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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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, 2000
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Commission File Number 0-13089
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HANCOCK HOLDING COMPANY
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(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0693170
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
ONE HANCOCK PLAZA, P.O. BOX 4019, GULFPORT, MISSISSIPPI 39502
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(Address of principal executive offices) (Zip Code)
(228) 868-4872
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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
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10,860,057 Common Shares were outstanding as of September 30, 2000 for financial
statement purposes.
HANCOCK HOLDING COMPANY
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets --
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Earnings --
Three Months and Nine Months Ended
September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Amounts in thousands)
(Unaudited)
September 30 December 31,
2000 1999 *
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ASSETS:
Cash and due from banks (non-interest bearing) $ 151,086 $ 156,738
Interest-bearing time deposits with other banks 2,755 100
Securities available for sale (amortized cost of
$620,313 and $660,591) 607,370 639,416
Securities held to maturity (fair value of $429,551
and $498,467) 435,258 509,306
Federal funds sold 22,500 3,000
Loans, net of unearned income 1,652,151 1,541,521
Less: Allowance for loan losses (27,029) (25,713)
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Loans, net 1,625,122 1,515,808
Property and equipment, net of accumulated
depreciation of $53,557 and $56,267 51,852 55,008
Other real estate, net 1,539 1,616
Accrued interest receivable 23,416 23,806
Goodwill and other intangibles 41,666 44,513
Other assets 39,598 42,563
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-------------- --------------
TOTAL ASSETS $ 3,002,162 $ 2,991,874
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 526,856 $ 527,219
Interest-bearing savings, NOW, money market
and time 1,958,395 1,870,435
-------------- --------------
Total deposits 2,485,251 2,397,654
Federal funds purchased 1,250 -
Securities sold under agreements to repurchase 154,964 213,773
Federal Home Loan Bank advance - 50,000
Other liabilities 23,794 17,306
Long-term notes 2,315 2,714
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TOTAL LIABILITIES 2,667,574 2,681,447
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 196,009 196,047
Retained earnings 111,450 92,153
Unrealized loss on securities available for
sale, net (8,413) (13,764)
Unearned compensation (470) (808)
Treasury stock (860) (73)
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TOTAL STOCKHOLDERS' EQUITY 334,588 310,427
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,002,162 $ 2,991,874
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* The balance sheet at December 31, 1999 has been taken from the audited balance sheet at that date.
See notes to condensed consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
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(UNAUDITED)
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(amounts in thousands except per share)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
INTEREST INCOME:
Loans $ 38,332 $ 33,811 $ 109,819 $ 98,486
U. S. Treasury securities 1,292 2,413 4,280 8,257
Obligations of U. S. government agencies 5,592 6,214 17,144 19,158
CMOs 4,092 4,523 12,870 12,662
Obligations of states and political subdivisions 2,368 2,376 7,095 7,037
Mortgage-backed securities 2,375 2,301 7,264 7,790
Federal funds sold 418 291 1,516 907
Other investments 495 319 1,326 908
----------- ----------- ------------ -----------
Total interest income 54,964 52,248 161,314 155,205
----------- ----------- ------------ -----------
INTEREST EXPENSE:
Deposits 22,550 18,964 62,987 58,047
Federal funds purchased and securities sold
under agreements to repurchase 1,867 1,287 5,243 3,816
Bonds and notes 174 375 612 931
----------- ----------- ------------ -----------
Total interest expense 24,591 20,626 68,842 62,794
----------- ----------- ------------ -----------
NET INTEREST INCOME 30,373 31,622 92,472 92,411
Provision for loan losses 3,038 1,918 7,241 4,959
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 27,335 29,704 85,231 87,452
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NON-INTEREST INCOME
Service charges on deposit accounts 6,918 6,905 20,229 17,953
Other service charges, commissions and fees 5,073 3,898 14,443 12,589
Securities gains (losses), net (4) 51 5 66
Other 413 868 4,074 2,041
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Total non-interest income 12,400 11,722 38,751 32,649
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NON-INTEREST EXPENSE
Salaries and employee benefits 14,527 15,848 45,467 45,684
Net occupancy expense of premises 1,778 1,824 5,245 4,627
Equipment rentals, depreciation and maintenance 1,959 2,253 6,305 6,527
Amortization of intangibles 909 954 2,846 2,799
Other 7,862 8,822 23,700 25,277
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Total non-interest expense 27,035 29,701 83,563 84,914
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EARNINGS BEFORE INCOME TAXES 12,700 11,725 40,419 35,187
Income taxes 4,033 3,882 12,824 11,084
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NET EARNINGS $ 8,667 $ 7,843 $ 27,595 $ 24,103
=========== =========== ============ ===========
BASIC AND DILUTED EARNING PER COMMON SHARE $ 0.80 $ 0.72 $ 2.54 $ 2.13
=========== =========== ============ ===========
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DIVIDENDS PAID PER COMMON SHARE $ 0.25 $ 0.25 $ 0.75 $ 0.75
=========== ============ ===========
=========== =========== ============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC 10,872 10,881 10,876 10,887
=========== =========== ============ ===========
=========== =========== ============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-DILUTED 10,879 10,894 10,884 10,890
=========== =========== ============ ===========
See notes to condensed consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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UNAUDITED
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(Amounts in thousands)
Nine Months Ended September 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 27,595 $ 23,285
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 4,491 4,345
Provision for loan losses 7,241 4,959
Provision for losses on real estate owned 155 264
Gain on sales of securities (5) (66)
Decrease in interest receivable 390 2,272
Amortization of intangible assets 2,847 2,799
Increase (decrease) in interest payable 2,224 (975)
Other, net 6,272 10,088
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Net cash provided by operating activities 51,210 46,971
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase)decrease in interest-bearing time deposits (2,655) 96
Proceeds from maturities of securities held
to maturity 75,903 306,010
Purchase of securities held to maturity (1,855) (79,243)
Proceeds from maturities of securities available
for sale 113,039 134,959
Purchase of securities available for sale (72,761) (247,686)
Net (increase) increase in federal funds sold (19,500) 7,825
Net increase in loans (117,671) (87,182)
Purchase of property, equipment and software, net (3,550) (13,509)
Proceeds from sales of other real estate 847 893
Net cash received in connection with purchase .
transaction - 12,986
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Net cash used by investing activities (28,203) 35,149
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 87,597 (136,638)
Dividends paid (8,298) (8,312)
Net (decrease) increase in federal funds purchased and
securities sold under agreements to repurchase (57,559) 39,636
Reductions of long-term notes (399) (335)
Repayment of FHLB advances, net (50,000) -
-------- -
Net cash used by financing activities (28,659) (105,649)
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NET INCREASE IN CASH AND DUE FROM BANKS (5,652) (23,529)
CASH AND DUE FROM BANKS, BEGINNING 156,738 161,294
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CASH AND DUE FROM BANKS, ENDING $ 151,086 $ 137,765
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See notes to condensed consolidated financial statements.
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. 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 (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 of Hancock Holding Company's 1999 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, 2000 and 1999.
Three Months Ended Nine Months
Sept. 30, Ended Sept. 30,
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2000 1999 2000 1999
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Net earnings $ 8,667 $ 7,843 $27,595 $23,285
Other comprehensive income(loss)
(net of income tax):
Unrealized holding
(losses)/gains on
securities available for
sale 4,986 757 5,351 (7,730)
--------- --------- --------- ---------
Total Comprehensive Earnings $ 13,653 $ 8,600 $32,946 $15,555
========= ========= ========= =========
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 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,
2000 2000 2000 1999
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Total securities to total deposits 41.95% 43.57% 44.87% 47.79%
Total loans (net of unearned
income) to total deposits 66.48% 65.51% 61.88% 64.29%
Interest-earning assets to total assets 90.60% 90.47% 90.65% 90.02%
Interest-bearing deposits to
total deposits 78.80% 77.21% 77.54% 78.01%
Capital Resources
Sept. 30, June 30, March 31, Dec. 31.
2000 2000 2000 1999
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Equity capital to total assets (1) 11.43% 11.29% 11.00% 10.84%
Total capital to risk-weighted assets (2) 17.23% 17.28% 17.19% 16.85%
Tier 1 capital to risk-weighted assets (3) 15.98% 16.03% 15.94% 15.61%
Leverage capital to average total assets (4) 10.22% 9.98% 9.74% 9.61%
(1) Equity capital consists of stockholders' equity (excluding unrealized
gains/(losses)).
(2) Total capital consists of equity capital less intangible assets plus a limited
amount of the 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
For the first nine months of 2000, regular net earnings have increased $2.3 million or 9.91% over the same period in 1999. In addition to the increase in regular net earnings, in the first quarter of the current year the Company recognized additional after-tax earnings of $1.9 million from the sale of its credit card portfolio.
Regular net earnings increased $824,000 or 10.51% for the third quarter of 2000 compared to the third quarter of 1999. Following is selected information for quarterly comparison:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
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2000 1999 2000 1999
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Results of Operations:
Return on average assets before sale of credit
card portfolio and securities transactions 1.15% 1.05% 1.14% 1.03%
Return on average assets 1.15% 1.05% 1.23% 1.03%
Return on average equity before sale of credit
card portfolio and securities transactions 10.44% 10.13% 11.47% 10.08%
Return on average equity 10.46% 10.15% 10.63% 10.10%
Net Interest Income:
Yield on average interest-earning assets
(tax equivalent) 8.21% 7.80% 8.08% 7.76%
Cost of average interest-bearing funds 4.63% 3.90% 4.36% 3.96%
Net interest spread 3.58% 3.90% 3.72% 3.80%
Net yield on interest-earning assets
(net interest income on a tax-equivalent basis
divided by average interest-earning assets) 4.65% 4.81% 4.72% 4.70%
Net Interest Income Net interest income for the first nine months of 2000 increased $61 thousand, compared to the same period one year ago. The Company's net interest margin for the nine month period ended September 30, 2000 was 4.72% compared to 4.70% for the prior year period. The increase in interest income for the current year results from growth in the loan portfolio 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 increasing interest rates offered for certain types of deposit accounts.
Net interest income for the quarter ended September 30, 2000 decreased $1.2 million to the same period last year. The Company's net interest margin for the quarter was 4.65%, compared to 4.81% in the prior year. The decrease in net interest income was due primarily to higher overall funding costs compared with the same quarter last year. The Company's total cost of funds increased 57 basis points from the third quarter of 1999.
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 loan loss reserve and loan loss provision and ratios are calculated using average loan balances.
(Amounts shown are in thousands)
At and For the
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Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
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2000 1999 2000 1999
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Annualized net charge-offs to average loans 0.62% 0.51% 0.49% 0.50%
Annualized provision for loan losses to
average loans 0.18% 0.52% 0.42% 0.46%
Average allowance for loan losses to
average loans 1.64% 1.61% 1.66% 1.66%
Gross charge-offs $ 3,030 $ 2,533 $ 7,679 $ 7,170
Gross Recoveries $ 502 $ 662 $ 1,754 $ 1,738
Non-accrual loans (1) $ 12,123 $ 7,593 $ 12,123 $ 7,593
Accruing loans 90 days or more past due $ 7,790 $ 9,609 $ 7,790 $ 9,609
(1) The increase in non-accrual loans is primarily associated with two relationships which total $6.5 million. The largest single relationship, which exceeds the net increase over September 1999, is 90% guaranteed by the United States Department of Agriculture.
Non-Interest Income Non-interest income increased $6.1 million to $38.8 million for the nine month period ended September 30, 2000, compared to $32.6 million for the same period in 1999. The largest factor contributing to that increase is a gain recognized by the Company on the sale of its credit card portfolio, which totaled $3.1 million. Deposit service charge income has increased $2.3 million and is largely due to a change in the fee structure associated with NSF and overdraft items.
Non-interest income for the quarter ended September 30, 2000 increased $678,000 to $12.4 million when compared to the same period in 1999. The increase is attributable to increased trust fee revenue.
Non-Interest Expense Non-interest expense for the nine month period ended September 30, 2000 decreased $2.2 million, or 2.5%, compared to the same period the previous year. Decreases in expenses, as compared to the same period last year, result from the implementation of initiatives to reduce or hold expenses at prior year levels.
For the quarter ended September 30, 2000, non-interest expense decreased $2.7 million from the level experienced for the same quarter last year.
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 2000 was $8,813,000 compared to $7,895,000 for the comparable period in 1999.
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 interest 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 September 30, 2000 the Company had $288 million of regular savings and club accounts and $671 million of money market and NOW accounts, representing 49.0% 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.
Part II - OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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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 10,2000 By: /s/ George A. Schloegel
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Date George A. Schloegel
Vice-Chairman of the Board &
Chief Executive Officer
November 10,2000 By: /s/ Carl J. Chaney
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Date Carl J. Chaney
Senior Vice President &
Chief Financial Officer
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