UNITED STATES --X- Quarterly Report Pursuant to Section 13 or 15 (d) --X- of the Securities Exchange Act of 1934 ---- Transition Report Pursuant to Section 13 or 15(d) ---- of the Securities Exchange Act of 1934 For Quarter Ending September 30, 1998 - -------------------------------------------------------------------------------- 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) 868-4635 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- ---- 10,477,397 Common Shares were outstanding as of November 3, 1998 for financial statement purposes. Page 1 of 15
HANCOCK HOLDING COMPANY ----------------------- INDEX ----- PART I. FINANCIAL INFORMATION PAGE NUMBER - ------------------------------ ----------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets -- September 30, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Earnings -- Three Months and Nine Months Ended September 30, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 - 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 12 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 12 - 13 PART II. OTHER INFORMATION - --------------------------- ITEM 1. Legal Proceedings 14 ITEM 5. Other Information 14 ITEM 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 - ---------- Page 2 of 15
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- UNAUDITED --------- (Amounts in thousands) Sept. 30, December 31, ASSETS: 1998 1997 * ---------- ----------- Cash and due from banks (non-interest bearing) $ 121,275 $ 113,125 Interest-bearing time deposits with other banks 96 2,068 Securities available-for-sale (amortized cost of $399,278 and $163,531) 403,509 163,633 Securities held-to-maturity (fair value of $833,353 and $924,958) 813,739 916,362 Federal funds sold and securities purchased under agreements to resell 25,000 35,500 Loans, net of unearned income 1,271,710 1,220,630 Less: Allowance for loan losses (20,257) (21,000) ---------- ----------- Net loans 1,251,453 1,199,630 Property and equipment, net of accumulated depreciation of $49,726 and $46,285 47,082 42,810 Other real estate, net 2,117 2,357 Accrued interest receivable 21,994 20,977 Other assets 51,118 41,495 ---------- ----------- TOTAL ASSETS $2,737,383 $2,537,957 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 457,934 $ 462,731 Interest-bearing savings, NOW, money market and time 1,796,519 1,599,917 ---------- ----------- Total deposits 2,254,453 2,062,648 Federal funds purchased and securities sold under agreements to repurchase 181,977 170,534 Other liabilities 16,779 14,923 Long-term bonds 0 1,279 ---------- ----------- TOTAL LIABILITIES 2,453,209 2,249,384 ---------- ----------- COMMITMENTS AND CONTINGENCIES: STOCKHOLDERS' EQUITY: Common stock-$3.33 par value per share; 75,000,000 shares authorized, 11,072,770 shares issued in 1998 and 1997 36,872 36,872 Capital surplus 200,698 200,766 Undivided profits 66,559 51,401 Unrealized gain on securities available-for-sale, net 2,750 66 Unearned compensation (1,037) (532) Treasury stock (21,668) 0 ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 284,174 288,573 ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,737,383 $2,537,957 ========== =========== * The balance sheet at December 31, 1997 has been derived from the audited balance sheet at that date. See notes to condensed consolidated financial statements. Page 3 of 15
<TABLE> <CAPTION> HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED (Amounts in thousands except per share data) Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ---------------------------- --------------------------- 1998 1997 1998 1997 --------- ------------- ----------- --------- <S> <C> <C> <C> <C> INTEREST INCOME: Interest and fees on loans $ 30,264 $ 29,745 $ 88,495 $ 87,423 Interest on: U. S. Treasury securities 3,596 3,913 11,145 10,612 Obligations of other U.S. government agencies and corporations 7,517 8,679 22,034 27,030 Obligations of states and political subdivisions 1,844 1,064 4,878 2,990 Interest on federal funds sold and securities purchased under agreements to resell 409 700 2,730 1,860 Interest on time deposits and other 5,341 2,255 15,624 6,440 ---------- ------------- ----------- --------- Total interest income 48,971 46,356 144,906 136,355 ---------- ------------- ----------- --------- INTEREST EXPENSE: Interest on deposits 19,735 16,814 55,593 49,243 Interest on federal funds purchased and securities sold under agreements to repurchase 1,488 1,237 5,585 3,542 Interest on bonds and notes 1 107 58 160 ---------- ------------- ----------- --------- Total interest expense 21,224 18,158 61,236 52,945 ---------- ------------- ----------- --------- NET INTEREST INCOME 27,747 28,198 83,670 83,410 Provision for loan losses 1,203 2,993 3,491 5,337 ---------- ------------- ----------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 26,544 25,205 80,179 78,073 ---------- ------------- ----------- --------- NON-INTEREST INCOME: Service charges on deposit accounts 4,926 4,775 14,363 13,673 Income from fiduciary activities 749 703 2,167 2,206 Securities gains (losses) 0 70 (63) 72 Other 2,240 2,093 5,631 5,817 ---------- ------------- ----------- --------- Total non-interest income 7,915 7,641 22,098 21,768 ---------- ------------- ----------- --------- NON-INTEREST EXPENSE: Salaries and employee benefits 13,251 11,982 36,748 34,206 Net occupancy expense of premises and equipment expense 3,422 3,577 9,652 10,525 Other 7,641 6,810 21,901 19,533 ---------- ------------- ----------- --------- Total non-interest expense 24,314 22,369 68,301 64,264 ---------- ------------- ----------- --------- EARNINGS BEFORE INCOME TAXES 10,145 10,477 34,976 35,577 INCOME TAXES 3,297 3,790 11,539 12,440 ---------- ------------- ----------- --------- NET EARNINGS $ 6,848 $ 6,687 $ 23,437 $ 23,137 ========== ============= =========== ========= BASIC AND DILUTED EARNINGS PER COMMON SHARE$ 0.66 $ 0.61 $ 2.18 $ 2.13 ========== ============= =========== ========= DIVIDENDS PAID PER COMMON SHARE $ 0.25 $ 0.25 $ 0.75 $ 0.75 ========== ============= =========== ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10,504 10,899 10,766 10,857 ========== ============= =========== ========= <FN> See notes to condensed consolidated financial statements. </FN> </TABLE> Page 4 of 15
HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (Amounts in thousands) Nine Months Ended Sept. 30, --------------------------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 23,437 $ 23,137 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 3,759 2,567 Provision for loan losses 3,491 5,337 Provision for losses on real estate owned 319 300 Losses (gains) on sales of securities available sale 63 ( 72) (Increase) decrease in interest receivable ( 1,017) 955 Amortization of intangible assets 1,804 1,684 Increase in interest payable 1,189 420 Other, net ( 5,960) 1,496 --------- --------- Net cash provided by operating activities 26,485 35,824 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase (decrease) in interest-bearing time deposits 1,972 ( 973) Proceeds from maturities of securities held-to-maturity 277,766 180,789 Purchase of securities held-to-maturity (175,143) (253,214) Proceeds from sales and maturities of securities available-for-sale 34,217 8,776 Purchase of securities available-for-sale (274,156) ( 19,309) Net decrease in federal funds sold and securities purchased under agreements to resell 10,500 12,000 Net increase in loans ( 55,314) ( 4,061) Purchase of property and equipment, net ( 8,076) ( 1,929) Proceeds from sales of other real estate 443 1,263 Net cash paid in connection with purchase transaction ( 2,500) ( 1,725) --------- --------- Net cash used in investing activities (190,247) ( 78,383) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 191,805 41,320 Dividends paid ( 8,119) ( 8,272) Purchase of treasury stock ( 23,773) 0 Net increase in federal funds purchased and securities sold under agreements to repurchase 11,443 12,474 --------- --------- Net cash provided by financing activities 171,912 45,522 --------- --------- NET INCREASE IN CASH AND DUE FROM BANKS 8,150 2,963 CASH AND DUE FROM BANKS, BEGINNING 113,125 119,483 --------- --------- CASH AND DUE FROM BANKS, ENDING $ 121,275 $ 122,446 ========= ========= See notes to condensed consolidated financial statements. Page 5 of 15
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- UNAUDITED --------- (At and For the Three and Nine Months Ended September 30, 1998 and 1997) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------ The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of Hancock Holding Company, its wholly-owned banks, Hancock Bank and Hancock Bank of Louisiana and other subsidiaries. Intercompany profits, transactions and balances have been eliminated in consolidation. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. 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 in Hancock Holding Company's 1997 Annual Report to Shareholders and Form 10-K. RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS - ------------------------------------------------ The Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) effective January 1, 1998. SFAS 130 establishes standards for reporting and display of comprehensive income and its major components. Comprehensive income includes net income and other comprehensive income which, in the case of the Company, only includes unrealized gains and losses on investments available for sale. Following is a summary of the Company's comprehensive income for the three and nine months ended September 30, 1998 and 1997. <TABLE> <CAPTION> (Amounts in thousands) Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ---------------------------- --------------------------- 1998 1997 1998 1997 ----------- -------- ----------- ------- <S> <C> <C> <C> <C> Net Earnings $ 6,848 $ 6,687 $23,437 $23,137 Other Comprehensive Income (net of income tax): Unrealized Holding Gains 2,837 36 2,684 119 ----------- -------- ----------- ------- Comprehensive Income $ 9,685 $ 6,723 $26,121 $23,256 =========== ======== =========== ======= </TABLE> In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under this Statement, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the Page 6 of 15
method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. At the date of initial application, an entity may transfer any held- to-maturity security into the available-for-sale category or the trading category. An entity will then be able to hedge such security. The unrealized holding gain or loss on a held-to-maturity security transferred to another category at the date of the initial application is to be reported in net income or accumulated other comprehensive income consistent with the requirements of SFAS No. 115. Such transfers from the held-to-maturity category at the date of initial adoption will not call into question an entity's intent to hold other debt securities to maturity in the future. SFAS No. 133 applies to all entities and is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Earlier adoption of this Statement is permitted. The Company has elected to adopt this Statement effective October 1, 1998. PROPOSED ACQUISITION - -------------------- In April 1998 the Company entered into an agreement for the acquisition of American Security Bancshares of Ville Platte, Inc. (American Security), Ville Platte, Louisiana and its subsidiary, American Security Bank (ASB). Terms of the original agreement were renegotiated after the Company was notified of ASB's failure to renew a lease on one of its branch locations. Per the amended agreement dated October 15, 1998, the merger will be consummated by the exchange of all outstanding shares of American Security stock in return for approximately 672,000 shares of common stock of the Company and cash of $13.8 million. Completion of the merger is contingent upon approval by American Security's shareholders and appropriate regulatory authorities. It is anticipated that ASB will initially remain a separate wholly-owned subsidiary of the Company. The merger will be accounted for as a purchase. American Security had total assets of approximately $228 million as of December 31, 1997 and net earnings of approximately $1.9 million for the year then ended. STOCK REPURCHASE - ---------------- In July 1998 the Company repurchased 421,245 shares of its common stock at $52.8125 per share for a total of $22,247,001. The shares are being held in treasury and may be used by the Company for future acquisitions or by the Company's long-term incentive plan for future stock awards and/or options. Page 7 of 15
HANCOCK HOLDING COMPANY ----------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ The following discussion provides management's analysis of certain factors which have affected the Company's financial condition and operating results during the periods included in the accompanying condensed consolidated financial statements. CHANGES IN FINANCIAL CONDITION - ------------------------------ Liquidity - --------- The Company manages liquidity through traditional funding sources of core deposits, federal funds, and maturities of loans and securities held-to- maturity and sales and maturities of securities available-for-sale. The following liquidity ratios compare certain assets and liabilities to total deposits or total assets: Sept. 30, June 30, March 31, Dec. 31, 1998 1998 1998 1997 -------- -------- --------- --------- Total securities to total deposits 53.99% 53.35% 53.68% 52.36% Total loans (net of unearned discount) to total deposits 56.41% 53.77% 55.86% 59.18% Interest-earning assets to total assets 91.84% 91.63% 92.29% 92.13% Interest-bearing deposits to total deposits 79.69% 78.56% 78.70% 77.57% Capital Resources - ----------------- The Company continues to maintain an adequate capital position, as the following ratios indicate: Sept. 30, June 30, March 31, Dec. 31, 1998 1998 1998 1997 -------- -------- --------- --------- Equity capital to total assets (1) 10.28% 11.03% 10.91% 11.37% Total capital to risk-weighted assets (2) 17.53% 19.48% 19.34% 19.18% Tier 1 capital to risk-weighted assets (3) 16.98% 18.96% 18.83% 18.22% Leverage capital to total assets (4) 9.50% 10.01% 9.87% 10.24% (1) Equity capital consists of stockholders' equity (excluding unrealized holdings gains/losses). Page 8 of 15
(2) Total capital consists of equity capital less intangible assets plus a limited amount of loan loss allowances. 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. The decrease in the Company's capital ratios for the current quarter compared to December 31, 1997 is mainly attributable to both the increase in assets and the decrease in capital. The decrease in capital is primarily due to the $21.7 million of treasury stock at September 30, 1998 resulting from a stock repurchase in July 1998. RESULTS OF OPERATIONS - --------------------- Net Earnings - ------------ Net earnings increased $300,000 or 1.30% for the first nine months of 1998 compared to the first nine months of 1997. The increase in earnings is attributable, in part, to an increase in tax-exempt investment income which results in a reduced tax liability. Three Months Nine Months Ended Sept. 30, Ended Sept. 30, --------------- --------------- 1998 1997 1998 1997 ------- ----- ------ ------ Results of Operations: Return on average assets 1.01% 1.07% 1.16% 1.28% Return on average equity 9.71% 9.47% 10.75% 11.51% Net Interest Income: Yield on average interest-earning assets (tax equivalent) 7.72% 8.29% 7.98% 8.34% Cost of average interest-bearing funds 4.41% 4.25% 4.32% 4.18% ======= ===== ====== ====== Net interest spread 3.31% 4.04% 3.66% 4.16% ======= ===== ====== ====== Net interest margin (net interest income on a tax equivalent basisdivided by average interest-earning assets) 4.32% 5.09% 4.68% 5.15% ======= ===== ====== ====== Provision for Loan Losses - ------------------------- The amount of the allowance equals the cumulative total of the provisions for loan losses, reduced by actual loan charge-offs, and increased by allowances acquired in acquisitions and recoveries of loans previously charged-off. Provisions are made to the allowance to reflect the currently perceived risks of loss associated with the banks' loan portfolio. A specific Page 9 of 15
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. Net charge-offs for the first nine months of 1998 total $4.234 million (gross charge-offs of $5.441 million net of recoveries totalling $1.207 million). Provision for loan losses for the nine-month period ended September 30, 1998 were $3.5 million compared to $5.3 million for the same period in 1997. Prior period expense includes an increased provision due to the charge-off of loans, primarily consumer, that were 120 days or more past due. As of September 30, 1998 loans in a non-accrual status amounted to $6.932 million. Loans 90 or more days past due, and continuing to accrue interest, amounted to $2.394 million. The following ratios are useful in determining the adequacy of the loan loss allowance. The ratios are calculated using average loan balances. Three Months Nine Months Ended Sept. 30, Ended Sept. 30, --------------- -------------- 1998 1997 1998 1997 -------- ----- ----- ------ Annualized net charge-offs to average loans 0.52% 0.93% 0.46% 0.59% Average allowance for loan losses to average loans 1.62% 1.69% 1.69% 1.68% Income Taxes - ------------ 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 nine months of 1998 was approximately $5,575,000 compared to $3,540,000 for the comparable period in 1997. Income tax expense decreased from $12,440,000 in the first nine months of 1997 to $11,539,000 in the first nine months of 1998. Other Comprehensive Income - -------------------------- Other comprehensive income consisting exclusively of unrealized holding gains on securities available for sale, net of income taxes, increased $2,801,000 and $2,565,000 for the three-month and nine-month periods ended September 30, 1998, respectively, compared to the same periods a year ago. This increase was due to the larger portfolio of securities available for sale and the increased fair value of such portfolio. The fair value of the Company's debt securities fluctuates with changes in market interest rates. PROPOSED ACQUISITION - -------------------- In April 1998 the Company entered into an agreement for the acquisition of American Security Bancshares of Ville Platte, Inc. (American Security), Ville Platte, Louisiana and its subsidiary, American Security Bank (ASB). Terms of the original agreement were renegotiated after the Company was notified of ASB's failure to renew a lease on one of its branch locations. Per the amended agreement dated October 15, 1998, the merger will be consummated by the exchange of all outstanding shares of American Security stock in return for approximately 672,000 shares of common stock of the Company and cash of $13.8 million. Completion of the merger is contingent Page 10 of 15
upon approval by American Security's shareholders. It is anticipated that ASB will initially remain a separate wholly-owned subsidiary of the Company. The merger will be accounted for as a purchase. American Security had total assets of approximately $228 million as of December 31, 1997 and net earnings of approximately $1.9 million for the year then ended. YEAR 2000 - --------- In 1996 the Company began addressing all the systems and business methods requiring modifications to accommodate the turn of the century. Since there is concern that computer systems will not properly recognize dates or date sensitive information when the digit year value rolls over to "00", virtually every computer operation and every system that has an embedded microchip is potentially at risk for failure or improper performance. Many software programs assume the "19" in storing the year and only utilized the last two digits of the year for calculations and date storage. The year "2000" may be recognized by some systems as "1900" which could adversely affect a significant portion of a company's daily operations, especially those of financial institutions. Identification of the Company's major Year 2000 issues is substantially complete and a plan, including replacement of certain systems, has been implemented to resolve the issues of which management is aware. Written assurances of expected Year 2000 readiness have been requested from all material third party vendors, including, but not limited to, correspondent banks, software providers and utility companies. If any of the companies providing services, software or equipment to the Company fail to adequately address the Year 2000 issue at a reasonable cost, the result could be a significant adverse effect on the Company's business and operational results. The readiness of all third parties, including customers and suppliers, is inherently uncertain and cannot be assured. The Company recognized the importance of its customers' need to address Year 2000 issues. Relationships considered material to the Company's financial position have been identified and appropriate documentation from borrowers received. A committee, specifically established for this project, is in the process of reviewing the information obtained and assessing the risk of repayment impairment. Testing of information systems and review of property equipment functions, except those slated for replacement or vendor upgrade, is near completion. It is anticipated that fully integrated systems testing of current and newly-acquired systems will be completed by June 1999. Contingency plans for the most reasonably likely worst-case scenarios are in process and should be completed by the end of the year. Plans may be updated as testing and implementation continue. Issues regarding material equipment and applications failure are being addressed. Contingency plans for liquidity needs due to potentially significant deposit withdrawals during the fourth quarter of 1999 are substantially complete. Management believes it has dedicated adequate resources to address the issues associated with the turn of the century. The total amount of expenditures for Year 2000 compliance, including those incurred since 1997, and those anticipated during the next two years, is expected to be less than Page 11 of 15
$4.0 million (before income taxes) but cannot be predicted with certainty at this time. Forward Looking Information - --------------------------- Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company's anticipated future financial performance. This Act provides a safe harbor for such disclosures which protects the companies from unwarranted litigation if the actual results are different from management expectations. This report contains forward-looking statements and reflects management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause the Company's actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------ The Company's net income is 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 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 stable net interest margin in period of interest rate fluctuations. Interest sensitive assets and liabilities are those that are subject to maturity or repricing within a given time period. Management also reviews the Company's securities portfolio, formulates investment strategies and oversees the timing and implementation of transactions to assure attainment of the Board's objectives in the most effective manner. Notwithstanding the Company's interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income and the fair value of the Company's investment securities. In adjusting the Company's asset/liability position, the Board and management attempt to manage the Company's interest rate risk while enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company's interest rate risk position somewhat in order to increase its net interest margin. The Company's results of operations and net portfolio values remain vulnerable to increases in interest rates and to fluctuations in the difference between long and short-term interest rates. The Company also controls interest rate risk reductions by emphasizing non-certificate depositor accounts. The Board and management believe that such accounts carry a lower cost than certificate accounts, and that a Page 12 of 15
material portion of such accounts may be more resistant to changes in interest rates than are certificate accounts. At September 30, 1998 the Company had $281 million of regular savings and club accounts and $593 million of money market and NOW accounts, representing 48.6% of total interest-bearing depositor accounts. The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk. Even though such activities may be permitted with the approval of the Board of Directors, the Company does not intend to engage in such activities in the immediate future. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company's business activities. Page 13 of 15
PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS - ------------------------- In April 1998 the Company entered into an agreement for the acquisition of American Security Bancshares of Ville Platte, Inc. (American Security), Ville Platte, Louisiana and its subsidiary, American Security Bank (ASB). On June 17, 1998 the Company was notified that ASB had failed to renew a lease of one of its branch locations, which accounted for approximately 17% of its total deposits and approximately 32% of its total loans as of March 31, 1998. The Company determined that American Security would not be able to comply with terms of the agreement, including the representations and warranties. The Company began discussions with American Security to determine a solution to resolve the loss of the lease, including a possible mutual termination of the agreement. On July 27, 1998 American Security filed a lawsuit against the Company in the 13th Judicial District Court of the Parish of Evangeline seeking, among other things, specific performance of the merger agreement. Shortly before the trial date, the parties engaged in intensive settlement negotiations. Terms of the original agreement were renegotiated and a settlement agreement was executed on September 25, 1998. Per the amended agreement dated October 15, 1998, the merger will be consummated by the exchange of all outstanding shares of American Security stock in return for approximately 672,000 shares of common stock of the Company and cash of $13.8 million. Completion of the merger is contingent upon approval by American Security's shareholders. It is anticipated that ASB will initially remain a separate wholly-owned subsidiary of the Company. ITEM 5. OTHER INFORMATION - ------------------------- In July 1998 the Company repurchased 421,245 shares or approximately 3.8% of its common stock in a privately negotiated transaction from a single non-affiliated shareholder at a purchase price of $52.8125 per share for a total of $22,247,001. These shares are being held in treasury and may be used by the Company for future acquisitions or by the Company's long-term incentive plan for future stock awards and/or options. Management believes that the repurchase of these shares will further the Company's goal of enhancing long- term shareholder value. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibit (27) Selected Financial Data. Page 14 of 15
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HANCOCK HOLDING COMPANY ---------------------------------- Registrant November 9, 1998 By: /s/ George A. Schloegel - ----------------------- ---------------------------------- Date George A. Schloegel Vice-Chairman of the Board November 9, 1998 By: /s/ Carl J. Chaney - ---------------------- ---------------------------------- Date Carl J. Chaney Chief Financial Officer Page 15 of 15