UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549FORM 10-QX 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 June 30, 2005 --------------------------------------------------- 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. 32,320,683 common shares were outstanding as of July 31, 2005 for financial statement purposes.
HANCOCK HOLDING COMPANY ----------------------- INDEX ----- PART I. FINANCIAL INFORMATION PAGE NUMBER - ------------------------------ ----------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited) -- June 30, 2005 and December 31, 2004 3 Condensed Consolidated Statements of Earnings (Unaudited) -- Three and Six Months Ended June 30, 2005 and 2004 4 Condensed Consolidated Statements of Common Stockholders' Equity Equity (Unaudited) -- Six Months Ended June 30, 2005 and 2004 5 Condensed Consolidated Statements of Cash Flows (Unaudited) -- Six Months Ended June 30, 2005 and 2004 6 Notes to Unaudited Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 28 ITEM 4. Controls and Procedures 31 PART II. OTHER INFORMATION - --------------------------- ITEM 1. Legal Proceedings 32 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 32 ITEM 3. Defaults upon Senior Securities 33 ITEM 4. Submission of Matters to a Vote of Security Holders 33 ITEM 5. Other Information 33 ITEM 6. Exhibits 33 SIGNATURES 34 - ----------
PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS - ----------------------------HANCOCK HOLDING COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(amounts in thousands, except share data) (Unaudited) June 30, December 31, 2005 2004 * ------------------- ------------------- ASSETS: Cash and due from banks (non-interest bearing) $ 144,974 $ 155,797 Interest-bearing time deposits with other banks 8,412 8,126 Federal funds sold 76,041 142,135 Securities available for sale, at fair value (amortized cost of $1,211,702 and $1,118,622) 1,206,634 1,114,468 Securities held to maturity, at amortized cost (fair value of $184,352 and $193,578) 180,843 187,901 Loans 2,872,964 2,760,266 Less: Allowance for loan losses (41,382) (40,682) Unearned income (11,559) (11,706) ------------------- ------------------- Loans, net 2,820,023 2,707,878 Property and equipment, net of accumulated depreciation of $80,028 and $77,766 81,252 79,848 Other real estate, net 2,482 3,007 Accrued interest receivable 24,098 23,783 Goodwill, net 55,409 55,409 Other intangible assets, net 13,828 14,783 Life insurance contracts 81,335 79,630 Reinsurance receivables 53,974 59,190 Other assets 39,760 32,771 ------------------- ------------------- TOTAL ASSETS $ 4,789,065 $4,664,726 =================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 728,001 $ 697,353 Interest-bearing savings, NOW, money market and time 3,125,012 3,100,592 ------------------- ------------------- Total deposits 3,853,013 3,797,945 Federal funds purchased 250 800 Securities sold under agreements to repurchase 245,602 195,478 Long-term notes 50,272 50,273 Policy reserves and liabilities 112,350 111,107 Other liabilities 47,138 44,541 ------------------- ------------------- TOTAL LIABILITIES 4,308,625 4,200,144 COMMON STOCKHOLDERS' EQUITY: Common Stock-$3.33 par value per share; 75,000,000 shares authorized, 32,309,620 and 32,439,702 issued, respectively 107,591 108,024 Capital surplus 130,071 134,905 Retained earnings 257,196 234,423 Accumulated other comprehensive loss, net (11,694) (11,121) Unearned compensation (2,724) (1,649) ------------------- ------------------- TOTAL COMMON STOCKHOLDERS' EQUITY 480,440 464,582 ------------------- ------------------- TOTAL LIABILITIES AND COMMON STOCKHOLDERS' EQUITY $ 4,789,065 $4,664,726 =================== =================== * The balance sheet at December 31, 2004 has been derived from the audited balance sheet at that date. See notes to unaudited condensed consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS(UNAUDITED) (amounts in thousands except per share data) Three Months Ended June 30, Six Months Ended June 30, ----------------------------- --------------------------- 2005 2004 2005 2004 ---------- --------- ----------- ------- INTEREST INCOME: Loans, including fees $ 48,245 $ 41,509 $ 93,825 $81,857 Securities - taxable 13,706 12,178 26,073 23,150 Securities - tax exempt 1,778 2,003 3,569 3,984 Federal funds sold 283 53 995 206 Other investments 15 575 96 963 ---------- --------- ----------- ------------ Total interest income 64,027 56,318 124,558 110,160 ---------- --------- ----------- ------------ INTEREST EXPENSE: Deposits 16,106 13,234 31,139 25,673 Federal funds purchased and securities sold under agreements to repurchase 1,239 357 1,912 699 Long-term notes and other interest expense 616 627 1,198 1,316 ---------- --------- ----------- ------------ Total interest expense 17,961 14,218 34,249 27,688 ---------- --------- ----------- ------------ NET INTEREST INCOME 46,066 42,100 90,309 82,472 Provision for loan losses 1,891 3,817 4,651 7,353 ---------- --------- ----------- ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 44,175 38,283 85,658 75,119 ---------- --------- ----------- ------------ NON-INTEREST INCOME Service charges on deposit accounts 10,459 10,771 19,949 21,001 Other service charges, commissions and fees 10,133 7,867 20,145 15,019 Securities gains (losses), net (15) 11 (8) 161 Gain on sale of branches - 3,000 - 5,258 Other income 4,103 2,981 7,027 5,829 ---------- --------- ----------- ------------ Total non-interest income 24,680 24,630 47,113 47,268 ---------- --------- ----------- ------------ NON-INTEREST EXPENSE Salaries and employee benefits 22,925 21,137 45,304 44,033 Net occupancy expense of premises 2,576 2,405 5,071 4,818 Equipment rentals, depreciation and maintenance 2,366 2,376 4,724 4,702 Amortization of intangibles 578 524 1,162 848 Other expense 14,060 12,995 27,887 24,298 ---------- --------- ----------- ------------ Total non-interest expense 42,505 39,437 84,148 78,699 ---------- --------- ----------- ------------ EARNINGS BEFORE INCOME TAXES 26,350 23,476 48,623 43,688 Income tax expense 8,256 7,104 15,091 13,172 ---------- --------- ----------- ------------ NET EARNINGS $ 18,094 $ 16,372 $ 33,532 $ 30,516 ========== ========= =========== ============ BASIC EARNINGS PER SHARE $ 0.56 $ 0.50 $ 1.03 $ 0.94 ========== ========= =========== ============ DILUTED EARNINGS PER SHARE $ 0.55 $ 0.50 $ 1.02 $ 0.92 ========== ========= =========== ============ DIVIDENDS PAID PER SHARE $ 0.165 $ 0.125 $ 0.330 $ 0.250 ========== ========= =========== ============ WEIGHTED AVG. SHARES OUTSTANDING-BASIC 32,396 32,549 32,429 32,299 ========== ========= =========== ============ WEIGHTED AVG. SHARES OUTSTANDING-DILUTED 32,928 33,042 32,973 33,023 ========== ========= =========== ============ See notes to unaudited condensed consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITYUNAUDITED(amounts in thousands, except per share data) Accumulated Other Common Stock Capital Retained Comprehensive Unearned Shares Amount Surplus Earnings Loss, net Compensation ------------ -------------- -------------- ------------- -------------- ------------- Balance, January 1, 2004 30,455,358 $ 101,416 $ 111,963 $ 191,696 $(6,304) $ (957) Net earnings 30,516 Cash dividends - $0.25 per common share (8,024) Preferred stock conversion 2,200,976 7,329 29,886 Change in fair value of securities available for sale, net (17,735) Transactions relating to restricted stock, net (48,462) (161) 1,474 (1,038) Repurchase/retirement of common stock (235,003) (783) (6,082) Transactions relating options exercised, net 105,900 353 (1,492) Other stock transactions, net 59,467 198 1,252 ------------ -------------- -------------- ------------- -------------- ------------- Balance, June 30, 2004 32,538,236 $ 108,352 $ 137,001 $ 214,188 $ (24,039) $(1,995) ============ ============== ============== ============= ============== ============= Balance, January 1, 2005 32,439,702 $ 108,024 $ 134,905 $234,423 $ (11,121) $(1,649) Net earnings 33,532 Cash dividends - $0.33 per common share (10,759) Change in fair value of securities available for sale, net (573) Transactions relating to restricted stock, net (10,285) (34) 1,571 (1,075) Repurchase/retirement of common stock (233,921) (779) (6,556) Transactions relating options exercised, net 53,782 179 (566) Other stock transactions, net 60,342 201 717 ------------ -------------- -------------- ------------- -------------- ------------- Balance, June 30, 2005 32,309,620 $ 107,591 $ 130,071 $ 257,196 $(11,694) $ (2,724) ============ ============== ============== ============= ============== ============= See notes to unaudited condensed consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSUNAUDITED(amounts in thousands) Six Months Ended June 30, ---------------------------------------- 2005 2004 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 33,532 $ 30,516 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,378 4,610 Provision for loan losses 4,651 7,353 Provision for losses on other real estate owned (8) 94 Increase in cash surrender value of life insurance contracts (1,705) (1,721) Loss (gain) on sales of securities available for sale, net 8 (161) Gain on sale of assets - (5,258) Amortization of securities premium/discount 1,599 3,144 Amortization of intangible assets 1,162 848 Amortization of compensation element of restricted stock 297 - (Increase) decrease in deferred tax asset (1,149) 955 Increase in interest receivable (315) (754) Increase in accrued expenses 1,522 4,481 Increase in other liabilities 1,481 1,821 Decrease in interest payable (406) (657) Increase in policy reserves and liabilities 1,243 63,708 Decrease (increase) in reinsurance receivables 5,216 (39,933) (Increase) decrease in other assets, net (5,844) 16,272 Other, net (271) (3,176) --------------- --------------- Net cash provided by operating activities 46,391 82,142 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in interest-bearing time deposits (286) (2,764) Proceeds from maturities, calls or prepayments of securities held to maturity 11,887 13,324 Proceeds from sales and maturities of securities available for sale 452,688 388,459 Purchases of securities held to maturity (4,819) - Purchases of securities available for sale (545,768) (527,044) Net decrease (increase) in federal funds sold 66,094 19,232 Net increase in loans (116,416) (149,521) Purchases of property, equipment and software, net (9,734) (3,531) Proceeds from sales of other real estate 2,062 2,818 Proceeds from the sale of merchant services business - 3,000 Premiums paid on bank owned life insurance contracts - (25,000) Net cash paid in connection with sale of branches - (22,999) Net cash received in connection purchase transaction - 85 --------------- --------------- Net cash used in investing activities (144,292) (303,941) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 55,068 133,097 Net increase in federal funds purchased and securities sold under agreements to repurchase 49,574 100,732 Repayment of short-term note (1) (9,400) Reductions of long-term notes - (145) Dividends paid (10,759) (8,024) Conversion of preferred stock to cash - (147) Proceeds from exercise of stock options (387) (1,139) Repurchase/retirement of common stock (7,335) (6,865) Other stock transactions, net 918 1,450 --------------- --------------- Net cash provided by financing activities 87,078 209,559 --------------- --------------- NET DECREASE IN CASH AND DUE FROM BANKS (10,823) (12,240) CASH AND DUE FROM BANKS, BEGINNING 155,797 178,082 --------------- --------------- CASH AND DUE FROM BANKS, ENDING $ 144,974 $ 165,842 =============== =============== SUPPLEMENTAL INFORMATION: Income taxes paid $ 13,160 $ 12,680 Interest paid 34,656 14,875 Restricted stock issued to employees of Hancock 1,490 1,377 SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES Transfers from loans to other real estate $ 1,511 $ 2,352 Financed sale of foreclosed property 583 1,005 See notes to unaudited condensed consolidated financial statements.
Hancock Holding Company (the Company) is a financial holding company headquartered in Gulfport, Mississippi operating in the states of Mississippi, Louisiana, Alabama and Florida through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi, Hancock Bank of Louisiana, Baton Rouge, Louisiana and Hancock Bank of Florida, Tallahassee, Florida (the Banks). The Banks are community oriented and focus primarily on offering commercial, consumer and mortgage loans and deposit services to individuals and small to middle market businesses in their respective market areas. The Company’s operating strategy is to provide its customers with the financial sophistication and breadth of products of a regional bank, while successfully retaining the local appeal and level of service of a community bank.
The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America and general practices within the banking industry. The consolidated financial statements of the Company include the accounts of the Company, the Banks, Hancock Investment Services, Inc., Hancock Insurance Agency, Inc., Harrison Finance Company, Magna Insurance Company and subsidiary, as well as three real estate corporations owning land and buildings that house bank branches and other facilities. Significant intercompany transactions and balances have been eliminated in consolidation.
In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. The determination of the allowance for loan losses is a material estimate that is particularly subject to significant change. Certain prior year amounts have been reclassified to conform to the 2005 presentation.
For further information, refer to the consolidated financial statements and notes thereto of Hancock Holding Company’s 2004 Annual Report to Shareholders.
Following is a summary of the Company’s comprehensive earnings for the three months and six months ended June 30, 2005 and 2004.
(Amounts in thousands) Three Months Ended June 30, Six Months Ended June 30, ----------------------------- --------------------------------- 2005 2004 2005 2004 ----------- ------------ --------------- -------------- Net earnings $ 18,094 $ 16,372 $ 33,532 $ 30,516 Other comprehensive income (loss) (net of income tax): Change in fair value of securities available for sale, net of tax $7,277 and $12,276, $311 and $9,493, respectively 13,514 (22,799) (578) (17,630) Reclassification adjustments for gains included in net earnings, net of tax of $5 and $4, $3 and $56, respectively 10 (7) 5 (105) ----------- ------------ --------------- -------------- Total Comprehensive Earnings $31,618 ($6,434) $32,959 $12,781 =========== ============ =============== ==============
The Company applies Accounting Principles Board (APB) Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized. The Company has adopted the disclosure-only option under Statement of Financial Accounting Standards (SFAS) No. 123. Had compensation costs for the Company’s stock options and restricted stock awards been determined based on the fair value at the grant date, consistent with the method under SFAS No. 123, the Company’s net earnings and earnings per share would have been as indicated below:
(Amounts in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ------------------------------- 2005 2004 2005 2004 ------------- ------------- ------------- ------------- Net earnings available to common stockholders: As reported $18,094 $16,372 $33,532 $30,516 Deduct total stock based compensation determined under the fair value method for all awards, net of tax (618) (145) (1,236) (290) ------------- ------------- ------------- ------------- Pro forma net earnings available to common stockholders $17,476 $16,227 $32,296 $30,226 ============= ============= ============= ============= Basic earnings per share: As reported $ 0.56 $ 0.50 $ 1.03 $ 0.94 Pro forma $ 0.54 $ 0.50 $ 1.00 $ 0.94 Diluted earnings per share: As reported $ 0.55 $ 0.50 $ 1.02 $ 0.92 Pro forma $ 0.53 $ 0.49 $ 0.98 $ 0.92
On June 13, 2005, the Company announced that it had signed a definitive agreement for the acquisition of J. Everett Eaves, Inc., a highly regarded independent insurance agency serving the New Orleans, Louisiana area. The transaction was consummated June 30, 2005, with an effective date of July 1, 2005 for $4.2 million cash in exchange for all of the outstanding stock of J. Everett Eaves, Inc. The post-purchase entity will retain the J. Everett Eaves, name and will become a subsidiary of Hancock Insurance Agency.
During March 2004, the Company acquired the majority of loans, securities and deposits of the former Guaranty National Bank of Tallahassee, Florida. The Office of the Comptroller of Currency closed all locations of Guaranty National on March 12, 2004. With the transaction, the Company acquired five locations with approximately $40.0 million in performing loans and approximately $69.1 million in deposits from the Federal Deposit Insurance Corporation (FDIC) for a premium of $13.6 million, or 20% of acquired deposits. The Company paid $5.0 million in consideration for the acquisition of assets, net of related deposit liabilities. In accounting for the transaction, management considered it to be an “acquisition of business” and, accordingly, accounted for it under the purchase method of accounting pursuant to SFAS No. 141. Final allocations of asset and liability fair values have been recorded based on an analysis performed by an independent third party.
During the fourth quarter of 2004, the Company acquired Ross-King-Walker, Inc. (RKW), a well-known Hattiesburg, MS based property and casualty insurance agency, as a division of Hancock Insurance Agency in an all cash transaction. The post-purchase entity will retain the RKW name and become an affiliate of Hancock Insurance Agency.
On March 8, 2004, the Company completed the sale of four Louisiana branches to Sabine State Bank, resulting in a $2.3 million pre-tax gain. The branches that were sold were acquired in the 1999 American Security Bank purchase. The Company made a cash payment of approximately $23 million, whereby approximately $19.7 million in loans were transferred and $42.9 million in deposits liabilities assumed by Sabine State Bank in this transaction.
On February 4, 2004, the Company completed the redemption/conversion of substantially all $37.1 million of its 8% Cumulative Convertible Preferred Stock which had been originally issued in partial payment for the acquisition of Lamar Capital Corporation in July, 2001. The conversion factor was .6666 shares of Hancock Holding Company common stock for each share of the preferred stock. A total of 7,304 shares of the preferred stock was redeemed for cash at the contract price of $20.00 per share plus pro rated dividends of $0.1511 per share.
On February 26, 2004 the Company’s Board of Directors declared a two-for-one stock split in the form of a 100% common stock dividend. The additional shares were payable March 18, 2004 to shareholders of record at the close of business on March 8, 2004.
All information, including earnings per share, dividends per share, and number of shares outstanding has been adjusted to give retroactive effect to this split.
The Company’s primary segments are geographically divided into the Mississippi (MS), Louisiana (LA) and Florida (FL) markets. Each segment offers the same products and services but is managed separately due to different pricing, product demand, and consumer markets. Each segment offers commercial, consumer and mortgage loans and deposit services. In the following tables, the column “Other” includes additional consolidated subsidiaries of the Company: Hancock Investment Services, Inc., Hancock Insurance Agency, Inc., Harrison Finance Company, Magna Insurance Company and subsidiary and three real estate corporations owning land and buildings that house bank branches and other facilities. Following is selected information for the Company’s segments (amounts in thousands):
Three Months Ended, June 30, 2005 MS LA FL Other Eliminations Consolidated ------------- ------------ ----------- ----------- ------------- ------------- Interest income $ 34,177 $ 26,439 $ 1,652 $ 4,207 $ (2,448) $64,027 Interest expense 11,195 7,834 422 878 (2,368) 17,961 ------------- ------------ ----------- ----------- ------------- ------------- Net interest income 22,982 18,605 1,230 3,329 (80) 46,066 Provision for loan losses 26 1,282 118 465 - 1,891 Non-interest income 11,234 7,896 130 5,442 (22) 24,680 Depreciation and amortization 1,463 642 103 123 - 2,331 Other non-interest expense 18,887 13,909 1,049 6,300 29 40,174 ------------- ------------ ----------- ----------- ------------- ------------- Earnings (loss) before income taxes 13,840 10,668 90 1,883 (131) 26,350 Income tax expense 4,417 3,237 35 602 (35) 8,256 ------------- ------------ ----------- ----------- ------------- ------------- Net earnings (loss) $ 9,423 $ 7,431 $ 55 $ 1,281 $ (96) $18,094 ============= ============ =========== =========== ============= ============= Three Months Ended, June 30, 2004 MS LA FL Other Eliminations Consolidated ------------- ------------ ----------- ----------- ------------- ------------- Interest income $ 29,833 $ 22,242 $ 860 $ 4,372 $ (989) $56,318 Interest expense 9,525 4,850 282 489 (928) 14,218 ------------- ------------ ----------- ----------- ------------- ------------- Net interest income 20,308 17,392 578 3,883 (61) 42,100 Provision for loan losses 1,490 1,463 (36) 900 - 3,817 Non-interest income 9,892 10,009 119 5,165 (554) 24,631 Depreciation and amortization 1,465 677 - 138 4 2,284 Other non-interest expense 16,604 12,860 1,006 6,550 134 37,154 ------------- ------------ ----------- ----------- ------------- ------------- Earnings (loss) before income taxes 10,641 12,401 (273) 1,460 (753) 23,476 Income tax expense 3,131 3,849 (105) 559 (331) 7,103 ------------- ------------ ----------- ----------- ------------- ------------- Net earnings (loss) $ 7,510 $ 8,552 $ (168) $ 901 $ (422) $16,373 ============= ============ =========== =========== ============= =============
Six Months Ended, June 30, 2005 MS LA FL Other Eliminations Consolidated ------------- ------------- ------------ ------------ ------------- --------------- Interest income $ 66,150 $ 51,609 $ 2,843 $ 8,154 $ (4,198) $ 124,558 Interest expense 21,317 14,542 748 1,681 (4,039) 34,249 ------------- ------------- ------------ ------------ ------------- --------------- Net interest income 44,833 37,067 2,095 6,473 (159) 90,309 Provision for loan losses 762 2,826 217 846 - 4,651 Non-interest income 20,685 15,516 228 10,785 (101) 47,113 Depreciation and amortization 2,827 1,243 245 252 - 4,567 Other non-interest expense 37,129 27,141 2,241 12,993 77 79,581 ------------- ------------- ------------ ------------ ------------- --------------- Earnings (loss) before income taxes 24,800 21,373 (380) 3,167 (337) 48,623 Income tax expense 7,768 6,485 (145) 1,051 (68) 15,091 ------------- ------------- ------------ ------------ ------------- --------------- Net earnings (loss) $ 17,032 $ 14,888 $ (235) $ 2,116 $ (269) $ 33,532 ============= ============= ============ ============ ============= =============== Six Months Ended, June 30, 2004 MS LA FL Other Eliminations Consolidated ------------- ------------- ------------ ------------ ------------- --------------- Interest income $ 58,748 $ 44,085 $ 1,037 $ 8,180 $ (1,890) $ 110,160 Interest expense 18,671 9,335 356 1,030 (1,704) 27,688 ------------- ------------- ------------ ------------ ------------- --------------- Net interest income 40,077 34,750 681 7,150 (186) 82,472 Provision for loan losses 2,826 2,514 364 1,649 - 7,353 Non-interest income 19,530 18,928 150 9,855 (1,194) 47,269 Depreciation and amortization 2,959 1,368 - 275 7 4,609 Other non-interest expense 34,852 25,641 1,101 12,169 328 74,091 ------------- ------------- ------------ ------------ ------------- --------------- Earnings (loss) before income taxes 18,970 24,155 (634) 2,912 (1,715) 43,688 Income tax expense 5,425 7,462 (245) 1,056 (527) 13,171 ------------- ------------- ------------ ------------ ------------- --------------- Net earnings (loss) $ 13,545 $ 16,693 $ (389) $ 1,856 $ (1,188) $ 30,517 ============= ============= ============ ============ ============= ===============
Goodwill represents costs in excess of the fair value of net assets acquired in connection with purchase business combinations. In accordance with the provisions of SFAS No. 142 “Goodwill and Other Intangibles”, the Company tests its goodwill for impairment annually. No impairment charges were recognized as of June 30, 2005. The carrying amount of goodwill as of June 30, 2005 and December 31, 2004 was $55.4 million.
The following tables present information regarding the components of the Company’s identifiable intangible assets, and related amortization for the dates indicated (amounts in thousands):
As of As of June 30, 2005 December 31, 2004 ------------------------------------- -------------------------------------- Gross Carrying Accumulated Gross Carrying Accumulated Amount Amortization Amount Amortization ----------------- ----------------- ----------------- ----------------- Amortizable Intangible Assets: Core deposit intangibles $ 14,148 $ 5,113 $ 14,148 $ 4,281 Value of insurance businesses acquired 3,220 509 2,575 179 Mortgage servicing rights 4,681 2,599 4,835 2,315 ----------------- ----------------- ----------------- ----------------- Total $ 22,049 $ 8,221 $ 21,558 $ 6,775 ================= ================= ================= ================= Three months ended June 30, Six months ended June 30, ------------------------------------- -------------------------------------- 2005 2004 2005 2004 ----------------- ----------------- ----------------- ----------------- Aggregate amortization expense for: Core deposit intangibles $ 413 $ 477 $ 832 $ 769 Value of insurance businesses acquired 165 33 330 79 Mortgage servicing rights 212 269 438 553 ----------------- ----------------- ----------------- ----------------- Total $ 790 $ 779 $ 1,600 $ 1,401 ================= ================= ================= =================
Amortization of the core deposit intangibles is estimated to be approximately $1.7 million in 2005, $1.4 million in 2006, $1.2 million in 2007, $1.1 million in 2008, $1.1 million in 2009 and the remainder of $3.4 million thereafter. The amortization of the value of businesses acquired is expected to approximate $660,000 in 2005, $491,000 in 2006, $355,000 in 2007, $258,000 in 2008, $244,000 in 2009 and the remainder of $1.2 million thereafter. Amortization of mortgage servicing rights is estimated to be approximately $827,000 in 2005, $630,000 in 2006, $440,000 in 2007, $287,000 in 2008, $196,000 in 2009 and the remainder of $140,000 thereafter. The weighted-average amortization period used for intangibles is 10 years.
Net periodic benefits cost includes the following components for the three and six months ended June 30, 2005 and 2004 (amounts in thousands):
Three months ended June 30, Pension Benefits Other Post-retirement Benefits ---------------------------------- --------------------------------- 2005 2004 2005 2004 --------------- --------------- --------------- --------------- Service Cost $ 538,285 $ 514,357 $ 77,500 $ 69,472 Interest Cost 848,769 787,772 97,000 92,714 Expected return on plan assets (852,597) (760,753) - - Amortization of prior service cost 6,531 20,713 (13,250) (13,259) Amortization of net loss 249,765 234,478 22,000 20,589 Amortization of transition obligation - - 1,250 1,288 --------------- --------------- --------------- --------------- Net periodic benefit cost $ 790,753 $ 796,567 $ 184,500 $ 170,804 =============== =============== =============== =============== Six months ended June 30, Pension Benefits Other Post-retirement Benefits ---------------------------------- --------------------------------- 2005 2004 2005 2004 --------------- --------------- --------------- --------------- Service Cost $ 1,076,570 $ 1,028,714 $ 155,000 $ 138,944 Interest Cost 1,697,538 1,575,544 194,000 185,428 Expected return on plan assets (1,705,194) (1,521,506) - - Amortization of prior service cost 13,062 41,426 (26,500) (26,518) Amortization of net loss 499,530 468,956 44,000 41,178 Amortization of transition obligation - - 2,500 2,576 --------------- --------------- --------------- --------------- Net periodic benefit cost $ 1,581,506 $ 1,593,134 $ 369,000 $ 341,608 =============== =============== =============== ===============
The Company anticipates that it will contribute $3.2 million to its pension plan and approximately $344,000 for post-retirement benefits in 2005. During the first and second quarter of 2005, the Company contributed $683,000 and $683,000 respectively, to its pension plan and approximately $133,000 and $131,000, respectively, for post-retirement benefits.
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 (amounts in thousands):
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- ----------------------------------- 2005 2004 2005 2004 ---------------- ---------------- ---------------- ---------------- Balance of allowance for loan losses at beginning of period $ 41,182 $ 37,500 $ 40,682 $ 36,750 Provision for loan losses 1,891 3,817 4,651 7,353 Loans charged-off: Commercial, Real Estate & Mortgage 851 1,214 1,950 3,621 Direct & Indirect Consumer 1,389 1,728 3,036 3,340 Finance Company 577 602 1,096 1,266 Demand Deposit Accounts 722 1,146 1,483 2,158 ---------------- ---------------- ---------------- ---------------- Total charge-offs 3,539 4,690 7,565 10,385 ---------------- ---------------- ---------------- ---------------- Recoveries of loans previously charged-off: Commercial, Real Estate & Mortgage 654 452 915 1,701 Direct & Indirect Consumer 507 438 1,056 942 Finance Company 112 101 250 216 Demand Deposit Accounts 575 682 1,393 1,723 ---------------- ---------------- ---------------- ---------------- Total recoveries 1,848 1,673 3,614 4,582 ---------------- ---------------- ---------------- ---------------- Net charge-offs 1,691 3,017 3,951 5,803 ---------------- ---------------- ---------------- ---------------- Balance of allowance for loan losses at end of period $ 41,382 $ 38,300 $ 41,382 $ 38,300 ================ ================ ================ ================ 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 June 30, Six Months Ended June 30, -------------------------------- ------------------------------- 2005 2004 2005 2004 --------------- --------------- --------------- -------------- Ratios: Net charge-offs to average net loans (annualized) 0.24% 0.47% 0.28% 0.46% Net charge-offs to period-end net loans (annualized) 0.24% 0.46% 0.28% 0.44% Allowance for loan losses to average net loans 1.46% 1.49% 1.47% 1.52% Allowance for loan losses to period-end net loans 1.45% 1.47% 1.45% 1.47% Net charge-offs to loan loss allowance 4.09% 7.88% 9.55% 15.15% Provision for loan losses to net charge-offs 111.83% 126.52% 117.72% 126.71%
Following is a summary of the information used in the computation of earnings per common share (in thousands).
Three Months Ended June 30, Six Months Ended June 30, ------------------------------- ------------------------------- 2005 2004 2005 2004 -------------- -------------- -------------- --------------- Net earnings - used in computation of diluted earnings per share $ 18,094 $ 16,372 $ 33,532 $ 30,516 ============== ============== ============== =============== Weighted average number of shares outstanding - used in computation of basic earnings per share 32,396 32,549 32,429 32,299 Effect of dilutive securities Stock options and restricted stock awards 532 493 544 724 -------------- -------------- -------------- --------------- Weighted average number of shares outstanding plus effect of dilutive securities - used in computation of diluted earnings per share 32,928 33,042 32,973 33,023 ============== ============== ============== ===============
There were no anti-dilutive shares outstanding for the three and six months ended June 30, 2005 and 2004.
The following tables present selected comparative financial data. All share and per share data have been restated to reflect the 100% stock dividend made March 18, 2004.
(amounts in thousands, except per share data) Three Months Ended Six Months Ended ----------------------------- ----------------------------- 6/30/2005 6/30/2004 6/30/2005 6/30/2004 ----------------------------- -----------------------------Per Common Share DataEarnings per share: Basic $0.56 $0.50 $1.03 $0.94 Diluted $0.55 $0.50 $1.02 $0.92 Cash dividends per share $0.165 $0.125 $0.330 $0.250 Book value per share (period end) $14.87 $13.32 $14.87 $13.32 Weighted average number of shares: Basic 32,396 32,549 32,429 32,299 Diluted (1) 32,928 33,042 32,973 33,023 Period end number of shares 32,310 32,538 32,310 32,538 Market data: High closing price $34.87 $32.25 $34.87 $32.25 Low closing price $28.25 $25.00 $28.25 $25.00 Period end closing price $34.40 $29.06 $34.40 $29.06 Trading volume 3,527 3,252 6,814 5,998 (1) There were no anti-dilutive shares outstanding for the three and six months ended June 30, 2005 and 2004.
(dollar amounts in thousands) Three Months Ended Six Months Ended ----------------------------- ----------------------------- 6/30/2005 6/30/2004 6/30/2005 6/30/2004 ----------------------------- -----------------------------Performance RatiosReturn on average assets 1.52% 1.49% 1.42% 1.41% Return on average common equity 15.27% 14.97% 14.31% 13.99% Earning asset yield (Tax Equivalent ("TE")) 6.08% 5.83% 5.99% 5.83% Total cost of funds 1.66% 1.43% 1.61% 1.42% Net interest margin (TE) 4.42% 4.40% 4.39% 4.41% Average common equity as a percent of average total assets 9.94% 9.95% 9.94% 10.09% Leverage ratio (period end) 8.83% 8.76% 8.83% 8.76% FTE Headcount 1,813 1,754 1,813 1,754Asset Quality InformationNon-accrual loans $7,493 $10,134 $7,493 $10,134 Foreclosed assets $2,567 $4,270 $2,567 $4,270 Total non-performing assets $10,060 $14,404 $10,060 $14,404 Non-performing assets as a percent of loans and foreclosed assets 0.35% 0.55% 0.35% 0.55% Accruing loans 90 days past due $3,914 $3,701 $3,914 $3,701 Accruing loans 90 days past due as a percent of loans 0.14% 0.14% 0.14% 0.14% Non-performing assets + accruing loans 90 days past due to loans and foreclosed assets 0.49% 0.69% 0.49% 0.69% Net charge-offs $1,691 $3,017 $3,951 $5,803 Net charge-offs as a percent of average loans 0.24% 0.47% 0.28% 0.46% Allowance for loan losses $41,382 $38,300 $41,382 $38,300 Allowance for loan losses as a percent of period end loans 1.45% 1.47% 1.45% 1.47% Allowance for loan losses to NPAs + accruing loans 90 days past due 296.14% 211.55% 296.14% 211.55% Provision for loan losses $1,891 $3,817 $4,651 $7,353 Provision for loan losses to net charge-offs 111.83% 126.52% 117.72% 126.71%Average Balance SheetTotal loans $2,835,506 $2,563,910 $2,806,031 $2,520,941 Securities 1,449,554 1,404,701 1,400,303 1,346,094 Short-term investments 47,260 29,530 89,685 52,420 Earning assets 4,332,320 3,998,141 4,296,020 3,919,455 Allowance for loan losses (41,185) (37,869) (40,938) (37,398) Other assets 490,668 460,512 501,357 464,147 Total assets $4,781,803 $4,420,784 $4,756,440 $4,346,204 Non-interest bearing deposits $730,570 $651,324 $715,938 $636,798 Interest bearing transaction deposits 1,319,606 1,362,105 1,325,845 1,355,109 Interest bearing public fund deposits 683,665 602,405 697,649 598,858 Time deposits 1,116,973 1,039,876 1,103,246 1,003,045 Total interest bearing deposits 3,120,245 3,004,385 3,126,740 2,957,012 Total deposits 3,850,815 3,655,709 3,842,679 3,593,810 Other borrowed funds 304,637 243,094 288,147 237,351 Other liabilities 151,217 82,009 152,999 71,916 Preferred stock - - - 4,504 Common stockholders' equity 475,134 439,972 472,615 438,622 Total liabilities & common stockholders' equity $4,781,803 $4,420,784 $4,756,440 $4,346,204
(dollar amounts in thousands) Three Months Ended Six Months Ended ---------------------------- ---------------------------- 6/30/2005 6/30/2004 6/30/2005 6/30/2004 ---------------------------- ----------------------------Period end Balance SheetCommercial/real estate loans $1,539,576 $1,384,913 $1,539,576 $1,384,913 Mortgage loans 424,725 400,333 424,725 400,333 Direct consumer loans 504,119 481,815 504,119 481,815 Indirect consumer loans 329,535 287,070 329,535 287,070 Finance company loans 63,450 59,450 63,450 59,450 Total loans 2,861,405 2,613,581 2,861,405 2,613,581 Securities 1,387,477 1,372,728 1,387,477 1,372,728 Short-term investments 84,453 8,318 84,453 8,318 Earning assets 4,333,334 3,994,627 4,333,334 3,994,627 Allowance for loan losses (41,382) (38,300) (41,382) (38,300) Other assets 497,113 508,611 497,113 508,611 Total assets $4,789,065 $4,464,937 $4,789,065 $4,464,937 Non-interest bearing deposits $728,001 $644,941 $728,001 $644,941 Interest bearing transaction deposits 1,303,152 1,339,428 1,303,152 1,339,428 Interest bearing public funds deposits 702,099 580,318 702,099 580,318 Time deposits 1,119,761 1,038,574 1,119,761 1,038,574 Total interest bearing deposits 3,125,012 2,958,319 3,125,012 2,958,319 Total deposits 3,853,013 3,603,260 3,853,013 3,603,260 Other borrowed funds 301,004 305,173 301,004 305,173 Other liabilities 154,608 122,996 154,608 122,996 Common stockholders' equity 480,440 433,507 480,440 433,507 Total liabilities & common stockholders' equity $4,789,065 $4,464,937 $4,789,065 $4,464,937Net Charge-Off InformationNet charge-offs (recoveries): Commercial/real estate loans $202 $788 $972 $1,947 Mortgage loans (5) (26) 63 (27) Direct consumer loans 491 1,182 992 1,818 Indirect consumer loans 538 572 1,078 1,015 Finance company loans 465 501 846 1,050 ---------------------------- ---------------------------- Total net charge-offs $1,691 $3,017 $3,951 $5,803 ============================ ============================ Net charge-offs to average loans: Commercial/real estate loans 0.05% 0.23% 0.13% 0.30% Mortgage loans 0.00% -0.03% 0.03% -0.01% Direct consumer loans 0.39% 0.98% 0.39% 0.75% Indirect consumer loans 0.67% 0.82% 0.68% 0.75% Finance company loans 3.00% 3.48% 2.78% 3.73% Total net charge-offs to average net loans 0.24% 0.47% 0.28% 0.46%
(dollar amounts in thousands) Three Months Ended Six Months Ended ---------------------------- ---------------------------- 6/30/2005 6/30/2004 6/30/2005 6/30/2004 ---------------------------- ----------------------------Average Balance Sheet CompositionPercentage of earning assets/funding sources: Loans 65.45% 64.13% 65.32% 64.32% Securities 33.46% 35.13% 32.60% 34.34% Short-term investments 1.09% 0.74% 2.09% 1.34% Earning assets 100.00% 100.00% 100.00% 100.00% Non-interest bearing deposits 16.86% 16.29% 16.67% 16.25% Interest bearing transaction deposits 30.46% 34.07% 30.86% 34.57% Interest bearing public funds deposits 15.78% 15.07% 16.24% 15.28% Time deposits 25.78% 26.01% 25.68% 25.59% Total deposits 88.89% 91.44% 89.45% 91.69% Other borrowed funds 7.03% 6.08% 6.71% 6.06% Other net interest-free funding sources 4.08% 2.48% 3.85% 2.25% Total funding sources 100.00% 100.00% 100.00% 100.00% Loan mix: Commercial/real estate loans 53.72% 52.75% 53.72% 52.60% Mortgage loans 14.72% 15.26% 14.69% 15.05% Direct consumer loans 17.97% 18.84% 18.06% 19.25% Indirect consumer loans 11.39% 10.89% 11.35% 10.86% Finance company loans 2.19% 2.26% 2.19% 2.25% Total loans 100.00% 100.00% 100.00% 100.00% Average dollars Loans $2,835,506 $2,563,910 $2,806,031 $2,520,941 Securities 1,449,554 1,404,701 1,400,303 1,346,094 Short-term investments 47,260 29,530 89,685 52,420 ---------------------------- ---------------------------- Earning assets $4,332,320 $3,998,141 $4,296,020 $3,919,455 ============================ ============================ Non-interest bearing deposits $730,570 $651,324 $715,938 $636,798 Interest bearing transaction deposits 1,319,606 1,362,105 1,325,845 1,355,109 Interest bearing public funds deposits 683,665 602,405 697,649 598,858 Time deposits 1,116,973 1,039,876 1,103,246 1,003,045 ---------------------------- ---------------------------- Total deposits 3,850,815 3,655,709 3,842,679 3,593,810 Other borrowed funds 304,637 243,094 288,147 237,351 Other net interest-free funding sources 176,868 99,338 165,194 88,294 ---------------------------- ---------------------------- Total funding sources $4,332,320 $3,998,141 $4,296,020 $3,919,455 ============================ ============================ Loans: Commercial/real estate loans $1,523,348 $1,352,432 $1,507,267 $1,325,916 Mortgage loans 417,307 391,270 412,310 379,295 Direct consumer loans 509,628 483,150 506,681 485,301 Indirect consumer loans 323,100 279,230 318,347 273,770 Finance company loans 62,124 57,829 61,426 56,659 ---------------------------- ---------------------------- Total average loans $2,835,506 $2,563,910 $2,806,031 $2,520,941 ============================ ============================
The following discussion provides management’s analysis of certain factors that have affected the Company’s consolidated financial condition and operating results during the periods included in the accompanying unaudited condensed consolidated financial statements. Hancock Holding Company (the Company), organized in 1984 as a bank holding company registered under the Bank Holding Company Act of 1956, as amended, is headquartered in Gulfport, Mississippi. At June 30, 2005, the Company operated more than 100 banking offices and more than 140 automated teller machines (ATMs) in the states of Mississippi, Louisiana and Florida through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi (Hancock Bank MS), Hancock Bank of Louisiana, Baton Rouge, Louisiana (Hancock Bank LA) and Hancock Bank of Florida, Tallahassee, Florida (Hancock Bank FL). Hancock Bank MS also operates a loan production office in the State of Alabama. Hancock Bank MS, Hancock Bank LA, and Hancock Bank FL are referred to collectively as the “Banks”.
The Banks are community oriented and focus primarily on offering commercial, consumer and mortgage loans and deposit services to individuals and small to middle market businesses in their respective market areas. The Company’s operating strategy is to provide its customers with the financial sophistication and breadth of products of a regional bank, while successfully retaining the local appeal and level of service of a community bank. At June 30, 2005, the Company had total assets of $4.8 billion and employed on a full-time equivalent basis 1,290 persons in Mississippi, 489 persons in Louisiana and 34 persons in Florida.
Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The Company’s single most critical accounting policy relates to its allowance for loan losses, which reflects the estimated losses resulting from the inability of its borrowers to make loan payments. If the financial condition of its borrowers were to deteriorate, resulting in an impairment of their ability to make payments, its estimates would be updated, and additional provisions for loan losses may be required.
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 at June 30, 2005, March 31, 2005 and December 31, 2004 compare certain assets and liabilities to total deposits or total assets:
June 30, March 31, December 31, 2005 2005 2004 ------------------ ----------------- ------------------ Total securities to total deposits 36.01% 36.38% 34.29% Total loans (net of unearned income) to total deposits 74.26% 71.82% 72.37% Interest-earning assets to total assets 90.48% 90.18% 90.06% Interest-bearing deposits to total deposits 81.11% 81.37% 81.64%
The Company continues to maintain an adequate capital position. The ratios as of June 30, 2005, March 31, 2005 and December 31, 2004 are as follows:
June 30, March 31, December 31, 2005 2005 2004 ----------------- ----------------- ----------------- Average equity to average assets 9.94% 9.94% 10.11% Regulatory ratios: Average equity to average assets (1) 10.05% 10.02% 10.17% Total capital to risk-weighted assets (2) 13.58% 13.49% 13.58% Tier 1 capital to risk-weighted assets (3) 12.41% 12.30% 12.39% Leverage capital to average total assets (4) 8.83% 8.75% 8.97% (1) Equity capital, for regulatory purposes, consists of stockholders' equity (excluding unrealized gains/(losses)). (2) Total capital consists of equity capital less intangible assets plus a limited amount of allowance for loan losses. 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 3% leverage capital ratio for an entity to be considered adequately capitalized.
Net earnings for the first half of 2005 totaled $33.5 million, compared to $30.5 million reported for the first half of 2004, an increase of $3.0 million, or 10%. Net earnings increased $1.7 million, or 11%, to $18.1 million for the second quarter of 2005 compared to $16.4 million in second quarter of 2004. The following is selected information for quarterly and year-to-date comparison:
Three Months Ended June 30, Six Months Ended June 30, ------------------------------- ------------------------------- 2005 2004 2005 2004 --------------- -------------- -------------- --------------- Results of Operations: Return on average assets 1.52 % 1.49 % 1.42 % 1.41 % Return on average equity 15.27 % 14.97 % 14.31 % 13.99 % Net Interest Income: Yield on average interest-earning assets (TE) 6.08 % 5.83 % 5.99 % 5.83 % Cost of average interest-bearing funds 2.10 % 1.76 % 2.02 % 1.74 % --------------- -------------- -------------- --------------- Net interest spread (TE) 3.98 % 4.07 % 3.97 % 4.08 % =============== ============== ============== =============== Net interest margin (TE) (net interest income on a tax-equivalent basis divided by average interest-earning assets) 4.42 % 4.40 % 4.39 % 4.41 % =============== ============== ============== ===============
Net interest income (te) for the second quarter of 2005 increased $3.9 million, or 9%, from the second quarter of 2004 and was $1.8 million, or 4%, higher than the first quarter of 2005. The Company’s net interest margin (te) was 4.42% in the second quarter of 2005, 2 basis points wider than the same quarter a year ago, and 7 basis points wider than the previous quarter.
Compared to the same quarter a year ago, the primary driver of the $3.9 million increase in net interest income (te) was a $334 million, or 8%, increase in average earning assets, mainly from average loan growth of $272 million, or 11%. Average deposit growth of $195 million, or 5%, along with an increase in customer repurchase agreements of $56 million, or 32%, funded the Company’s loan growth and related increase in earning assets. The overall improvement in the earning asset mix enabled the Company to improve its loan to deposit ratio to approximately 74% in the second quarter of 2005. In addition, loans now comprise 65% of the Company’s earning asset base, as compared to 64% for the same quarter a year ago. The net interest margin (te) widened 2 basis points as the increase in the earning asset yield (25 basis points) more than offset the increase in the total funding costs (23 basis points).
The higher level of net interest income (te) (up $1.8 million, or 4%) and the widened net interest margin (up 7 basis points) as compared to the previous quarter were primarily due to a larger earning asset base (average earning assets were up $73 million from the prior quarter) and a higher yield on average earning assets (up 18 basis points). Average loans grew $59 million, or 2%, from the previous quarter and were funded largely through a decrease in short-term investments. Average deposits were up $16 million, or 0.4%, from the previous quarter primarily due to a $29 million increase in noninterest-bearing deposits. The yield on the Company’s $1.45 billion securities portfolio improved 6 basis points to 4.54%. Even though short-term interest rates (fed funds rate) were up an average of 48 basis points from the first to the second quarter of 2005, the Company’s overall funding costs increased by only 11 basis points from the prior quarter. The majority of this increase was due to a 45 basis point increase in the cost of the Company’s nearly $700 million public fund deposit base, most of which is indexed to short-term rates.
The following tables detail the components of the Company's net interest spread and net interest margin. Three Months Ended June 30, Three Months Ended June 30, ----------------------------------- ------------------------------------ 2005 2004 ----------------------------------- --------------------------------------(dollars in thousands) Interest Volume Rate Interest Volume Rate ----------------------------------- -------------------------------------- Average Earning Assets Commercial & real estate loans (TE) $23,775 $1,523,348 6.26% $18,611 $1,352,432 5.53% Mortgage loans 5,886 417,307 5.64% 5,590 391,270 5.71% Consumer loans 17,018 894,852 7.63% 15,650 820,208 7.67% Loan fees & late charges 2,348 - 0.00% 2,413 - 0.00% ------------------------------------ ------------------------------------ Total loans (TE) 49,028 2,835,506 6.93% 42,263 2,563,910 6.62% US treasury securities 61 11,076 2.20% 115 11,056 4.17% US agency securities 4,977 484,119 4.11% 4,711 455,212 4.14% CMOs 2,608 262,799 3.97% 3,004 311,844 3.85% Mortgage backed securities 5,170 468,239 4.42% 4,294 403,969 4.25% Municipals (TE) 2,841 162,467 6.99% 3,101 174,213 7.12% Other securities 785 60,853 5.16% 564 48,406 4.66% ------------------------------------ ------------------------------------ Total securities (TE) 16,441 1,449,554 4.54% 15,788 1,404,701 4.50% Fed funds sold 283 39,055 2.91% 53 21,573 0.98% Cds with banks 15 8,205 0.74% 11 7,956 0.57% ------------------------------------ ------------------------------------ Total short-term investments 299 47,260 2.53% 64 29,530 0.87% Average earning assets yield (TE) $65,767 $4,332,320 6.08% $58,115 $3,998,141 5.83% Interest-Bearing Liabilities Interest-bearing transaction deposits $2,129 $1,319,606 0.65% $2,011 $1,362,105 0.59% Time deposits 9,570 1,116,973 3.44% 8,908 1,039,876 3.45% Public Funds 4,408 683,665 2.59% 2,315 602,405 1.55% ------------------------------------ ------------------------------------ Total interest bearing deposits 16,106 3,120,245 2.07% 13,234 3,004,385 1.77% Customer repos 1,095 231,456 1.90% 316 175,142 0.73% Other borrowings 759 73,181 4.16% 668 67,952 3.96% ------------------------------------ ------------------------------------ Total borrowings 1,854 304,637 2.44% 985 243,094 1.63% Total interest bearing liability cost $17,961 $3,424,882 2.10% $14,218 $3,247,479 1.76% Noninterest-bearing deposits 730,570 651,324 Other net interest-free funding sources 176,868 99,338 Total Cost of Funds $17,961 $4,332,320 1.66% $14,218 $3,998,141 1.43% Net Interest Spread (TE) $47,807 3.98% $43,897 4.07% Net Interest Margin (TE) $47,807 $4,332,320 4.42% $43,897 $3,998,141 4.40%
Six Months Ended June 30, Six Months Ended June 30, ---------------------------------- --------------------------------------- 2005 2004 ---------------------------------- ---------------------------------------(dollars in thousands) Interest Volume Rate Interest Volume Rate ---------------------------------- --------------------------------------- Average Earning Assets Commercial & real estate loans (TE) $46,078 $1,507,267 6.16% $36,536 $1,325,916 5.54% Mortgage loans 11,583 412,310 5.62% 10,786 379,295 5.69% Consumer loans 33,427 886,454 7.60% 31,466 815,730 7.76% Loan fees & late charges 4,327 - 0.00% 4,576 - 0.00% ----------------------------------- ------------------------------------- Total loans (TE) 95,415 2,806,031 6.85% 83,363 2,520,941 6.64% US treasury securities 121 11,067 2.20% 163 10,587 3.10% US agency securities 9,262 457,412 4.05% 8,494 413,430 4.11% CMOs 5,294 264,906 4.00% 6,042 315,880 3.83% Mortgage backed securities 9,717 440,560 4.41% 8,194 385,777 4.25% Municipals (TE) 5,712 163,002 7.01% 6,386 179,091 7.13% Other securities 1,456 63,356 4.60% 931 41,329 4.51% ----------------------------------- -------------------------------------- Total securities (TE) 31,563 1,400,303 4.51% 30,210 1,346,094 4.49% Fed funds sold 995 78,559 2.55% 206 42,883 0.96% Cds with banks 64 8,283 1.56% 19 6,791 0.56% Other short-term investments 32 2,843 2.26% 13 2,747 0.97% ----------------------------------- -------------------------------------- Total short-term investments 1,091 89,685 2.45% 238 52,420 0.91% Average earning assets yield (TE) $128,069 $4,296,020 5.99% $113,811 $3,919,455 5.83% Interest-Bearing Liabilities Interest-bearing transaction deposits $4,050 $1,325,845 0.62% $4,085 $1,355,109 0.61% Time deposits 18,929 1,103,247 3.46% 17,075 1,003,045 3.42% Public Funds 8,160 697,648 2.36% 4,513 598,858 1.52% ----------------------------------- -------------------------------------- Total interest bearing deposits 31,139 3,126,740 2.01% 25,673 2,957,012 1.75% Customer repos 1,759 223,213 1.59% 654 172,486 0.76% Other borrowings 1,352 64,934 4.20% 1,361 64,865 4.22% ----------------------------------- -------------------------------------- Total borrowings 3,111 288,147 2.18% 2,015 237,351 1.71% Total interest bearing liability cost $34,249 $3,414,887 2.02% $27,688 $3,194,364 1.74% Noninterest-bearing deposits 715,938 636,798 Other net interest-free funding sources 165,194 88,294 Total Cost of Funds $34,249 $4,296,020 1.61% $27,688 $3,919,455 1.42% Net Interest Spread (TE) $93,820 3.97% $86,123 4.08% Net Interest Margin (TE) $93,820 $4,296,020 4.39% $86,123 $3,919,455 4.41%
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. (Dollar amounts shown are in thousands.)
At and for the ----------------------------------- Three Months Ended June 30, Six Months Ended June 30, ------------------------------------ -------------------------------- 2005 2004 2005 2004 --------------- ---------------- ---------------- ----------- Annualized net charge-offs to average loans 0.24% 0.47% 0.28% 0.46% Annualized provision for loan losses to average loans 0.27% 0.60% 0.33% 0.58% Average allowance for loan losses to average loans 1.45% 1.48% 1.46% 1.48% Gross charge-offs $ 3,539 $ 4,690 $ 7,565 $ 10,385 Gross recoveries $ 1,848 $ 1,673 $ 3,614 $ 4,582 Non-accrual loans $ 7,493 $ 10,134 $ 7,493 $ 10,134 Accruing loans 90 days or more past due $ 3,914 $ 3,701 $ 3,914 $ 3,701
Non-interest income for the second quarter of 2005 was up $3.1 million, or 14%, compared to the same quarter a year ago (excluding the 2004 gain on sale of branches, merchant services and securities transactions). Non-interest income was also up $2.3 million, or 10%, compared to the first quarter of 2005. The primary factors impacting the higher levels of non-interest income as compared to the same quarter a year ago, were higher levels of insurance fees (up $671,000) primarily related to the December 31, 2003 purchase of Magna Insurance Company. In addition, other income was up $978,000, when compared to the same quarter a year ago, and was primarily due to the termination of a contract to provide insurance products to one of Magna’s outlets ($400,000) and the final settlement related to the merchant services partnership with First Data Corporation ($250,000). Driving the higher levels of non-interest income from the prior quarter were increases in service charges on deposit accounts (up $969,000), trust fees (up $318,000) and the aforementioned transactions related to Magna and the merchant services partnership with First Data Corporation.
The components of non-interest income for the three and six months ended June 30, 2005 and 2004 are presented in the following table (amounts in thousands):
Three Months Ended June 30, Six Months Ended June 30, ----------------------------------- ----------------------------------- 2005 2004 2005 2004 ---------------- ---------------- --------------- ---------------- Service charges on deposit accounts $ 10,459 $ 10,771 $ 19,949 $ 21,001 Trust fees 2,859 2,277 5,399 4,262 Credit card merchant discount fees 1,074 1,042 2,105 1,903 Income from insurance operations 3,499 2,828 7,380 5,312 Investment & annuity fees 1,547 584 2,735 1,276 ATM fees 1,154 1,136 2,526 2,264 Secondary mortgage market operations 676 531 1,174 916 Other income 3,427 2,450 5,853 4,916 ---------------- ---------------- --------------- ---------------- Total other non-interest income 24,695 21,619 47,121 41,849 Gain on sale of assets - 3,000 - 5,258 Securities transactions gains (losses), net (15) 11 (8) 161 ---------------- ---------------- --------------- ---------------- Total non-interest income $ 24,680 $ 24,630 $ 47,113 $ 47,268 ================ ================ =============== ================
Non-interest expenses for the second quarter of 2005 were $3.1 million higher, or 8%, compared to the same quarter a year ago and were $863,000 higher, or 2%, than the previous quarter. The increase from the prior quarter was reflected in increased personnel expense (up $546,000) and higher advertising expense (up $647,000). While there were also less significant increases in other categories of expense, those increases were more than offset by a $679,000 decrease in professional fees (primarily associated with compliance testing related to the Sarbanes-Oxley Act section 404). The increase from the same quarter a year ago was reflected in higher personnel expense (up $1.8 million), higher advertising expense (up $710,000) and occupancy expense (up $171,000).
The following table presents the components of non-interest expense for the three and six months ended June 30, 2005 and 2004.
Three Months Ended June 30, Six Months Ended June 30, ----------------------------------- -----------------------------------(dollars in thousands) 2005 2004 2005 2004 ---------------- ---------------- --------------- ---------------- Employee compensation $ 18,160 $ 16,707 $ 36,054 $ 33,647 Employee benefits 4,765 4,430 9,250 10,386 ---------------- ---------------- --------------- ---------------- Total personnel expense 22,925 21,137 45,304 44,033 ---------------- ---------------- --------------- ---------------- Equipment and data processing expense 4,397 4,299 8,692 8,622 Net occupancy expense 2,576 2,405 5,071 4,818 Postage and communications 1,961 2,064 3,667 4,144 Ad valorem and franchise taxes 751 837 1,504 1,650 Legal and professional services 2,612 2,492 5,904 3,876 Stationery and supplies 481 454 950 938 Amortization of intangible assets 578 524 1,162 848 Advertising 1,747 1,037 2,847 2,125 Deposit insurance and regulatory fees 244 213 494 424 Training expenses 109 123 266 251 Other real estate owned expense 15 67 221 298 Other expense 4,109 3,785 8,066 6,672 ---------------- ---------------- --------------- ---------------- Total non-interest expense $ 42,505 $ 39,437 $ 84,148 $ 78,699 ================ ================ =============== ================
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. For the six months ended June 30, 2005 and 2004, the effective federal income tax rate was approximately 31% and 30%, respectively. The amount of tax-exempt income earned during the first six months of 2005 was $6.2 million compared to $6.5 million for the comparable period in 2004.
In the normal course of business, the Company enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded and involve, to varying degrees, elements of credit risk not reflected in the consolidated balance sheets. The contract amounts of these instruments reflect the Company’s exposure to credit loss in the event of non-performance by the other party on whose behalf the instrument has been issued. The Company undertakes the same credit evaluation in making commitments and conditional obligations as it does for on-balance-sheet instruments and may require collateral or other credit support for off-balance-sheet financial instruments.
At June 30, 2005, the Company had $577.3 million in unused loan commitments outstanding, of which approximately $355.0 million were at variable rates, with the remainder at fixed rates. A commitment to extend credit is an agreement to lend to a customer as long as the conditions established in the agreement have been satisfied. A commitment to extend credit generally has a fixed expiration date or other termination clauses and may require payment of a fee by the borrower. Since commitments often expire without being fully drawn, the total commitment amounts do not necessarily represent future cash requirements of the Company. The Company continually evaluates each customer’s credit worthiness on a case-by-case basis. Occasionally, a credit evaluation of a customer requesting a commitment to extend credit results in the Company obtaining collateral to support the obligation.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing a letter of credit is essentially the same as that involved in extending a loan. At June 30, 2005, the Company had $54.7 million in letters of credit issued and outstanding.
The following table shows the commitments to extend credit and letters of credit at June 30, 2005 according to expiration date.
Expiration Date(dollars in thousands) Less than 1-3 3-5 More than Total 1 year years years 5 years --------------- -------------- ------------ ------------ -------------- Commitments to extend credit $ 577,218 $ 302,657 $ 25,065 $ 43,865 $ 205,631 Letters of credit 54,712 19,298 19,416 15,998 - --------------- -------------- ------------ ------------ -------------- Total $ 631,930 $ 321,955 $ 44,481 $ 59,863 $ 205,631 =============== ============== ============ ============ ==============
The Company’s liability associated with letters of credit is not material to the Company’s consolidated financial statements.
The following table shows all significant contractual obligations of the Company at June 30, 2005 according to payments due by period.
Payment due by period --------------------------------------------(dollars in thousands) Less than 1-3 3-5 More than Total 1 year years years 5 years --------------- ------------- ------------- ------------- ------------- Certificates of Deposit $1,314,021 $584,621 $559,775 $169,619 $ 6 Long-Term Debt Obligations 50,272 10 20 50,027 215 Operating Lease Obligations 15,793 2,715 4,180 2,386 6,512 --------------- ------------- ------------- ------------- ------------- Total $1,380,086 $587,346 $563,975 $222,032 $6,733 =============== ============= ============= ============= =============
In October 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Accounting Position (SOP) 03-3, which addresses accounting for differences between contractual cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations. This SOP would apply to loans originated by the Company and would limit the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. This SOP prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet. Subsequent increases in cash flows expected to be collected generally would be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected would be recognized as impairment. This SOP prohibits “carrying over” or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. The Company adopted this SOP during the first quarter as required and its effect on the consolidated financial statements to date has not been material.
On December 16, 2004, the FASB published SFAS No. 123(R), “Share-Based Payment”. This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related implementation guidance. It will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This Statement is the result of a two-year effort to respond to requests from investors and many others that the FASB improve the accounting for share-based payment arrangements with employees. Public entities (other than those filing as small business issuers) will be required to apply SFAS No. 123(R) as of the first annual reporting period that begins after June 15, 2005. SFAS No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. In addition to the accounting standard that sets forth the financial reporting objectives and related accounting principles, SFAS No. 123(R) includes an appendix of implementation guidance that provides expanded guidance on measuring the fair value of share-based payment awards. The Company will adopt SFAS No.123(R) as prescribed. The effect of this statement on the consolidated financial statements is not expected to be material.
In March 2004, the Emerging Issues Task Force reached a consensus on Issue 03-1, “Meaning of Other Than Temporary Impairment” (Issue 03-1). The Task Force reached a consensus on an other-than-temporary impairment model for debt and equity securities accounted for under Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and cost method investments. In the second quarter of 2004 FSP EITF Issue 03-1-1 was issued, delaying the effective date for the measurement and recognition guidance in paragraphs 10-20 of Issue 03-01. The disclosure requirements continue to be effective. The Company will continue to monitor changes to Issue 03-01, but does not expect it, or the related Staff Position to have a material impact on the Company’s financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This Statement is a replacement of APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine period-specific effects of an accounting change on one or more individual prior periods presented. Then the new accounting principle is applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earning for that period rather that being reported in an income statement. Further, the accounting principle is to be applied prospectively from the earliest date when it is impracticable to determine the effect to all prior periods. The effective date of this statement is for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Therefore, this Statement is effective for the Company as of January 1, 2006. Adoption of this statement could have an impact if there are future voluntary accounting changes and correction of errors.
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 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. As of quarter close, the effective duration of the securities portfolio was 2.41. A rate increase of 100 basis points would move the effective duration to 3.2, while a 200 basis point rise would result in an effective duration of 3.7.
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 are well positioned for a rising interest rate environment. The cumulative gap at 12 months is +6%; indicating the balance sheet is slightly asset sensitive. Exposure to interest rate risk is presented in the following table.
Net Interest Income (te) at Risk -------------------------------- Change in interest Estimated increase (decrease) rates (basis points) in net interest income ----------------------------- ----------------------------- - 100 - 5.15% Stable 0.00% + 100 +3.25% + 200 +5.78% + 300 +7.96%
The Company also controls interest rate risk by emphasizing the core relationship aspects of non-certificate depositor accounts and selected maturity targets for certificate of deposit accounts. As of June 30, 2005, regular savings and club accounts represented $270.0 million and money market accounts and now accounts totaled $1.0 billion. Excluding public fund accounts, this represents 53.8% of total interest bearing deposit accounts.
The Company has controlled the interest rate sensitivity of its depositor accounts through targeted changes in deposit rates that fit the overall rate sensitivity profile of the balance sheet. Excluding public funds, interest-bearing transaction yields have gone up by 3 basis points as compared to the first quarter of 2005. Consumer time deposits have gone up 4 basis points during the quarter. Average interest-bearing transaction deposit balances were down 0.94%, while time deposits increased by 2.53%. During the quarter, the Federal Reserve increased rates by 50 basis points. The Company’s loan-to-deposit ratio was 74% (up 2%), and the average earning asset yield improved 18 basis points. This growth was driven primarily by continued emphasis on variable rate loans that adjusted with the rising rate environment. The impact of these strategies can be seen in the Company’s static gap report as of June 30, 2005.
Analysis of Interest Sensitivity at June 30, 2005 Within 6 months 1 to 3 > 3 Non-Sensitive Overnight 6 months to 1 year years years Balance Total ---------- ---------- ----------- ----------- ----------- ----------- ----------- (amounts in thousands) Assets Securities $ - $ 205,465 $ 229,155 $ 351,941 $ 600,916 $ - $1,387,477 Federal funds sold & Short-term investments 84,188 - 264 1 - - 84,453 Loans 42,508 1,344,611 238,715 625,389 568,800 - 2,820,023 Other assets - - - - - 497,112 497,112 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total Assets $ 126,696 $ 1,550,076 $ 468,134 $ 977,331 $ 1,169,716 $ 497,112 $ 4,789,065 ========== ========== =========== =========== =========== =========== =========== Liabilities Interest bearing transaction deposits $ - $ 807,866 $ 243,723 $ 690,599 $ 68,803 $ - $1,810,991 Time deposits - 329,148 255,474 559,775 169,624 - 1,314,021 Non-interest bearing deposits - - - - 728,001 - 728,001 Federal funds purchased 250 - - - - - 250 Borrowings 245,602 4 6 20 55,122 - 300,754 Other liabilities - - - - - 154,608 154,608 Shareholders' Equity - - - - - 480,440 480,440 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total Liabilities & Equity $ 245,852 $ 1,137,018 $ 499,203 $ 1,250,394 $1,021,550 $ 635,048 $ 4,789,065 ========== ========== =========== =========== =========== =========== =========== Interest sensitivity gap $ (119,156) $ 413,058 $ (31,069) $ (273,063) $ 148,166 $(137,936) Cumulative interest rate sensitivity gap $ (119,156) $ 293,902 $ 262,833 $ (10,230) $ 137,936 $ - Cumulative interest rate sensitivity gap as a percentage of total earning assets (3.0)% 7.0 % 6.0 % 0.0 % 3.0 % Analysis of Interest Sensitivity at December 31, 2004 Within 6 months 1 to 3 > 3 Non-Sensitive Overnight 6 months to 1 year years years Balance Total ---------- ---------- ----------- ----------- ----------- ----------- ----------- (amounts in thousands) Assets Securities $ - $ 216,564 $ 130,944 $ 371,665 $ 583,196 $ - $1,302,369 Federal funds sold & Short-term investments 142,135 - 8,126 - - - 150,261 Loans 39,370 1,327,083 214,990 583,394 543,041 - 2,707,878 Other assets - - - - - 504,218 504,218 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total Assets $ 181,505 $ 1,543,647 $ 354,060 $ 955,059 $1,126,237 $ 504,218 $ 4,664,726 ========== ========== =========== =========== =========== =========== =========== Liabilities Interest bearing transaction deposits $ - $ 867,682 $ 249,596 $ 703,988 $ 68,429 $ - $1,889,695 Time deposits - 418,642 116,162 436,094 239,999 - 1,210,897 Non-interest bearing deposits - - - - 697,353 - 697,353 Federal funds purchased 800 - - - - - 800 Borrowings 200,036 3 3 17 50,250 - 250,309 Other liabilities - - - - - 151,090 151,090 Shareholders' Equity - - - - - 464,582 464,582 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total Liabilities & Equity $ 200,836 $ 1,286,327 $ 365,761 $1,140,099 $1,056,031 $ 615,672 $ 4,664,726 ========== ========== =========== =========== =========== =========== =========== Interest sensitivity gap $ (19,331) $ 257,320 $ (11,701) $(185,040) $ 70,206 $(111,454) Cumulative interest rate sensitivity gap $ (19,331) $ 237,989 $ 226,288 $ 41,248 $ 111,454 $ - Cumulative interest rate sensitivity gap as a percentage of total earning assets 0.0 % 6.0 % 5.0 % 1.0 % 3.0 %
Certain assumptions in assessing interest rate risk were employed in preparing data for the Company included in the preceding tables portraying the Company’s interest rate risk sensitivity. These assumptions relate to interest rates, loan and deposit growth, pricing, loan prepayment speeds, deposit decay rates, securities portfolio strategy and market value of certain assets under the various interest rate scenarios. Even if interest rates change in the designated amounts, there can be no assurance that the Company’s assets and liabilities would perform as anticipated. In addition, a change in U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to the net interest income than indicated above.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Certain assets, such as adjustable rate loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. The Company considers all of these factors in monitoring its exposure to interest rate risk.
Even though permissible under the Asset Liability Management Policy approved by the Board of Directors, the Company is not currently engaged in the use of derivatives to control interest rate risk. Management and the Board of Directors review the need for such activities on a regular basis as part of its monthly interest rate risk analysis.
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 foregoing disclosures related to the market risk of the Company should be read in conjunction with the Company’s audited consolidated financial statements, related notes and management’s discussion and analysis for the year ended December 31, 2004 included in the Company’s 2004 Annual Report on Form 10-K.
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 June 30, 2005, (the “Evaluation Date”). 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.
During the Company’s last fiscal quarter ended June 30, 2005, there have not been any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
On February 4, 2004 the Company completed the redemption/conversion of substantially all $37.1 million of the 8% Cumulative Convertible Preferred Stock issued in partial payment for the acquisition of Lamar Capital Corporation in July, 2001. The conversion factor was .6666 shares of Hancock Holding Company common stock for each share of the preferred stock. A total of 7,304 shares of the preferred stock was redeemed for cash at the contract price of $20.00 per share plus pro rated dividends of $0.1511 per share.
In July 2000, the Company announced the execution of a stock buyback program that provides for the repurchase of up to 10 % of the Company’s issued common stock. The program authorizes the repurchase of approximately 3,320,000 shares of the Company’s issued common stock.
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 table provides information with respect to purchases made by the issuer or any affiliated purchaser of the issuer’s equity securities.
(a) (b) (c) (d) Total number of Maximum number shares purchased of shares Total number as a part of publicly that may yet be of shares or Average Price announced plans purchased under units purchased Paid per Share or programs (1) Plans or Programs ------------------- ------------------ --------------------- --------------------- Apr. 1, 2005 - Apr. 30, 2005 97,273 (2) $ 29.6372 96,100 585,201 May 1, 2005 - May 31, 2005 75 (3) 32.6300 - 585,201 Jun. 1, 2005 - Jun. 30, 2005 92,160 (4) 32.9261 - 585,201 ------------------- ------------------ --------------------- Total as of Jun. 30, 2005 189,508 $ 31.1654 96,100 =================== ================== ===================== (1) The Company publicly announced its stock buy-back program on July 18, 2000. (2) 1,173 shares were purchased on the open market during April in order to satisfy obligations pursuant to the Company's long term incentive plan that was established in 1996. (3) 75 shares were purchased on the open market during May in order to satisfy obligations pursuant to the Company's long term incentive plan that was established in 1996. (4) 92,160 shares were purchased on the open market during June in order to satisfy obligations pursuant to the Company's long term incentive plan that was established in 1996.
Exhibits: 1. Exhibit 31 - Rule 13a-14(a) / 15d-14(a) Certifications 2. Exhibit 32 - Section 1350 Certifications
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 August 9, 2005 By: /s/ George A. Schloegel - -------------- ------------------------------------------------ Date George A. Schloegel Vice-Chairman of the Board & Chief Executive Officer August 9, 2005 By: /s/ Carl J. Chaney - -------------- ------------------------------------------------ Date Carl J. Chaney Executive Vice President & Chief Financial Officer