UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) 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 June 30, 1999
---------------------------
Commission File Number 0-13089
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HANCOCK HOLDING COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0693170
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
ONE HANCOCK PLAZA, P.O. BOX 4019, GULFPORT, MISSISSIPPI 39502
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(Address of principal executive offices) (Zip Code)
(228) 868-4727
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
-------- --------
10,910,570 Common Shares were outstanding as of July 30, 1999 for financial
statement purposes.
<PAGE>
HANCOCK HOLDING COMPANY
-----------------------
INDEX
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PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Earnings --
Three and Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements 6 - 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 13
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 13
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
- ----------
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Amounts in thousands)
(Unaudited)
June 30, December 31,
1999 1998 *
------------- ------------
Assets:
Cash and due from banks (non-interest bearing) $ 133,498 $ 161,294
Interest-bearing time deposits with other banks - 96
Securities available for sale (amortized
cost of $688,391 and $462,876) 675,590 463,120
Securities held to maturity (fair value
of $578,796 and $790,379) 582,217 781,249
Federal funds sold 18,325 -
Loans, net of unearned income 1,458,097 1,305,555
Less: Allowance for loan losses (23,850) (21,800)
------------ ------------
Loans, net 1,434,247 1,283,755
Property and equipment, net of accumulated
depreciation of $53,066 and $51,112 54,208 44,547
Other real estate, net 2,666 2,245
Accrued interest receivable 24,107 23,798
Goodwill and other intangibles 45,730 26,449
Other assets 28,235 28,142
------------ ------------
Total Assets $2,998,823 $2,814,695
============ ============
Total Liabilities and Stockholders' Equity:
Deposits:
Non-interest bearing demand $ 562,995 $ 546,685
Interest-bearing savings, NOW, money market
and time 1,948,029 1,827,906
------------ ------------
Total deposits 2,511,024 2,374,591
Federal funds purchased and securities
sold under agreements to repurchase 166,752 140,207
Long-term bonds and notes 2,675 -
Other liabilities 13,150 13,090
------------ ------------
Total Liabilities 2,693,601 2,527,888
Stockholders' Equity:
Common stock-$3.33 par value per share;
75,000,000
Shares authorized and 11,072,770 issued 36,872 36,872
Capital surplus 195,899 201,536
Retained earnings 81,393 71,499
Unrealized (loss) gain on securities
available for sale, net (8,328) 159
Unearned compensation (614) (1,010)
Treasury stock - (22,249)
------------ ------------
Total Stockholders' Equity 305,222 286,807
------------ ------------
Total Liabilities and
Stockholders' Equity $2,998,823 $2,814,695
============ ============
* The balance sheet at December 31, 1998 has been taken from the audited
balance sheet at that date.
See notes to condensed consolidated financial statements.
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
UNAUDITED
---------
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $32,508 $28,427 $64,675 $57,816
U. S. Treasury securities 2,854 3,793 5,845 7,550
Obligations of U. S. government agencies 8,938 7,459 17,689 14,516
Obligations of states and political subdivisions 2,367 1,686 4,661 3,033
Federal funds sold 231 974 616 2,321
Other investments 4,807 5,438 9,471 10,284
------------- ------------- -------------- -------------
Total interest income 51,705 47,777 102,957 95,520
------------- ------------- -------------- -------------
Interest expense:
Deposits 19,318 18,437 39,083 35,858
Federal funds purchased and securities sold
under agreements to repurchase 1,609 2,302 2,978 4,097
Bonds and notes 71 29 107 58
------------- ------------- -------------- -------------
Total interest expense 20,998 20,768 42,168 40,013
------------- ------------- -------------- -------------
Net interest income 30,707 27,009 60,789 55,507
Provision for loan losses 1,621 929 3,041 2,288
------------- ------------- -------------- -------------
Net interest income after provision for
loan losses 29,086 26,080 57,748 53,219
------------- ------------- -------------- -------------
Non-interest income
Service charges on deposit accounts 5,932 4,780 11,048 9,437
Other service charges, commissions and fees 4,347 2,914 8,691 4,855
Securities gains (losses), net 11 - 14 (63)
Other 622 592 1,175 1,369
------------- ------------- -------------- -------------
Total non-interest income 10,912 8,286 20,928 15,598
------------- ------------- -------------- -------------
Non-interest expense
Salaries and employee benefits 15,230 11,631 29,837 23,497
Net occupancy expense of premises 1,817 1,339 3,630 2,619
Equipment rentals, depreciation and maintenance 2,411 2,078 4,663 3,612
Amortization of intangibles 952 602 1,845 1,200
Other 7,802 6,094 16,057 13,059
------------- ------------- -------------- -------------
Total non-interest expense 28,212 21,744 56,032 43,987
------------- ------------- -------------- -------------
Earnings before income taxes 11,786 12,622 22,644 24,830
Income taxes 3,975 4,087 7,202 8,242
------------- ------------- -------------- -------------
Net earnings $ 7,811 $ 8,535 $15,442 $16,588
============= ============= ============== =============
Basic and diluted earnings per common share $ 0.72 $ 0.78 $ 1.42 $ 1.52
============= ============= ============== =============
Dividends paid per common share $ 0.25 $ 0.25 $ 0.50 $ 0.50
============= ============= ============== =============
Weighted average number of common shares outstanding 10,882 10,910 10,885 10,911
============= ============= ============== =============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
UNAUDITED
---------
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
------------ -------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net earnings $ 15,442 $ 16,588
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 3,072 2,550
Provision for loan losses 3,041 2,288
Provision for losses on real estate owned 91 88
(Gains) losses on sales of securities (14) 63
Decrease (increase) in interest receivable 1,070 (1,626)
Amortization of intangible assets 1,845 1,200
(Decrease) increase in interest payable (1,164) 694
Other, net 6,302 (10,693)
----------- -----------
Net cash provided by operating activities 29,685 11,152
----------- -----------
Cash Flows from Investing Activities:
Net decrease in interest-bearing time deposits 96 1,472
Proceeds from maturities of securities held
to maturity 278,275 206,906
Purchase of securities held to maturity (79,243) (165,906)
Proceeds from maturities and sales of securities
available for sale 76,662 24,365
Purchase of securities available for sale (228,460) (202,955)
Net increase in federal funds sold (10,500) (8,000)
Net increase in loans (49,653) (9,165)
Purchase of property, equipment and software, net (9,096) (5,491)
Proceeds from sales of other real estate 596 298
Net cash received in connection with purchase
transaction 12,986 -
----------- -----------
Net cash used in investing activities (8,337) (158,476)
----------- -----------
Cash Flows from Financing Activities:
Net (decrease) increase in deposits (70,145) 219,516
Dividends paid (5,544) (5,537)
Net increase (decrease) in federal funds purchased and
Securities sold under agreements to repurchase
and other temporary funds 26,545 (51,692)
----------- -----------
Net cash (used in) provided by financing activities (49,144) 162,287
----------- -----------
Net (Decrease) Increase in Cash and Due from Banks (27,796) 14,963
Cash and Due from Banks, Beginning 161,294 113,125
----------- -----------
Cash and Due from Banks, Ending $ 133,498 $ 128,088
=========== ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
UNAUDITED
---------
(At and For the Six Months Ended June 30, 1999 and 1998)
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 (HBLA) and other subsidiaries. Current year
financial statements include the accounts of American Security Bank (ASB) which
was acquired in a purchase transaction effective January 15, 1999. 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. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and were of a normal
recurring nature. 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 of
Hancock Holding Company's 1998 Annual Report to Shareholders.
COMPREHENSIVE EARNINGS
- ----------------------
Following is a summary of the Company's comprehensive earnings for the
three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
1999 1998 1999 1998
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings $ 7,811 $ 8,535 $ 15,442 $ 16,588
Other comprehensive income(loss)
(net of income tax):
Unrealized holding (losses)/gains on
securities available for sale ( 6,662) 66 ( 8,487) ( 153)
----------- ---------- ---------- ----------
Total comprehensive earnings $ 1,149 $ 8,601 $ 6.955 $ 16,435
=========== ========== ========== ==========
</TABLE>
ACQUISITION
- -----------
On January 15, 1999, the Company acquired American Security Bancshares of
Ville Platte, Inc. (American Security), Ville Platte, Louisiana and its
subsidiary, American Security Bank (ASB). The merger was consummated by the
exchange of all outstanding shares of American Security common stock in return
for approximately 644,000 shares of common stock of the Company and $15.2
million cash. Approximately 241,000 shares of the Company's stock were
repurchased during the current year to consummate the acquisition. The
acquisition was accounted for as a purchase. The total purchase price is being
allocated to the tangible and intangible assets and liabilities acquired based
upon preliminary estimates of their fair values. The preliminary allocation of
the purchase price resulted in intangible assets of approximately $20.8 million,
which are being amortized over 15 years. Management has requested additional
information, including, among other things, certain appraisals of bank premises
and equipment in order to finalize those allocations. The Company will make
appropriate adjustments as soon as that information becomes available. Since the
date of acquisition the results of operations of ASB, which had continued to
operate as a separate subsidiary until its merger with HBLA on July 22, 1999,
were included in the 1999 consolidated statements of earnings.
The Company is discontinuing American Security's electronic banking
operations that provided funding for ATM machines owned by third parties. It is
anticipated that this process will be completed in the third quarter of 1999.
<PAGE>
The unaudited pro forma consolidated results of operations presented below
give effect to the acquisition as though it had occurred on January 1, 1998
(amounts in thousands except per share data).
For the Six Months Ended June 30,
----------------------------------
1999 1998
------------ -----------
Interest income $ 103,455 $ 101,773
Interest expense (42,440) (43,401)
Provision for loan losses ( 3,066) ( 3,478)
Net interest income after ------------ -----------
provision for loan losses 57,949 54,894
Net earnings (1) $ 14,149 $ 17,285
Basic and diluted earnings per
common share $ 1.30 $ 1.58
(1) Net earnings for 1998 includes gains on the sale of two branches amounting
to $2.2 million.
The unaudited pro forma information is not necessarily indicative either of
results of operations that would have occurred had the purchase been made as of
January 1, 1998 or of future results of operations of the combined companies.
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
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, maturities of loans and sales and maturities of
securities.
The following liquidity ratios compare certain assets and liabilities to
total deposits or total assets:
June 30, March 31, December 31,
1999 1999 1998
-------- --------- ------------
Total securities to total deposits 50.09% 52.95% 52.40%
Total loans (net of unearned
income) to total deposits 58.07% 55.02% 54.98%
Interest-earning assets
to total assets 91.18% 90.73% 90.59%
Interest-bearing deposits
to total deposits 77.58% 78.31% 76.98%
Capital Resources
- -----------------
The Company continues to maintain an adequate regulatory capital position,
as the following ratios indicate:
June 30, March 31, December 31,
1999 1999 1998
-------- --------- ------------
Equity capital to total assets (1) 10.18% 10.00% 10.19%
Total capital to risk-weighted assets (2) 17.08% 16.31% 17.41%
Tier 1 capital to risk-weighted 15.83% 15.72% 16.88%
assets (3)
Leverage capital to average total assets (4) 8.88% 8.86% 9.69%
(1) Equity capital consists of stockholder's equity (excluding unrealized
gain/(loss) on securities available for sale, net).
(2) Total capital consists of equity capital less intangible assets plus a
limited amount of loan loss allowance. 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.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Net Earnings
- ------------
Net earnings, which included the operations of ASB subsequent to January 15,
1999, decreased $1.1 million, or 6.9%, for the first six months of 1999 compared
to the first six months of 1998. Professional fees, training, advertising,
system integration and other costs associated with the July 22, 1999 merger of
ASB and HBLA are included in current year earnings. Following is selected
information for comparison:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
1999 1998 1999 1998
--------- --------- -------- ---------
Results of operations:
<S> <C> <C> <C> <C>
Return on average assets 1.02% 1.26% 1.02% 1.25%
Return on average equity 10.15% 11.50% 10.09% 11.31%
Net interest income:
Yield on average interest-earning assets
(tax equivalent) 7.69% 7.86% 7.71% 7.96%
Cost of average interest-bearing funds 3.86% 4.40% 3.97% 4.30%
-------- -------- -------- --------
Net interest spread 3.83% 3.46% 3.74% 3.66%
Net yield on interest-earning assets ======== ======== ======== ========
(net interest income on a tax
equivalent basis divided by average
interest-earning assets) 4.65% 4.51% 4.64% 4.69%
======== ======== ======== ========
</TABLE>
Net Interest Income
- -------------------
Net interest income for the first six months of 1999 increased $5.3 million,
compared to the same period a year ago. The Company's net yield on interest-
earning assets for the six month period ended June 30, 1999 was 4.64% and
represented a decrease when compared to 4.69% for the prior year period.
Offsetting the decline in net yield was an increase in average interest earnings
assets, primarily due to the acquisition of ASB.
<PAGE>
Net interest income for the quarter ended June 30, 1999 was $30.7 million,
compared to $27.0 million for the quarter ended June 30, 1998. The increase in
interest income for the current quarter was the result of increased average
balances of interest-earning assets and greater investment in loans as a
percentage of total interest-earning assets. The Company's loan portfolio, which
yields a higher rate of interest compared to the securities portfolio,
experienced growth during the current quarter in line with Company objectives.
Interest expense increased slightly in the current year's quarter. Deposit
pricing initiatives, such as tiered pricing, were primarily responsible for the
subdued increase in interest expense. The cost of funds was impacted by non-
aggressive interest rates offered for public money and jumbo accounts and the
decrease in balances of interest-rate sensitive accounts.
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 bank's loan portfolio. A specific loan is charged-off
when management believes, after considering, among other things, the borrower's
condition and the value of any collateral, that collection of the loan is
unlikely.
The following information is useful in determining the adequacy of the
allowance for loan losses. (Amounts shown are in thousands)
<TABLE>
<CAPTION>
At and For the
-------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Annualized net charge-offs to average loans 0.40% 0.44% 0.53% 0.43%
Annualized provision for loan losses to
average loans 0.45% 0.31% 0.45% 0.38%
Average allowance for loan losses to average
loans 1.66% 1.73% 1.68% 1.73%
Gross charge-offs (1) $ 1,910 $ 1,772 $ 4,637 $ 3,373
Gross recoveries $ 486 $ 421 $ 1,076 $ 773
Non-accrual loans $ 7,002 $ 7,363 $ 7,002 $ 7,363
Accruing loans 90 days or more past due $ 8,717 $ 3,386 $ 8,717 $ 3,386
<FN>
(1) The six months ended June 30, 1999 included a single loan charge-off of
$479,000 which had been fully reserved for by ASB prior to acquisition.
(2) At June 30, 1999 the Company's accruing loans 90 days or more past due
included a loan in excess of $3.0 million secured by commercial real
estate. Such loan is expected to be brought current under the terms of the
workout arrangement agreed to by both parties. ASB loans in the amount of
$2.3 million accruing and 90 days or more past due were included at
June 30, 1999.
</FN>
</TABLE>
Non-Interest Income
- -------------------
Non-interest income increased $5.3 million to $20.9 million for the six
month period ended June 30, 1999, compared to $15.6 million for the six month
period ended June 30, 1998. ASB accounted for $2.1 million of the current period
increase. Excluding ASB, deposit service charge income increased $700,000, trust
fees increased $700,000 and commissions on insurance and investments increased
$1.8 million in the current six-month period, compared to the prior year period.
In the current year the Company dedicated resources to the restructure of the
management and sales force of its subsidiary, Hancock Investment Services, which
resulted in record investment sales during the period.
For the three months ended June 30, 1999 non-interest income increased $2.6
million, compared to the same period in 1998. American Security Bank's non-
interest income was $1.1 million for the current three month period. Deposit
service charges, excluding ASB, increased $600,000 during the current quarter
primarily due to pricing strategies the Company initiated in June, 1999. Trust
fees and commissions on insurance and investments increased for the second
quarter of 1999, compared to the same period of 1998, similar to increases
reported during the six month period ending June 30, 1999.
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expense for the six month period ended June 30, 1999 increased
$12.0 million, or 27.4%, compared to the same period the previous year. Current
period's expense includes the operations of ASB, acquired January 15, 1999.
Compensation costs increased $6.3 million during the current six month period
compared to the same period of 1998 primarily due to increased personnel. In
addition to the costs associated with ASB, the Company's expansion into certain
lines of business contributed to a portion of the increased compensation
expense. Equipment costs increased partially due to hardware requirements of the
Company's new automated sales platform. Other non-interest expenses increased
in the current period compared to the prior year period primarily due to ASB
expenses, advertising costs associated with the Company's 100th year anniversary
marketing campaign, supply and postage expenses associated with the conversion
of ASB data processing system as of July 23, 1999, goodwill amortization and
data processing expenses impacted by recent software upgrades. In total, ASB
incurred $4.8 million in non-interest expenses during the 1999 period.
Non-interest expense for the quarter ended June 30, 1999 was $28.2 million,
compared to $21.7 million for the quarter ended June 30, 1998. Most of the
expense variances between the three month periods ended June 30, 1999 and 1998
were comparable to the increased costs of the first six months of 1999. The 1999
quarter included a full three months of non-interest expenses for ASB which
amounted to $2.6 million. Primarily due to the July, 1999 conversion of ASB's
data processing system and the merger of ASB and HBLA, the current quarter's
expenses for advertising, travel, supplies and postage increased compared to the
same quarter the prior year. Expenses due to training were incurred during the
current period in anticipation of the upgrade for ASB to a new sales platform
and the conversion of deposit and loan applications. Through July, 1999 new
equipment and software were installed in all ASB branches.
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 six months of 1999 was
$5,235,000 compared to $3,487,000 for the comparable period in 1998.
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 complete and
plans, including replacement of certain systems, have been completed which
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.
<PAGE>
The Company recognized the importance of its customers' need to address
Year 2000 issues. Relationships considered material to the Company's financial
position were 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,
including those slated for replacement or vendor upgrade, was completed by
February 1999. In addition to testing required by regulatory agencies, which
included fully integrated systems testing, the Company plans to perform a second
test of all data processing systems in September 1999.
Contingency plans for the most reasonably likely worst-case scenarios are
complete and have been tested. Issues regarding material equipment and
applications failure have been 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 eighteen months, is expected to be less than $4.0
million (before income taxes) but cannot be predicted with certainty at this
time.
Barring any unforeseen problems, management believes the bank is Y2K Ready.
It is currently developing an "Event Plan" which will detail activities to take
the bank through the year end process by defining all activities during the
December 30th - January 5th timeframe.
<PAGE>
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 relatively 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. 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 a
material portion of such accounts may be more resistant to changes in interest
rates than are certificate accounts. At June 30, 1999 the Company had $333
million of regular savings and club accounts and $698 million of money market
and NOW accounts, representing 52.9% 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.
<PAGE>
Part II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibit (27) Selected financial data.
<PAGE>
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
-----------------------
Registrant
August 12, 1999 By: /s/ George A. Schloegel
- ---------------------------- ------------------------------
Date George A. Schloegel
Vice-Chairman of the Board
August 12, 1999 By: /s/ Carl J. Chaney
- ---------------------------- -----------------------------
Date Carl J. Chaney
Senior Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Exhibit 27
Selected Financial Data
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HANCOCK
HOLDING COMPANY'S JUNE 30, 1999 CONDENSED CONSOLIDATED BALANCE SHEETS, CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS AND CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 133,498
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,325
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 675,590
<INVESTMENTS-CARRYING> 582,217
<INVESTMENTS-MARKET> 578,796
<LOANS> 1,458,097
<ALLOWANCE> (23,850)
<TOTAL-ASSETS> 2,998,823
<DEPOSITS> 2,511,024
<SHORT-TERM> 166,752
<LIABILITIES-OTHER> 15,825
<LONG-TERM> 2,675
<COMMON> 36,872
0
0
<OTHER-SE> 268,350
<TOTAL-LIABILITIES-AND-EQUITY> 2,998,823
<INTEREST-LOAN> 64,675
<INTEREST-INVEST> 28,195
<INTEREST-OTHER> 10,087
<INTEREST-TOTAL> 51,705
<INTEREST-DEPOSIT> 39,083
<INTEREST-EXPENSE> 42,168
<INTEREST-INCOME-NET> 60,789
<LOAN-LOSSES> 3,041
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 56,032
<INCOME-PRETAX> 22,644
<INCOME-PRE-EXTRAORDINARY> 22,644
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,442
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 4.64
<LOANS-NON> 7,002
<LOANS-PAST> 8,717
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 23,653
<CHARGE-OFFS> 1,884
<RECOVERIES> 486
<ALLOWANCE-CLOSE> 23,850
<ALLOWANCE-DOMESTIC> 23,850
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,000
</TABLE>