1 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, 1996 ------------------------------------------------------------- Commission File Number 0-13089 ---------------------------------------------------------- HANCOCK HOLDING COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MISSISSIPPI 64-0693170 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ONE HANCOCK PLAZA, P.O. BOX 4019, GULFPORT, MISSISSIPPI 39502 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (601) 868-4606 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO -------- ------- 8,880,857 Common Shares were outstanding as of September 30, 1996 for financial statement purposes. Page 1 of 12
2 CONTENTS <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION PAGE NUMBER - ------------------------------ ----------- <S> <C> ITEM 1. Financial Statements Condensed Consolidated Balance Sheets -- September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Earnings -- Three Months Ended September 30, 1996 and 1995 Nine Months Ended September 30, 1996 and 1995 Condensed Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 - 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 10 PART II. OTHER INFORMATION - --------------------------- ITEM 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 - ---------- </TABLE> Page 2 of 12
3 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) <TABLE> <CAPTION> (Unaudited) September 30, December 31, 1996 1995 * ------------- ---------- <S> <C> <C> ASSETS: Cash and due from banks (non-interest bearing) $ 142,635 $ 124,276 Interest-bearing time deposits with other banks 2,945 1,550 Securities available-for-sale (cost of $99,221 and $109,297) 98,517 109,777 Securities held-to-maturity (market value of $798,168 and $749,497) 799,336 738,529 Federal funds sold and securities purchased under agreements to resell 50,500 153,725 Loans, net of unearned income 1,121,796 1,034,978 Less: Reserve for loan losses (17,659) (17,391) ---------- ---------- Net loans 1,104,137 1,017,587 Property and equipment, at cost, less accumulated depreciation of $41,880 and $37,640 38,462 38,746 Other real estate 1,666 1,086 Accrued interest receivable 19,148 19,360 Other assets 27,707 29,650 ---------- ---------- TOTAL ASSETS $2,285,053 $2,234,286 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 473,880 $ 468,446 Interest-bearing savings, NOW, money market and other time 1,469,951 1,459,235 ---------- ---------- Total deposits 1,943,831 1,927,681 Federal funds purchased and securities sold under agreements to repurchase 80,246 66,585 Other liabilities 18,602 13,806 Long-term bonds 2,035 2,035 ---------- ---------- TOTAL LIABILITIES 2,044,714 2,010,107 ---------- ---------- STOCKHOLDERS' EQUITY: Common stock 30,043 30,043 Capital surplus 130,000 130,000 Undivided profits 80,933 63,824 Unrealized (loss) gain on securities available-for-sale (637) 312 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 240,339 224,179 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,285,053 $2,234,286 ========== ========== </TABLE> * The balance sheet at December 31, 1995, has been taken from the audited balance sheet at that date. See notes to condensed consolidated financial statements. Page 3 of 12
4 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED (Amounts in thousands except per share data) <TABLE> <CAPTION> Three Months Ended September 30, Nine Months Ended September 30, ------------------------------- ------------------------------- 1996 1995 1996 1995 --------- --------- --------- --------- <S> <C> <C> <C> <C> INTEREST INCOME: Interest and fees on loans $ 27,159 $ 24,834 $ 79,011 $ 72,391 Interest on: U. S. Treasury Securities 3,378 3,616 10,532 10,676 Obligations of other U.S. government agencies and corporations 8,824 9,142 25,932 25,381 Obligations of states and political subdivisions 880 876 2,614 2,614 Interest on federal funds sold and securities purchased under agreements to resell 1,087 1,329 4,621 4,081 Interest on time deposits and other 1,810 1,507 5,180 4,850 --------- --------- --------- --------- Total interest income 43,138 41,304 127,890 119,993 --------- --------- --------- --------- INTEREST EXPENSE: Interest on deposits 15,091 14,897 45,367 42,770 Interest on federal funds purchased and securities sold under agreements to repurchase 899 947 2,728 2,182 Interest on bonds and notes (11) 53 140 382 --------- --------- --------- --------- Total interest expense 15,979 15,897 48,235 45,334 --------- --------- --------- --------- NET INTEREST INCOME 27,159 25,407 79,655 74,659 Provision for loan losses 1,036 1,140 2,837 2,317 --------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 26,123 24,267 76,818 72,342 --------- --------- --------- --------- Non-Interest Income: Service charges on deposit accounts 4,129 3,724 12,485 10,908 Income from fiduciary activities 594 561 1,747 1,667 Securities gains (losses) 70 (44) 36 (135) Other 1,802 1,945 4,599 4,835 --------- --------- --------- --------- Total non-interest income 6,595 6,186 18,867 17,275 --------- --------- --------- --------- Non-Interest Expense: Salaries and employee benefits 10,624 10,243 31,394 30,366 Net occupancy expense of premises and equipment expense 3,555 1,765 11,159 8,750 Other 6,534 8,365 17,570 20,421 --------- --------- --------- --------- Total non-interest expense 20,713 20,373 60,123 59,537 --------- --------- --------- --------- EARNINGS BEFORE INCOME TAXES 12,005 10,080 35,562 30,080 INCOME TAXES 3,923 3,361 11,680 9,969 --------- --------- --------- --------- NET EARNINGS $ 8,082 $ 6,719 $ 23,882 $ 20,111 ========= ========= ========= ========= NET EARNINGS PER COMMON SHARE $ 0.91 $ 0.75 $ 2.69 $ 2.26 ========= ========= ========= ========= DIVIDENDS PAID PER COMMON SHARE $ 0.25 $ 0.25 $ 0.75 $ 0.94 ========= ========= ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,880 8,880 8,880 8,880 ========= ========= ========= ========= </TABLE> See notes to condensed consolidated financial statements. Page 4 of 12
5 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (Amounts in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, --------------------------------- 1996 1995 --------- --------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings $ 23,882 $ 20,111 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 3,567 3,473 Provision for loan losses 2,836 2,317 Provision for losses on real estate owned 118 73 Losses on sales of securities (145) (135) Increase in interest receivable (212) (1,838) Amortization of intangible assets 1,810 1,824 Increase in interest payable 66 1,061 Other, net (4,792) (2,386) --------- ---------- Net cash provided by Operating Activities 27,130 24,500 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in interest-bearing time deposits 1,395 (100) Proceeds from sales and maturities of securities held-to-maturity 243,179 292,551 Purchase of securities held-to-maturity (303,986) (339,077) Proceeds from sales and maturities of securities available-for-sale 28,719 4,310 Purchase of securities available-for-sale (17,604) (1,090) Net decrease in federal funds sold and securities purchased under agreements to resell 103,225 3,900 Net (increase) in loans (84,149) (13,014) Purchase of property and equipment, net (3,283) (3,108) Proceeds from sales of other real estate 688 563 Net cash received in connection with purchase transaction --- 7,872 --------- --------- Net cash used in Investing Activities (31,816) (47,193) --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 16,150 6,871 Dividends paid (6,766) (6,405) Net increase in federal funds purchased and securities sold under agreements to repurchase and other temporary funds 13,661 39,652 --------- --------- Net cash provided by Financing Activities 23,045 40,118 --------- --------- NET INCREASE IN CASH AND DUE FROM BANKS 18,359 17,425 CASH AND DUE FROM BANKS, BEGINNING 124,276 120,532 --------- --------- CASH AND DUE FROM BANKS, ENDING $ 142,635 $ 137,957 ========= ========= </TABLE> See notes to condensed consolidated financial statements. Page 5 of 12
6 HANCOCK HOLDING COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Nine Months Ended September 30, 1996 and 1995) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of Hancock Holding Company (the "Company"), its wholly-owned banks, Hancock Bank, Hancock Bank of Louisiana and First National Bank of Denham Springs 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 1995 Annual Report to Shareholders. RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS The Financial Accounting Standards Board has recently issued Statement No. 123 "Accounting for Stock Based Compensation" which is effective for stock options issued and similar transactions entered into after 1995. Although the Company has adopted a stock option plan, no options have been issued to date. MERGER On August 15, 1996, First National Bank of Denham Springs, a wholly owned subsidiary of the Company merged with Hancock Bank of Louisiana, another wholly owned subsidiary of the Company. This transaction only effected financial reporting of the subsidiaries and resulted in no changes or restatements of the Company's current or historical financial statements. PROPOSED ACQUISITIONS In June of 1996, the Company entered into an Agreement and Plan of Reorganization whereby Community Bancshares, Inc.(Community) Independence, Louisiana, and its' subsidiary, Community State Bank, would be merged with and into the Company and Hancock Bank of Louisiana, respectively. The merger will be consummated by the exchange of all outstanding shares of Community and Community State Bank in return for approximately 450,000 shares of common stock of the Company and cash of approximately $5,500,000. Completion of the merger is contingent upon approval by Community's and Community State Bank's shareholders and appropriate regulatory authorities. Page 6 of 12
7 It is intended that the merger will be accounted for using the purchase method of accounting. Community had total assets of approximately $91,000,000 as of June 30, 1996 and net earnings of approximately $580,000 for the six month period then ended. In August of 1996, the Company entered into an Agreement and Plan of Reorganization whereby Southeast National Bank (Southeast) Hammond, Louisiana, would be merged with and into Hancock Bank of Louisiana, a wholly owned subsidiary of the Company. The merger will be consummated by the exchange of all outstanding shares of Southeast in return for approximately 105,000 shares of common stock of the Company and cash of approximately $3,700,000. Completion of the merger is contingent upon approval by Southeast's shareholders and appropriate regulatory authorities. It is intended that the merger will be accounted for using the purchase method of accounting. Southeast had total assets of approximately $37,000,000 as of June 30, 1996 and net earnings of approximately $250,000 for the six month period then ended. Page 7 of 12
8 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, and maturities of loans and securities held-to-maturity and sales of securities available-for-sale. The following liquidity ratios compare certain assets and liabilities to total deposits or total assets: <TABLE> <CAPTION> Sept.30, June 30, March 31, December 31, 1996 1996 1996 1995 -------- -------- --------- ------------ <S> <C> <C> <C> <C> Total securities to total deposits 47.24% 47.24% 46.39% 44.01% Total loans (net of unearned discount) to total deposits 55.21% 55.21% 52.62% 53.69% Interest-earning assets to total assets 90.57% 90.57% 90.69% 91.24% Interest-bearing deposits to total deposits 75.07% 75.07% 76.51% 75.70% </TABLE> Capital Resources The Company continues to maintain an adequate capital position, as the following ratios indicate: <TABLE> <CAPTION> Sept. 30, June 30, March 31, December 31, 1996 1996 1996 1995 -------- -------- -------- ------------ <S> <C> <C> <C> <C> Equity capital to total assets (1) 10.55% 10.17% 9.88% 10.02% Total capital to risk-weighted assets (2) 19.12% 18.60% 18.99% 18.64% Tier 1 Capital to risk-weighted assets (3) 18.14% 17.62% 18.03% 17.69% Leverage Capital to total assets (4) 9.86% 9.61% 9.47% 9.28% Property and equipment to equity capital 15.96% 16.41% 16.86% 17.31% </TABLE> Page 8 of 12
9 (1) Equity capital consists of stockholder's equity (common stock, capital surplus and undivided profits). (2) Total capital consists of equity capital less intangible assets plus a limited amount of loan loss reserves. 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. The Federal Reserve Board currently requires bank holding companies rated Composite 1 under the BOPEC rating system to maintain a minimum 3% leverage capital ratio and all other bank holding companies not rated a Composite 1 under the BOPEC rating system to maintain a minimum 4% to 5% leverage capital ratio. RESULTS OF OPERATIONS Net Earnings Net earnings increased 20.3% or $1,363,000 for the third quarter of 1996 compared to the third quarter of 1995. Net earnings for the first nine months of 1996 increased 18.8% or $3,771,000 from the comparable period in 1995. The increase in earnings is attributable to an increase in loan portfolio balances, a stable net interest margin, increased fee income and lower operating expenses due to FDIC premium insurance reductions. <TABLE> <CAPTION> Three Months Nine Months Ended Sept. 30, Ended Sept. 30, ---------------------- ---------------------- 1996 1995 1996 1995 -------- -------- -------- -------- <S> <C> <C> <C> <C> Results of Operations: Return on average assets 1.39% 1.21% 1.39% 1.23% Return on average equity 13.95% 12.71% 14.04% 13.05% Net Interest Income: Return on average interest-earning assets (tax equivalent) 8.33% 8.29% 8.23% 8.14% Cost of average interest-bearing funds 4.11% 4.16% 4.10% 3.99% ----- ----- ----- ----- Net interest spread 4.22% 4.13% 4.13% 4.15% ===== ===== ===== ===== Net interest margin (net interest income on a tax equivalent basis divided by average interest-earning assets) 5.29% 5.14% 5.17% 5.10% ===== ===== ===== ===== </TABLE> Page 9 of 12
10 Provision for Loan Losses The amount of the reserve equals the cumulative total of the provisions for loan losses, reduced by actual loan charge-offs, and increased by reserves acquired in acquisitions and recoveries of loans previously charged-off. Provisions are made to the reserve 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 ratios are useful in determining the adequacy of the loan loss reserve and loan loss provision and are calculated using average loan balances. <TABLE> <CAPTION> Three Months Nine Months Ended Sept. 30, Ended Sept. 30, --------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- -------- <S> <C> <C> <C> <C> Annualized net charge-offs to average loans 0.39% 0.44% 0.32% 0.30% Annualized provision for loan losses to average loans 0.38% 0.46% 0.35% 0.31% Average reserve for loan losses to average loans 1.62% 1.67% 1.65% 1.66% </TABLE> Income Taxes The effective 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 1996 was $3,195,000 compared to $3,181,000 for the comparable period in 1995. Income tax expense increased from $9,969,000 in the first nine months of 1995 to $11,680,000 in the first nine months of 1996. This increase is primarily due to increased earnings. Page 10 of 12
11 Part II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (27) Selected financial data. (b) Reports on Form 8-K - none. Page 11 of 12
12 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 7, 1996 By: /s/ Leo W. Seal, Jr. - ----------------------------- ------------------------------------ Date Leo W. Seal, Jr. President and CEO November 7, 1996 By: /s/ George A. Schloegel - ----------------------------- ------------------------------------ Date George A. Schloegel Vice-Chairman of the Board November 7, 1996 By: /s/ Stan Bailey - ----------------------------- ------------------------------------ Date Stan Bailey Chief Financial Officer Page 12 of 12
13 INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION - ------- ----------- <S> <C> 27 - Financial Data Schedule </TABLE>