UNITED STATES
--X- Quarterly Report Pursuant to Section 13 or 15 (d)
--X- of the Securities Exchange Act of 1934
---- Transition Report Pursuant to Section 13 or 15(d)
---- of the Securities Exchange Act of 1934
For Quarter Ending September 30, 1998
- --------------------------------------------------------------------------------
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 Identification
incorporation or organization) Number)
ONE HANCOCK PLAZA, P.O. BOX 4019, GULFPORT, MISSISSIPPI 39502
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(228) 868-4635
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
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
--- ----
10,477,397 Common Shares were outstanding as of November 3, 1998 for
financial statement purposes.
Page 1 of 15
<PAGE>
HANCOCK HOLDING COMPANY
-----------------------
EXPLANATORY NOTE
Amendment No. 1 is being filed soley to correct the following: (1) the
amount of "Other" under "Non-interest income" for the nine-month period ended
September 30, 1998, should have been $6,631,000 instead of $5,631,000; (2) the
"Total non-interest income" for the nine-month period ended September 30, 1998,
should have been $23,098,000 instead of $22,098,000; (3) "Net cash provided by
operating activities" for the nine-month period ended September 30, 1998 should
have been $27,085,000 instead of $26,485,000; (4) "Net cash used in investing
activities" for the same period should have been ($190,291,000) instead of
($190,247,000); (5) "Net cash provided by financing activities" should have been
$171,356,000 instead of $171,912,000 for the same such period.
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets --
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Earnings --
Three Months and Nine Months Ended September 30,
1998 and 1997 4
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6 - 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk 12 - 13
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 14
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
- ----------
Page 2 of 15
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
UNAUDITED
---------
(Amounts in thousands)
Sept. 30, December 31,
ASSETS: 1998 1997 *
---------- -----------
Cash and due from banks (non-interest bearing) $ 121,275 $ 113,125
Interest-bearing time deposits with other banks 96 2,068
Securities available-for-sale (amortized cost of
$399,278 and $163,531) 403,509 163,633
Securities held-to-maturity (fair value of $833,353
and $924,958) 813,739 916,362
Federal funds sold and securities purchased under
agreements to resell 25,000 35,500
Loans, net of unearned income 1,271,710 1,220,630
Less: Allowance for loan losses (20,257) (21,000)
---------- -----------
Net loans 1,251,453 1,199,630
Property and equipment, net of accumulated
depreciation of $49,726 and $46,285 47,082 42,810
Other real estate, net 2,117 2,357
Accrued interest receivable 21,994 20,977
Other assets 51,118 41,495
---------- -----------
TOTAL ASSETS $2,737,383 $2,537,957
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 457,934 $ 462,731
Interest-bearing savings, NOW, money market
and time 1,796,519 1,599,917
---------- -----------
Total deposits 2,254,453 2,062,648
Federal funds purchased and securities sold under
agreements to repurchase 181,977 170,534
Other liabilities 16,779 14,923
Long-term bonds 0 1,279
---------- -----------
TOTAL LIABILITIES 2,453,209 2,249,384
---------- -----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock-$3.33 par value per share; 75,000,000
shares authorized, 11,072,770 shares issued in 1998
and 1997 36,872 36,872
Capital surplus 200,698 200,766
Undivided profits 66,559 51,401
Unrealized gain on securities available-for-sale, net 2,750 66
Unearned compensation (1,037) (532)
Treasury stock (21,668) 0
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 284,174 288,573
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,737,383 $2,537,957
========== ===========
* The balance sheet at December 31, 1997 has been derived from the audited
balance sheet at that date.
See notes to condensed consolidated financial statements.
Page 3 of 15
<PAGE>
<TABLE>
<CAPTION>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
(Amounts in thousands except per share data)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1998 1997 1998 1997
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 30,264 $ 29,745 $ 88,495 $ 87,423
Interest on:
U. S. Treasury securities 3,596 3,913 11,145 10,612
Obligations of other U.S. government agencies
and corporations 7,517 8,679 22,034 27,030
Obligations of states and political subdivisions 1,844 1,064 4,878 2,990
Interest on federal funds sold and securities
purchased under agreements to resell 409 700 2,730 1,860
Interest on time deposits and other 5,341 2,255 15,624 6,440
---------- ------------- ----------- ---------
Total interest income 48,971 46,356 144,906 136,355
---------- ------------- ----------- ---------
INTEREST EXPENSE:
Interest on deposits 19,735 16,814 55,593 49,243
Interest on federal funds purchased and securities
sold under agreements to repurchase 1,488 1,237 5,585 3,542
Interest on bonds and notes 1 107 58 160
---------- ------------- ----------- ---------
Total interest expense 21,224 18,158 61,236 52,945
---------- ------------- ----------- ---------
NET INTEREST INCOME 27,747 28,198 83,670 83,410
Provision for loan losses 1,203 2,993 3,491 5,337
---------- ------------- ----------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 26,544 25,205 80,179 78,073
---------- ------------- ----------- ---------
NON-INTEREST INCOME:
Service charges on deposit accounts 4,926 4,775 14,363 13,673
Income from fiduciary activities 749 703 2,167 2,206
Securities gains (losses) 0 70 (63) 72
Other 2,240 2,093 6,631 5,817
---------- ------------- ----------- ---------
Total non-interest income 7,915 7,641 23,098 21,768
---------- ------------- ----------- ---------
NON-INTEREST EXPENSE:
Salaries and employee benefits 13,251 11,982 36,748 34,206
Net occupancy expense of premises
and equipment expense 3,422 3,577 9,652 10,525
Other 7,641 6,810 21,901 19,533
---------- ------------- ----------- ---------
Total non-interest expense 24,314 22,369 68,301 64,264
---------- ------------- ----------- ---------
EARNINGS BEFORE INCOME TAXES 10,145 10,477 34,976 35,577
INCOME TAXES 3,297 3,790 11,539 12,440
---------- ------------- ----------- ---------
NET EARNINGS $ 6,848 $ 6,687 $ 23,437 $ 23,137
========== ============= =========== =========
BASIC AND DILUTED EARNINGS PER COMMON SHARE$ 0.66 $ 0.61 $ 2.18 $ 2.13
========== ============= =========== =========
DIVIDENDS PAID PER COMMON SHARE $ 0.25 $ 0.25 $ 0.75 $ 0.75
========== ============= =========== =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10,504 10,899 10,766 10,857
========== ============= =========== =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 4 of 15
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in thousands)
Nine Months Ended Sept. 30,
---------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 23,437 $ 23,137
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 3,759 2,567
Provision for loan losses 3,491 5,337
Provision for losses on real estate owned 319 300
Losses (gains) on sales of securities available
sale 63 ( 72)
(Increase) decrease in interest receivable ( 1,017) 955
Amortization of intangible assets 1,804 1,684
Increase in interest payable 1,189 420
Other, net ( 5,960) 1,496
--------- ---------
Net cash provided by operating activities 27,085 35,824
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase (decrease) in interest-bearing
time deposits 1,972 ( 973)
Proceeds from maturities of securities
held-to-maturity 277,766 180,789
Purchase of securities held-to-maturity (175,143) (253,214)
Proceeds from sales and maturities of securities
available-for-sale 34,217 8,776
Purchase of securities available-for-sale (274,156) ( 19,309)
Net decrease in federal funds sold and
securities purchased under agreements to resell 10,500 12,000
Net increase in loans ( 55,314) ( 4,061)
Purchase of property and equipment, net ( 8,076) ( 1,929)
Proceeds from sales of other real estate 443 1,263
Net cash paid in connection with purchase
transaction ( 2,500) ( 1,725)
--------- ---------
Net cash used in investing activities (190,291) ( 78,383)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 191,805 41,320
Dividends paid ( 8,119) ( 8,272)
Purchase of treasury stock ( 23,773) 0
Net increase in federal funds purchased
and securities sold under agreements to repurchase 11,443 12,474
--------- ---------
Net cash provided by financing activities 171,356 45,522
--------- ---------
NET INCREASE IN CASH AND DUE FROM BANKS 8,150 2,963
CASH AND DUE FROM BANKS, BEGINNING 113,125 119,483
--------- ---------
CASH AND DUE FROM BANKS, ENDING $ 121,275 $ 122,446
========= =========
See notes to condensed consolidated financial statements.
Page 5 of 15
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
UNAUDITED
---------
(At and For the Three and Nine Months Ended September 30, 1998 and 1997)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------
The accompanying Unaudited Condensed Consolidated Financial Statements
include the accounts of Hancock Holding Company, its wholly-owned banks,
Hancock Bank and Hancock Bank of Louisiana and other subsidiaries.
Intercompany profits, transactions and balances have been eliminated in
consolidation.
The accompanying Unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for interim periods are
not necessarily indicative of the results that may be expected for the entire
year. For further information, refer to the consolidated financial statements
and notes thereto in Hancock Holding Company's 1997 Annual Report to
Shareholders and Form 10-K.
RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS
- ------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" (SFAS 130) effective January 1, 1998. SFAS
130 establishes standards for reporting and display of comprehensive income
and its major components. Comprehensive income includes net income and other
comprehensive income which, in the case of the Company, only includes
unrealized gains and losses on investments available for sale.
Following is a summary of the Company's comprehensive income for the
three and nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1998 1997 1998 1997
----------- -------- ----------- -------
<S> <C> <C> <C> <C>
Net Earnings $ 6,848 $ 6,687 $23,437 $23,137
Other Comprehensive Income (net of income tax):
Unrealized Holding Gains 2,837 36 2,684 119
----------- -------- ----------- -------
Comprehensive Income $ 9,685 $ 6,723 $26,121 $23,256
=========== ======== =========== =======
</TABLE>
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under this Statement, an entity that elects to apply
hedge accounting is required to establish at the inception of the hedge the
Page 6 of 15
<PAGE>
method it will use for assessing the effectiveness of the hedging derivative
and the measurement approach for determining the ineffective aspect of the
hedge. At the date of initial application, an entity may transfer any held-
to-maturity security into the available-for-sale category or the trading
category. An entity will then be able to hedge such security. The unrealized
holding gain or loss on a held-to-maturity security transferred to another
category at the date of the initial application is to be reported in net
income or accumulated other comprehensive income consistent with the
requirements of SFAS No. 115. Such transfers from the held-to-maturity
category at the date of initial adoption will not call into question an
entity's intent to hold other debt securities to maturity in the future.
SFAS No. 133 applies to all entities and is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Earlier adoption of
this Statement is permitted. The Company has elected to adopt this Statement
effective October 1, 1998.
PROPOSED ACQUISITION
- --------------------
In April 1998 the Company entered into an agreement for the acquisition
of American Security Bancshares of Ville Platte, Inc. (American Security),
Ville Platte, Louisiana and its subsidiary, American Security Bank (ASB).
Terms of the original agreement were renegotiated after the Company was
notified of ASB's failure to renew a lease on one of its branch locations.
Per the amended agreement dated October 15, 1998, the merger will be
consummated by the exchange of all outstanding shares of American Security
stock in return for approximately 672,000 shares of common stock of the
Company and cash of $13.8 million. Completion of the merger is contingent
upon approval by American Security's shareholders and appropriate regulatory
authorities. It is anticipated that ASB will initially remain a separate
wholly-owned subsidiary of the Company.
The merger will be accounted for as a purchase. American Security had
total assets of approximately $228 million as of December 31, 1997 and net
earnings of approximately $1.9 million for the year then ended.
STOCK REPURCHASE
- ----------------
In July 1998 the Company repurchased 421,245 shares of its common stock
at $52.8125 per share for a total of $22,247,001. The shares are being held
in treasury and may be used by the Company for future acquisitions or by the
Company's long-term incentive plan for future stock awards and/or options.
Page 7 of 15
<PAGE>
HANCOCK HOLDING COMPANY
-----------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
The following discussion provides management's analysis of certain
factors which have affected the Company's financial condition and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
CHANGES IN FINANCIAL CONDITION
- ------------------------------
Liquidity
- ---------
The Company manages liquidity through traditional funding sources of core
deposits, federal funds, and maturities of loans and securities held-to-
maturity and sales and maturities of securities available-for-sale.
The following liquidity ratios compare certain assets and liabilities to
total deposits or total assets:
Sept. 30, June 30, March 31, Dec. 31,
1998 1998 1998 1997
-------- -------- --------- ---------
Total securities to total deposits 53.99% 53.35% 53.68% 52.36%
Total loans (net of unearned
discount) to total deposits 56.41% 53.77% 55.86% 59.18%
Interest-earning assets
to total assets 91.84% 91.63% 92.29% 92.13%
Interest-bearing deposits
to total deposits 79.69% 78.56% 78.70% 77.57%
Capital Resources
- -----------------
The Company continues to maintain an adequate capital position, as the
following ratios indicate:
Sept. 30, June 30, March 31, Dec. 31,
1998 1998 1998 1997
-------- -------- --------- ---------
Equity capital to total assets (1) 10.28% 11.03% 10.91% 11.37%
Total capital to risk-weighted
assets (2) 17.53% 19.48% 19.34% 19.18%
Tier 1 capital to risk-weighted
assets (3) 16.98% 18.96% 18.83% 18.22%
Leverage capital to total assets (4) 9.50% 10.01% 9.87% 10.24%
(1) Equity capital consists of stockholders' equity (excluding unrealized
holdings gains/losses).
Page 8 of 15
<PAGE>
(2) Total capital consists of equity capital less intangible assets plus a
limited amount of loan loss allowances. Risk-weighted assets represent
the assigned risk portion of all on and off-balance-sheet assets.
Based on Federal Reserve Board guidelines, assets are assigned a risk
factor percentage from 0% to 100%. A minimum ratio of total capital to
risk-weighted assets of 8% is required.
(3) Tier 1 capital consists of equity capital less intangible assets. A
minimum ratio of tier 1 capital to risk-weighted assets of 4% is
required.
(4) Leverage capital consists of equity capital less goodwill and core
deposit intangibles. Regulations require a minimum 4% leverage capital
ratio for an entity to be considered adequately capitalized.
The decrease in the Company's capital ratios for the current quarter
compared to December 31, 1997 is mainly attributable to both the increase in
assets and the decrease in capital. The decrease in capital is primarily due
to the $21.7 million of treasury stock at September 30, 1998 resulting from a
stock repurchase in July 1998.
RESULTS OF OPERATIONS
- ---------------------
Net Earnings
- ------------
Net earnings increased $300,000 or 1.30% for the first nine months of
1998 compared to the first nine months of 1997. The increase in earnings is
attributable, in part, to an increase in tax-exempt investment income which
results in a reduced tax liability.
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
--------------- ---------------
1998 1997 1998 1997
------- ----- ------ ------
Results of Operations:
Return on average assets 1.01% 1.07% 1.16% 1.28%
Return on average equity 9.71% 9.47% 10.75% 11.51%
Net Interest Income:
Yield on average interest-earning
assets (tax equivalent) 7.72% 8.29% 7.98% 8.34%
Cost of average interest-bearing funds 4.41% 4.25% 4.32% 4.18%
======= ===== ====== ======
Net interest spread 3.31% 4.04% 3.66% 4.16%
======= ===== ====== ======
Net interest margin
(net interest income on a tax
equivalent basisdivided by
average interest-earning assets) 4.32% 5.09% 4.68% 5.15%
======= ===== ====== ======
Provision for Loan Losses
- -------------------------
The amount of the allowance equals the cumulative total of the
provisions for loan losses, reduced by actual loan charge-offs, and increased
by allowances acquired in acquisitions and recoveries of loans previously
charged-off. Provisions are made to the allowance to reflect the currently
perceived risks of loss associated with the banks' loan portfolio. A specific
Page 9 of 15
<PAGE>
loan is charged-off when management believes, after considering, among other
things, the borrower's financial condition and the value of any collateral,
that collection of the loan is unlikely. Net charge-offs for the first nine
months of 1998 total $4.234 million (gross charge-offs of $5.441 million net
of recoveries totalling $1.207 million). Provision for loan losses for the
nine-month period ended September 30, 1998 were $3.5 million compared to $5.3
million for the same period in 1997. Prior period expense includes an
increased provision due to the charge-off of loans, primarily consumer, that
were 120 days or more past due.
As of September 30, 1998 loans in a non-accrual status amounted to
$6.932 million. Loans 90 or more days past due, and continuing to accrue
interest, amounted to $2.394 million.
The following ratios are useful in determining the adequacy of the loan
loss allowance. The ratios are calculated using average loan balances.
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
--------------- --------------
1998 1997 1998 1997
-------- ----- ----- ------
Annualized net charge-offs to average loans 0.52% 0.93% 0.46% 0.59%
Average allowance for loan losses to average loans 1.62% 1.69% 1.69% 1.68%
Income Taxes
- ------------
The effective federal income tax rate of the Company continues to be
less than the statutory rate of 35%, due primarily to tax-exempt interest
income. The amount of tax-exempt income earned during the first nine months
of 1998 was approximately $5,575,000 compared to $3,540,000 for the comparable
period in 1997. Income tax expense decreased from $12,440,000 in the first
nine months of 1997 to $11,539,000 in the first nine months of 1998.
Other Comprehensive Income
- --------------------------
Other comprehensive income consisting exclusively of unrealized holding
gains on securities available for sale, net of income taxes, increased
$2,801,000 and $2,565,000 for the three-month and nine-month periods ended
September 30, 1998, respectively, compared to the same periods a year ago.
This increase was due to the larger portfolio of securities available for sale
and the increased fair value of such portfolio. The fair value of the
Company's debt securities fluctuates with changes in market interest rates.
PROPOSED ACQUISITION
- --------------------
In April 1998 the Company entered into an agreement for the acquisition
of American Security Bancshares of Ville Platte, Inc. (American Security),
Ville Platte, Louisiana and its subsidiary, American Security Bank (ASB).
Terms of the original agreement were renegotiated after the Company was
notified of ASB's failure to renew a lease on one of its branch locations.
Per the amended agreement dated October 15, 1998, the merger will be
consummated by the exchange of all outstanding shares of American Security
stock in return for approximately 672,000 shares of common stock of the
Company and cash of $13.8 million. Completion of the merger is contingent
Page 10 of 15
<PAGE>
upon approval by American Security's shareholders. It is anticipated that ASB
will initially remain a separate wholly-owned subsidiary of the Company.
The merger will be accounted for as a purchase. American Security had
total assets of approximately $228 million as of December 31, 1997 and net
earnings of approximately $1.9 million for the year then ended.
YEAR 2000
- ---------
In 1996 the Company began addressing all the systems and business
methods requiring modifications to accommodate the turn of the century. Since
there is concern that computer systems will not properly recognize dates or
date sensitive information when the digit year value rolls over to "00",
virtually every computer operation and every system that has an embedded
microchip is potentially at risk for failure or improper performance. Many
software programs assume the "19" in storing the year and only utilized the
last two digits of the year for calculations and date storage. The year
"2000" may be recognized by some systems as "1900" which could adversely
affect a significant portion of a company's daily operations, especially those
of financial institutions.
Identification of the Company's major Year 2000 issues is substantially
complete and a plan, including replacement of certain systems, has been
implemented to resolve the issues of which management is aware. Written
assurances of expected Year 2000 readiness have been requested from all
material third party vendors, including, but not limited to, correspondent
banks, software providers and utility companies. If any of the companies
providing services, software or equipment to the Company fail to adequately
address the Year 2000 issue at a reasonable cost, the result could be a
significant adverse effect on the Company's business and operational results.
The readiness of all third parties, including customers and suppliers, is
inherently uncertain and cannot be assured.
The Company recognized the importance of its customers' need to address
Year 2000 issues. Relationships considered material to the Company's
financial position have been identified and appropriate documentation from
borrowers received. A committee, specifically established for this project,
is in the process of reviewing the information obtained and assessing the risk
of repayment impairment.
Testing of information systems and review of property equipment
functions, except those slated for replacement or vendor upgrade, is near
completion. It is anticipated that fully integrated systems testing of
current and newly-acquired systems will be completed by June 1999.
Contingency plans for the most reasonably likely worst-case scenarios
are in process and should be completed by the end of the year. Plans may be
updated as testing and implementation continue. Issues regarding material
equipment and applications failure are being addressed. Contingency plans for
liquidity needs due to potentially significant deposit withdrawals during the
fourth quarter of 1999 are substantially complete.
Management believes it has dedicated adequate resources to address the
issues associated with the turn of the century. The total amount of
expenditures for Year 2000 compliance, including those incurred since 1997,
and those anticipated during the next two years, is expected to be less than
Page 11 of 15
<PAGE>
$4.0 million (before income taxes) but cannot be predicted with certainty at
this time.
Forward Looking Information
- ---------------------------
Congress passed the Private Securities Litigation Act of 1995 in an
effort to encourage corporations to provide information about a company's
anticipated future financial performance. This Act provides a safe harbor for
such disclosures which protects the companies from unwarranted litigation if
the actual results are different from management expectations. This report
contains forward-looking statements and reflects management's current views
and estimates of future economic circumstances, industry conditions, company
performance and financial results. These forward-looking statements are
subject to a number of factors and uncertainties which could cause the
Company's actual results and experience to differ from the anticipated results
and expectations expressed in such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
The Company's net income is dependent, in part, on its net interest
income. Net interest income is susceptible to interest rate risk to the
degree that interest-bearing liabilities mature or reprice on a different
basis than interest-earning assets. When interest-bearing liabilities mature
or reprice more quickly than interest-earning assets in a given period, a
significant increase in market rates of interest could adversely affect net
interest income. Similarly, when interest-earning assets mature or reprice
more quickly than interest-bearing liabilities, falling interest rates could
result in a decrease in net income.
In an attempt to manage its exposure to changes in interest rates,
management monitors the Company's interest rate risk. The Company's interest
rate management policy is designed to produce a stable net interest margin in
period of interest rate fluctuations. Interest sensitive assets and
liabilities are those that are subject to maturity or repricing within a given
time period. Management also reviews the Company's securities portfolio,
formulates investment strategies and oversees the timing and implementation of
transactions to assure attainment of the Board's objectives in the most
effective manner. Notwithstanding the Company's interest rate risk management
activities, the potential for changing interest rates is an uncertainty that
can have an adverse effect on net income and the fair value of the Company's
investment securities.
In adjusting the Company's asset/liability position, the Board and
management attempt to manage the Company's interest rate risk while enhancing
net interest margins. At times, depending on the level of general interest
rates, the relationship between long and short-term interest rates, market
conditions and competitive factors, the Board and management may determine to
increase the Company's interest rate risk position somewhat in order to
increase its net interest margin. The Company's results of operations and net
portfolio values remain vulnerable to increases in interest rates and to
fluctuations in the difference between long and short-term interest rates.
The Company also controls interest rate risk reductions by emphasizing
non-certificate depositor accounts. The Board and management believe that
such accounts carry a lower cost than certificate accounts, and that a
Page 12 of 15
<PAGE>
material portion of such accounts may be more resistant to changes in interest
rates than are certificate accounts. At September 30, 1998 the Company had
$281 million of regular savings and club accounts and $593 million of money
market and NOW accounts, representing 48.6% of total interest-bearing
depositor accounts.
The Company does not currently engage in trading activities or use
derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of the Board of Directors, the
Company does not intend to engage in such activities in the immediate future.
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate
risk and commodity price risk, do not arise in the normal course of the
Company's business activities.
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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In April 1998 the Company entered into an agreement for the acquisition
of American Security Bancshares of Ville Platte, Inc. (American Security),
Ville Platte, Louisiana and its subsidiary, American Security Bank (ASB). On
June 17, 1998 the Company was notified that ASB had failed to renew a lease of
one of its branch locations, which accounted for approximately 17% of its
total deposits and approximately 32% of its total loans as of March 31, 1998.
The Company determined that American Security would not be able to comply with
terms of the agreement, including the representations and warranties. The
Company began discussions with American Security to determine a solution to
resolve the loss of the lease, including a possible mutual termination of the
agreement. On July 27, 1998 American Security filed a lawsuit against the
Company in the 13th Judicial District Court of the Parish of Evangeline
seeking, among other things, specific performance of the merger agreement.
Shortly before the trial date, the parties engaged in intensive
settlement negotiations. Terms of the original agreement were renegotiated
and a settlement agreement was executed on September 25, 1998. Per the
amended agreement dated October 15, 1998, the merger will be consummated by
the exchange of all outstanding shares of American Security stock in return
for approximately 672,000 shares of common stock of the Company and cash of
$13.8 million. Completion of the merger is contingent upon approval by
American Security's shareholders. It is anticipated that ASB will initially
remain a separate wholly-owned subsidiary of the Company.
ITEM 5. OTHER INFORMATION
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In July 1998 the Company repurchased 421,245 shares or approximately
3.8% of its common stock in a privately negotiated transaction from a single
non-affiliated shareholder at a purchase price of $52.8125 per share for a
total of $22,247,001. These shares are being held in treasury and may be used
by the Company for future acquisitions or by the Company's long-term incentive
plan for future stock awards and/or options. Management believes that the
repurchase of these shares will further the Company's goal of enhancing long-
term shareholder value.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibit (27) Selected Financial Data.
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SIGNATURES
Pursuant to the requirements 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
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Registrant
November 16, 1998 By: /s/ George A. Schloegel
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Date George A. Schloegel
Vice-Chairman of the Board
November 16, 1998 By: /s/ Carl J. Chaney
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Date Carl J. Chaney
Chief Financial Officer
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