions 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 42
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 80 banking offices and over
100 automated teller machines ("ATM's") in the states of
Mississippi and Louisiana through two wholly-owned bank
subsidiaries, Hancock Bank, Gulfport, Mississippi ("Hancock Bank
MS") and Hancock Bank of Louisiana, Baton Rouge, Louisiana
("Hancock Bank LA"). Hancock Bank MS and Hancock Bank LA 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, 1996, the Company had total assets of $2.3
billion and employed on a full-time basis 845 persons in
Mississippi and 436 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, 1996, Hancock Bank MS
currently ranks as the fourth largest bank in Mississippi.
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 $868
million at December 31, 1996, Hancock Bank LA is the largest bank
in East Baton Rouge Parish.
In November 1996, the Company acquired Community Bancshares,
Inc., Independence, Louisiana which owned 100% of the stock of
Community State Bank (Community). This acquisition expanded the
Baton Rouge market area into the Hammond area where many of the
people who work in Baton Rouge live.
Beginning with the 1985 acquisition of the Pascagoula-Moss
Point Bank ("PMP") in Pascagoula, Mississippi, the Company has
acquired approximately $976.2 million in assets and approximately
$876.5 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 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 loans
and increase Hancock Bank LA's capital by $5,000,000.
In April 1994, the Company merged Hancock Bank 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 acquired First Denham
Bancshares, Inc. ("Bancshares") which owned 100% of the stock of
First National Bank of Denham Springs ("Denham"), Denham Springs,
Louisiana. The acquisition was in return for approximately
$4,000,000 cash and 774,098 shares of common stock of the
Company. The acquisition 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 August 15,
1996, Denham was merged into Hancock Bank LA.
On February 1, 1995, the Company merged Hancock Bank LA with
Washington Bank & 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.
In November 1996, the Company acquired Community Bancshares,
Inc., which owned 100% of the stock of Community State Bank
("Community"). This acquisition expanded the Company's market
to the Hammond, Louisiana area, where many of the people who are
employed in East Baton Rouge Parish reside.
On January 17, 1997, the Company acquired Southeast National
Bank, Hammond, Louisiana (Southeast). The acquisition was in
return for approximately $3,700,000 cash and 105,000 shares of
common stock of the Company. The acquisition was accounted for
using the purchase method. Southeast had total assets of
approximately $40,000,000 and stockholders' equity of
approximately $4,000,000 as of December 31, 1996 and net earnings
of approximately $500,000 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 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 standards 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 operations
quality assurance function, a component of its loan review
system, to ensure proper documentation and asset quality.
For Hancock Bank LA, all loans over an individual loan
officer's Board approved lending authority must be approved by
the Bank's, his or h 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
operations quality assurance function, a component of its loan
review system, to ensure proper documentation and asset quality.
LOAN REVIEW AND ASSET QUALITY:
Each Bank's portfolio of loan 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 loan relationships aggregating
less than $250,000 are reviewed. As a result of such reviews,
each Bank places on its Watchlist loans requiring close or
frequent review. All loans classified by a regulator are also
placed on the Watchlist. All Watchlist and past due loans are
reviewed monthly by the Banks' senior lending officers and 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
regularly by management. Generally, a consumer loan which is
delinquent 120 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 when the loan is
1) maintained on a cash basis due to the deterioration in the
financial condition of the borrower, 2) payments, in full, of
principal or interest are not expected or 3) the principal or
interest has bee in default for a period of 90 days, unless the
loan is well secured AND in the process of collection.
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 loan
portfolio and each commercial loan officer's loan 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, 1996, the book value of nonperforming assets held
for resale was approximately $1.9 million.
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.
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 over 100 ATMs:
over 65 ATMs at the 80 banking offices and over 40 free-standing
ATMs at other locations. As members of regional and
international ATM networks such as "PULSE", "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, 1996, the Trust Departments of the Banks had
approximately $1.6 billion of assets under management, of which
$1.0 billion were corporate accounts and $0.6 billion were
personal, employee benefit, estate and other trust accounts.
OPERATING EFFICIENCY STRATEGY:
The primary focus of the Company's operating strategy is to
increase 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 .59 as of December 31, 1996. Since
its acquisition in August 1990, Hancock Bank LA employees have
been reduced from .97 per $1 million of assets to .50 as of
December 31, 1996. 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 $.56 to $1.00 at Hancock Bank MS. Hancock Bank
LA has a higher level of fee income and through December 31,
1996, has achieved a ratio of $.86 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 investment brokerage
services. The income of these subsidiaries generally accounts
for less than 10% of the Company's total annual income.
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 whose
needs 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 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.
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. Despite prior
approval, however, 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 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. This system is
designed to help identify institutions which require special
attention. Financial institutions are assigned ratings based on
evaluation and rating of their financial condition and
operations. Components reviewed include capital adequacy, asset
quality, management capability, the quality and level of
earnings, and the adequacy of liquidity. Effective January 1,
1997, a sixth component was added to the rating system -
Sensitivity to market risk. This component addresses primarily
the issue of a bank's sensitivity to interest rate fluctuations.
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
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 capital ratio at
December 31, 1996, was 10.37%.
The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in
risk profiles 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%. The result is then assigned to one of the
four risk categories. At December 31, 1996, the Company's
off-balance sheet items aggregated $253.2 million; however, after
the
credit conversion these items represented $19.1 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, 1996, the Company's Tier 1 and Total Capital ratios
were 18.03% and 19.02%, respectively.
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 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 preceding 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 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. 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 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 first quarter of 1996, the FDIC lowered
banks' deposit insurance premiums from 4 to 31 cents per hundred
dollars in insured deposits to a rate of 0 to 27 cents. The
Banks have received a risk classification of 1A for assessment
purposes. Total assessments paid to the FDIC amounted to $285
thousand. The Banks paid BIF premiums of 0 cents per hundred
dollars of insured deposits during 1996. The decrease in the
1996 rates resulted in $1.9 million FDIC premium reductions over
the 1995 level of $2.2 million. Premiums for the first and
second quarters of 1997 have remained 0 cents per hundred dollars
of insured deposits. Premiums on OAKAR deposits from the 1991
acquisition of Peoples Federal Savings Association totalled $86
thousand. In addition to the normal premiums paid on OAKAR
deposits, a one-time assessment of $191 thousand was paid.
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 "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 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 is also 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 the 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 $47,700 million, or, if
the aggregate of such accounts exceeds $47,700 million, $1.302
million plus 10% of the total in excess of $47,700 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. Due to
recent deregulation of the industry, however, the banking
business is becoming increasingly dependent on the generation of
fee and service charge revenue.
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.
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 and loans).
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 1996 and 1995 was 5.10%.
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 loan 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.
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:
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES
-----------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------- ------------------------------ --------------------------------
Interest Average Interest Average Interest Average
Average Income or Yield or Average Income or Yield Average Income or Yield
Balance Expense Rate Balance Expense or Rate Balance Expense or Rate
(%) (%) (%)
- -------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning
assets:
Investment
securities:
U.S. Treasury $221,120 $13,567 6.14% $257,228 $14,568 5.66% $316,232 $17,168 5.43%
U.S. government
obligations 449,687 34,886 7.76% 493,315 33,726 6.84% 423,555 24,772 5.85%
Municipal
obligations 60,690 5,451 8.98% 57,001 5,426 9.52% 48,194 4,912 10.19%
Other
securities 171,889 6,780 3.94% 87,606 6,231 7.11% 75,956 4,713 6.20%
Federal funds
sold &
securities
purchased
Under agreements
to resell 106,316 5,580 5.25% 99,559 5,820 5.85% 89,341 3,832 4.29%
Interest-bearing
time deposits
with other
banks 1,543 87 5.64% 500 31 6.20% 725 38 5.24%
Net loans
(2)(3) 1,083,165 107,079 9.89% 1,000,907 98,029 9.79% 906,342 82,967 9.15%
Total
interest- --------------------------------------------------------------------------------------------------
earning
assets/
interest
income (1) 2,094,410 173,430 8.28% 1,996,116 163,831 8.21% 1,860,345 138,402 7.44%
Less: Reserve
for loan
losses (17,670) --- (16,532) --- (15,251) ---
Noninterest-
earning assets:
Cash and due
from banks 121,157 --- 104,854 --- 112,931 ---
Property and
equipment 37,185 --- 37,786 --- 34,815 ---
Other assets 50,795 --- 93,302 --- 50,435 ---
- ------------------------------------------------------------------------------------------------------
Total assets $2,285,877 $173,430 7.58% $2,215,526 $163,831 7.39% $2,043,275 $138,402 6.77%
=====================================================================================================
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Interest-bearing
liabilities:
Deposits:
Savings, NOW
and money
market $ 694,017 19,001 2.74% $ 739,091 $ 20,515 2.78% $ 755,888 $ 20,703 2.74%
Time 778,602 41,624 5.35% 717,064 37,097 5.17% 657,587 27,490 4.18%
Federal funds
purchased 11,425 549 4.80% 15,284 863 5.65% 18,622 754 4.05%
Securities sold
under
agreements to
repurchase 79,411 3,465 4.36% 53,924 2,219 4.12% 24,710 718 2.91%
Long-term bonds 1,795 158 8.80% 2,799 203 7.25% 3,656 256 7.00%
Capital notes 7 --- --- 265 0.00% 1,571 76 4.84%
-----------------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities/
interest
expense 1,565,250 64,804 4.14% 1,528,162 61,162 4.00% 1,462,034 49,997 3.42%
Noninterest-
bearing
liabilities:
Demand deposits 472,909 --- --- 439,495 --- --- 393,120 --- ---
Other
liabilities 17,667 --- --- 32,135 --- --- 13,183 --- ---
Stockholders'
equity 230,051 --- --- 215,734 --- --- 174,938 --- ---
-----------------------------------------------------------------------------------------------------
Total
liabilities &
stockholders'
equity $2,285,877 $ 64,804 2.83% $2,215,526 $ 61,162 2.76% $2,043,275 $ 49,997 2.45%
======================================================================================================
Interest-earning
assets $2,094,410 $1,996,116 $1,860,345
Interest-bearing
liabilities 1,565,250 1,528,162 1,462,034
Interest income $173,430 $163,831 $138,402
Interest expense 64,804 61,162 49,997
-------- -------- --------
Interest income/
interest-
earning assets 8.28% 8.21% 7.44%
Interest
expense/interest-
bearing liabilities 4.14% 4.00% 3.42%
Interest spread 4.14% 4.21% 4.02%
Net interest income $108,626 $102,669 $ 88,405
======== ======== ========
Net interest margin 5.19% 5.13% 4.75%
- ----------
</TABLE>
(1) Includes tax equivalent adjustments to interest income of
$1.9 million, $2.3 million, and $2.1 million in 1996, 1995
and 1994, respectively, using an effective tax rate of 35%.
(2) Interest income includes fees on loans of $4.5 million in
1996, $4.1 million in 1995 and $3.2 million in 1994.
(3) Includes nonaccrual loans. See "Nonperforming Assets."
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.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994
--------------------------- ------------------------------ ------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
--------------------------- ------------------------------ ------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Investment securities:
U.S. Treasury $(2,044) $ 1,043 $(1,001) $( 3,327) $ 727 $( 2,600) $ 1,301 $( 994)$ 307
U.S. government obligations (2,984) 4,144 1,160 4,761 4,193 8,954 1,528 (1,630) ( 102)
Municipal obligations (1) 351 ( 326) 25 837 ( 323) 514 463 ( 751) ( 288)
Other securities 5,992 (5,443) 549 827 691 1,518 ( 602) 540 ( 62)
Federal funds sold & securities
purchased under agreements
to resell 395 ( 635) ( 240) 594 1,394 1,988 (1,536) 1,765 229
Interest bearing time deposits
with other banks 65 ( 9) 56 ( 14) 7 ( 7) ( 19) 12 ( 7)
Net Loans 8,053 997 9,050 9,261 5,801 15,062 5,459 (3,136) 2,323
-----------------------------------------------------------------------------------------
Total 9,828 ( 229) 9,599 12,939 12,490 25,429 6,594 (4,194) 2,400
-----------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Savings, NOW and money
market (1,253) ( 261) (1,514) ( 490) 302 ( 188) 978 359 1,337
Time 3,181 1,346 4,527 3,097 6,510 9,607 ( 212) 133 ( 79)
Federal funds purchased ( 218) ( 96) ( 314) ( 189) 298 109 24 193 217
Securities sold under
agreements to repurchase 1,050 196 1,246 1,202 299 1,501 63 171 234
Long-term bonds ( 73) 28 ( 45) ( 62) 9 ( 53) ( 69)( 25) ( 94)
Capital notes ( 258) --- ( 258) 265 ( 76) 189 12 ( 26) ( 14)
-----------------------------------------------------------------------------------------------
Total 2,429 1,213 3,642 3,823 7,342 11,165 796 805 1,601
---------------------------------------------------------------------------------------------
Increase (decrease) in
net interest income $ 7,399 $(1,442) $ 5,957 $ 9,116 $ 5,148 $ 14,264 $ 5,798 $(4,999) $ 799
=============================================================================================
- ----------
</TABLE>
(1) Yields on tax-exempt investments have been adjusted to a tax
equivalent basis utilizing a 35% effective tax rate.
(2) Interest earned includes fees on loans of $4.5 million in
1996, $4.1 million in 1995 and $3.2 million in 1994.
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 designed to produce
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, 1996, the Company's cumulative interest
sensitivity gap in the one year interval was (21.75%) as compared
to a cumulative interest sensitivity gap in the one year interval
of (18.44%) at December 31, 1995. 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, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST SENSITIVITY AT DECEMBER 31, 1996
-----------------------------------------------------
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 $ 302,553 $ 107,128 $ 531,015 $ 233,271 $1,173,967
Securities and time deposits 119,629 94,242 225,752 464,914 904,537
Federal funds 12,000 -- -- -- 12,000
--------------------------------------------------------------------------
Total earning assets $ 434,182 $ 201,370 $ 756,767 $ 698,185 $2,090,504
===========================================================================
20.77% 9.64% 36.20% 33.39% 100.00%
Interest bearing deposits, excluding
CDs greater than $100,000 $ 542,277 $ 285,565 $ 440,733 $ 3,339 $1,271,914
CDs greater than $100,000 97,686 75,521 48,491 -- 221,698
Short-term borrowings 87,609 -- -- -- 87,609
Other borrowings 500 1,050 -- -- 1,550
--------------------------------------------------------------------------
Total interest-bearing funds 728,072 362,136 489,224 3,339 1,582,771
Interest-free funds -- -- -- 507,733 507,733
--------------------------------------------------------------------------
Funds supporting earning assets $ 728,072 $ 362,136 $ 489,224 $ 511,072 $2,090,504
==========================================================================
34.82% 17.33% 23.40% 24.45% 100.00%
Interest sensitivity gap $(293,890) $(160,766) $ 267,543 $ 187,113 --
Cumulative gap $(293,890) $(454,656) $(187,113) -- --
Percent of total earning assets (14.06%) (21.75%) (8.95%) -- --
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST SENSITIVITY AT DECEMBER 31, 1995
-----------------------------------------------------
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>
INCOME TAXES:
The Company had income tax expense of $15.2 million and $13.1
million for the years ended December 31, 1996 and 1995,
respectively. This represents effective tax rates of 32.4% and
32.6% for December 31, 1996 and 1995, respectively.
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.
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------------------------
Return on average assets (%) 1.38 1.22 1.13
Return on average stockholders'
equity (%) 13.74 12.50 13.22
Dividend payout ratio (%) 28.90 31.45 32.21
Average stockholders' equity to
average assets (%) 10.06 9.74 8.56
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. Generally, securities
with a market risk have been placed in this category.
The December 31, 1996 book value of the held-to-maturity
portfolio
was $804 million and the market value was $807 million. The
available-for-sale portfolio balance was $98 million at December
31, 1996.
The book values of securities classified as available-for-sale
as of December 31, 1996, 1995 and 1994, were as follows (in
thousands):
DECEMBER 31
-------------------------------
1996 1995 1994
-------------------------------
U.S. Treasury securities $ 499 $ 1,493 $ 2
Other U.S. gov. obligations 53,802 61,470 659
Municipal obligations 923 962 997
Other securities --- 544 ---
Mortgage-backed securities 5,373 5,140 ---
CMOs 33,038 34,695 19,385
Equity securities 4,932 4,993 ---
--------------------------------
$ 98,567 $109,297 $ 20,382
================================
The book value, book yield and market value of the debt
securities classified as available-for-sale as of December 31,
1996, by estimated maturity, were as follows (in thousands):
BOOK VALUE YIELD (%) MARKET VALUE
-------------------------------------
Due in one year or less $ 4,029 6.40 $ 3,939
Due after one year through
five years 17,403 6.56 17,149
Due after five years through
ten years 15,908 6.60 15,753
Due after ten years 56,295 6.57 55,822
-------------------------------------
$ 93,635 6.57 $92,663
=====================================
The book value and market values of securities classified as
held-to-maturity as of December 31, 1996, 1995 and 1994 were as
follows (in thousands):
DECEMBER 31
--------------------------------
1996 1995 1994
--------------------------------
U.S. Treasury securities $175,171 $239,892 $280,578
Other U.S. gov. obligations 338,796 317,140 275,209
Municipal obligations 66,367 56,961 58,224
Other securities --- 11,027 15,747
Mortgage-backed securities 87,991 50,427 129,028
CMOs 135,673 63,082 88,807
--------------------------------
$809,998 $738,529 $847,593
================================
The book value, book yield and market value of the
securities classified as held-to-maturity as of December 31,
1996, by contractual maturity, were as follows (in thousands):
BOOK VALUE YIELD (%) MARKET VALUE
-----------------------------------
Due in one year or less $ 99,189 6.60 $ 99,328
Due after one year through
five years 227,023 6.64 227,834
Due after five years through
ten years 249,010 6.70 248,796
Due after ten years 228,776 6.64 230,752
----------------------------------
$803,998 6.65 $806,710
==================================
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,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
Residential mortgages
1-4 family $ 333,581 $ 224,646 $ 214,247 $ 213,216 $ 211,931
Residential mortgages
multifamily 12,769 9,674 7,302 7,124 7,804
Home equity lines 13,000 11,825 11,740 13,147 12,873
Construction and development 71,057 41,602 35,719 24,234 18,454
Nonresidential 168,203 127,027 112,957 119,094 111,504
Commercial, industrial and
other 169,814 176,942 119,997 160,385 157,797
Consumer 372,951 409,608 397,879 366,401 297,401
Lease financing and depository
institutions 16,095 13,811 10,074 6,673 6,079
Political subdivisions 12,142 14,394 12,806 11,668 12,791
Credit card 29,158 32,104 30,794 27,466 26,482
---------------------------------------------------------------
1,198,770 1,061,633 953,515 949,408 863,116
Less, unearned income 24,806 26,656 27,850 26,396 22,393
---------------------------------------------------------------
Net loans $1,173,967 $1,034,977 $ 925,665 $ 923,012 $ 840,723
===============================================================
</TABLE>
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, 1996, the portfolio balance had increased to
approximately $20.8 million with approximately 37,000 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, 1996 DECEMBER 31, 1995
---------------------------------------- ------------------------------------------
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> <C>
Commercial, industrial and
other $ 68,436 $ 77,960 $ 23,418 $ 169,814 $ 70,958 $ 77,897 $ 28,087 $ 176,942
Real estate - construction 44,714 18,994 7,349 71,057 20,227 14,685 6,690 41,602
All other loans 148,232 557,936 251,731 957,899 154,587 454,385 234,117 843,089
---------------------------------------------------------------------------------------
Total loans $261,382 $654,891 $282,498 $1,198,770 $245,772 $546,967 $268,894 $1,061,633
=======================================================================================
</TABLE>
The sensitivity to interest rate changes of that portion of the Company's
loan portfolio that matures after one year is shown below:
<TABLE>
<CAPTION>
LOAN SENSITIVITY TO CHANGES IN INTEREST RATES
DECEMBER 31, DECEMBER 31,
1996 1995
-------------------------
(Amounts in thousands)
<S> <C> <C>
Commercial, industrial, and real estate construction
maturing after one year:
Fixed rate $188,476 $150,111
Floating rate 80,793 80,298
Other loans maturing after one year:
Fixed rate 594,593 559,592
Floating rate 18,781 25,860
----------------------
Total $882,643 $815,861
=====================
</TABLE>
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>
DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Real estate $ 753 $ 2,406 $ 1,914 $ 1,888 $ 4,050
Commercial, industrial
and other 169 1,144 525 1,424 399
Consumer 1,298 1,176 1,287 1,322 1,735
Lease financing --- --- --- --- 22
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
Restructured loans 685 611 614 482 194
-------------------------------------------------------------------------------------------
Total nonperforming
loans 2,905 5,337 4,340 5,116 6,400
Acquired real estate
owned 147 140 --- --- ---
Real estate owned 1,728 946 1,001 1,029 1,673
-------------------------------------------------------------------------------------------
Total nonperforming
assets $ 4,780 $ 6,423 $ 5,341 $ 6,145 $ 8,073
===========================================================================================
Loans 90+ days past
due and still
accruing $8,361 $ 4,089 $ 2,692 $ 4,338 $ 7,356
===========================================================================================
Ratios (%):
Nonperforming loans
to net loans 0.71 0.52 0.47 0.55 0.76
Nonperforming assets
to net loans and
real estate owned 0.41 0.62 0.58 0.67 0.96
Nonperforming loans
to average net loans 0.77 0.53 0.48 0.60 0.80
Reserve for loan
losses to
nonperforming loans 681.58 325.86 354.19 299.18 229.41
</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>
DECEMBER 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 220 $ 463 $ 340 $ 441 $ 603
Restructured 68 60 56 45 17
------------------------------------------------------------------------------------------------
Total $ 288 $ 523 $ 396 $ 486 $ 620
===========================================================================================
</TABLE>
Interest actually received on nonaccrual and restructured
loans was insignificant.
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,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Net loans outstanding at end of period $1,173,967 $1,034,978 $ 925,665 $ 923,012 $ 840,723
================================================================================
Average net loans outstanding $1,083,165 $1,000,907 $ 904,342 $ 847,526 $ 796,018
================================================================================
Balance of reserve for loan losses
at beginning of period $ 17,391 $ 15,372 $ 15,306 $ 14,682 $ 12,805
Loans charged-off:
Real estate 73 210 106 318 766
Commercial 975 636 637 2,218 2,516
Consumer 5,417 4,524 2,706 3,087 3,981
Lease financing 1 13 --- 53 2
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
--------------------------------------------------------------------------------
Total charge-offs 6,466 5,383 3,449 5,676 7,265
--------------------------------------------------------------------------------
Recoveries of loans previously
charged-off:
Real estate 186 15 53 102 85
Commercial 937 971 570 695 430
Consumer 945 839 886 869 648
Lease financing 0 5 8 2 1
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
------------------------------------------------------------------------
Total recoveries 2,068 1,830 1,517 1,668 1,164
------------------------------------------------------------------------
Net charge-offs 4,398 3,553 1,932 4,008 6,101
Provision for loan losses 6,153 4,425 1,998 4,632 7,978
Balance acquired through acquisition 654 1,147 --- --- ---
------------------------------------------------------------------------
Balance of reserve for loan losses
at end of period $ 19,800 $ 17,391 $ 15,372 $ 15,306 $ 14,682
========================================================================
</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>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
-------------------------------------------------
Ratios (%):
Net charge-offs to average net loans 0.41 0.35 0.21 0.47 0.77
Net charge-offs to period-end net loans 0.37 0.34 0.21 0.43 0.73
Reserve for loan losses to average net loans 1.83 1.74 1.70 1.81 1.84
Reserve for loan losses to period-end net loans 1.69 1.68 1.66 1.66 1.75
Net charge-offs to loan loss reserve 22.21 20.43 12.57 26.19 41.55
Net charge-offs to loan loss provision 71.47 80.29 96.70 86.53 76.47
</TABLE>
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, 1996, is
available to absorb losses occurring in any category of loans.
<TABLE>
DECEMBER 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------
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 $3,000 49.94 $ 2,000 39.08 $1,250 46.06 $1,250 36.69 1,250 42.00
Commercial,
industrial
and other 5,750 16.52 5,250 19.32 5,000 14.98 5,000 18.82 4,750 20.47
Consumer 8,250 31.11 7,500 38.58 6,500 41.73 6,500 38.60 6,250 34.46
Credit card 800 2.43 500 3.02 500 3.23 500 2.89 500 3.07
Unallocated 2,000 --- 2,141 --- 2,122 --- 2,056 --- 1,932 ---
------------------------------------------------------------------------------------------------------
$19,800 100.00 17,391 100.00 $15,372 100.00 $15,306 100.00 $14,682 100.00
======================================================================================================
</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>
1996 1995 1994
------------------------------- ------------------------------- -------------------------
PERCENT PERCENT PERCENT
OF OF OF RATE
AMOUNT DEPOSITS RATE (%) AMOUNT DEPOSITS RATE (%) AMOUNT DEPOSITS (%)
------------------------------- ------------------------------- -------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
accounts $ 472,909 24.30 --- $ 439,495 23.18 --- $393,120 21.76 ---
NOW accounts 268,391 13.8 2.68 288,947 15.24 2.64 293,347 16.24 2.58
Money market and other
savings accounts 425,626 21.88 2.78 450,144 23.75 2.86 462,541 25.60 2.84
Time deposits 778,602 40.02 5.34 717,064 37.83 5.17 657,587 36.40 4.18
---------------------------------------------------------------------------------------------------
$1,945,528 100.00 $1,895,650 100.00 $1,806,595 100.00
===================================================================================================
</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.
Time certificates of deposit of $100,000 and over at
December 31, 1996 had maturities as follows:
DECEMBER 31, 1996
-------------------
(Amounts in thousands)
Three months or less $ 97,686
Over three through six months 29,453
Over six through twelve months 46,068
Over twelve months 48,491
---------
Total $221,698
=========
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.
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
--------------------------
(Amounts in thousands)
Federal funds purchased:
Amount outstanding at
period-end $ 0 $11,300 $29,150
Weighted average interest at
period-end 0.00% 3.12% 2.75%
Maximum amount at any month-end
during period $ 19,725 $16,325 $37,000
Average amount outstanding
during period $ 11,425 $15,284 $18,622
Weighted average interest rate
during period 5.33% 5.65% 4.05%
Securities sold under agreements to repurchase:
Amount outstanding at
period-end $ 87,609 $55,285 $25,146
Weighted average interest at
period-end 4.25% 2.50% 2.50%
Maximum amount at any month
end during-period $156,595 $88,070 $43,096
Average amount outstanding
during period $ 79,411 $53,924 $24,710
Weighted average interest
rate during period 4.26% 4.12% 2.91%
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, 1996, 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, 1996.
The Company depends upon the dividends paid to it from the
Banks as a principal source of funds for its debt service and
dividend requirements. As of December 31, 1996, there was
approximately $85 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>
RISK-BASED CAPITAL RATIOS TIER 1 LEVERAGE
---------------------------------------------------------------------------------------
TOTAL TIER 1 RATIO
---------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hancock Bank
MS 18.62% 17.98% 17.79% 17.18% 10.10% 9.26%
Hancock Bank
LA 19.63 22.35 18.38 21.10 10.54 9.61
Company 19.02 18.64 18.03 17.69 10.37 9.28
</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.
NEW ACCOUNTING STANDARDS:
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers
and servicing of Financial Assets and Extinguishments of
Liabilities" which provides revised accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities. The Company does not anticipate
that the adoption of this statement in 1997 will have a
significant effect of its financial condition or results of
operations.
IMPACT OF INFLATION:
Unlike most industrial companies, the assets and liabilities
of financial institutions such as the Banks are primarily
monetary in nature. Interest rates, therefore, 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.
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 a urban development revenue bond issue with a
present balance of $1,050,000. 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) Hammond, LA (1)
Angie, LA (1) Independence, LA (1)
Baker, LA (1) Long Beach, MS (2)
Baton Rouge, LA (13) Loranger, LA (1)
Bay St. Louis, MS (2) Lyman, MS (1)
Biloxi, MS (3) Moss Point, MS (3)
Bogalusa, LA (1) Mt. Hermon, LA (1)
Denham Springs, LA (4) Ocean Springs, MS (2)
D'Iberville, MS (1) Pascagoula, MS (4)
Escatawpa, MS (1) Pass Christian, MS (1)
Franklinton, LA (1) Picayune, MS (2)
French Settlement, LA (1) Poplarville, MS (1)
Gautier, MS (1) Walker, LA (1)
Gulfport, MS (7) Waveland, MS (1)
The following banking offices in Mississippi and Louisiana
are leased under agreements with unexpired terms of from one to
thirty-four years including renewal options (number of locations
shown in parenthesis):
Baton Rouge, LA (5) Hammond, LA (1)
Bay St. Louis, MS (2) Pascagoula, MS (1)
Biloxi, MS (1) Picayune, MS (2)
Diamondhead, MS (1) Springfield, LA (1)
Gulfport, MS (5) Vancleave, MS (1)
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
There were no matters submitted to a vote of security
holders during the quarter ended December 31, 1996.
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 1996 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 1996
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 34 and 35 of the Company's 1996 Annual Report to
Stockholders is incorporated herein by reference.
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 33 of the Company's 1996 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 Flows on Page 21
Notes to Consolidated Financial Statements on Pages 22
through 32
Independent Auditors' Report on Page 33
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 3-7) and "Executive Compensation" (Pages 12-18)
in the Proxy Statement for the Annual Meeting of Shareholders
held February 20, 1997, which was filed by the Registrant in
definitive form with the Commission on January 21, 1997 and is
incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
For information concerning this item see "Executive
Compensation" (Pages 12-18) in the Proxy Statement for the Annual
Meeting of Shareholders held February 20, 1997, which was filed
by the Registrant in definitive form with the Commission on
January 21, 1997 and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
For information concerning this item see "Principal
Shareholders" (Page 10) and "Election of Directors" (Pages 3-7)
in the Proxy Statement for the Annual Meeting of Shareholders
held February 20, 1997, which was filed by the Registrant in
definitive form with the Commission on January 21, 1997 and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item see "Certain
Transactions and Relationships" (Page 18) in the Proxy Statement
for the Annual Meeting of Shareholders held February 20, 1997,
which was filed by the Registrant in definitive form with the
Commission on January 21, 1997 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 1996 Annual Report to Stockholders and are incorporated
herein by reference:
- Independent Auditors' Report
- Consolidated Balance Sheets as of December 31, 1996 and
1995
- Consolidated Statements of Earnings for the three years
ended December 31, 1996
- Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1996
- Consolidated Statements of Cash Flows for the three
years ended December 31, 1996
- Notes to Consolidated Financial Statements for the three
years ended December 31, 1996
All other financial statements and schedules are omitted as
the required information is inapplicable or the required
information is presented in the 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 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).
(2.8) Agreement and Plan of Reorganization dated November 15,
1996 among Hancock Holding Company, Hancock Bank of
Louisiana, Community Bancshares, Inc. and Community
State Bank, Hammond Louisiana (filed as Exhibit 2 to the
Registrant's Form S-4, Registration Number 333-11873,
dated September 12, 1996).
(2.9) Agreement and Plan of Reorganization dated January 17,
1997 among Hancock Holding Company, Hancock Bank of
Louisiana and Southeast National Bank, Hammond,
Louisiana (filed as Exhibit 2 to the Registrant's Form
S-4, Registration Number 333-14223, dated October 16,
1996).
(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).
(3.7) Articles of Amendment to the Articles of Incorporation
adopted February 20, 1997 (filed herewith).
(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.
(10.1) 1996 Long Term Incentive Plan (filed as Exhibit 10.1 to
the Registrant's Form 10-K for the year ended December
31, 1995, and incorporated herein by reference).
(10.2) Description of Hancock Bank Executive Supplemental
Reimbursement Plan, as amended (provided on page 17 of
the Registrant's definitive proxy statement for its
annual shareholders' meeting on February 20, 1997 filed
with the Registrant's definitive proxy materials on
January 21, 1997 and incorporated herein by reference).
(10.3) Description of Hancock Bank Automobile Plan (provided on
page 17 of the Registrant's definitive proxy statement
for its annual shareholders' meeting on February 20,
1997 filed with the Registrant's definitive proxy
materials on January 21, 1997 and incorporated herein by
reference).
(10.4) Description of Deferred Compensation Arrangement for
Directors (provided on pages 12-18 of the Registrant's
definitive proxy statement for its annual shareholders'
meeting on February 20, 1997 filed with the Registrant's
definitive proxy materials on January 21, 1997 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).
(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 & 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 year ending December
31, 1996 (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 20, 1997 (deemed "filed" for
the purposes of this Form 10-K only for those portions
which are specifically incorporated herein by
reference).
(22) Subsidiaries of the Registrant.
(27) Selected Financial Data
JURISDICTION HOLDER OF
NAME OF INCORPORATION OUTSTANDING STOCK (1)
- -----------------------------------------------------------------
Hancock Bank Mississippi Hancock Holding Company
Hancock Bank of
Louisiana Louisiana Hancock Holding Company
Hancock Bank
Securities Mississippi Hancock Bank
Corporation
Hancock Insurance
Agency Mississippi Hancock Bank
Hancock Investment
Services, Inc. Mississippi Hancock Bank
Town Properties,
Inc. Mississippi Hancock Bank
The Gulfport
Building, Inc. Mississippi Hancock Bank
of Mississippi
Harrison Financial
Services, Inc. Mississippi Hancock Bank
Hancock Mortgage
Corporation Mississippi Hancock Bank and
Hancock Securities Corp.
Harrison Life
Insurance Company Mississippi 79% owned by Hancock Bank
(1) All are 100% owned except as indicated.
(23) Consent of Independent Accountants.
(b) Reports on Form 8-K: No reports on Form 8-k were filed
during the last quarter of the period covered by this report.
(c) The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Not applicable.
(27) Selected Financial Data
<PAGE>
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 25, 1997 /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 25, 1997
Leo W. Seal, Jr. (Chief Executive Officer)
/S/ JOSEPH F. BOARDMAN, JR. Director, March 25, 1997
Joseph F. Boardman, Jr. Chairman of the Board
/S/ THOMAS W. MILNER, JR. Director March 25, 1997
Thomas W. Milner, Jr.
/S/ GEORGE A. SCHLOEGEL Director, March 25, 1997
George A. Schloegel Vice-Chairman of the Board
/S/ DR. HOMER C. MOODY, JR. Director March 25, 1997
Dr. Homer C. Moody, Jr.
/S/ JAMES B. ESTABROOK, JR. Director March 25, 1997
James B. Estabrook, Jr.
/S/ CHARLES H. JOHNSON Director March 25, 1997
Charles H. Johnson
/S/ L. A. KOENENN, JR. Director March 25, 1997
L. A. Koenenn, Jr.
/S/ VICTOR MAVAR Director March 25, 1997
Victor Mavar
/S/ C. STANLEY BAILEY Chief Financial March 25, 1997
C. Stanley Bailey Officer
EXHIBIT 3.7
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
HANCOCK HOLDING COMPANY
GULFPORT, MISSISSIPPI
Pursuant to the provisions of the Miss. Code Ann.,
Sections 79-4-10.01 through 79-4-10.09 (1996), the undersigned
corporation
hereby adopts the following Articles of Amendment to its Articles
of Incorporation:
FIRST: The name of the corporation is Hancock Holding
Company.
SECOND: The following Amendments to the Amended and Restated
Articles of Incorporation of Hancock Holding Company (the
"Articles") were adopted by the Board of Directors on December
12, 1996 and by the Stockholders at the Annual Meeting held on
February 20, 1997, in the manner prescribed by law:
1. An amendment to Article Two of the Articles to
increase the number of shares of Common Stock,
$3.33 par value, which the corporation has
authority to issue to 75,000,000 to read in its
entirety as follows:
SECOND: The aggregate number of shares which
the Corporation shall have authority to issue
is seventy-five million (75,000,000) of the
par value of three dollars and thirty-three
cents ($3.33) each.
2. An amendment to Article Six of the Articles to
conform Article Six to the Mississippi Business
Corporations Act to read in its entirety as
follows:
SIXTH: A director shall not be liable to the
Corporation or its shareholders for money
damages for any action taken, or any failure
to take any action, as a director, except
liability for: (i) the amount of financial
benefit received by a director to which he is
not entitled; (ii) an intentional infliction
of harm on the Corporation or its
shareholders; (iii) a violation of
Mississippi Code Annotated Section
79-4-8.33(1972), as amended; or (iv) an
intentional violation of criminal law. The
Corporation shall indemnify any person (or
the heirs, executors and administrators of
any person) who was or is a party to, or is
threatened to be made a party to, any
threatened, pending or completed action, suit
or proceeding, whether civil, criminal,
administrative, investigative or otherwise,
formal or informal (a "Proceeding"), by
reason of the fact that such person is or was
a director, officer, employee or agent of the
Corporation, or is or was serving at the
request of the Corporation as a director,
officer, partner, trustee, employee or agent
of another corporation, partnership, joint
venture, trust, employee benefit plan or
other enterprise, against any obligation to
pay a judgment, settlement, penalty, fine
(including an excise tax assessed with
respect to an employee benefit plan) or
reasonable expenses (including legal fees)
incurred with respect to the Proceeding: (A)
to the fullest extent permitted by the
Mississippi Business Corporation Act in
effect from time to time (the "Act") and (B)
despite the fact that such person has failed
to meet the standard of conduct set forth in
the Act, or would be disqualified for
indemnification under the Act for any reason,
if a determination is made by one of the
following determining bodies (Collectively,
the "Determining Bodies"): (i) the board of
directors by majority vote of a quorum
consisting of directors not at the time
parties to the Proceeding, (ii) if a quorum
cannot be obtained under (i), by majority
vote of a committee duly designated by the
board of directors (in which designation
directors who are parties may participate),
consisting of two or more directors not at
the time parties to the Proceeding, (iii) by
special legal counsel (a) selected by the
board of directors or its committee in the
manner prescribed in (i) or (ii) or (b) if a
quorum of the board of directors cannot be
obtained under (i) and a committee cannot be
designated under (ii), selected by majority
vote of the full board of directors (in which
selection directors who are parties may
participate, (iv) by the shareholders (but
shares owned by or voted under the control of
directors who are at the time parties to the
Proceeding may not be voted on the
determination) or (v) by a court, that the
acts or omissions of the director, officer,
employee or agent did not constitute gross
negligence or willful misconduct. However
the Corporation shall not indemnify a person
for: (i) an intentional infliction of harm on
the Corporation or its shareholders; (ii) a
violation of Mississippi Code Annotated
Section 79-4-8.33 (1972), as amended; or for
(iii) an intentional violation of criminal
law, and the Corporation shall not indemnify
a person for receipt of a financial benefit
to which he is not entitled unless ordered by
a court under Mississippi Code Annotated,
Section 79-4-8.54(9)(3). The Corporation
shall indemnify a person in connection with a
proceeding by or in the right of the
Corporation for reasonable expenses incurred
in connection with the Proceeding if such
acts or omissions do not constitute gross
negligence or willful misconduct, and shall
make further indemnification in connection
with the Proceeding if so ordered by a court
under Mississippi Code Annotated, Section
79-4-8.54(9)(3). The Corporation upon request
shall pay or reimburse such person for his
reasonable expenses (including legal fees) in
advance of final disposition of the
Proceeding as long as: (i) such person
furnishes the Corporation a written
undertaking, executed personally or on his
behalf, to repay the advance if he is not
entitled to mandatory indemnification under
Mississippi Code Annotated, Section 79-4-8.52
and it is ultimately determined by a judgment
or other final adjudication that his acts or
omissions did constitute gross negligence or
willful misconduct, which undertaking must be
an unlimited general obligation of such
person, and which shall be accepted by the
Corporation without reference to the
financial ability of the person to make
repayment or to collateral; (ii) such person
furnishes a written affirmation of his good
faith that his acts or omissions did not
constitute gross negligence or willful
misconduct; and (iii) a determination is made
by any of the Determining Bodies that the
facts then known to those making the
determination would not preclude
indemnification under this Article SIXTH.
Neither the amendment nor repeal of this
Article SIXTH, nor the adoption or amendment
of any other provision of the Corporation's
bylaws or these Amended and Restated Articles
of Incorporation inconsistent with this
Article SIXTH, shall apply to or affect in
any respect the applicability of the
preceding paragraph with respect to any act
or failure to act which occurred prior to
such amendment, repeal or adoption.
THIRD: The designation, number of outstanding shares, number
of votes entitled to be cast on the Amendments, and the number of
votes indisputably are as follows:
AS TO AMENDMENT 1:
Number of Votes Number of Shares
Number of Votes Entitled Indisputably
Designation Outstanding To Be Cast Represented
Common Stock 10,725,102 10,725,102 8,457,064.69
AS TO AMENDMENT 2:
Number of Votes Number of Shares
Number of Votes Entitled Indisputably
Designation Outstanding To Be Cast Represented
Common Stock 10,725,102 10,725,102 8,457,064.69
FOURTH: Of the 8,457,064.69 shares of common stock
indisputably represented at the Annual Meeting of Stockholders,
the following votes were cast FOR and AGAINST the Amendment as
follows:
AS TO AMENDMENT 1:
Total Number Total Number Total Number
Number of of Votes of Votes of Votes
Votes Cast Cast FOR Cast AGAINST ABSTAINING
8,331,324.69 7,762,126.17 539,376.69 29,821.83
AS TO AMENDMENT 2:
Total Number Total Number Total Number
Number of of Votes of Votes of Votes
Votes Cast Cast FOR Cast AGAINST ABSTAINING
8,317,056.69 8,294,723.33 4,614.53 17,718.83
FIFTH: The number of votes cast for the amendments to the
Articles of Incorporation by each voting group was sufficient for
approval by the voting group.
NOW, THEREFORE, Hancock Holding Company, Gulfport,
Mississippi, acting by and through its undersigned officer,
hereby submits these Articles of Amendment, all in accordance
with Miss. Code Ann., Section 79-4-10.06 (1996).
DATED: Feb. 26, 1997.
HANCOCK HOLDING COMPANY
By: /s/ Leo W. Seal, Jr.
Leo W. Seal, Jr.
President
STATE OF MISSISSIPPI
COUNTY OF HARRISON
Personally appeared before me, the undersigned authority in
and for the jurisdiction aforesaid, the within named LEO W. SEAL,
JR. who being by me personally sworn, declared that he is the
President, of Hancock Holding Company, that he executed the
foregoing document as President of the corporation on its behalf,
he being so authorized to do; and that the statements contained
therein are true.
GIVEN UNDER MY HAND AND OFFICIAL SEAL on this the 26th day
of February, 1997.
/s/ Laurie Lynd Mohler
NOTARY PUBLIC
My Commission Expires:
My Commission Expires May 12, 1999
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
Amounts in thousands (except per share data)
1996 1995 % CHANGE
-------------------------------------
EARNINGS STATEMENT DATA:
Net interest income $ 106,719 $ 100,367 6.33
Provision for loan losses 6,154 4,425 39.07
Earnings before income taxes 46,773 40,082 16.69
Net earnings 31,603 27,017 16.97
PER SHARE DATA:
Net earnings* $ 3.08 $ 2.65 16.23
Cash dividends paid* 0.88 0.84 4.76
Book value (period end) 24.42 21.95 11.25
Weighted average shares outstanding 10,277 10,181 0.94
Shares outstanding 12/31 10,725 10,213 5.02
BALANCE SHEET DATA (PERIOD END):
Securities $ 901,592 $ 848,306 6.31
Net loans 1,173,967 1,034,978 13.41
Reserve for loan losses 19,800 17,391 13.85
Total assets 2,289,582 2,234,286 2.47
Total deposits and deposit
related liabilities 2,014,185 1,991,069 1.16
Long-term bonds 1,050 2,035 (48.40)
Total stockholders' equity 261,938 224,179 16.84
BALANCE SHEET DATA (AVERAGE
FOR THE YEAR):
Securities $ 903,386 $ 895,150 0.92
Net loans 1,083,165 1,000,907 8.22
Reserve for loan losses 17,670 16,532 6.88
Total assets 2,285,877 2,215,526 3.18
Total deposits and deposit
related liabilities 2,027,105 1,949,024 4.01
Long-term bonds 1,795 2,799 (35.87)
Total stockholders' equity 230,051 215,734 6.64
PERFORMANCE RATIOS (%):
Return on average assets 1.38 1.22 13.11
Return on average stockholders'
equity 13.74 12.50 9.92
Reserve for loan losses to
period end loans 1.69 1.68 0.60
Reserve for loan losses to
non-performing loans 681.58 325.86 109.16
Net charge-offs to period-end
loans 0.37 0.35 5.71
Net interest margin 5.20 5.13 1.36
REGULATORY
CAPITAL RATIOS (%): REQUIREMENT
Primary capital 11.11 10.03 --
Tier 1 leverage 10.37 9.28 3%
Tier 1 risk-based 18.03 17.69 4%
Total risk-based 19.02 18.64 8%
* THE EARNINGS AND CASH DIVIDENDS PAID PER COMMON SHARE ARE BASED
ON THE WEIGHTED AVERAGE NUMBER OF SHARES AFTER GIVING RETROACTIVE
EFFECT FOR A 15% STOCK DIVIDEND IN DECEMBER 1996. ACTUAL CASH
DIVIDENDS PAID IN 1996 AND 1995 WERE $1.00 AND $0.96,
RESPECTIVELY.
<PAGE>
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 $2.3 billion at December 31,
1996. The Company operates a total of 79 banking offices and over
100 automated teller machines ("ATMs") in the states of
Mississippi and Louisiana through two wholly-owned bank
subsidiaries, Hancock Bank, Gulfport, Mississippi and Hancock
Bank of Louisiana, Baton Rouge, 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>
1996 1995
----------------------------------------- ----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----------------------------------------- ----------------------------------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $42,320 $42,432 $43,138 $43,633 $38,286 $40,403 $41,304 $41,537
Interest expense 16,152 16,104 15,979 16,569 14,181 15,256 15,897 15,829
-----------------------------------------------------------------------------------
Net interest income 26,168 26,328 27,159 27,064 24,105 25,147 25,407 25,708
Provision for loan
losses 1,004 797 1,036 3,317 175 1,002 1,140 2,108
Earnings before income
taxes 11,623 11,934 12,005 11,211 10,122 9,878 10,080 10,002
Net earnings 7,768 8,032 8,082 7,721 6,780 6,612 6,719 6,906
Earnings per share $ 0.76 $ 0.79 $ 0.79 $ 0.74 $ 0.66 $ 0.65 $ 0.66 $ 0.68
</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.
RESTATED*
------------------------------
CASH ACTUAL CASH
HIGH LOW DIVIDENDS DIVIDENDS
SALE SALE PAID PAID
--------------------------------------------
1996
1st Quarter $32.83 $31.09 $0.22 $0.25
2nd Quarter $35.22 $31.09 $0.22 $0.25
3rd Quarter $35.00 $31.52 $0.22 $0.25
4th Quarter $42.50 $32.61 $0.22 $0.25
1995
1st Quarter $26.30 $25.00 $0.20 $0.23
2nd Quarter $27.50 $25.44 $0.20 $0.23
3rd Quarter $31.52 $26.74 $0.22 $0.25
4th Quarter $32.62 $30.88 $0.22 $0.25
* THE FIGURES PRESENTED HAVE BEEN RESTATED TO REFLECT THE
RETROACTIVE EFFECT OF A 15% STOCK DIVIDEND PAID IN
DECEMBER 1996.
On January 2, 1997, the high and low sale prices of the
Company's common stock as reported on the NASDAQ National Market
System were $41.00 and $40.00, 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. The Company, however, has paid regular cash dividends
since 1937.
<PAGE>
<TABLE>
<CAPTION>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL INFORMATION
Amounts In Thousands (except for per share data)
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 107,080 $ 97,626 $ 82,563 $ 80,176 $ 80,434
Income on Federal Funds Sold 5,580 5,820 3,832 3,603 4,196
Interest & Dividends on Investments 58,863 58,083 49,884 49,936 53,898
------------------------------------------------------------------------
Total Interest Income 171,523 161,529 136,279 133,715 138,528
------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits 60,625 57,612 48,193 46,935 54,649
Interest on Federal Funds Purchased and
securities purchased under agreements
to resell 4,013 3,082 1,472 1,021 1,408
Interest on Bonds, Notes and Other 166 468 332 440 652
------------------------------------------------------------------------
Total Interest Expense 64,804 61,162 49,997 48,396 56,709
------------------------------------------------------------------------
NET INTEREST INCOME 106,719 100,367 86,282 85,319 81,819
Provision for Loan Losses 6,154 4,425 1,998 4,632 7,978
------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 100,565 95,942 84,284 80,687 73,841
Other Income 26,460 23,956 20,557 22,153 21,225
Other Expenses 80,252 79,816 71,218 67,450 65,935
------------------------------------------------------------------------
Earnings before Income Taxes 46,773 40,082 33,623 35,390 29,131
Income Taxes 15,170 13,065 10,493 10,528 7,721
------------------------------------------------------------------------
NET EARNINGS $ 31,603 $ 27,017 $ 23,130 $ 24,862 $ 21,410
========================================================================
PER COMMON SHARE:
Net Earnings* $ 3.08 $ 2.65 $ 2.48 $ 2.67 $ 2.30
Cash Dividends Paid* 0.88 0.84 0.80 0.78 0.59
Weighted Average Number of Shares 10,277 10,181 9,314 9,307 9,307
RETURN ON AVERAGE ASSETS 1.38% 1.22% 1.13% 1.27% 1.17%
DIVIDEND PAYOUT 28.90% 31.45% 32.21% 29.29% 25.70%
BALANCE SHEET DATA DECEMBER 31:
Total Assets $2,289,582 $2,234,286 $2,026,929 $1,988,125 $1,899,709
Total Deposits and Deposit
Related Liabilities 2,014,185 1,991,069 1,800,810 1,790,338 1,712,864
Total Long-Term Debt & Capital Notes 1,050 2,035 2,955 4,300 5,727
Stockholders' Equity 261,938 224,179 182,277 166,712 148,822
</TABLE>
* THE EARNINGS AND CASH DIVIDENDS PAID PER COMMON SHARE ARE BASED
ON THE WEIGHTED AVERAGE NUMBER OF SHARES AFTER GIVING RETROACTIVE
EFFECT FOR A 15% STOCK DIVIDEND IN DECEMBER 1996. ACTUAL CASH
DIVIDENDS PAID IN 1996, 1995, 1994, 1993 AND 1992 WERE $1.00,
$0.96, $0.92, $0.90 AND $0.68, RESPECTIVELY.
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-interests 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. On November 15, 1996,
the Company acquired Community Bancshares, Inc., Independence,
Louisiana, which owned 100% of the stock of Community State Bank
(Community). This acquisition was accounted for using the
purchase method and results of operations since the date of
acquisition have been included in the consolidated statements of
earnings.
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
1996 1995
-------------------------
ASSETS:
Cash and due from banks (non-interest
bearing) $ 119,483,272 $ 124,276,406
Interest bearing time deposits with other
banks 2,945,001 1,550,001
Securities available-for-sale
(amortized cost of $98,567,000 and
$109,297,000) 97,594,689 109,776,725
Securities held-to-maturity
(market value of $806,710,000 and
$749,497,000) 803,997,535 738,528,901
Federal funds sold 12,000,000 153,725,000
Loans 1,198,769,903 1,061,633,083
Less:
Reserve for loan losses (19,800,000) (17,390,847)
Unearned income (24,803,151) (26,655,590)
-------------------------------
Loans, net 1,154,166,752 1,017,586,646
Property and equipment 40,412,254 38,746,085
Other real estate 1,875,683 1,085,569
Accrued interest receivable 20,188,062 19,360,385
Other assets 36,918,982 29,650,269
-------------------------------
TOTAL ASSETS $2,289,582,230 $2,234,285,987
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 432,963,782 $ 468,445,574
Interest bearing savings, NOW, money
market and other time 1,493,612,581 1,459,235,318
-------------------------------
Total Deposits 1,926,576,363 1,927,680,892
Securities sold under agreements to
repurchase 87,609,038 63,387,783
Federal funds purchased -- 3,197,530
Other liabilities 12,408,884 13,806,265
Long-term bonds 1,050,000 2,035,000
-------------------------------
TOTAL LIABILITIES 2,027,644,285 2,010,107,470
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock - $3.33 par value per share;
20,000,000 shares authorized, 10,887,302
and 10,375,241 shares issued
and outstanding 36,254,716 30,043,090
Capital surplus 194,499,422 130,000,000
Undivided profits 31,816,568 63,823,349
Unrealized gain (loss) on securities
available-for-sale, net of deferred taxes (632,761) 312,078
-------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 261,937,945 $ 224,178,517
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,289,582,230 $2,234,285,987
===============================
See notes to consolidated financial statements.
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
-------------------------------------
INTEREST INCOME:
Interest and fees on loans $107,079,501 $ 97,626,040 $ 82,562,712
Interest on:
U.S. Treasury securities 13,567,085 14,567,927 17,168,143
Obligations of other U.S.
government agencies 34,885,873 33,726,484 24,771,874
Obligations of states and
political subdivisions 3,543,436 3,526,973 3,193,334
Interest on federal funds sold 5,580,275 5,820,225 3,831,582
Interest on time deposits and
other 6,866,644 6,261,921 4,752,102
--------------------------------------------
Total Interest Income 171,522,814 161,529,570 136,279,747
--------------------------------------------
INTEREST EXPENSE:
Interest on deposits 60,624,862 57,612,465 48,192,868
Interest on securities sold
under agreements to
repurchase and federal
funds purchased 4,013,259 3,081,896 1,471,992
Interest on bonds and notes 165,840 468,029 332,051
--------------------------------------------
Total interest expense 64,803,961 61,162,390 49,996,911
--------------------------------------------
NET INTEREST INCOME 106,718,853 100,367,180 86,282,836
Provision for loan losses 6,153,753 4,424,701 1,998,367
--------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 100,565,100 95,942,479 84,284,469
--------------------------------------------
NON-INTEREST INCOME:
Service charges on
deposit accounts 16,877,678 15,040,119 12,389,600
Other service charges,
commissions and fees 4,412,938 4,693,062 5,565,439
Securities gains (losses) 30,531 (49,121) --
Other 5,139,145 4,271,598 2,602,392
--------------------------------------------
Total non-interest income 26,460,292 23,955,658 20,557,431
--------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 42,384,113 41,319,402 36,550,246
Net occupancy expense of
premises 4,263,421 3,751,201 3,541,259
Equipment rentals,
depreciation and maintenance 10,510,300 9,968,619 9,710,148
Other 23,094,554 24,777,018 21,416,772
--------------------------------------------
Total non-interest expense 80,252,388 79,816,240 71,218,425
--------------------------------------------
EARNINGS BEFORE INCOME TAXES 46,773,004 40,081,897 33,623,475
INCOME TAXES 15,170,000 13,065,000 10,493,058
--------------------------------------------
NET EARNINGS $31,603,004 $27,016,897 $23,130,417
============================================
NET EARNINGS PER COMMON SHARE $3.08 $2.65 $2.48
============================================
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK
---------------------- UNREALIZED GAIN (LOSS)
SHARES CAPITAL UNDIVIDED ON SECURITIES
ISSUED AMOUNT SURPLUS PROFITS AVAILABLE-FOR SALE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 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 - $.80 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 (loss) 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 - $.84 per share (8,661,027)
Change in unrealized gain (loss) on
securities available-for-sale 727,148
Acquisition of 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
Net Earnings 31,603,004
Cash dividends - $.88 per share (9,134,130)
Change in unrealized gain (loss) on
securities available-for-sale (944,839)
15% Stock dividend 1,351,960 4,502,027 49,914,363 (54,475,655)
Acquisition of Community accounted
for as a purchase 513,393 1,709,599 14,585,059
-------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 10,887,302 $36,254,716 $194,499,422 $31,816,568 $ (632,761)
===============================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 31,603,004 $ 27,016,897 $ 23,130,417
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 4,818,532 4,343,507 4,440,327
Provision for loan losses 6,153,753 4,424,701 1,998,367
Deferred income taxes (credit) (754,000) (790,000) (519,611)
Losses (gains) on sales of securities (30,531) 49,121 --
Increase in interest receivable (117,042) (1,130,794) (2,385,935)
Amortization of intangible assets 2,230,082 2,450,553 1,473,756
(Decrease) increase in interest payable (215,863) 1,869,527 759,623
Other - net (734,320) 860,087 (470,406)
-----------------------------------------------------------
Net cash provided by Operating Activities 42,953,615 39,093,599 28,426,538
-----------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (decrease) increase in interest bearing time deposits (10,455,862) (100,000) 624,000
Proceeds from maturities of securities held-to-maturity 372,251,124 394,491,517 279,469,817
Purchases of securities held-to-maturity (375,169,554) (363,531,311) (359,108,402)
Proceeds from sales and maturities of securities
available-for-sale 25,122,385 10,164,925 1,035,000
Purchase of securities available-for-sale (34,102,782) (1,831,268) --
Net decrease (increase) in federal funds sold and securities
purchased under agreements to resell 147,175,000 (96,725,000) 63,290,000
Net increase in loans (109,554,135) (39,410,863) (6,321,335)
Purchase of property and equipment, net (5,029,439) (3,460,209) (3,900,479)
Proceeds from sales of other real estate 1,169,568 628,300 1,660,589
Net cash received in connection with purchase transactions 201,830 7,872,000 --
----------------------------------------------------------
Net cash provided by (used in) Investing Activities 11,608,135 (91,901,909) (23,250,810)
----------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (70,200,214) 54,419,827 16,474,901
Dividends paid (9,193,395) (8,661,027) (7,377,489)
Repayments of long-term bonds and notes (985,000) (920,000) (1,345,000)
Net increase in federal funds purchased, securities sold under
agreements to repurchase and other temporary funds 21,023,725 11,713,955 8,497,427
----------------------------------------------------------
Net cash (used in) provided by Financing Activities (59,354,884) 56,552,755 16,249,839
----------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (4,793,134) 3,744,445 21,425,567
CASH AND DUE FROM BANKS, BEGINNING 124,276,406 120,531,961 99,106,394
---------------------------------------------------------
CASH AND DUE FROM BANKS, ENDING $119,483,272 $124,276,406 $120,531,961
=========================================================
SUPPLEMENTAL INFORMATION
Income Taxes Paid $ 17,185,000 $ 13,600,000 $ 10,951,000
Interest Paid 65,019,824 60,910,863 49,260,288
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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 two wholly-owned bank subsidiaries, Hancock Bank,
Gulfport, Mississippi and Hancock Bank of Louisiana, Baton Rouge,
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 have been classified 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, 1996. 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.
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
$24,582,000 and $16,865,000 at December 31, 1996 and 1995,
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.
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 collectability 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. Non-major homogenous
loans, which are evaluated on an overall basis, generally include
all loans under $500,000. 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 repossession, 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
collectability.
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.
STOCK OPTIONS-- The Company applies APB Opinion No. 25 and
related interpretations in accounting for it's stock options.
Accordingly, no compensation cost has been recognized.
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-interests.
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
POOLINGS
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
606,000 shares (adjusted for a 15% stock dividend in 1996) 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. Net interest income and
net earnings of Baker were $992,000 and $248,000 for the period
from January 1, 1994 through April 29, 1994, respectively.
On February 1, 1995, the Company merged Hancock Bank of
Louisiana, a wholly-owned subsidiary of the Company, 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
approximately 624,000 shares (adjusted for a 15% stock dividend
in 1996) 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. Net interest
income and net earnings of Washington were $372,000 and $114,000
for the period from January 1, 1995 to January 31, 1995,
respectively, and $4,232,000 and $1,335,000 for the year ended
December 31, 1994, respectively.
PURCHASES
On January 13, 1995, the Company acquired First Denham
Bancshares, Inc. for approximately $4,000,000 cash and 890,000
shares (adjusted for a 15% stock dividend in 1996) 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.
On November 15, 1996, the Company acquired Community
Bancshares, Inc., Independence, Louisiana which owned 100% of the
stock of Community State Bank (Community) for approximately
$5,000,000 cash and 513,000 shares (adjusted for a 15% stock
dividend in 1996) of common stock of the Company. The acquisition
was accounted for using the purchase method and the results of
operations since November 15, 1996 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 give effect to the acquisitions of Denham and
Community as though they had occurred on January 1, 1994 (amounts
in thousands, except for per share amounts):
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
-----------------------------------
Interest income $177,428 $167,275 $150,786
Interest Expense (67,297) (63,772) (54,039)
Provision for loan losses (6,154) (4,425) (2,211)
-----------------------------------
Net interest income after provision
for loan losses 103,977 99,078 94,536
Net earnings $ 32,196 $ 27,977 $ 25,667
Net earnings per common share $3.00 $2.65 $2.41
The unaudited proforma information is not necessarily
indicative either of results of operations that would have
occurred had the purchases been made as of January 1, 1994 or of
future results of operations of the combined companies.
In connection with the 1996 and 1995 acquisitions,
liabilities were assumed as follows (in thousands):
1996 1995
---------------------
Fair value of tangible and
intangible assets, excluding cash $ 96,623 $120,407
Cash acquired, net of amount paid 202 7,872
Market value of common stock issued (16,295) (22,819)
---------------------
Liabilities assumed $ 80,530 $105,460
=====================
SUBSEQUENT ACQUISITION
On January 17, 1997, the Hancock Bank of Louisiana will
acquire Southeast National Bank, Hammond, Louisiana (Southeast).
The acquisition will be in return for approximately $3,700,000
cash and 105,000 shares of common stock of the Company. The
acquisition will be accounted for using the purchase method.
Southeast had total assets of approximately $40,000,000
(unaudited) and stockholders' equity of approximately $4,000,000
(unaudited) as of December 31, 1996 and net earnings of
approximately $500,000 (unaudited) for the year then ended.The
results of operations of Southeast will be included in the 1997
consolidated statements of earnings from the date of acquisition.
Following is certain selected unaudited proforma combined
financial information as of December 31, 1996, and for the year
then ended, assuming that the acquisitions referred to in this
and the preceding note had been effective January 1, 1996
(in thousands except per share data):
Total Assets $2,330,000
Stockholders' Equity 266,000
Net Interest Income 108,300
Net Earnings 31,900
Net Earnings Per Share $3.08
NOTE 3--SECURITIES
The book and market values of securities classified as
available-for-sale as of December 31, 1996 and 1995 were as
follows (in thousands):
<TABLE>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------------------- ---------------------------------------------
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 $ 499 $ 3 $ -- $ 502 $ 1,493 $ 2 $ 3 $ 1,492
Other U.S. gov.
obligations 53,802 120 501 53,421 61,470 659 353 61,776
Municipal obligations 923 2 -- 925 962 5 -- 967
Other securities -- -- -- -- 544 -- 52 492
Mortgage-backed
securities 5,373 317 391 5,299 5,140 101 21 5,220
CMOs 33,038 111 633 32,516 34,695 372 230 34,837
Equity securities 4,932 -- -- 4,932 4,993 -- -- 4,993
-----------------------------------------------------------------------------------------------
$98,567 $553 $1,525 $97,595 $109,297 $1,139 $659 $109,777
===============================================================================================
</TABLE>
The book value and market value of the debt securities
classified as available-for-sale at December 31, 1996, by
estimated maturity, were as follows (in thousands):
BOOK VALUE MARKET VALUE
-----------------------------
Due in one year or less $ 4,029 $ 3,939
Due after one year through five
years 17,403 17,149
Due after five years through
ten years 15,908 15,753
Due after ten years 56,295 55,822
----------------------------
$93,635 $92,663
============================
The book and market values of securities classified as
held-to-maturity as of December 31, 1996 and 1995, were as
follows (in thousands):
<TABLE>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------------------- ----------------------------------------
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 $175,171 $1,990 $ 60 $177,101 $239,892 $ 4,074 $ 70 $243,896
Other U.S. gov. obligations 338,796 618 1,863 337,551 317,140 1,977 417 318,700
Municipal obligations 66,367 2,088 47 68,408 56,961 2,319 1,232 58,048
Other securities -- -- -- -- 11,027 1,891 -- 12,918
Mortgage-backed securities 87,991 498 222 88,267 50,427 3,881 1,706 52,602
CMOs 135,673 300 590 135,383 63,082 301 50 63,333
------------------------------------------------------------------------------------------
$803,998 $5,494 $2,782 $806,710 $738,529 $ 14,443 $3,475 $749,497
==========================================================================================
</TABLE>
The book value and market value of securities classified as
held-to-maturity as of December 31, 1996, by contractual
maturity, were as follows (in thousands):
BOOK VALUE MARKET VALUE
----------------------------
Due in one year or less $ 99,189 $ 99,328
Due after one year through five
years 227,023 227,834
Due after five years through
ten years 249,010 248,796
Due after ten years 228,776 230,752
---------------------------
$803,998 $806,710
===========================
Proceeds from sales of securities were $20,425,000 in 1996
and $9,435,000 in 1995. Gross gains of $178,000 in 1996 and
$16,000 in 1995 and gross losses of $147,000 in 1996 and $65,000
in 1995 were realized on those sales. There were no
sales of securities in 1994.
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 net unrealized
gains of $251,000 from securities held-to-maturity to securities
available-for-sale.
Securities with a book value of approximately $440,507,000
at December 31, 1996 and $387,000,000 at December 31, 1995,
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 (CMOs)
generally consist of first and second tranche sequential pay
and/or planned amortization class (PAC) instruments. Interest
income on CMOs 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):
DECEMBER 31,
--------------------------
1996 1995
--------------------------
Real estate loans - primarily
mortgage $ 465,919 $ 414,774
Commercial and industrial loans 169,515 176,770
Loans to individuals for household,
family and other consumer
expenditures 534,560 441,712
Leases 15,881 13,570
Other loans 12,895 14,807
--------------------------
$1,198,770 $1,061,633
==========================
Changes in the reserve for loan losses are as follows (in
thousands):
1996 1995 1994
-----------------------------
Balance at January 1 $17,391 $15,372 $15,306
Balance acquired through
acquisition 654 1,147 --
Recoveries 2,068 1,830 1,517
Loans charged off (6,466) (5,383) (3,449)
Provision charged to operating
expense 6,153 4,425 1,998
------------------------------
Balance at December 31 $19,800 $17,391 $15,372
==============================
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
collectability or contain other unfavorable features. The
balance of loans to related parties at December 31, 1996 and 1995
was approximately $6,080,000 and $5,017,000, respectively.
Non-accrual and renegotiated loans amounted to approximately
.25% of total loans at December 31, 1996 and 1% at
December 31, 1995. The amount of interest not accrued on these
loans did not have a significant effect on earnings in
1996, 1995 or 1994.
The Company's impaired loans amounted to approximately 1/2% of
total loans at December 31, 1996 and 1995, and the
related reserve amounts were not significant at those dates.
There was no significant change in these amounts during the
years ended December 31, 1996 or 1995. Interest income recognized
on these loans amounted to approximately $100,000 for
the year ended December 31, 1996.
Transfers from loans to other real estate amounted to
approximately $1,952,000, $574,000 and $1,600,000 in 1996,
1995 and 1994 respectively. Reserve balances associated with
other real estate amounted to $668,000 and $822,000 at
December 31, 1996 and 1995 respectively.
NOTE 5-- PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation and amortization as follows (in thousands):
DECEMBER 31,
----------------------------
1996 1995
----------------------------
Land, buildings and leasehold
improvements $46,730 $41,207
Furniture, fixtures and equipment 37,047 35,179
----------------------------
83,777 76,386
Less accumulated depreciation and
amortization 43,365 37,640
----------------------------
$40,412 $38,746
============================
NOTE 6-- LONG-TERM BONDS
Long-term bonds consist of Urban Development Refunding Revenue
Bonds, with interest at 7.25%. Interest is payable
semi-annually and the remaining principal is due 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 $10,872,000. 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-- STOCKHOLDERS' EQUITY
Earnings per common share is based on the weighted average
number of shares outstanding of approximately 10,277,000 in
1996, 10,181,000 in 1995 and 9,314,000 in 1994, reduced by shares
of stock owned by subsidiaries and after giving
retroactive effect to the 15% stock dividend paid in 1996. At
December 31, 1996, these subsidiaries owned 162,200 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, 1996 was
approximately $85,000,000.
The Company and its bank subsidiaries are required to maintain
certain minimum capital levels. At December 31, 1996, 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, 1996:
ACTUAL REQUIRED
----------------- -----------------
AMOUNT RATIO % AMOUNT RATIO %
----------------- -----------------
As of December 31, 1996
Total Capital (to Risk
Weighted Assets):
Company $250,369 19.02 $105,300 8.00
Hancock Bank 152,370 18.62 65,500 8.00
Hancock Bank of Louisiana 97,801 19.63 39,800 8.00
Tier I Capital (to Risk
Weighted Assets):
Company $237,356 18.03 $ 52,700 4.00
Hancock Bank 145,583 17.79 32,700 4.00
Hancock Bank of Louisiana 91,575 18.38 20,000 4.00
Tier I Leveraged Capital:
Company $237,356 10.37 $ 69,000 3.00
Hancock Bank 145,583 10.10 43,200 3.00
Hancock Bank of Louisiana 91,575 10.54 26,000 3.00
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, 1996 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
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,
1996 and 1995 are as follows (in thousands):
DECEMBER 31,
---------------------
1996 1995
---------------------
Deferred tax assets:
Post-retirement benefit obligation $ 692 $ 653
Reserve for loan losses not
currently deductible 5,002 4,750
Reserve for other real estate not
currently deductible 345 312
Deferred compensation 715 670
Lease accounting 159 117
Unrealized loss on securities
available-for-sale 339 --
Other 533 353
-----------------------
$ 7,785 $ 6,855
-----------------------
Deferred tax liabilities:
Tax over book depreciation (3,517) (3,537)
Core deposit intangible -- (355)
Prepaid pension (932) (772)
Unrealized gain on securities
available-for-sale -- (168)
Market discount accretion (665) (618)
-----------------------
(5,114) (5,450)
-----------------------
Net deferred tax asset $ 2,671 $ 1,405
=======================
Income taxes consist of the following components (in thousands):
1996 1995 1994
------------------------------
Currently payable $15,924 $13,855 $11,013
Deferred (754) (790) (520)
------------------------------
$15,170 $13,065 $10,493
==============================
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):
1996 1995 1994
----------------------------------------
AMOUNT % AMOUNT % AMOUNT %
----------------------------------------
Taxes computed at statutory rate $16,371 35 $14,029 35 $11,768 35
Increases (decreases) in taxes
resulting from:
Tax exempt interest income (1,583) (3) (1,355) (3) (1,245)(4)
Miscellaneous items - net 382 -- 391 1 (30)--
----------------------------------------
Income tax expense $15,170 32 $13,065 33 $10,493 31
========================================
The related income tax provision (credit) on securities gains
(losses) was $10,700 in 1996 and $(17,000) in 1995.
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):
DECEMBER 31,
---------------------------
1996 1995
---------------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 22,702 $ 19,611
===========================
Accumulated benefit obligation $ 22,792 $ 19,674
===========================
Projected benefit obligation for
service rendered to date $(24,687) $(21,491)
Plan assets at fair value 23,251 20,878
---------------------------
Projected benefit obligation
in excess of plan assets (1,436) (613)
Remaining unrecognized portion
of net obligation being
amortized over 15 years 228 274
Unrecognized prior service cost 751 843
Unrecognized net loss from past
experience different from that
assumed 3,197 1,858
-------------------------
Prepaid pension cost included
in other assets $ 2,740 $ 2,362
=========================
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-----------------------------
Net pension expense included the
following (income) expense
components:
Service cost - benefits earned
during the period $ 850 $ 836 $ 818
Interest cost on projected benefit
obligation 1,628 1,555 1,463
Return on plan assets (2,222) (2,411) (93)
Net amortization and deferral 747 1,275 (1,112)
-----------------------------
Net pension expense $1,003 $1,255 $1,076
=============================
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 1996 and 1995. The
expected rate of return on plan assets was 8% in 1996
and 1995. 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 post-retirement 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 post-retirement health care plan is contributory,
with retiree contributions adjusted annually and subject
to certain employer contribution maximums; the life insurance
plan in non-contributory. The actuarial and recorded
liabilities for these post-retirement benefits, none of which
have been funded, are as follows at December 31, 1996 and
December 31, 1995 (in thousands):
DECEMBER 31,
------------------------
1996 1995
------------------------
Accumulated post-retirement
benefit obligations:
Retirees $ 2,159 $ 1,397
Fully eligible active plan
participants 1,071 1,155
Other active plan participants 1,410 933
------------------------
4,640 3,485
Unrecognized transition obligation (2,150) (2,293)
Unrecognized net (loss) gain (236) 675
------------------------
Accrued post-retirement benefit cost $ 2,254 $ 1,867
========================
Net periodic post-retirement benefit costs for 1996, 1995 and
1994 included the following components (in thousands):
1996 1995 1994
------------------------------
Amortization of unrecognized net
(loss) gain $ (30) $ 55 $ 18
Service cost-benefits attributed
to service during the year 219 264 200
Interest costs on accumulated
post-retirement benefit
obligations 254 390 266
Amortization of transition
obligation over 20 years 143 143 143
------------------------------
Net periodic post-retirement
benefit cost $ 586 $ 852 $ 627
==============================
For measurement purposes in 1996, a 9% 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 1995,
rates of 9.5% and 5.5% were assumed, and in 1994, rates of 9.5%
and 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 post-retirement
benefit obligation as of December 31, 1996, by $621 and
the aggregate of the service and interest cost components of net
periodic post-retirement benefit cost for the year then
ended by $80. The weighted average discount rate used in
determining the accumulated post-retirement benefit obligation
was 7.5% in 1996, 7.5% in 1995 and 8.5% in 1994.
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
$452,000 in 1996, $456,000 in 1995 and $413,000 in 1994.
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 $71,000 in 1996,
$58,000 in 1995 and $52,000 in 1994.
The post-retirement 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 post-retirement plans. There
are no vested rights under the post-retirement health or
life insurance plans.
In February 1996 the stockholders of the Company approved the
Hancock Holding Company 1996 Long-Term Incentive Plan to
provide incentives and rewards for employees of the Company and
it's subsidiaries. "Awards" as defined in the Plan
includes, with limitations, stock options (including restricted
stock options), restricted and performance shares, and
performance stock awards, all on a stand-alone, combination or
tandem basis. A total of approximately 100,000 common
shares of Company stock can be granted during 1997. The exercise
price is equal to the market price on the date of grant
except for certain of those granted to major shareholders where
the option price is 110% of the market price. On December 13,
1996, options to purchase 35,250 shares were granted, of which
32,978 are exercisable at $40 per share and 2,272 are exercisable
at $44 per share. On the first anniversary of the date of grant,
27,522 of the options are exercisable and 7,728 of the options
are exercisable six months after the date of the grant. All such
options were outstanding at December 31, 1996 and none were
exercisable at that date.
The Company applies APB Opinion No. 25 and related
interpretations in accounting for it's stock options under the
Plan. Accordingly, no compensation cost has been recognized. Had
the Company recorded compensation cost based on the fair
value at the date of grant, consistent with the method of
Financial Accounting Standards Board Statement No. 123
"Accounting for Stock Based Compensation", the effect on the
Company's net earnings and net earnings per share would not
have been material and, accordingly, the proforma effects of such
costs have not been presented.
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 a reasonable estimate of fair value.
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.
LONG-TERM BOND 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, 1996 and 1995
(in thousands):
DECEMBER 31,
----------------------------------------
1996 1995
-------------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------- -----------------
Financial Assets:
Cash, short-term investments
and federal funds sold $ 134,428 $ 134,428 $ 279,551 $ 279,551
Securities available-for-sale 97,595 97,595 109,777 109,777
Securities held-to-maturity 803,998 806,710 738,529 749,497
Loans 1,173,967 1,167,767 1,034,978 1,024,316
Less: Reserve for loan losses (19,800) (19,800) (17,391) (7,391)
-------------------------------------------
Loans, net of reserve 1,154,167 1,147,967 1,017,587 1,006,925
Financial Liabilities:
Deposits $1,926,576 $1,925,157 $1,927,681 $1,932,198
Securities sold under
agreements to repurchase 87,609 87,609 63,388 63,388
Federal funds purchased -- -- 3,197 3,197
Long-term bonds 1,050 1,050 2,035 2,014
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 non-performance 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, 1996 and 1995
(in thousands):
1996 1995
--------------------------
Commitments to extend credit $224,500 $209,000
Letters of credit 7,700 5,500
Approximately $183,000,000 of commitments to extend credit at
December 31, 1996 were at variable rates and the remainder
were at fixed rates. Most commitments to extend credit at
December 31, 1995 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 of 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 at the Company.
The Company continually evaluates each customer's credit
worthiness 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.
NOTE 13-- SUPPLEMENTAL INFORMATION
The following is selected supplemental information for the
years ended December 31, 1996, 1995 and 1994 (in thousands):
1996 1995 1994
-----------------------------
Other non-interest income:
Trust fee income $2,412 $2,525 $2,500
Other non-interest expense:
Deposit insurance premium
expense 285 2,221 4,164
Postage expense 2,327 2,354 2,319
NOTE 14-- SUMMARIZED FINANCIAL INFORMATION OF HANCOCK HOLDING
COMPANY (PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31,
-------------------------------
1996 1995
-------------------------------
Assets:
Investment in subsidiaries $261,740,752 $224,137,396
Other 225,736 42,250
--------------------------------
$261,966,488 $224,179,646
================================
Liabilities and Stockholders'
Equity:
Accrued Expenses $ 28,543 $ 1,133
Stockholders' Equity 261,937,945 224,178,513
--------------------------------
$261,966,488 $224,179,646
================================
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
----------------------------------------
Dividends received from
subsidiaries $15,391,000 $ 9,112,361 $ 7,297,502
Excess equity in
earnings of subsidiaries
over dividends received 16,632,753 18,201,558 16,046,640
Interest and other expenses (555,788) (398,472) (327,632)
Income tax credit 135,039 101,450 113,907
-----------------------------------------
Net Earnings $31,603,004 $27,016,897 $23,130,417
=========================================
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
Cash Flows from Operating
Activities - principally
dividends from subsidiaries $14,813,634 $ 10,054,361 $ 6,928,267
-----------------------------------------
Cash Flows from Investing
Activities - purchase of
Community (5,622,371)
Cash Flows from Financing
Activities - principally
dividends paid (9,134,130) (10,028,311) (6,967,488)
----------------------------------------
Net increase (decrease) in
cash 57,133 26,050 (39,221)
Cash, Beginning 100,174 74,124 113,345
----------------------------------------
Cash, Ending $ 157,307 $ 100,174 $ 74,124
========================================
<PAGE>
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, 1996 and 1995, and the related statements of
earnings, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. 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,
1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
January 15, 1997
<PAGE>
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, 1996 AND 1995
The Company's net income was $31.6 million, or $3.08 per share,
for the year ended December 31, 1996, compared with
$27.0 million, or $2.65 per share, for the year ended December
31, 1995. The increase in net income can be primarily
attributed to increased loan volume and an increase in the net
interest margin from an average of 5.13% in 1995 to 5.20%
in 1996. The Banks' balance sheets are liability sensitive with
deposits repricing faster than loans and investment
securities. Non-interest income increased $2.5 million or 10.4%
while non-interest expenses increased 0.6% or $500
thousand. FDIC premium expense in 1996 was $2 million lower than
in 1995, which offset acquisition related expenses and
other normal expense increases. The provision for loan loss
increased from $4.4 million to $6.2 million in 1996 as a
result of increased loan charge-off activity and increased loan
volume. The loan loss reserve balance was 1.69% of
period-end loans and represented 682% of non-performing loan
balances at December 31, 1996.
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
The Company's net income increased to $27.0 million, or $3.05
per share, for the year ended December 31, 1995 compared
to $23.1 million, or $2.86 per share, for the year ended December
31, 1994. The merger of Washington was accounted for
using the pooling-of-interests method, therefore all prior
financial information has been restated. The change in net
income was attributable 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 were 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 to 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 1.68% of period-end loans and represented
326% of non-performing loan balances at December 31, 1995.
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, 1996 book value of the
held-to-maturity portfolio was $804 million and the
market value was $807 million. The available-for-sale portfolio
balance was $97.5 million at December 31, 1996.
LOANS
Loans outstanding increased $135 million in 1996 bringing the
December 31, 1996, net loan portfolio balances to
$1.2 billion or 57% of earning assets. Loans acquired through the
Community transaction accounted for as a purchase
amounted to $36 million or 27% of the increase. Non-performing
loans were $2.9 million or less than .25% of the
December 31, 1996, loan balances. Restructured loans were
insignificant and the amount of interest not accrued on
non-performing loans did not significantly effect earnings in
1996, 1995 or 1994. The Company generally makes loans in
its market areas of South Mississippi and Southeastern Louisiana.
DEPOSITS AND DEPOSIT RELATED LIABILITIES
Deposits remained level at $1.9 billion on December 31, 1996.
Interest bearing deposit balances increased 2%. Deposits
acquired through the Community transaction accounted for as a
purchase amounted to $45 million. Deposit related liabilities,
principally securities purchased under agreements to resell,
increased from $63 million in 1995 to $88 million in 1996, or
40%. Deposits and deposit related liabilities are the Company's
primary source of funds supporting its earning assets base.
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 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 1995, 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, 1996, cash and due from banks, securities available-for-sale
and federal funds sold were in excess of 10% 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 Tier I leverage ratios of at least 3%, subject to
increase to at least 4% to 5%, depending on the composite rating.
As of December 31, 1996, the Company and the Banks capital
balances were in excess of current regulatory minimum
requirements.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 "Accounting for
Transfers and servicing of Financial Assets and Extinguishments
of Liabilities" which provides revised accounting and
reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The Company does
not anticipate that the adoption of this statement in 1997 will
have a significant effect on its financial condition or
results of operations.
FORM 10-K ANNUAL REPORT
HANCOCK HOLDING COMPANY FILES AN ANNUAL REPORT WITH THE
SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K. A COPY OF THE
REPORT FILED ON FORM 10-K, WHEN COMPLETED, WILL BE SENT FREE OF
CHARGE TO ANY SHAREHOLDER BY WRITING TO GEORGE A. SCHLOEGEL,
VICE-CHAIRMAN, HANCOCK HOLDING COMPANY, P.O. BOX 4019, GULFPORT
MS 39502.
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 15,
1997 incorporated by reference in this Annual Report on Form 10-K
for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 27, 1997
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 119,483
<INT-BEARING-DEPOSITS> 2,945
<FED-FUNDS-SOLD> 12,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,595
<INVESTMENTS-CARRYING> 803,997
<INVESTMENTS-MARKET> 806,710
<LOANS> 1,173,967
<ALLOWANCE> (19,800)
<TOTAL-ASSETS> 2,289,582
<DEPOSITS> 1,926,576
<SHORT-TERM> 87,609
<LIABILITIES-OTHER> 12,409
<LONG-TERM> 1,050
<COMMON> 30,043
0
0
<OTHER-SE> 225,683
<TOTAL-LIABILITIES-AND-EQUITY> 2,289,582
<INTEREST-LOAN> 107,080
<INTEREST-INVEST> 57,576
<INTEREST-OTHER> 6,867
<INTEREST-TOTAL> 171,523
<INTEREST-DEPOSIT> 60,625
<INTEREST-EXPENSE> 64,804
<INTEREST-INCOME-NET> 106,719
<LOAN-LOSSES> 6,154
<SECURITIES-GAINS> 31
<EXPENSE-OTHER> 80,252
<INCOME-PRETAX> 46,773
<INCOME-PRE-EXTRAORDINARY> 46,773
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,603
<EPS-PRIMARY> 3.08
<EPS-DILUTED> 3.08
<YIELD-ACTUAL> 5.00
<LOANS-NON> 2,905
<LOANS-PAST> 8,361
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,391
<CHARGE-OFFS> 6,466
<RECOVERIES> 2,761
<ALLOWANCE-CLOSE> 19,800
<ALLOWANCE-DOMESTIC> 19,800
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,000
</TABLE>
