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 March 31, 2001 ---------------------------------------- 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 Identification incorporation or organization) Number) ONE HANCOCK PLAZA, P.O. BOX 4019, GULFPORT, MISSISSIPPI 39502 - ------------------------------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (228) 868-4872 - ------------------------------------------------------------------------------------------------------ (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 ------- -------
10,713,108 Common Shares were outstanding as of April 30, 2001 for financial statement purposes.
PART I. FINANCIAL INFORMATION PAGE NUMBER - ------------------------------ ----------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets -- March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Earnings -- Three Months Ended March 31, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 2001 and 2000 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 4. Submission of Matters to a Vote of Security Holders 11 ITEM 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 - ----------
(Unaudited) March 31, December 31, 2001 2000 * -------------------- ------------------- ASSETS: Cash and due from banks (non-interest bearing) $ 134,138 $ 130,380 Interest-bearing time deposits with other banks 5,656 3,877 Securities available for sale (amortized cost of $681,439 and $578,566) 685,668 576,318 Securities held to maturity (fair value of $393,400 and $418,612) 387,723 417,777 Federal funds sold 229,000 59,000 Loans, net of unearned income 1,671,598 1,699,841 Less: Allowance for loan losses (28,604) (28,604) -------------------- ------------------- Loans, net 1,642,994 1,671,237 Property and equipment, net of accumulated depreciation of $59,591 and $58,406 51,552 51,636 Other real estate, net 1,635 1,492 Accrued interest receivable 24,288 25,585 Goodwill and other intangibles 39,848 40,757 Other assets 35,897 35,371 -------------------- ------------------- TOTAL ASSETS $ 3,238,399 $ 3,013,430 ==================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 551,411 $ 528,754 Interest-bearing savings, NOW, money market and time 2,133,748 1,975,034 -------------------- ------------------- Total deposits 2,685,159 2,503,788 Federal funds purchased 250 - Securities sold under agreements to repurchase 171,348 144,560 Other liabilities 28,450 21,515 Long-term notes 2,038 2,177 -------------------- ------------------- TOTAL LIABILITIES 2,887,245 2,672,040 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 196,038 196,024 Retained earnings 120,909 115,366 Unrealized gain (loss) on securities available for sale, net 2,749 (1,461) Unearned compensation (722) (844) Treasury stock (4,692) (4,567) -------------------- ------------------- TOTAL STOCKHOLDERS' EQUITY 351,154 341,390 -------------------- ------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,238,399 $ 3,013,430 ==================== =================== * The balance sheet at December 31, 2000 has been taken from the audited balance sheet at that date. See notes to condensed consolidated financial statements.
Three Months Ended March 31, --------------------------------- 2001 2000 ------------- -------------- INTEREST INCOME: Loans $ 39,232 $ 35,426 U. S. Treasury securities 1,073 1,589 Obligations of U. S. government agencies 4,886 5,851 Obligations of states and political subdivisions 2,379 2,389 Mortgage-backed securities 1,935 2,483 CMOs 3,759 4,483 Federal funds sold 2,357 454 Other investments 487 484 ------------- -------------- Total interest income 56,108 53,159 ------------- -------------- INTEREST EXPENSE: Deposits 24,266 19,794 Federal funds purchased and securities sold under agreements to repurchase 1,712 1,828 Bonds and notes 78 313 ------------- -------------- Total interest expense 26,056 21,935 ------------- -------------- NET INTEREST INCOME 30,052 31,224 Provision for loan losses 1,855 1,769 ------------- -------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 28,197 29,455 ------------- -------------- NON-INTEREST INCOME Service charges on deposit accounts 6,643 6,546 Other service charges, commissions and fees 3,105 2,935 Gain on sale of creidt card portfolio - 2,956 Other 2,374 2,102 ------------- -------------- Total non-interest income 12,122 14,539 ------------- -------------- NON-INTEREST EXPENSE Salaries and employee benefits 15,723 15,708 Net occupancy expense of premises 1,822 1,639 Equipment rentals, depreciation and maintenance 1,841 2,118 Amortization of intangibles 909 968 Other 7,498 8,127 ------------- -------------- Total non-interest expense 27,793 28,560 ------------- -------------- EARNINGS BEFORE INCOME TAXES 12,526 15,434 Income taxes 3,922 5,048 ------------- -------------- NET EARNINGS $ 8,604 $ 10,386 ============= ============== BASIC EARNINGS PER COMMON SHARE $ 0.80 $ 0.95 ============= ============== DILUTED EARNINGS PER COMMON SHARE $ 0.80 $ 0.95 ============= ============== DIVIDENDS PAID PER COMMON SHARE $ 0.28 $ 0.25 ============= ============== WEIGHTED AVG. COMMON SHARES OUTSTANDING-BASIC 10,739 10,876 ============= ============== WEIGHTED AVG. COMMON SHARES OUTSTANDING-DILUTED 10,756 10,883 ============= ============== See notes to condensed consolidated financial statements
Three Months Ended March 31, ----------------------------------------- 2001 2000 ---------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 8,604 $ 10,386 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,410 1,459 Amortization of software 579 485 Provision for loan losses 1,855 1,769 Provision for losses on real estate owned 41 110 (Gain) on sale of credit card portfolio - (2,956) Decrease in interest receivable 1,357 1,405 Amortization of intangible assets 909 968 Increase (decrease) in interest payable 1,271 (121) Other, net 2,329 9,422 ----------- ----------- Net cash provided by operating activities 18,355 22,927 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in interest-bearing time deposits (1,779) - Proceeds from maturities of securities held to maturity 30,054 24,466 Purchase of securities held to maturity - - Proceeds from maturities of securities available for sale 91,293 13,633 Purchase of securities available for sale (194,166) (15,474) Net increase in federal funds sold (170,000) (55,000) Net decrease (increase) in loans 26,181 (28,596) Proceeds from sale of credit card portfolio - 20,289 Purchase of property, equipment and software, net (1,573) (1,464) Proceeds from sales of other real estate 184 179 ----------- ---------- Net cash provided by investing activities (219,806) (41,967) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 181,371 109,457 Dividends paid (3,061) (2,768) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase and other temporary funds 27,038 (49,408) Reductions of long-term notes (139) (131) Repayment of FHLB advance - (50,000) ----------- ---------- Net cash provided by financing activities 205,209 7,150 ----------- ---------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 3,758 (11,890) CASH AND DUE FROM BANKS, BEGINNING 130,380 156,738 ----------- ---------- CASH AND DUE FROM BANKS, ENDING $ 134,138 $ 144,848 =========== ========== 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 2000 Annual Report to Shareholders.
Following is a summary of the Company's comprehensive earnings for the three months ended March 31, 2001 and 2000.
(Amounts in thousands) Three Months Ended March 31, --------------------------------------- 2001 2000 ------------- ------------- Net earnings $ 8,604 $ 10,386 Other comprehensive income(loss) (net of income tax): Unrealized holding (losses)/gains on securities available for sale 4,210 (830) ------------- ------------- Total Comprehensive Earnings $12,814 $9,556 ============= =============
On January 31, 2001 the Company entered into an agreement for the acquisition of Lamar Capital Corporation (LCC), Purvis, Mississippi and its subsidiaries The Lamar Bank (Lamar) and Southern Financial Services, Inc. (SFS). In accordance with the terms of the agreement it is anticipated that the merger will be consummated by the exchange of Lamar Capital Corporation stock in return for approximately 1,208,000 shares to 1,660,000 shares of convertible preferred stock of the Company and cash of approximately $23.2 million to $14.2 million. The agreement provides for a minimum of 51% and a maximum of 70% of the consideration to be in convertible preferred stock. Completion of the merger is contingent upon approval by LCC's shareholders and appropriate regulatory authorities. Issuance of the convertible preferred shares by the Company is contingent upon authorization by the Company's shareholders. The convertible preferred stock will qualify as Tier 1 capital for regulatory purposes, but will be classified similar to a liability for reporting under generally accepted accounting principles. It is anticipated that LCC will initially remain a separate wholly-owned subsidiary of the Company.
The merger will be accounted for as a purchase. LCC had total assets of approximately $415 million as of December 31, 2000 and net earnings of approximately $2.8 million for the year then ended.
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, 2001 2000 -------------- -------------- Total securities to total deposits 39.97% 39.70% Total loans (net of unearned income) to total deposits 62.25% 67.89% Interest-earning assets to total assets 91.88% 91.56% Interest-bearing deposits to total deposits 79.46% 78.88%
The Company continues to maintain an adequate capital position. The ratios as of March 31, 2001 and December 31, 2000 are as follows:
March 31, December 31, 2001 2000 -------------- -------------- Average equity to average assets 11.03% 10.87% Total capital to risk-weighted assets (2) 16.74% 17.20% Tier 1 capital to risk-weighted 15.49% 15.95% assets (3) Leverage capital to average total assets (4) 10.00% 10.20% (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% 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.
Regular net earnings increased approximately $140,000 or 1.6% for the first quarter of 2001 compared to the first quarter of 2000. In 2000, 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, ------------------------------------ 2001 2000 -------------- -------------- Results of Operations: Return on average assets before sale of credit card portfolio 1.12 % 1.14 % Return on average assets 1.12 % 1.39 % Return on average equity before sale of credit card portfolio 10.12 % 10.85 % Return on average equity 10.12 % 13.32 % Net Interest Income: Yield on average interest-earning assets (tax equivalent) 8.17 % 8.00 % Cost of average interest-bearing funds 4.73 % 4.17 % -------------- -------------- Net interest spread 3.44 % 3.83 % ============== ============== Net yield on interest-earning assets (net interest income on a tax equivalent basis divided by average interest-earning assets) 4.48 % 4.78 % ============== ==============
Net interest income for the first three months of 2001 decreased $1.2 million, compared to the same period one year ago. The Company's net interest margin for the three-month period ended March 31, 2001 was 4.48% compared to 4.78% for the prior year period. Interest income for the current year increased $2.9 million and results from growth in the loan portfolio in total in addition to growth 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 of $119 million, or 4.3%, during the current year. The cost of funds was unfavorably impacted by increasing interest rates offered for certain types of deposit accounts and, therefore, had a negative effect on net interest income.
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 financial 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, ----------------------------------------------------- 2001 2000 ----------------- ----------------- Annualized net charge-offs to average loans 0.45% 0.35% Annualized provision for loan losses to average loans 0.45% 0.46% Average allowance for loan losses to average loans 1.71% 1.68% Gross charge-offs (1) $ 2,473 $ 1,922 Gross recoveries $ 618 $ 579 Non-accrual loans $ 12,200 $ 6,861 Accruing loans 90 days or more past due $ 8,523 $ 12,655 (1) The increase in non-accrual loans is primarily associated with four relationships totaling $7.0 million. The largest single relationship, which comprises 83% of the increase over March 2000, is 90% guaranteed by the United States Department of Agriculture.
Non-interest income, excluding the gain recognized in 2000 from the sale of the Company's credit card portfolio, increased $0.5 million to $12.1 million for the three-month period ended March 31, 2001, compared to $11.6 million for the same period in 2000. The largest factor contributing to that increase is a $340,000 or 26% increase in Trust income generated.
Non-interest expense for the three-month period ended March 31, 2001 decreased $0.8 million, or 2.7%, compared to the same period the previous year. Decreases, as compared to the same period last year, result primarily from reductions in advertising and telephone expenses.
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 2001 was $3,056,000 compared to $2,755,000 for the comparable period in 2000.
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, 2001 the Company had $281 million of regular savings and club accounts and $768 million of money market and NOW accounts, representing 49.2% of total interest-bearing depositor accounts.
The Company does not currently engage in significant 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 22, 2001. B. Directors elected at the Annual Meeting held February 22, 2001: Votes Cast ------------ Affirmed Withheld -------- -------- 1. James B. Estabrook 9,798,120.6 212,737.5 2. Victor Mavar. 9,796,119.6 214,738.5 3. Leo W. Seal, Jr.l 9,795,853.6 215,004.5 Continuing Directors: 4. Frank E. Bertucci 5. Joseph F. Boardman, Jr. 6. Charles H. Johnson 7. James H. Horne 8. George A. Schloegel 9. Christine L. Smilek C.(1) Approval of Deloitte and Touche LLP as the independent public accountants of the Company. Approval was made with a favorable vote of 99.9% For Against Abstained --------- ----------- ----------- 9,990,335.4 11,186.7 9,637.0 (2) That the Board of Directors of Hancock Holding Company ("the Company") do hereby request and, to the extent permitted by applicable state law, direct the Board of Directors of the Company ("the Board") to establish, at the first meeting of the Board to be held following the 2001 Annual Meeting of the Shareholders, a special committee to be composed solely of three independent directors, i.e., directors who are not officers or employees of the Company or any of its subsidiaries, and three Shareholder Representatives (as defined below), and the special committee be directed to promptly and actively seek, and be authorized to negotiate the terms of, a sale or other strategic disposition of the Company, such as a merger, consolidation or other business combination, or a stock exchange, with a larger financial institution in order to enhance the value of the shares of stock of the Company held by its shareholders; and in connection therewith, the special committee be authorized to retain such advisors as may be necessary or desirable for such purpose. The Shareholder Representatives shall be me, (O. Miles Pollard, Jr.), Robert U. Weiss and Sherman Muths, Jr., who shall serve without compensation and shall be entitled to notice of and participate in meetings of the special committee, but shall not have voting rights. For Against Abstained ---------- ------------- ------------ 571,408.7 8,361,875.2 159,235.2
Exhibits: None Reports on Form 8-K: A Form 8-K was filed on February 1, 2001, which disclosed the issuance of a Hancock Holding Company press release announcing an agreement in principle to acquire Lamar Capital Corporation.
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, 2001 By: /s/ George A. Schloegel - -------------------- ---------------------------- Date George A. Schloegel Vice-Chairman of the Board and Chief Executive Officer May 11, 2001 By: /s/ Carl J. Chaney - -------------------- ---------------------------- Carl J. Chaney Senior Vice President and Chief Financial Officer