UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 ------- Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 ------- For Quarter Ending March 31, 2003 --------------------------------------------------- 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 -------- -------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 15,726,740 common shares were outstanding as of April 30, 2003 for financial statement purposes.
HANCOCK HOLDING COMPANY ----------------------- INDEX ----- PART I. FINANCIAL INFORMATION PAGE NUMBER - ------------------------------- ----------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets -- March 31, 2003 and December 31, 2002 3 Condensed Consolidated Statements of Earnings -- Three Months Ended March 31, 2003 and 2002 4 Condensed Statements of Common Stockholder's Equity Three Months Ended March 31, 2003 and Year Ended December 31, 2002 5 Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 2003 and 2002 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 18 ITEM 4. Controls and Procedures 19 PART II. OTHER INFORMATION - --------------------------- ITEM 4. Submission of matters to a vote of Security Holders 20 ITEM 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 - ---------- CERTIFICATIONS 21 - --------------
PART I FINANCIAL INFORMATION ----------------------------- ITEM 1. FINANCIAL STATEMENTS - ---------------------------- HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (amounts in thousands) (Unaudited) March 31, December 31, 2003 2002* ------------ -------------- ASSETS: Cash and due from banks (non-interest bearing) $ 178,562 $ 187,786 Interest-bearing time deposits with other banks 6,528 4,268 Securities available for sale (amortized cost of $1,441,576 and $1,233,459) 1,461,412 1,258,831 Securities held to maturity (fair value of $211,926 and $238,196) 200,214 227,979 Federal funds sold 33,843 42,989 Loans, net of unearned income 2,121,338 2,104,982 Less: Allowance for loan losses (34,740) (34,740) ------------ -------------- Loans, net 2,086,598 2,070,242 Property and equipment, net of accumulated depreciation of $68,333 and $66,720 71,870 71,355 Other real estate, net 4,879 5,936 Accrued interest receivable 25,930 25,480 Core deposit intangibles, net 6,346 4,144 Goodwill, net 49,400 49,100 Other assets 27,604 25,037 ------------ -------------- TOTAL ASSETS $ 4,153,186 $ 3,973,147 ============ ============== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 611,901 $ 630,790 Interest-bearing savings, NOW, money market and time 2,846,994 2,670,710 ------------ -------------- Total deposits 3,458,895 3,301,500 Securities sold under agreements to repurchase 174,848 161,058 Other liabilities 38,749 34,988 Long-term notes 50,860 51,020 ------------ -------------- TOTAL LIABILITIES 3,723,352 3,548,566 CONVERTIBLE PREFERRED STOCK: Preferred Stock - $20 par value per share; 50,000,000 shares authorized and 1,658,275 issued 37,069 37,069 COMMON STOCKHOLDERS' EQUITY: Common Stock-$3.33 par value per share; 75,000,000 shares authorized and 16,608,120 issued 55,305 55,305 Capital surplus 145,334 145,949 Retained earnings 217,955 208,253 Accumulated other comprehensive income 6,458 10,049 Unearned compensation (1,358) (552) Treasury stock (868,582 and 881,607 shares, respectively) (30,929) (31,492) ------------ -------------- TOTAL COMMON STOCKHOLDERS' EQUITY 392,765 387,512 ------------ -------------- TOTAL LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS EQUITY $ 4,153,186 $ 3,973,147 ============ ============== * The balance sheet at December 31, 2002 has been taken from the audited balance sheet at that date See notes to unaudited condensed consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS --------------------------------------------- (UNAUDITED) ----------- (amounts in thousands except per share) Three Months Ended March 31 --------------------------- 2003 2002 ----------- ------------ INTEREST INCOME: Loans $ 38,368 $ 38,814 U. S. Treasury securities 412 353 Obligations of U. S. government agencies 5,706 6,406 Obligations of states and political subdivisions 2,493 2,755 Mortgage-backed securities 1,474 1,634 CMOs 4,419 6,448 Federal funds sold 395 521 Other investments 349 674 ----------- ------------ Total interest income 53,616 57,605 ----------- ------------ INTEREST EXPENSE: Deposits 14,618 18,186 Federal funds purchased and securities sold under agreements to repurchase 371 539 Long-term notes and other interest 592 595 ----------- ------------ Total interest expense 15,581 19,320 ----------- ------------ NET INTEREST INCOME 38,035 38,285 Provision for loan losses 3,020 5,329 ----------- ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 35,015 32,956 ----------- ------------ NON-INTEREST INCOME Service charges on deposit accounts 10,155 9,448 Other service charges, commissions and fees 5,154 5,993 Other income 2,485 1,949 ----------- ------------ Total non-interest income 17,794 17,390 ----------- ------------ NON-INTEREST EXPENSE Salaries and employee benefits 20,171 19,066 Net occupancy expense of premises 2,117 2,037 Equipment rentals, depreciation and maintenance 2,086 1,888 Amortization of intangibles 178 188 Other expense 8,439 10,417 ----------- ------------ Total non-interest expense 32,991 33,596 ----------- ------------ EARNINGS BEFORE INCOME TAXES 19,818 16,750 Income taxes 6,156 5,329 ----------- ------------ NET EARNINGS 13,662 11,421 PREFERRED DIVIDEND REQUIREMENT 663 663 ----------- ------------ NET EARNINGS AVAILABLE TO COMMON STOCKHOLDERS $ 12,999 $ 10,758 =========== ============ BASIC EARNINGS PER COMMON SHARE $ 0.84 $ 0.68 =========== ============ ----------- ------------ DILUTED EARNINGS PER COMMON SHARE $ 0.82 $ 0.67 =========== ============ DIVIDENDS PAID PER COMMON SHARE $ 0.21 $ 0.20 =========== ============ WEIGHTED AVG. COMMON SHARES OUTSTANDING-BASIC 15,442 15,892 =========== ============ WEIGHTED AVG. COMMON SHARES OUTSTANDING-DILUTED 16,756 17,103 =========== ============ See notes to unaudited condensed consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY --------------------------------------------------- UNAUDITED --------- (amounts in thousands, except per share data) Accumulated Other Common Capital Retained Comprehensive Unearned Treasury Stock Surplus Earnings Income Compensation Stock ---------- ---------- ---------- -------------- ------------ --------- Balance, January 1, 2002 $ 55,305 $ 146,252 $172,584 $ 4,742 $ (433) $(10,902) Net earnings 51,043 Cash dividends - $.80 per common share (12,721) Cash dividends - $1.60 per preferred share (2,653) Minimum pension liability adjustment, net (6,442) Change in unrealized gain on securities available for sale, net 11,749 Transactions relating to restricted stock grants, net (119) Treasury stock transactions, net (303) (20,590) ---------- ---------- ---------- -------------- ------------ --------- Balance, December 31, 2002 55,305 145,949 208,253 10,049 (552) (31,492) Net earnings 13,663 Cash dividends - $0.21 per common share (3,298) Cash dividends - $0.40 per preferred share (663) Change in unrealized gain on securities available for sale, net (3,591) Transactions relating to restricted stock grants, net (806) Treasury stock transactions, net (615) 563 ---------- ---------- --------- -------------- ------------ --------- Balance, March 31, 2003 $ 55,305 145,334 $217,955 $ 6,458 $ (1,358) $(30,929) ========== ========== ========= ============== ============ ========= See notes to unaudited condensed consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- UNAUDITED ---------- (amounts in thousands) Three Months Ended March 31, ---------------------------- 2003 2002 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 13,662 $ 11,421 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,682 1,536 Amortization of software 674 546 Provision for loan losses 3,020 5,329 Provision for losses on other real estate owned 8 748 Gain on sales of securities available for sale (455) -- (Increase) decrease in interest receivable (450) 737 Amortization of intangible assets 178 188 Increase in accrued expenses 6,316 5,832 (Decrease) increase in other liabilities (1,666) 2,666 Decrease in interest payable (889) (2,184) Other, net (7,673) 2,654 ------------ ----------- Net cash provided by operating activities 14,407 29,473 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in interest-bearing time deposits (2,260) (1,231) Proceeds from maturities of securities held to maturity 27,765 24,169 Proceeds from sales and maturities of securities available for sale 385,456 353,883 Purchase of securities available for sale (593,571) (458,731) Net decrease (increase) in federal funds sold 9,146 (95,959) Net increase in loans (15,558) (1,512) Purchase of property, equipment and software, net (2,775) (4,243) Proceeds from sales of other real estate 1,395 318 Net cash received in connection with purchase transaction (38,933) -- ------------ ----------- Net cash used in investing activities (151,469) (183,306) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 118,221 122,195 Dividends paid (3,961) (3,900) Net increase in federal funds purchased and securities sold under agreements to repurchase 13,790 11,403 Treasury stock transactions, net (52) 407 Reductions of long-term notes (160) (119) ------------ ----------- Net cash provided by financing activities 127,838 129,986 ------------ ----------- NET DECREASE IN CASH AND DUE FROM BANKS (9,224) (23,847) CASH AND DUE FROM BANKS, BEGINNING 187,786 164,808 ------------ ----------- CASH AND DUE FROM BANKS, ENDING $ 178,562 $ 140,961 ============ =========== See notes to unaudited 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 accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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 2002 Annual Report to Shareholders.
Following is a summary of the Company's comprehensive earnings for the three months ended March 31, 2003 and 2002.
(Amounts in thousands) Three Months Ended March 31, ---------------------------- 2003 2002 ----------- ----------- Net earnings $ 13,662 $ 11,421 Other comprehensive income (net of income tax): Unrealized holding gains on (3,295) (2,445) securities available for sale Reclassification adjustments for gains included in earnings, net (296) - ----------- ----------- TotalComprehensive Earnings $10,071 $8,976 =========== ===========
On February 22, 2003, the Company completed the acquisition of two Dryades Savings Bank branches located in Metairie, LA and Kenner, LA (both suburbs of New Orleans, LA). Both locations are within minutes of the causeway connecting metropolitan Jefferson Parish to St. Tammany Parish's thriving Northshore communities. The two acquired facilities have a combined total deposit base of approximately $40 million. The aggregate purchase price was approximately $39 million. The core deposit intangible was approximately $2.4 million and goodwill was approximately $300,000. No amortization of the goodwill related to this acquisition was recorded in the first quarter of 2003 in accordance with Statement of Financial Accounting Standards No. 142.
On July 12, 2002 the Company's Board of Directors declared a three-for-two stock split in the form of a 50% common stock dividend. The additional shares were payable August 5, 2002 to shareholders of record at the close of business on July 23, 2002.
All information concerning earnings per share, dividends per share, and number of shares outstanding has been adjusted to give effect to this split.
The following tables present selected comparative financial data. All share and per share data ha been restated to give effect of a 50% stock dividend made August 5, 2002.
(amounts in thousands, except per share data) Three Months Ended March 31, ---------------------------- 2003 2002 ----------- -------------- Per Common Share Data - --------------------- Earnings per share: Basic $0.84 $0.68 Diluted $0.82 $0.67 Earnings per share before amortization of purchased intangibles: Basic $0.85 $0.69 Diluted $0.83 $0.68 Cash dividends per share $0.21 $0.20 Book value per share (period end) $25.45 $23.45 Weighted average number of shares: Basic 15,442 15,892 Diluted 16,756 17,103 Period end number of shares 15,435 15,892 Market data: High closing price $46.94 $36.17 Low closing price $42.80 $27.56 Period end closing price $43.06 $35.80 Trading volume 1,418 1,117
(amounts in thousands, except per share data) Three Months Ended March 31, -------------------------------- 2003 2002 ------------- ---------------- Performance Ratios - ------------------ Return on average assets 1.37% 1.23% Return on average common equity 14.08% 12.25% Earning asset yield (TE) 6.05% 6.95% Total cost of funds 1.71% 2.27% Net interest margin (TE) 4.34% 4.68% Non-interest expense as a percent of total revenue (TE) before amortization of purchased intangibles and securities transactions 57.33% 58.03% Average common equity as a percent of average total assets 9.73% 10.05% Leverage ratio (period end) 9.21% 8.44% FTE Headcount 1,746 1,731 Asset Quality Information - ------------------------- Non-accrual loans $11,949 $14,119 Foreclosed assets $5,230 $5,718 Total nonperforming assets $17,179 $19,837 Nonperforming assets as a percent of loans and foreclosed assets 0.81% 1.05% Accruing loans 90 days past due $6,039 $6,805 Accruing loans 90 days past due as a percent of loans 0.28% 0.36% Nonperforming assets + accruing loans 90 days past due to loans and foreclosed assets 1.09% 1.41% Net charge-offs $3,020 $7,762 Net charge-offs as a percent of average loans 0.59% 1.67% Allowance for loan losses $34,740 $31,585 Allowance for loan losses as a percent of period end loans 1.64% 1.68% Allowance for loan losses to NPAs + accruing loans 90 days past due 149.63% 118.55% Provision for loan losses $3,020 $5,329 Provision for loan losses to net charge-offs 100.00% 68.65% Average Balance Sheet - --------------------- Total loans 2,093,209 1,882,615 Securities 1,466,360 1,433,234 Short-term investments 140,805 137,362 Earning assets 3,700,374 3,453,211 Allowance for loan losses (34,740) (34,282) Other assets 379,632 343,007 Total assets $4,045,265 $3,761,936 Non-interest bearing deposits $582,992 $609,041 Interest bearing transaction deposits 1,651,450 1,379,692 Time deposits 1,122,536 1,112,291 Total interest bearing deposits 2,773,986 2,491,983 Total deposits 3,356,978 3,101,024 Other borrowed funds 223,895 220,314 Other liabilities 33,726 25,328 Preferred stock 37,069 37,069 Common shareholders' equity 393,597 378,201 Total liabilities, preferred stock & common shareholders' equity $4,045,265 $3,761,936
(amounts in thousands, except per share data) Three Months Ended March 31 ------------------------------- 2003 2002 -------------- -------------- Period end Balance Sheet - ------------------------ Commercial/real estate loans $1,073,526 $950,083 Mortgage loans 314,048 226,025 Direct consumer loans 495,388 499,392 Indirect consumer loans 190,719 165,892 Finance Company loans 47,657 38,328 Total loans 2,121,338 1,879,720 Securities 1,661,626 1,449,712 Short-term investments 40,371 197,626 Earning assets 3,823,335 3,527,058 Reserve for loan losses (34,740) (31,585) Other assets 364,592 329,299 Total assets $4,153,186 $3,824,773 Non-interest bearing deposits $611,901 $629,844 Interest bearing transaction deposits 1,700,917 1,427,412 Time deposits 1,146,078 1,104,673 Total interest bearing deposits 2,846,995 2,532,085 Total deposits 3,458,895 3,161,929 Other borrowed funds 226,931 225,513 Other liabilities 37,526 27,581 Preferred stock 37,069 37,069 Common shareholders' equity 392,765 372,682 Total liabilities, preferred stock & common equity $4,153,186 $3,824,773 Net Charge-Off Information - -------------------------- Net charge-offs: Commercial/real estate loans $741 $5,295 Mortgage loans 35 1 Direct consumer loans 1,281 1,399 Indirect consumer loans 558 652 Finance company loans 405 415 Total net charge-offs $3,020 $7,762 Net charge-offs to average loans (annualized): Commercial/real estate loans 0.28% 2.26% Mortgage loans 0.05% 0.00% Direct consumer loans 1.04% 1.11% Indirect consumer loans 1.19% 1.63% Finance Company loans 3.46% 4.42% Total net charge-offs to average loans 0.59% 1.67%
(amounts in thousands except per share amounts) The Months Ended March 31, --------------------------- 2003 2002 ----------- ------------- Averaqe Balance Sheet Composition - --------------------------------- Percentage of earning assets/funding sources: Loans 56.57% 54.52% Securities 39.63% 41.50% Short-term investments 3.81% 3.98% Earning assets 100.00% 100.00% Non-interest bearing deposits 15.75% 17.64% Interest bearing transaction deposits 44.63% 39.95% Time deposits 30.34% 32.21% Total deposits 90.72% 89.80% Other borrowed funds 6.05% 6.38% Other net interest-free funding sources 3.23% 3.82% Total funding sources 100.00% 100.00% Loan mix: Commercial/real estate loans 50.72% 50.40% Mortgage loans 14.07% 11.80% Direct consumer loans 23.83% 27.14% Indirect consumer loans 9.11% 8.63% Finance Company loans 2.27% 2.02% Total loans 100.00% 100.00% Average dollars (in thousands) Loans $2,093,209 $1,882,615 Securities 1,466,360 1,433,234 Short-term investments 140,805 137,362 Earning assets $3,700,374 $3,453,211 Non-interest bearing deposits $582,992 $609,041 Interest bearing transaction deposits 1,651,450 1,379,692 Time deposits 1,122,536 1,112,291 Total deposits 3,356,978 3,101,024 Other borrowed funds 223,895 220,314 Other net interest-free funding sources 119,501 131,873 Total funding sources $3,700,374 $3,453,211 Loans: Commercial/real estate loans $1,061,644 $948,905 Mortgage loans 294,611 222,235 Direct consumer loans 498,822 510,982 Indirect consumer loans 190,648 162,422 Finance Company loans 47,484 38,071 Total average loans $2,093,209 $1,882,615
The following discussion provides management's analysis of certain factors that 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, 2003 2002 --------- ------------ Total securities to total deposits 48.04% 45.03% Total loans (net of unearned income) to total deposits 61.33% 63.76% Interest-earning assets to total assets 92.06% 91.59% Interest-bearing deposits to total deposits 82.31% 80.89%
The following table sets forth, for the periods indicated, average net loans outstanding, allowance for loan losses, amounts charged-off and recoveries of loans previously charged-off:
Three Months Ended March 31, ---------------------------- 2003 2002 ------------ ------------- Balance of allowance for loan losses at beginning of period $ 34,740 $ 34,418 Balance acquired through acquisition & other (400) Provision for loan losses 3,020 5,329 Loans charged-off: Commercial, Real Estate & Mortgage 1,103 5,408 Direct & Indirect Consumer 2,215 2,222 Finance Company 474 504 Demand Deposit Accounts 978 1,066 ------------- ------------- Total charge-offs 4,770 9,200 ------------- ------------- Recoveries of loans previously charged-off: Commercial, Real Estate & Mortgage 327 112 Direct & Indirect Consumer 601 439 Finance Company 69 89 Demand Deposit Accounts 753 798 ------------- ------------- Total recoveries 1,750 1,438 ------------- ------------- Net charge-offs 3,020 7,762 ------------- ------------- Balance of allowance for loan losses at end of period $ 34,740 $ 31,585 ============= =============
The following table sets forth, for the periods indicated, certain ratios related to the Company's charge- offs, allowance for loan losses and outstanding loans:
Three Months Ended March 31, -------------------------------- 2003 2002 ------------- ------------- Ratios (%) (annualized): Net charge-offs to average net loans 0.59 1.67 Net charge-offs to period-end net loans 0.59 1.52 Allowance for loan losses to average net loans 1.66 1.68 Allowance for loan losses to period-end net loans 1.64 1.68 Net charge-offs to loan loss allowance 8.69 24.57 Loan loss provision to net charge-offs 100.00 68.65
The Company continues to maintain an adequate capital position. The ratios as of March 31, 2003 and December 31, 2002 are as follows:
March 31, December 31, 2003 2002 ------------- ------------- Average equity to average assets (1) 9.73% 10.08% Total capital to risk-weighted assets (2) 16.45% 17.25% Tier 1 capital to risk-weighted 15.19% 15.73% assets (3) Leverage capital to average total assets (4) 9.21% 9.35% (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
Net earnings increased approximately $2.2 million or 19.6% for the first quarter of 2003 compared to the first quarter of 2002. Following is selected information for quarterly comparison:
Three Months Ended March 31, ---------------------------- 2003 2002 ---------- ---------- Results of Operations: Return on average assets 1.37% 1.23% Return on average equity 14.08% 12.25% Net Interest Income: Yield on average interest-earning assets (te) 6.05% 6.95% Cost of average interest-bearing funds 2.11% 2.89% ---------- ---------- Net interest spread (te) 3.94% 4.06% ========== ========== Net interest margin (te) (net interest income on a tax-equivalent basis divided by average interest-earning assets) 4.34% 4.68% ========== ==========
Net interest income (te) for the first quarter of 2003 decreased $278,000, or 0.7%, from the first quarter of 2002, and was $1.9 million, or 4.5% lower than the fourth quarter of 2002. The Company's net interest margin (te) was 4.34% in the first quarter of 2003, 34 basis points lower than the same quarter a year ago, and 31 basis points lower than the previous quarter.
Compared to the same quarter a year ago, the primary driver of the decreased level of net interest income (te) was the 34 basis point narrowing of the Company's net interest margin (te). The net interest margin narrowed as the overall yield on loans and securities fell more rapidly (90 basis points) than the Company's ability to reduce total funding costs (56 basis points). Somewhat mitigating the narrowing of the net interest margin was $210.6 million of average loan growth from first quarter 2002 to first quarter 2003, which was funded by $256.0 million of average deposit growth for the same period.
The lower level of net interest income (te) and net interest margin (te) compression compared to the previous quarter was due to a larger reduction in the yield on loans and securities (45 basis points) than the reduction in funding costs (15 basis points). Another factor impacting the levels of net interest income (te) and net interest margin (te) as compared to the previous quarter was average deposit growth of $145.2 million. As loan growth slowed to $35.8 million in the current quarter, a greater percentage of the aforementioned deposit growth was invested in the securities portfolio at historically low yields. The Company is focused on efforts to further reduce deposit costs, resume loan growth at levels consistent with previous quarters, and slow the overall reductions in the yield on the securities portfolio.
The following tables detail the components of the Company's net interest spread and net interest margin.
Three Months Ended March 31, Three Months Ended March 31, ------------------------------------ ------------------------------------ 2003 2002 ------------------------------------ ------------------------------------ (dollars in thousands) Interest Volume Rate Interest Volume Rate ------------ ------------ ------- ------------ ------------ ------- Average Earning Assets Commercial & real estate loans (TE) $16,188 $1,061,644 6.18% $16,314 $948,905 6.97% Mortgage loans 4,723 294,611 6.41% 4,106 222,235 7.39% Consumer loans 15,691 736,954 8.64% 16,628 711,476 9.48% Loan fees & late charges 2,381 - 0.00% 2,284 - 0.00% ------------ ------------ ------- ------------ ------------ ------- Total loans (TE) 38,983 2,093,209 7.54% 39,331 1,882,615 8.46% ============ ============ ======= ============ ============ ========= US treasury securities 412 50,265 3.33% 353 42,358 3.38% US agency securities 5,706 522,735 4.37% 6,406 492,033 5.21% CMOs 4,419 544,997 3.24% 6,448 518,689 4.97% Mortgage backed securities 1,474 109,890 5.37% 1,634 110,229 5.93% Municipals (TE) 3,740 206,975 7.23% 4,129 230,562 7.16% Other securities 336 31,498 4.33% 599 39,362 6.17% ------------ ------------ ------- ------------ ------------ ------- Total securities (TE) 16,087 1,466,360 4.39% 19,569 1,433,234 5.47% ============ ============ ======= ============ ============ ========= ------------ ------------ ------- ------------ ------------ ------- Fed funds sold 330 113,667 1.18% 299 74,701 1.62% Cds with banks 13 5,204 1.04% 75 9,267 3.30% Other short-term investments 65 21,935 1.21% 222 53,394 1.69% ------------ ------------ ------- ------------ ------------ ------- Total short-term investments 408 140,805 1.18% 596 137,362 1.76% ============ ============ ======= ============ ============ ========= ------------ ------------ ------- ------------ ------------ ------- Average earning assets yield (TE) $55,479 $3,700,374 6.05% $59,496 $3,453,211 6.95% Interest-Bearing Liabilities Interest-bearing transaction deposits $5,118 $1,651,450 1.26% $6,283 $1,379,692 1.85% Time deposits 9,499 1,122,536 3.43% 11,903 1,112,291 4.33% ------------ ------------ ------- ------------ ------------ ------- Total interest bearing deposits 14,618 2,773,986 2.14% 18,186 2,491,983 2.96% ============ ============ ======= ============ ============ ========= ------------ ------------ ------- ------------ ------------ ------- Customer repos 369 171,072 0.87% 536 166,538 1.31% Other borrowings 594 52,823 4.56% 598 53,777 4.51% ------------ ------------ ------- ------------ ------------ ------- Total borrowings 963 223,895 1.74% 1,135 220,314 2.09% ============ ============ ======= ============ ============ ========= ------------ ------------ ------- ------------ ------------ ------- Total interest bearing liab cost $15,581 $2,997,881 2.11 % $19,320 $2,712,297 2.89% Noninterest-bearing deposits 582,992 609,041 Other net interest-free funding sources 119,501 131,873 Total Cost of Funds $15,581 $3,700,374 1.71% $19,320 $3,453,211 2.27% Net Interest Spread (TE) $39,898 3.94% $40,176 4.06% Net Interest Margin (TE) $39,898 $3,700,374 4.34% $40,176 $3,453,211 4.68%
The amount of the allowance for loan losses 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 allowance and loan loss provision. The ratios are calculated using average loan balances. (Amounts shown are in thousands)
At and For the ------------------------------------ Three Months Ended March 31, ------------------------------------ 2003 2002 ------------------------------------ Annualized net charge-offs to average loans 0.59% 1.67% Annualized provision for loan losses to average loans (1) 0.59% 1.15% Average reserve for loan losses to average loans 1.66% 1.68% Gross charge-offs (2) $ 4,770 $ 9,200 Gross recoveries $ 1,750 $ 1,438 Non-accrual loans $ 11,949 $ 14,119 Accruing loans 90 days or more past due $ 6,039 $ 6,805 (1) The 2003 provision decreased as a result of management's periodic review of the allowance for loan losses. This review considered the effect of changes in the mix and the size of the loan portfolio. Provision for loan losses was significantly higher in 2002 as the reserve was replenished for large credits written off that were due to the Lamar acquisition. As overall credit quality has improved, the need for higher reserves has decreased. (2) Gross charge-offs were higher in 2002 primarily due to the removal of credits acquired in the Lamar Capital Corporation acquisition that were determined to be uncollectible.
Non-interest income for the first quarter of 2003 was up $404,000, or 2.3%, compared to the same quarter a year ago, but was down $1.2 million, or 6.4%, compared to the previous quarter. The first quarter 2003 levels did include a pretax net securities gain of $455,000 related to the sale of $65 million of floating rate securities. These securities were reinvested at a yield advantage of approximately 187 basis points.
Other factors impacting the lower levels of non-interest income as compared to the prior quarter were lower service charges on deposit accounts (down $996,000) and other income (down $589,000). Service charges on deposit accounts are seasonally lower in the first quarter of each year and return to more normalized levels in the second quarter. Other income was impacted by income recorded in the fourth quarter relating to oil & gas royalties and timber properties.
The components of non-interest income for the three months ended March 31, 2003 and 2002 are presented in the following table.
Three Months Ended March 31, --------------------------------- (dollars in thousands) 2003 2002 --------------- ----------------- Service charges on deposit accounts $ 10,155 $ 9,448 Trust fees 1,940 2,086 Credit card merchant discount fees 801 754 Insurance fees 516 514 Investment & annuity fees 931 1,778 ATM fees 966 861 Secondary mortgage market operations 640 679 Other income 1,390 1,270 Securities transactions gains 455 - --------------- ----------------- Total non-interest income $ 17,794 $ 17,390 =============== =================
Operating expenses for the first quarter of 2003 were $605,000, or 1.8% lower, compared to the same quarter a year ago and were $2.45 million, or 6.9%, lower than the previous quarter. The vast majority of these decreases was reflected in other operating expenses and were spread over a wide range of operating expense categories. Continuation of focused expense control efforts was the primary reason for the operating expense reductions from the same quarter a year ago and from the previous quarter.
Primarily due to the aforementioned operating reductions from the first quarter of 2002 and from the previous quarter, the Company's efficiency ratio (expressed as non-interest expense, before amortization of purchased intangibles, as a percent of total revenue before securities transactions) was reduced to 57.3% in the first quarter of 2003. This was compared to 58.0% for the same quarter a year ago, and 57.9% for the previous quarter.
The following table presents the components of non-interest expense for the three months ended March 31, 2003 and 2002.
Three Months Ended March 31, --------------------------------- (dollars in thousands) 2003 2002 --------------- ----------------- Employee compensation $ 16,293 $ 15,151 Employee benefits 3,878 3,915 --------------- ----------------- Total personnel expense 20,171 19,066 --------------- ----------------- Equipment and data processing expense 3,782 3,428 Net occupancy expense 2,117 2,037 Postage and communications 2,138 1,869 Ad valorem and franchise taxes 737 1,225 Legal and professional services 830 1,049 Stationery and supplies 509 496 Amortization of intangible assets 178 188 Advertising 765 1,202 Deposit insurance and regulatory fees 218 218 Training expenses 141 103 Other real estate owned expense 207 814 Other expense 1,198 1,901 --------------- ----------------- Total non-interest expense $ 32,991 $ 33,596 =============== =================
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 2003 and 2002 was approximately $3.5 million.
Following is a summary of the information used in the computation of earnings per common share (in thousands).
Three Months Ended March 31, ------------------------------- 2003 2002 -------------- --------------- Net earnings - used in computation of diluted earnings per common share $ 13,662 $ 11,421 Preferred dividend requirement 663 663 -------------- --------------- Net earnings available to common stockholders - used in computation of basic earning per common share $ 12,999 $ 10,758 =============== =============== Weighted average number of common shares outstanding - used in computation of basic earnings per common share 15,442 15,892 Effect of dilutive securities Stock options 208 105 Convertible preferred stock 1,106 1,106 -------------- --------------- Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted earnings per common share 16,756 17,103 ============== ===============
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 that 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 that 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 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, 2003 the Company had $250.7 million of regular savings and club accounts and $1.2 billion of money market and NOW accounts, representing 49.9% 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.
The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of March 31, 2003. Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings under the Exchange Act.
Since the Evaluation Date, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect such controls.
A. The Company's Annual Meeting was held on February 27, 2003. B. The Directors elected at the Annual Meeting held on February 27, 2003 were: Votes Cast ---------- Affirmed Withheld ---------- --------- 1. James H. Horne 14,285,663 139,069 2. George A. Schloegel 14,281,159 561,566 3. Christine L. Smilek 14,106,113 163,881 Continuing Directors: 4. Frank E. Bertucci, Jr. 5. Joseph F. Boardman, Jr. 6. James B. Estabrook, Jr. 7. Charles H. Johnson, Sr. 8. Robert W. Roseberry 9. Leo W. Seal, Jr. C. Deloitte & Touche LLP was approved as the independent public accountants of the Company and the approval was made with a favorable vote of 95%. For Against Abstained ---------- ------- ------------- 14,276,567 60,573 86,246 D. The amendment to the 1996 Long Term Incentive Plan, providing for an increase in th annual number of shares reserved for issuance under the Plan, was approved. For Against Abstained ---------- --------- ------------- 10,356,996 1,770,516 115,134
Exhibits: 1. Exhibit 99.1 - Certifications under Section 906 of the Sarbanes Oxley Act of 2002. Reports on Form 8-K: 1. A Form 8-K was filed on April 14, 2003 for the purpose of announcing, by press release, earnings for the first quarter ended March 31, 2003. 2. A Form 8-K was filed on May 2, 2003 for the purpose of announcing, by press release, a presentation by the Company's officers at the Gulf South Bank Conference on May 5, 2003 in New Orleans, LA.
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 13, 2003 By: /s/ George A. Schloegel - ------------------------- -------------------------------------- Date George A. Schloegel Vice-Chairman of the Board and Chief Executive Officer May 13, 2003 By: /s/ Carl J. Chaney - -------------------------- -------------------------------------- Date Carl J. Chaney Executive Vice President and Chief Financial Officer
CERTIFICATIONS I, George A. Schloegel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Hancock Holding Company. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ George A. Schloegel - ------------------ -------------------------------- George A. Schloegel Vice-Chairman of the Board & Chief Executive Officer
I, Carl J. Chaney, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Hancock Holding Company. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Carl J. Chaney - ------------------ ------------------------------ Carl J. Chaney Executive Vice President & Chief Financial Officer