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 September 30, 1999
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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 October 31, 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 --
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Earnings --
Three and Nine Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended September 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 - 14
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)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998 *
ASSETS: ------------- -------------
<S> <C> <C>
Cash and due from banks $137,765 $161,294
Interest-bearing time deposits with other banks 0 96
Securities available for sale (amortized cost of
$647,681 and $462,876) 636,034 463,120
Securities held to maturity (fair value of $550,064
and $790,379) 554,612 781,249
Loans, net of unearned income 1,494,874 1,305,555
Less: Allowance for loan losses (24,684) (21,800)
------------- --------------
Loans, net 1,470,190 1,283,755
Property and equipment, net of accumulated
depreciation of $53,927 and $51,112 55,664 44,547
Other real estate, net 2,171 2,245
Accrued interest receivable 22,974 23,798
Goodwill and other intangibles 44,896 26,449
Other assets 28,844 28,142
------------- --------------
TOTAL ASSETS $2,953,150 $2,814,695
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $523,895 $546,685
Interest-bearing savings, NOW, money market
and time 1,920,936 1,827,906
------------- --------------
Total deposits 2,444,831 2,374,591
Federal funds purchased and securities sold under
agreements to repurchase 179,843 140,207
Other liabilities 14,358 13,090
Long-term bonds and notes 2,844 0
------------- --------------
TOTAL LIABILITIES 2,641,876 2,527,888
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock-$3.33 par value per share; 75,000,000
shares authorized and 11,072,770 shares issued 36,872 36,872
Capital surplus 196,060 200,536
Retained earnings 86,469 71,499
Unrealized (loss) gain on securities available for
sale, net (7,571) 159
Unearned compensation (502) (1,010)
Treasury stock, at cost (54) (21,249)
------------- --------------
TOTAL STOCKHOLDERS' EQUITY 311,274 286,807
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,953,150 $2,814,695
============= ==============
</TABLE>
* The balance sheet at December 31, 1998 has been taken from the audited balance
sheet at such date.
<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
--------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans $33,811 $30,032 $98,486 $87,848
U. S. Treasury securities 2,413 3,595 8,258 11,145
Obligations of U. S. government agencies 8,467 7,518 26,156 22,034
Obligations of states and political subdivisions 2,377 1,845 7,038 4,878
Federal funds sold 291 409 907 2,730
Other investments 4,889 5,340 14,360 15,624
-------- -------- -------- --------
Total interest income 52,248 48,739 155,205 144,259
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 18,965 19,735 58,048 55,593
Federal funds purchased and securities sold
under agreements to repurchase 1,611 1,488 4,589 5,585
Bonds and notes 50 1 157 58
-------- -------- -------- --------
Total interest expense 20,626 21,224 62,794 61,236
-------- -------- -------- --------
NET INTEREST INCOME 31,622 27,515 92,411 83,023
Provision for loan losses 1,918 1,203 4,959 3,491
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN 29,704 26,312 87,452 79,532
-------- -------- -------- --------
NON-INTEREST INCOME
Service charges on deposit accounts 6,905 4,926 17,953 14,363
Other service charges, commissions and fees 2,855 2,574 11,546 7,429
Securities gains (losses), net 51 - 65 (63)
Other 1,951 647 3,126 2,016
-------- -------- -------- --------
Total non-interest income 11,762 8,147 32,690 23,745
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 15,847 13,251 45,684 36,748
Net occupancy expense of premises 1,823 1,489 5,453 4,108
Equipment rentals, depreciation and maintenance 2,457 1,932 7,120 5,544
Amortization of intangibles 954 604 2,799 1,804
Other 8,660 7,038 24,717 20,097
-------- -------- -------- --------
Total non-interest expense 29,741 24,314 85,773 68,301
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 11,725 10,145 34,369 34,976
Income taxes 3,882 3,297 11,084 11,539
-------- -------- -------- --------
NET EARNINGS $ 7,843 $ 6,848 $23,285 $23,437
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE $ 0.72 $ 0.66 $ 2.14 $ 2.18
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE $ 0.72 $ 0.65 $ 2.14 $ 2.17
======== ======== ======== ========
DIVIDENDS PAID PER COMMON SHARE $ 0.25 $ 0.25 $ 0.75 $ 0.75
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10,883 10,504 10,888 10,766
======== ======== ======== ========
</TABLE>
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
UNAUDITED
---------
(amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
---------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: ---- ----
<S> <C> <C>
Net earnings $23,285 $23,437
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 4,345 3,759
Provision for loan losses 4,959 3,491
Provision for losses on real estate owned 264 319
(Gains) losses on sales of securities (65) 63
Decrease (increase) in interest receivable 2,272 (1,017)
Amortization of intangible assets 2,799 1,804
(Decrease) increase in interest payable (975) 1,189
Other, net 9,752 (5,960)
--------- ---------
Net cash provided by operating activities 46,636 27,085
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing time deposits 96 1,972
Proceeds from maturities of securities held
to maturity 306,010 277,766
Purchase of securities held to maturity (79,243) (175,143)
Proceeds from maturities of securities available
for sale 134,959 34,217
Purchase of securities available for sale (247,686) (274,156)
Net decrease in federal funds sold 7,825 10,500
Net increase in loans (87,182) (55,314)
Purchase of property, equipment and software, net (13,509) (8,076)
Proceeds from sales of other real estate 893 443
Net cash received (paid) in connection with purchase
transaction 12,986 (2,500)
--------- ---------
Net cash provided (used) by investing activities 35,149 (190,291)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (136,638) 191,805
Dividends paid (8,312) (8,119)
Purchase of treasury stock 0 (23,773)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase
and other temporary funds 39,636 11,443
--------- ---------
Net cash (used) provided by financing activities (105,314) 171,356
--------- ---------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (23,529) 8,150
CASH AND DUE FROM BANKS, BEGINNING 161,294 113,125
--------- ---------
CASH AND DUE FROM BANKS, ENDING $137,765 $121,275
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
UNAUDITED
---------
(At and For the Nine Months Ended September 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 nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 7,843 $ 6,848 $ 23,285 $ 23,437
Other comprehensive income(loss)
(net of income tax):
Unrealized holding gains/(losses)
on securities available for sale
arising during period 757 2,837 ( 7,730) 2.684
-------- -------- --------- ---------
Total comprehensive earnings $ 8,600 $ 9,685 $ 15.555 $ 26,121
======== ======== ========= =========
</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 $21.2 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 discontinued American Security's electronic banking operations
that provided funding for ATM machines owned by third parties during 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 Nine Months Ended Sept. 30,
-----------------------------------
1999 1998
---- ----
Interest income $ 155,703 $ 153,735
Interest expense (63,066) (66,306)
Provision for loan losses ( 4,984) ( 4,831)
----------- ----------
Net interest income after
provision for loan losses 87,653 82,598
Net earnings (1) $ 21,993 $ 24,938
Basic earnings per
common share $ 2.02 $ 2.32
(1) Net earnings for 1998 include 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:
Sept. 30, June 30, March 31, December 31,
1999 1999 1999 1998
--------- -------- --------- ------------
Total securities to total deposits 48.70% 50.09% 52.95% 52.40%
Total loans (net of unearned
income) to total deposits 61.14% 58.07% 55.02% 54.98%
Interest-earning assets
to total assets 90.94% 91.18% 90.73% 90.59%
Interest-bearing deposits
to total deposits 78.57% 77.58% 78.31% 76.98%
Capital Resources
- -----------------
The Company continues to maintain an adequate regulatory capital position,
as the following ratios indicate:
<TABLE>
<CAPTION>
Sept. 30, June 30, March 31, December 31,
1999 1999 1999 1998
--------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Equity capital to total assets (1) 10.80% 10.18% 10.00% 10.19%
Total capital to risk-weighted assets (2) 17.04% 17.08% 16.31% 17.41%
Tier 1 capital to risk-weighted 15.79% 15.83% 15.72% 16.88%
assets (3)
Leverage capital to average total assets (4) 9.31% 8.88% 8.86% 9.69%
</TABLE>
(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 $152,000, or 0.65%, for the first nine months of 1999 compared
to the first nine 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 the current year's earnings. Net earnings,
excluding expenses directly associated with the merger and data conversion of
ASB, amounted to $23.9 million, or $2.19 per share, for the nine month period
ended September 30, 1999 and $8.2 million, or $0.75 per share, for the three
month period ended September 30, 1999. Following is selected information for
comparison:
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1999 1998 1999 1998
Results of operations: ---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on average assets 1.05% 1.01% 1.03% 1.16%
Return on average equity 10.15% 9.71% 10.10% 10.77%
Net interest income:
Yield on average interest-earning assets
(tax equivalent) 7.91% 7.98% 7.78% 7.94%
Cost of average interest-bearing funds 3.96% 4.41% 3.96% 4.32%
------ ------ ------ ------
Net interest spread 3.95% 3.57% 3.82% 3.62%
====== ====== ====== ======
Net interest margin
(net interest income on a tax equivalent basis
divided by average interest-earning assets) 4.87% 4.58% 4.72% 4.64%
====== ====== ====== ======
</TABLE>
Net Interest Income
- -------------------
Net interest income for the first nine months of 1999 increased $9.4
million, compared to the same period a year ago. The Company's net interest
margin for the nine month period ended September 30, 1999 was 4.72%, compared to
4.64% for the prior year period. The increase in interest income for the current
year results from 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, has experienced growth during the current year. The
cost of funds was impacted by non-aggressive interest rates offered for public
money and jumbo accounts and the decrease in balances of such accounts.
Net interest income for the quarter ended September 30, 1999 was $31.6
million, compared to $27.5 million for the quarter ended September 30, 1998.
Deposit pricing initiatives, such as tiered pricing, were primarily responsible
for the decrease in interest expense in the current year's quarter.
<PAGE>
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 Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Annualized net charge-offs to average loans 0.51% 0.52% 0.50% 0.46%
Annualized provision for loan losses to average
loans 0.52% 0.38% 0.46% 0.38%
Average allowance for loan losses to average loans 1.61% 1.62% 1.66% 1.69%
Gross charge-offs (1) $ 2,533 $ 2,068 $ 7,170 $ 5,441
Gross recoveries $ 662 $ 434 $ 1,738 $ 1,207
Non-accrual loans $ 7,593 $ 6,932 $ 7,593 $ 6,932
Accruing loans 90 days or more past due (2) $ 9,609 $ 2,394 $ 9,609 $ 2,394
</TABLE>
(1) The nine months ended September 30, 1999 included a single loan
charge-off of $479,000 which had been fully reserved for by ASB prior to
acquisition.
(2) At September 30, 1999 the Company's accruing loans 90 days or more past
due included loans made in a single relationship representing two loans
with combined totals in excess of $5.0 million secured primarily by
commercial real estate. Such loans are expected to be brought current under
the terms of the workout arrangement agreed to by both parties. The
September 30, 1999 total also includes past due loans associated with the
acquisition of ASB.
Non-Interest Income
- -------------------
Non-interest income increased $9.0 million to $32.7 million for the nine
month period ended September 30, 1999, compared to $23.7 million for the nine
month period ended September 30, 1998. ASB accounted for part of the current
period increase. Deposit service charge income increased $3.6 million, trust
fees increased $877 thousand and commissions on insurance and investments
increased $3.0 million in the current nine-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. Deposit service charges, trust fees and commissions on insurance and
investments totaled $18.0 million, $3.2 million and $3.6 million, respectively,
for the nine month period ended September 30, 1999.
For the three months ended September 30, 1999 non-interest income increased
$3.6 million, compared to the same period in 1998. Deposit service charges
increased $974,000 during the current quarter, compared to the quarter ended
June 30, 1999, primarily due to pricing strategies the Company initiated in
June, 1999. Trust fees and commissions on insurance and investments increased
for the third quarter of 1999, compared to the same period of 1998, similar to
increases reported during the nine month period ending September 30, 1999.
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expense for the nine month period ended September 30, 1999
increased $17.5 million, or 25.6%, compared to the same period the previous
year. Current period's expense includes the operations of ASB, acquired January
15, 1999. Compensation costs increased $8.9 million during the current nine
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 22,
1999, goodwill amortization and data processing expenses impacted by recent
software upgrades.
Non-interest expense for the quarter ended September 30, 1999 was $29.7
million, compared to $24.3 million for the quarter ended September 30, 1998.
Most of the expense variances between the three month periods ended
September 30, 1999 and 1998 were comparable to the increased costs of the first
nine months of 1999. 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 nine months of 1999 was $7.7
million compared to $5.6 million the same 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 in
February 1999. In addition to testing required by regulatory agencies, which
included fully integrated systems testing, the Company completed a second test
of all mission critical 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 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 fifteen 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 completing the development of 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 earnings are 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 earnings.
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 earnings and the fair value of the Company's
loans and 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 reduces interest rate risk 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 September 30, 1999 the Company had $327 million of
regular savings and club accounts and $691 million of money market and NOW
accounts, representing 52.8% of total interest-bearing depositor accounts.
<PAGE>
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.
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
November 12, 1999 By: /s/ George A. Schloegel
- -------------------------- ---------------------------
Date George A. Schloegel
Vice-Chairman of the Board
November 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 SEPTMEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 137,765
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 636,034
<INVESTMENTS-CARRYING> 554,612
<INVESTMENTS-MARKET> 550,064
<LOANS> 1,494,874
<ALLOWANCE> (24,684)
<TOTAL-ASSETS> 2,953,150
<DEPOSITS> 2,444,831
<SHORT-TERM> 179,843
<LIABILITIES-OTHER> 14,358
<LONG-TERM> 2,844
<COMMON> 36,872
0
0
<OTHER-SE> 274,402
<TOTAL-LIABILITIES-AND-EQUITY> 2,953,150
<INTEREST-LOAN> 98,486
<INTEREST-INVEST> 55,812
<INTEREST-OTHER> 907
<INTEREST-TOTAL> 155,205
<INTEREST-DEPOSIT> 58,048
<INTEREST-EXPENSE> 62,794
<INTEREST-INCOME-NET> 92,411
<LOAN-LOSSES> 4,959
<SECURITIES-GAINS> 65
<EXPENSE-OTHER> 85,773
<INCOME-PRETAX> 34,369
<INCOME-PRE-EXTRAORDINARY> 34,369
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,285
<EPS-BASIC> 2.14
<EPS-DILUTED> 2.14
<YIELD-ACTUAL> 4.72
<LOANS-NON> 7,593
<LOANS-PAST> 9,609
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,800
<CHARGE-OFFS> 7,170
<RECOVERIES> 1,738
<ALLOWANCE-CLOSE> 24,684
<ALLOWANCE-DOMESTIC> 24,684
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,000
</TABLE>
