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Previous: AUBURN NATIONAL BANCORPORATION INC, 10-Q, 2000-05-15 |
Next: CAMDEN NATIONAL CORP, 10-Q, 2000-05-15 |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
--X- Quarterly Report Pursuant to Section 13 or 15 (d) --X-
of the Securities Exchange Act of 1934
---- Transition Report Pursuant to Section 13 or 15(d)
---- of the Securities Exchange Act of 1934
For Quarter Ending March 31, 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
--------- ----------
10,878,948 Common Shares were outstanding as of April 28, 2000 for financial
statement purposes.
PART I. FINANCIAL INFORMATION PAGE NUMBER
------------------------------ -----------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets --
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Earnings --
Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 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 11
PART II. OTHER INFORMATION
---------------------------
ITEM 4. Submission of Matters to a Vote 12
of Security Holders
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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(Unaudited)
March 31, December 31,
2000 1999 *
---------------------- ---------------------
ASSETS:
Cash and due from banks (non-interest bearing) $144,848 $156,738
Interest-bearing time deposits with other banks 100 100
Securities available for sale (amortized cost of
$662,431 and $660,591) 639,979 639,416
Securities held to maturity (fair value of $473,594
and $498,467) 484,840 509,306
Federal funds sold 58,000 3,000
Loans, net of unearned income 1,551,441 1,541,521
Less: Allowance for loan losses (26,138) (25,713)
---------------------- ---------------------
Loans, net 1,525,303 1,515,808
Property and equipment, net of accumulated
depreciation of $53,066 and $56,267 54,573 55,008
Other real estate, net 1,360 1,616
Accrued interest receivable 22,370 23,806
Goodwill and other intangibles 43,544 44,513
Other assets 41,569 42,563
---------------------- ---------------------
TOTAL ASSETS $3,016,486 $2,991,874
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $563,098 $527,219
Interest-bearing savings, NOW, money market
and time 1,944,012 1,870,435
---------------------- ---------------------
Total deposits 2,507,110 2,397,654
Federal funds purchased 850 -
Securities sold under agreements to repurchase 163,515 213,773
Federal Home Loan Bank advance - 50,000
Other liabilities 25,364 17,306
Long-term notes 2,290 2,714
---------------------- ---------------------
TOTAL LIABILITIES 2,699,129 2,681,447
STOCKHOLDERS' EQUITY:
Common Stock-$3.33 par vaule per share; 75,000,000
shares authorized and 11,072,770 issued 36,872 36,872
Capital surplus 195,389 196,047
Retained earnings 100,445 92,153
Unrealized (loss) on securities available for
sale, net (14,594) (13,764)
Unearned compensation (673) (808)
Treasury stock (82) (73)
---------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 317,357 310,427
---------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,016,486 $2,991,874
====================== =====================
* 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.
Three Months Ended March 31,
---------------------------------
2000 1999
------------- --------------
INTEREST INCOME:
Loans $ 35,426 $ 32,168
U. S. Treasury securities 1,589 2,991
Obligations of U. S. government agencies 7,869 8,751
Obligations of states and political subdivisions 2,389 2,294
Federal funds sold 750 385
Other investments 5,432 4,663
------------- --------------
Total interest income 53,455 51,252
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INTEREST EXPENSE:
Deposits 19,794 19,765
Federal funds purchased and securities sold
under agreements to repurchase 2,383 1,369
Bonds and notes 54 36
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Total interest expense 22,231 21,170
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NET INTEREST INCOME 31,224 30,082
Provision for loan losses 1,769 1,420
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 29,455 28,662
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NON-INTEREST INCOME
Service charges on deposit accounts 6,546 5,116
Other service charges, commissions and fees 4,700 4,344
Securities gains (losses), net - 3
Other 3,286 553
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Total non-interest income 14,532 10,016
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NON-INTEREST EXPENSE
Salaries and employee benefits 15,708 14,607
Net occupancy expense of premises 1,638 1,677
Equipment rentals, depreciation and maintenance 2,111 2,252
Amortization of intangibles 968 893
Other 8,128 8,391
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Total non-interest expense 28,553 27,820
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EARNINGS BEFORE INCOME TAXES 15,434 10,858
Income taxes 5,048 3,227
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NET EARNINGS $ 10,386 $ 7,631
============= ==============
BASIC EARNINGS PER COMMON SHARE $ 0.95 $ 0.70
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DILUTED EARNINGS PER COMMON SHARE $ 0.95 $ 0.70
============= ==============
DIVIDENDS PAID PER COMMON SHARE $ 0.25 $ 0.25
============= ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10,876 10,901
============= ==============
See notes to condensed consolidated financial statements.
Three Months Ended March 31,
---------------------------------------------
2000 1999
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 10,386 $ 7,631
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 1,459 1,472
Provision for loan losses 1,769 1,420
Provision for losses on real estate owned 110 82
(Gain) on sales of securities - (3)
(Gain) on sale of credit card portfolio (2,956) -
Decrease in interest receivable 1,405 1,410
Amortization of intangible assets 968 893
(Decrease) in interest payable (121) (715)
Other, net 9,907 (5,682)
----- ------
Net cash provided by operating activities 22,927 6,508
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing time deposits - 96
Proceeds from maturities of securities held
to maturity 24,466 161,180
Purchase of securities held to maturity - (48,176)
Proceeds from maturities of securities available
for sale 13,633 55,980
Purchase of securities available for sale (15,474) (213,365)
Net (increase) decrease in federal funds sold (55,000) 550
Net increase in loans (28,596) (4,090)
Proceeds from sale of credit card portfolio 20,289 -
Purchase of property, equipment and software, net (1,464) (6,686)
Proceeds from sales of other real estate 179 378
Net cash received in connection with purchase .
transaction - 23,927
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Net cash provided by investing activities (41,967) (30,206)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 109,457 (10,754)
Dividends paid (2,768) (2,777)
Net (decrease) increase in federal funds purchased and
securities sold under agreements to repurchase
and other temporary funds (49,408) 30,774
Reductions to long-term notes (131) (124)
Repayment of FHLB advance (50,000) -
------- ------
Net cash provided by financing activities 7,150 17,119
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NET (DECREASE) IN CASH AND DUE FROM BANKS (11,890) (6,579)
CASH AND DUE FROM BANKS, BEGINNING 156,738 161,294
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CASH AND DUE FROM BANKS, ENDING $ 144,848 $ 154,715
========= =========
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.
Following is a summary of the Company's comprehensive earnings for the three months ended March 31, 2000 and 1999.
(Amounts in thousands)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Net earnings $ 10,386 $ 7,631
Other comprehensive income (loss) (net of income tax):
Unrealized holding (losses)/gains on
securities available for sale ( 830) ( 2,436)
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Total Comprehensive Earnings $ 9,556 $ 5,195
========= ========
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.
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:
March 31, December 31,
2000 1999
---- ----
Total securities to total deposits 44.87% 47.79%
Total loans (net of unearned
income) to total deposits 61.88% 64.29%
Interest-earning assets
to total assets 90.65% 90.02%
Interest-bearing deposits
to total deposits 77.54% 78.01%
The Company continues to maintain an adequate capital position. The ratios as of March 31, 2000 and December 31, 1999 (as amended) are as follows:
March 31, December 31,
2000 1999
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Equity capital to total assets (1) 11.00% 10.84%
Total capital to risk-weighted assets (2) 16.48% 16.85%
Tier 1 capital to risk-weighted 15.96% 15.61%
assets (3)
Leverage capital to average total assets (4) 9.74% 9.61%
(1) Equity capital consists of stockholder's equity
(1) Equity capital consists of stockholder's equity (excluding unrealized gains/(losses)).
(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% ro 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
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.
Regular net earnings increased $833,000 or 10.9% for the first quarter of 2000 compared to the first quarter of 1999. In addition to the increase in regular net earnings, the Company also recognized additional after-tax earnings of $1.9 million from the sale of its credit card portfolio. Following is selected information for quarterly comparison:
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Results of Operations:
Return on average assets before sale
of credit card portfolio 1.13% 1.02%
Return on average assets 1.38% 1.02%
Return on average equity before sale
Of credit card portfolio 10.79% 10.02%
Return on average equity 13.24% 10.02%
Net Interest Income:
Yield on average interest-earning assets
(tax equivalent) 8.13% 7.85%
Cost of average interest-bearing funds 4.23% 4.04%
---- ----
Net interest spread 3.90% 3.81%
==== ====
Net yield on interest-earning assets
(net interest income on a tax equivalent basis
divided by average interest-earning assets) 4.84% 4.69%
==== ====
Net interest income for the first three months of 2000 increased $2.2 million, compared to the same period one year ago. The company's net interest margin for the three month period ended March 31, 2000 was 4.84% compared to 4.69% 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.
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 Three Months Ended March 31,
-------------------------------------------
2000 1999
---- ----
Annualized net charge-offs to average loans 0.35% 0.62%
Annualized provision for loan losses to average 0.46% 0.41%
loans
Average allowance for loan losses to average loans 1.68% 1.69%
Gross charge-offs (1) $ 1,922 $ 2,753
Gross recoveries $ 579 $ 590
Non-accrual loans $ 6,861 $ 6,406
Accruing loans 90 days or more past due $12,655 $ 4,545
(1) The increase in accruing loans 90 days or more past due
(1) The increase in accuing loans 90 days of more past due is primarily associated with three
relationships totaling $7.7 million. The largest single relationship, which comprises 68%
of the increase over March 1999, is 90% guaranteed by the United States Department of
Agriculture.
Non-interest income increased $4.5 million to $14.5 million for the three month period ended March 31, 2000, compared to $10.0 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 $2.9 million. Deposit service charge income increased $1.4 million largely due to a change in the fee structure associated with NSF and overdraft items.
Non-interest expense for the three month period ended March 31, 2000 increased $733,000, or 2.6%, compared to the same period the previous year. Salaries and benefits increased $1.1 million during the current quarter compared to the first quarter of 1999 due to the inclusion of expense associated with one additional pay period in the current quarter for the bank (American Security Bancshares) acquired by the Company January 15, 1999 as well as accruals related to certain benefits. Decreases in other expenses, as compared to the same period last year, result from the implementation of initiatives to reduce or hold expenses at prior year levels.
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 three months of 2000 was $2,775,000 compared to $2,525,000 for the comparable period in 1999.
In 1996 the Company began addressing all the systems and business methods requiring modifications to accommodate the turn of the century. Identification of the Company's major Year 2000 issues and replacement of certain systems were completed in 1999 which resolved the issues of which management was aware. Written assurances of expected Year 2000 readiness was 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 failed to adequately address possible Year 2000 issues at a reasonable cost the result could have had a significant adverse effect on the Company's business and operational results. The readiness of all Third parties, including customers and suppliers, was inherently uncertain and could not be assured. The Company also 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.
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 reasonable likely worst-case scenarios were completed and issues regarding material equipment and applications failure were addressed. Contingency plans for liquidity needs due to potentially significant deposit withdrawals during the forth quarter of 1999 were also complete.
The Company has not experienced any system errors other than those typically encountered and corrected by banks daily. Management is not aware of any significant issues related to Year 2000 that adversely affect the Company's vendors or borrowers at this time. The Company plans to continue to monitor and assess operating systems for possible remaining uncertainties.
Management dedicated resources to address the issues associated with the turn of the century. The total amount of expenditures for Year 2000 compliance, including those incurred
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.
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 March 31, 2000 the Company had $316 million of regular savings and club accounts and $690 million of money market and NOW accounts, representing 51.8% 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.
A. Annual Meeting held February 24, 2000:
B. Directors elected at the Annual Meeting held February 24, 2000:
Votes Cast
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Affirmed Withheld
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1. L. A. Koenenn
1. L.A. Koenenn 8,925,749.8 162,327.1
2. Dr H. C. Moody, Jr. 8,918,634.9 169,441.9
3. George A. Schloegel 9,014,879.7 73,200.2
Continuing Directors:
4. James B. Estabrook, Jr.
5. Victor Mavar
6. Leo W. Seal, Jr.
7. Joseph F. Boardman, Jr.
8. Charles H. Johnson
9. Thomas W. Milner, Jr.
C.(1) Approval of Deloitte & Touche LLP as the
C.(1) Approval of Deloitte & Touche LLP as the independent public accountants of the
Company. Approval was made with a favorable vote of 99.4%
For Against Abstained
--- ------- ---------
9,037,062.1 17,435.1 33,679.6
(2) That the Board of Directors of Hancock Holding
(2) That the Board of Directors of Hancock Holding Company ("the Company") take specific,
identifiable actions to increase, enhance or maximize the value of each
shareholder's shares of stock in the Company, through the sale of assets, sale
of branches, acquisitions by the Company or merger of the Company.
For Against Abstained
--- ------- ---------
860,687.6 6,973,062.6 204,921.6
Exhibit (27) Selected financial data.
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
May 11, 2000 By: /s/ George A. Schloegel
------------ -----------------------
Date George A. Schloegel
Vice-Chairman of the Board &
Chief Executive Officer
May 11, 2000 By: /s/ Carl J. Chaney
------------ ------------------
Date Carl J. Chaney
Date Carl J.
Senior Vice President &
Chief Financial Officer
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