-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CNNp1pHoTGB7b6anIA+u4Xja6PJ86nYn0mh8KTgi3VywRMHXrEvC5tv5WgCO2Uzm h4PHVcbXMeIVLi8tmhy7+Q== 0000950134-96-001158.txt : 19960402 0000950134-96-001158.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950134-96-001158 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK HOLDING CO CENTRAL INDEX KEY: 0000750577 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 640693170 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-13089 FILM NUMBER: 96543169 BUSINESS ADDRESS: STREET 1: ONE HANCOCK PLZ STREET 2: P.O. BOX 4019 CITY: GULFPORT STATE: MS ZIP: 39502 BUSINESS PHONE: 6018684605 MAIL ADDRESS: STREET 1: ONE HANCOCK PLZ STREET 2: P O BOX 4019 CITY: GULFPORT STATE: MS ZIP: 39502 10-K405 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 . OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to . ------------------- ----------------- 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, Gulfport, Mississippi 39501 - ------------------------------------------ ----------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (601) 868-4715 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------------ NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $3.33 PAR VALUE - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No ----- ----- 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 ----- ----- Continued 2 The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 3, 1996, was approximately $267,761,000. For purposes of this calculation only, shares held by non-affiliates are deemed to consist of (a) shares held by all shareholders other than directors and executive officers of the registrant plus (b) shares held by directors and officers as to which beneficial ownership has been disclaimed. On December 31, 1995, the registrant had outstanding 8,880,905 shares of common stock for financial statement purposes. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Stockholders for the year ended December 31, 1995, are incorporated by reference into Part II of this report. Portions of the definitive Proxy Statement used in connection with the Registrant's Annual Meeting of Stockholders held on February 22, 1996, filed by the Registrant on January 23, 1996, are incorporated by reference into Part III of this report. -2- 3 CONTENTS PART 1 Item 1. Business 4 Item 2. Properties 37 Item 3. Legal Proceedings 38 Item 4. Submission of Matters to a Vote of Security Holders 38 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 38 Item 6. Selected Financial Data 38 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 38 Item 8. Financial Statements and Supplementary Data 39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 39 PART III Item 10. Directors and Executive Officers of the Registrant 39 Item 11. Executive Compensation 39 Item 12. Security Ownership of Certain Beneficial Owners and Management 40 Item 13. Certain Relationships and Related Transactions 40 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40
-3- 4 PART I ITEM 1 - BUSINESS BACKGROUND AND CURRENT OPERATIONS BACKGROUND GENERAL: 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. The Company operates 73 banking offices and 102 automated teller machines ("ATM's") in the states of Mississippi and Louisiana through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi ("Hancock Bank MS"), Hancock Bank of Louisiana, Baton Rouge, Louisiana ("Hancock Bank LA"), and First National Bank of Denham Springs, Denham Springs, Louisiana ("Denham"). Hancock Bank MS, Hancock Bank LA and Denham 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 December 31, 1995, the Company had total assets of $2.2 billion and employed on a full-time basis 819 persons in Mississippi and 478 persons in Louisiana. Hancock Bank MS was originally chartered as Hancock County Bank in 1899. Since its organization, the strategy of Hancock Bank MS has been to achieve a dominant market share on the Mississippi Gulf Coast. Prior to a series of acquisitions begun in 1985, growth was primarily internal and was accomplished by concentrating branch expansions in areas of population growth where no dominant financial institution previously served the market area. Economic expansion on the Mississippi Gulf Coast has resulted primarily from growth of military and government-related facilities, tourism, port facility activities, industrial complexes and the gaming industry. Hancock Bank MS currently has the largest market share in each of the four counties in which it operates: Harrison, Hancock, Jackson and Pearl River. With assets of $1.4 billion at December 31, 1995, Hancock Bank MS currently ranks as the fifth largest bank in Mississippi. -4- 5 In August 1990, the Company formed Hancock Bank LA to assume the deposit liabilities and acquire the consumer loan portfolio, corporate credit card portfolio and non-adversely classified securities portfolio of American Bank and Trust, Baton Rouge, Louisiana, ("AmBank"), from the Federal Deposit Insurance Corporation ("FDIC"). Economic expansion in East Baton Rouge Parish has resulted from growth in state government and related service industries, educational and medical complexes, petrochemical industries, port facility activities and transportation and related industries. With assets of $683 million at December 31, 1995, Hancock Bank LA is the fourth largest bank in East Baton Rouge Parish. In January 1995, the Company merged with First Denham Bancshares, Inc. ("Bancshares"), which owned 100% of the stock of First National Bank of Denham Springs, Denham Springs, Louisiana. Denham Springs is a bedroom community of Baton Rouge, Louisiana, and the merger enhanced the Company's ability to attract and service customers working in East Baton Rouge Parish and living in Livingston Parish. First National bank of Denham Springs currently operates seven locations in Livingston Parish. Beginning with the 1985 acquisition of the Pascagoula-Moss Point Bank ("PMP") in Pascagoula, Mississippi, the Company has acquired approximately $884.8 million in assets and approximately $796.9 million in deposit liabilities through selected acquisitions or purchase and assumption transactions. RECENT ACQUISITION ACTIVITY: In August 1991, Hancock Bank MS acquired certain assets and deposit liabilities of Peoples Federal Savings Association, Bay St. Louis, Mississippi, from the RTC. As a result of this transaction, the Bank acquired assets of approximately $39.0 million and deposit liabilities of approximately $38.5 million. The Company borrowed $18,750,000 from Whitney National Bank, New Orleans, Louisiana ("Whitney"), to partially fund the acquisition of Metropolitan National Bank and AmBank in 1990. On November 28, 1991, the Company sold 1,552,500 shares of its common stock at $17 per share. This followed a two-for-one stock split in the form of a 100% stock dividend on October 15, 1991, and an increase in authorized shares to 20,000,000. The -5- 6 net proceeds of this sale, after underwriting discount and expenses, of approximately $24,700,000, were used to pay the principal and interest on $18,500,000 of principal debt on the Whitney loan and increase Hancock Bank LA's capital by $5,000,000. In April 1994, the Company merged Hancock Bank of LA with First State Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana ("Baker"). The merger was consummated by the exchange of all outstanding common stock of Baker in return for 527,235 shares of common stock of the Company. The merger was accounted for using the pooling-of-interests method; therefore, all prior years' financial information has been restated. On January 13, 1995, the Company merged with Bancshares, which owned 100% of the stock of Denham. The merger was in return for approximately $4,000,000 cash and 774,098 shares of common stock of the Company. The merger was accounted for using the purchase method. Bancshares had total assets of approximately $111,000,000 and stockholders' equity of approximately $11,300,000 as of December 31, 1994, and net earnings of approximately $2,600,000 for the year then ended. On February 1, 1995, the Company merged Hancock Bank LA with Washington Bank and Trust Company, Franklinton, Louisiana ("Washington"). The merger was consummated by the exchange of all outstanding common stock of Washington in return for 542,650 shares of common stock of the Company. The merger was accounted for using the pooling-of-interests method; therefore, all prior years' financial information has been restated. Washington had total assets of approximately $86,100,000 and stockholders' equity of approximately $12,400,000 as of December 31, 1994, and net earnings of approximately $1,300,000 for the year then ended. CURRENT OPERATIONS LOAN PRODUCTION AND CREDIT REVIEW: The Banks' primary lending focus is to provide commercial, consumer, leasing and real estate loans to consumers and to small and middle market businesses in their respective market areas. The Banks have no concentrations of loans to particular borrowers or loans to any foreign -6- 7 entities. Each loan officer has Board approved loan limits on the principal amount of secured and unsecured loans he or she can approve for a single borrower without prior approval of a loan committee. All loans, however, must meet the credit underwriting and loan policies of the Banks. For Hancock Bank MS, all loans over an individual loan officer's Board approved lending authority and below a regional approved limit must be approved by his or her region's loan committee or by another loan officer with greater lending authority. Both the regional loan committee and the Bank's senior loan committee must review and approve any loan for a borrower whose total indebtedness exceeds the region's approved limit. Each loan file is reviewed by the Bank's loan review department to ensure proper documentation. For Hancock Bank LA, all loans over an individual loan officer's Board approved lending authority must be approved by his or her region's loan committee or by another loan officer with greater lending authority. Both the regional loan committee and the Bank's senior loan committee must review and approve any loan for a borrower whose total indebtedness exceeds $500,000. Each loan file is reviewed by the Bank's loan review department to ensure proper documentation. For Denham, all loans over an individual loan officer's Board approved lending authority must be approved by an officer with a higher lending limit or by the Bank's senior loan committee. The Company's loan committee must approve aggregate lending relationships up to $750,000. Each loan file is reviewed by the Bank's loan review department to ensure proper documentation. LOAN REVIEW AND ASSET QUALITY: Each Bank's portfolio of credit relationships aggregating $250,000 or more is annually reviewed by the respective Bank to identify any deficiencies and to take corrective actions as necessary. Periodically, selected credit relationships aggregating less than $250,000 are reviewed. As a result of such reviews, each Bank places on its Watchlist loans deemed to require close or frequent review. All loans classified by a regulator are also placed on the Watchlist. All Watchlist and past due loans are reviewed at least monthly by the Banks' senior lending officers and monthly -7- 8 by the Banks' Board of Directors. In addition, all loans to a particular borrower are reviewed, regardless of classification, each time such borrower requests a renewal or extension of any loan or requests a new loan. All lines of credit are reviewed annually before renewal. The Banks currently have mechanisms in place that allow for at least an annual review of the financial statements and the financial condition of all borrowers, except borrowers with secured installment and residential mortgage loans. Consumer loans which become 60 days delinquent are reviewed by management. Generally, a consumer loan which is delinquent 90 days is in process of collection through repossession and liquidation of collateral or has been deemed currently uncollectible. Loans deemed currently uncollectible are charged-off against the reserve account. As a matter of policy, loans are placed on a nonaccrual status where doubt exists as to collectibility. The Banks follow the standard FDIC loan classification system. This system provides management with (1) a general view of the quality of the overall loan portfolio (each branch's loans and each commercial loan officer's lending portfolio) and (2) information on specific loans that may need individual attention. The Banks hold nonperforming assets, consisting of real property, vehicles and other items held for resale, which were acquired generally through the process of foreclosure. At December 31, 1995, the book value of nonperforming assets held for resale was approximately $1,086 thousand. SECURITIES PORTFOLIO: The Banks maintain portfolios of securities consisting primarily of U.S. Treasury securities, U.S. government agency issues, mortgage-backed securities, CMOs and tax-exempt obligations of states and political subdivisions. The portfolios are designed to enhance liquidity while providing acceptable rates of return. Therefore, the Banks invest only in high grade investment quality securities with acceptable yields and generally with durations of less than 7 years. -8- 9 The Banks' policies limit investments to securities having a rating of no less than "Baa" by Moody's Investors' Service, Inc., except for certain obligations of Mississippi or Louisiana counties and municipalities. DEPOSITS: The Banks have several programs designed to attract depository accounts offered to consumers and to small and middle market businesses at interest rates generally consistent with market conditions. Additionally, the Banks offer 102 ATMs: 61 ATMs at their 73 banking offices and 41 free-standing ATMs at other locations. As members of regional and international ATM networks such as "GulfNet," "PLUS" and "CIRRUS," the Banks offer customers access to their depository accounts from regional, national and international ATM facilities. Deposit flows are controlled by the Banks primarily through pricing and to a certain extent through promotional activities. Management believes that the rates it offers, which are posted weekly on deposit accounts, are generally competitive with or, in some cases, slightly below other financial institutions in the Banks' respective market areas. TRUST SERVICES: The Banks, through their respective Trust Departments, offer a full range of trust services on a fee basis. The Banks act as executor, administrator or guardian in administering estates. Also provided are investment custodial services for individuals, businesses and charitable and religious organizations. In their trust capacities, the Banks provide investment management services on an agency basis and act as trustee for pension plans, profit sharing plans, corporate and municipal bond issues, living trusts, life insurance trusts and various other types of trusts created by or for individuals, businesses and charitable and religious organizations. As of December 31, 1995, the Trust Departments of the Banks had approximately $1.3 billion of assets under management, of which $893 billion were corporate accounts and $444 million were personal, employee benefit, estate and other trust accounts. OPERATING EFFICIENCY STRATEGY: The primary focus of the Company's operating strategy is to increase -9- 10 operating income and to reduce operating expense. Beginning in January of 1988, management has taken steps to improve operating efficiencies. As a result, employees at Hancock Bank MS have been reduced from .78 per $1 million in assets in February 1988 to .58 as of December 31, 1995. Since its acquisition in August 1990, Hancock Bank LA employees have been reduced from .97 per $1 million of assets to .56 as of December 31, 1995. Management annually establishes an employee to asset goal for each Bank. The Banks also have set an internal long range goal of at least covering total salary and benefit costs by fee income. The ratio of fee income to total salary and benefit costs is $.50 to $1.00 at Hancock Bank MS. Hancock Bank LA has a higher level of fee income and through December 31, 1995, has achieved a ratio of $.71 to $1.00. OTHER ACTIVITIES: Hancock Bank MS has seven subsidiaries through which it engages in the following activities: providing consumer financing services; mortgage lending; owning, managing and maintaining certain real property; providing general insurance agency services; holding investment securities; marketing credit life insurance; and providing discount brokerage services. The income of these subsidiaries generally accounts for less than 10% of the Company's total income annually. During 1994, the Company began offering alternative investments through a third party vendor. The Investment Center is now located in several branch locations in Mississippi and Louisiana to accommodate the investment needs of customers that fall outside the traditional commercial bank product line. Hancock Bank MS also owns approximately 3,700 acres of timberland in Hancock County, Mississippi, most of which was acquired through foreclosure in the 1930's. Timber sales and oil and gas leases on this acreage generate less than 1% of the Company's annual income. COMPETITION: The deregulation of the financial services industry, the elimination of many previous distinctions between commercial banks and other financial institutions and legislation enacted in Mississippi, Louisiana and other -10- 11 states allowing state-wide branching, multi-bank holding companies and regional interstate banking has created a highly competitive environment for commercial banking in the Company's market area. The principal competitive factors in the markets for deposits and loans are interest rates paid and charged. The Company also competes through the efficiency, quality, range of services and products it provides, convenience of office and ATM locations and office hours. In attracting deposits and in its lending activities, the Company competes generally with other commercial banks, savings associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, mutual funds, insurance companies and other financial institutions. Many of these institutions have greater available resources than the Company. -11- 12 SUPERVISION AND REGULATION BANK HOLDING COMPANY REGULATION GENERAL: The Company is subject to extensive regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve") pursuant to the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). The Company also is required to file certain reports with, and otherwise comply with the rules and regulations of, the Securities and Exchange Commission (the "Commission") under federal securities laws. FEDERAL REGULATION: The Bank Holding Company Act generally prohibits the Company from engaging in activities other than banking, managing or controlling banks or other permissible subsidiaries. Acquiring or obtaining control of any company engaged in activities other than those activities determined by the Federal Reserve to be so closely related to banking, managing or controlling banks as to be proper incident thereto is also prohibited. In determining whether a particular activity is permissible, the Federal Reserve considers whether the performance of the activity can reasonably be expected to produce benefits to the public that outweigh possible adverse effects. For example, making, acquiring or servicing loans, leasing personal property, providing certain investment or financial advice, performing certain data processing services, acting as agent or broker in selling credit life insurance and performing certain insurance underwriting activities have all been determined by regulations of the Federal Reserve to be permissible activities. The Bank Holding Company Act does not place territorial limitations on permissible bank-related activities of bank holding companies. However, despite prior approval, the Federal Reserve has the power to order a holding company or its subsidiaries to terminate any activity or its control of any subsidiary when it has reasonable cause to believe that continuation of such activity or control of such subsidiary constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that holding company. The Bank Holding Company Act requires every bank holding company to -12- 13 obtain the prior approval of the Federal Reserve: (1) before it may acquire ownership or control of any voting shares of any bank if, after such acquisition, such bank holding company will own or control more than 5% of the voting shares of such bank, (2) before it or any of its subsidiaries other than a bank may acquire all of the assets of a bank, or (3) before it may merge with any other bank holding company. In reviewing a proposed acquisition, the Federal Reserve considers financial, managerial and competitive aspects. The future prospects of the companies and banks concerned and the convenience and needs of the community to be served must also be considered. The Federal Reserve also reviews the indebtedness to be incurred by a bank holding company in connection with the proposed acquisition to ensure that the holding company can service such indebtedness without adversely affecting the capital requirements of the holding company or its subsidiaries. The Bank Holding Company Act further requires that consummation of approved acquisitions or mergers must be delayed at least 30 days following the date of approval. During such 30-day period, complaining parties may obtain a review of the Federal Reserve's order granting its approval by filing a petition in the appropriate United States Court of Appeals petitioning that the order be set aside. The Federal Reserve has adopted capital adequacy guidelines for use in its examination and regulation of bank holding companies. The regulatory capital of a bank holding company under applicable federal capital adequacy guidelines is particularly important in the Federal Reserve's evaluation of a bank holding company and any applications by the bank holding company to the Federal Reserve. If regulatory capital falls below minimum guideline levels, a bank holding company or bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open additional facilities. In addition, a financial institution's failure to meet minimum regulatory capital standards can lead to other penalties, including termination of deposit insurance or appointment of a conservator or receiver for the financial institution. There are two measures of regulatory capital presently applicable to bank holding companies: (1) risk-based capital and (2) leverage capital ratios. The Federal Reserve rates bank holding companies by a component and composite 1-5 rating system. The leverage ratios adopted by the Federal Reserve require all but the most highly rated bank holding companies to maintain Tier 1 Capital at 4% to 5% of total assets. Certain bank holding -13- 14 companies having a composite 1 rating and not experiencing or anticipating significant growth may satisfy the Federal Reserve guidelines by maintaining Tier 1 Capital of at least 3% of total assets. Tier 1 Capital for bank holding companies includes: stockholders' equity, minority interest in equity accounts of consolidated subsidiaries and qualifying perpetual preferred stock. In addition, Tier 1 Capital excludes goodwill and other disallowed intangibles. The Company's leverage ratio at December 31, 1995, was 9.28%. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under the risk-based capital guidelines, assets are assigned to one of four risk categories: 0%, 20%, 50% and 100%. As an example, U.S. Treasury securities are assigned to the 0% risk category while most categories of loans are assigned to the 100% risk category. A two-step process determines the risk weight of off-balance sheet items such as standby letters of credit. First, the amount of the off-balance sheet item is multiplied by a credit conversion factor of either 0%, 20%, 50% or 100%. Then, the result is assigned to one of the four risk categories. At December 31, 1995, the Company's off-balance sheet items aggregated $237.4 million; however, after the credit conversion these items represented $24.5 million of balance sheet equivalents. The primary component of risk-based capital is Tier 1 Capital, which is essentially equal to common stockholders' equity plus a certain portion of perpetual preferred stock. Tier 2 Capital, which consists primarily of the excess of any perpetual preferred stock, mandatory convertible securities, subordinated debt and general reserves for loan losses, is a secondary component of risk-based capital. The risk-weighted asset base is equal to the sum of the aggregate dollar values of assets and off-balance sheet items in each risk category, multiplied by the weight assigned to that category. A ratio of Tier 1 Capital to risk-weighted assets of at least 4% and a ratio of Total Capital (Tier 1 and Tier 2) to risk-weighted assets of at least 8% must be maintained by bank holding companies. At December 31, 1995, the Company's Tier 1 and Total Capital ratios were 17.69% and 18.64%, respectively. -14- 15 Proposed regulations will increase capital requirements when as yet undetermined levels of interest rate risk are exceeded. Because the Company's liabilities generally reprice within periods of one year, interest rate risk occurs when assets funded by such liabilities reprice at longer intervals. It is not anticipated that such regulations will have a significant impact on the Company's capital requirements. The prior approval of the Federal Reserve must be obtained before the Company may acquire substantially all the assets of any bank, or ownership or control of any voting shares of any bank, if, after such acquisition, it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. In no case, however, may the Federal Reserve approve an acquisition of any bank located outside Mississippi unless such acquisition is specifically authorized by the laws of the state in which the bank to be acquired is located. The banking laws of Mississippi presently permit out-of-state banking organizations to acquire Mississippi banking organizations, provided the out-of-state banking organization's home state grants similar privileges to banking organizations in Mississippi. This reciprocity privilege is restricted to banking organizations in specified geographic regions that encompass the states of Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas, Virginia and West Virginia. In addition, Mississippi banking organizations are permitted to acquire certain out-of-state financial institutions. A bank holding company is additionally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities. With the passage of The Interstate Banking and Branching Efficiency Act of 1994, adequately capitalized and managed bank holding companies are permitted to acquire control of banks in any state, subject to federal regulatory approval, without regard to whether such a transaction is prohibited by the laws of any state. Beginning June 1, 1997, federal banking regulators may approve merger transactions involving banks located in different states, without regard to laws of any state prohibiting such transactions; except that, mergers may not be approved with respect to banks located in states that, before June 1, 1997, enacted legislation prohibiting mergers by banks located in such state with out-of-state institutions. Federal banking regulators may permit an out-of-state bank to open new -15- 16 branches in another state if such state has enacted legislation permitting interstate branching. The legislation further provides that a bank holding company may not, following an interstate acquisition, control more than 10% of nationwide insured deposits or 30% of deposits in the relevant state. States have the right to adopt legislation to lower the 30% limit. Additional provisions require that interstate activities conform to the Community Reinvestment Act. The Company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the proceeding 12 months, is equal to 10% or more of the Company's consolidated net worth. The Federal Reserve may disapprove such a transaction if it determines that the proposal constitutes an unsafe or unsound practice, would violate any law, regulation, Federal Reserve order or directive or any condition imposed by, or written agreement with, the Federal Reserve. In November 1985, the Federal Reserve adopted its Policy Statement on Cash Dividends Not Fully Covered by Earnings (the "Policy Statement"). The Policy Statement sets forth various guidelines that the Federal Reserve believes that a bank holding company should follow in establishing its dividend policy. In general, the Federal Reserve stated that bank holding companies should pay dividends only out of current earnings. It also stated that dividends should not be paid unless the prospective rate of earnings retention by the holding company appears consistent with its capital needs, asset quality and overall financial condition. The activities of the Company are also restricted by the provisions of the Glass-Steagall Act of 1933 (the "Act"). The Act prohibits the Company from owning subsidiaries engaged principally in the issue, floatation, underwriting, public sale or distribution of securities. Regulators and legislators are currently reviewing the interpretation, scope and application of the provisions of the Act. The outcome of the current examination and the effect of the outcome on the ability of bank holding companies to engage in securities related activities cannot be predicted. The Company is a legal entity separate and distinct from the Banks. There are various restrictions that limit the ability of the Banks to -16- 17 finance, pay dividends or otherwise supply funds to the Company or other affiliates. In addition, subsidiary banks of holding companies are subject to certain restrictions on any extension of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities thereof and on the taking of such stock or securities as collateral for loans to any borrower. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, or leases or sales of property or furnishing of services. BANK REGULATION: The operations of the Banks are subject to state and federal statutes applicable to state banks and national banks, respectively, and the regulations of the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency ("OCC"). Such statutes and regulations relate to, among other things, required reserves, investments, loans, mergers and consolidations, issuance of securities, payment of dividends, establishment of branches and other aspects of the Banks' operations. Hancock Bank MS is subject to regulation and periodic examinations by the FDIC and the State of Mississippi Department of Banking and Consumer Finance. Hancock Bank LA is subject to regulation and periodic examinations by the FDIC and the Office of Financial Institutions, State of Louisiana. Denham is subject to regulation and periodic examinations by the OCC. These regulatory authorities examine such areas as reserves, loan and investment quality, management policies, procedures and practices and other aspects of operations. These examinations are designed for the protection of the Banks' depositors, rather than their stockholders. In addition to these regular examinations, the Company and the Banks must furnish periodic reports to their respective regulatory authorities containing a full and accurate statement of their affairs. As a result of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), a financial institution insured by the FDIC can be held liable for any losses incurred by, or reasonably expected to be incurred by, the FDIC in connection with (1) the default of a commonly controlled FDIC-insured financial institution or (2) any assistance provided by the FDIC to a commonly controlled financial -17- 18 institution in danger of default. The Banks are members of the FDIC, and their deposits are insured as provided by law by the Bank Insurance Fund ("BIF"). On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted. The Federal Deposit Insurance Act, as amended by Section 302 of FDICIA, calls for risk-related deposit insurance assessment rates. The risk classification of an institution will determine its deposit insurance premium. Assignment to one of three capital groups, coupled with assignment to one of three supervisory sub-groups, determines which of the nine risk classifications is appropriate for an institution. Effective in the third quarter of 1995, the FDIC lowered banks' deposit insurance premiums from 23 to 31 cents per hundred dollars in insured deposits to a rate of 4 to 31 cents. The Banks have received a risk classification of 1A for assessment purposes. The Banks paid BIF premiums of 23 cents per hundred dollars of insured deposits for the first five months of 1995 and 4 cents for the remaining seven months, which amounted to $2.2 million. The decrease in 1995 rates resulted in $1.6 million FDIC premium reductions over the 1994 level of $3.8 million. Premiums for the first and second quarters of 1996 have been reduced to 0 cents per hundred dollars of insured deposits. Premiums on OAKAR deposits from the 1991 acquistion of Peoples Federal Savings Association are insignificant. In general, FDICIA subjects banks and bank holding companies to significantly increased regulation and supervision. FDICIA increased the borrowing authority of the FDIC in order to recapitalize the Bank Insurance Fund, and the future borrowings are to be repaid by increased assessments on FDIC member banks. Other significant provisions of FDICIA require a new regulatory emphasis linking supervision to bank capital levels. Also, federal banking regulators are required to take prompt regulatory action with respect to depository institutions that fall below specified capital levels and to draft non-capital regulatory measures to assure bank safety. FDICIA contains a "prompt corrective action" section intended to resolve problem institutions at the least possible long-term cost to the deposit insurance funds. Pursuant to this section, the federal banking agencies are required to prescribe a leverage limit and a risk-based capital requirement indicating levels at which institutions will be deemed to be -18- 19 "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." In the case of a depository institution that is "critically undercapitalized" (a term defined to include institutions which still have positive net worth), the federal banking regulators are generally required to appoint a conservator or receiver. FDICIA further requires regulators to perform annual on-site bank examinations, places limits on real estate lending and tightens audit requirements. The new legislation eliminated the "too big to fail" doctrine, which protects uninsured deposits of large banks, and restricts the ability of undercapitalized banks to obtain extended loans from the Federal Reserve Board discount window. FDICIA also imposes new disclosure requirements relating to fees charged and interest paid on checking and deposit accounts. Most of the significant changes brought about by FDICIA required new regulations. In addition to regulating capital, the FDIC and the OCC have broad authority to prevent the development or continuance of unsafe or unsound banking practices. Pursuant to this authority, the FDIC and the OCC have adopted regulations that restrict preferential loans and loan amounts to "affiliates" and "insiders" of banks, require banks to keep information on loans to major stockholders and executive officers and bar certain director and officer interlocks between financial institutions. The FDIC also is authorized to approve mergers, consolidations and assumption of deposit liability transactions between insured banks and between insured banks and uninsured banks or institutions to prevent capital or surplus diminution in such transactions where the resulting, continuing or assumed bank is an insured nonmember state bank, like Hancock Bank MS and Hancock Bank LA. Although Hancock Bank MS and Hancock Bank LA are not members of the Federal Reserve System, they are subject to Federal Reserve regulations that require the Banks to maintain reserves against transaction accounts (primarily checking accounts), money market deposit accounts and nonpersonal time deposits. Because reserves generally must be maintained in cash or in noninterest-bearing accounts, the effect of the reserve requirements is to increase the cost of funds for the Banks. The Federal Reserve regulations currently require that reserves be maintained against net transaction accounts in the amount of 3% of the aggregate of such accounts up to $41.4 -19- 20 million, or, if the aggregate of such accounts exceeds $41.4 million, $1.233 million plus 12% of the total in excess of $41.4 million. This regulation is subject to an exemption from reserve requirements on a limited amount of an institution's transaction accounts. The foregoing is a brief summary of certain statutes, rules and regulations affecting the Company and the Banks. It is not intended to be an exhaustive discussion of all the statutes and regulations having an impact on the operations of such entities. EFFECT OF GOVERNMENTAL POLICIES: The difference between the interest rate paid on deposits and other borrowings and the interest rate received on loans and securities will comprise most of a bank's earnings. However, due to recent deregulation of the industry, the banking business is becoming increasingly dependent on the generation of fees and service charges. The earnings and growth of a bank will be affected by both general economic conditions and the monetary and fiscal policy of the United States Government and its agencies, particularly the Federal Reserve. The Federal Reserve sets national monetary policy such as seeking to curb inflation and combat recession. This is accomplished by its open-market operations in United States Government securities, adjustments in the amount of reserves that financial institutions are required to maintain and adjustments to the discount rates on borrowings and target rates for federal funds transactions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and also affect interest rates on loans and deposits. The nature and timing of any future changes in monetary policies and their potential impact on the Company cannot be predicted. -20- 21 STATISTICAL INFORMATION The following tables and other material present certain statistical information regarding the Company. This information is not audited and should be read in conjunction with the Company's consolidated financial statements and the accompanying notes. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY AND INTEREST RATES AND DIFFERENTIALS Net interest income, the difference between interest income and interest expense, is the most significant component of the Banks earnings. For internal analytical purposes, management adjusts net interest income to a "taxable equivalent" basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities). Another significant statistic in the analysis of net interest income is the effective interest differential, which is the difference between the average rate of interest earned on earning assets and the effective rate paid for all funds, noninterest-bearing as well as interest-bearing. Since a portion of the Bank's deposits do not bear interest, such as demand deposits, the rate paid for all funds is lower than the rate on interest-bearing liabilities alone. The rate differential for the years 1995 and 1994 was 5.10% and 4.74%, respectively. Recognizing the importance of interest differential to total earnings, management places great emphasis on managing interest rate spreads. Although interest differential is affected by national, regional, and area economic conditions, including the level of credit demand and interest rates, there are significant opportunities to influence interest differential through appropriate loan and investment policies. These policies are designed to maximize interest differential while maintaining sufficient liquidity and availability of funds for purposes of meeting existing commitments and for investment in loans and other investment opportunities that may arise. -21- 22 The following table shows interest income on interest-earning assets and related average yields earned and interest expense on interest-bearing liabilities and related average rates paid for the periods indicated: Comparative Average Balances - Yields and Rates
Years Ended December 31, ------------------------------------------------------------------------------------------------ 1995 1994 1993 ------------------------------ ------------------------------ ------------------------------ Interest Average Interest Average Interest Average Average Income or Yield or Average Income or Yield or Average Income or Yield or Balance Expense Rate Balance Expense Rate Balance Expense Rate ----------- ---------- ------ ---------- ---------- ------ --------- --------- ------ ASSETS (Amounts in thousands) Interest-earning assets: Investment securities: U.S. Treasury $257,228 $ 14,568 5.66% $ 316,232 $ 17,168 5.43% $ 292,239 $ 16,861 5.77% U.S. government obligations 493,315 33,726 6.84% 423,555 24,772 5.85% 397,490 24,874 6.26% Municipal obligations 57,001 5,426 9.52% 48,194 4,912 10.19% 43,656 5,200 11.91% Other securities 87,606 6,231 7.11% 75,956 4,713 6.20% 85,712 4,775 5.57% Federal funds sold & securities purchased under agreements to resell 99,559 5,820 5.85% 89,341 3,832 4.29% 125,204 3,603 2.88% Interest-bearing time deposits with other banks 500 31 6.20% 725 38 5.24% 1,095 45 4.11% Net loans (2)(3) 1,000,907 98,029 9.79% 906,342 82,967 9.15% 847,526 80,644 9.52% ---------- -------- ------ ---------- --------- ------ ---------- -------- ------ Total interest-earning assets/interest income (1) 1,996,116 163,831 8.21% 1,860,345 138,402 7.44% 1,792,922 136,002 7.59% Less: Reserve for loan losses (16,532) --- (15,251) --- (15,644) --- Noninterest-earning assets: Cash and due from banks 104,854 --- 112,931 --- 105,931 --- Property and equipment 37,786 --- 34,815 --- 34,596 --- Other assets 93,302 --- 50,435 --- 46,708 --- ---------- -------- ------ ---------- -------- ----- ---------- -------- ------ Total assets $2,215,526 $163,831 7.39% $2,043,275 $138,402 6.77% $1,964,513 $136,002 6.92% ========== ======== ====== ========== ======== ====== ========== ======== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings, NOW and money market $ 739,091 $ 20,515 2.78% $ 755,888 $ 20,703 2.74% $ 718,597 $ 19,366 2.69% Time 717,064 37,097 5.17% 657,587 27,490 4.18% 662,646 27,569 4.16% Federal funds purchased 15,284 863 5.65% 18,622 754 4.05% 18,023 537 2.98% Securities sold under agreements to repurchase 53,924 2,219 4.12% 24,710 718 2.91% 22,480 484 2.15% Long-term bonds 2,799 203 7.25% 3,656 256 7.00% 4,651 350 7.53% Capital notes --- 265 0.00% 1,571 76 4.84% 1,319 90 6.82% ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ Total interest-bearing liabilities/interest expense 1,528,162 61,162 4.00% 1,462,034 49,997 3.42% 1,427,716 48,396 3.39% Noninterest-bearing liabilities: Demand deposits 439,495 --- 393,120 --- 364,612 --- Other liabilities 32,135 --- 13,183 --- 12,865 --- Stockholders' equity 215,734 --- 174,938 --- 159,320 --- ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ Total liabilities & stockholders' equity $2,215,526 $ 61,162 2.76% $2,043,275 $ 49,997 2.45% $1,964,513 $ 48,396 2.46% ========== ======== ====== ========== ======== ====== ========== ======== ======
-22- 23 Interest-earning assets $1,996,116 $1,860,345 $1,792,922 Interest-bearing liabilities $1,528,162 $1,462,034 $1,427,716 Interest income $163,831 $138,402 $136,002 Interest expense 61,162 49,997 48,396 -------- -------- -------- Interest income/interest- earning assets 8.21% 7.44% 7.59% Interest expense/interest- bearing liabilities 4.00% 3.42% 3.39% Interest spread 4.21% 4.02% 4.20% Net interest income $102,669 $ 88,405 $ 87,606 ======== ======== ======== Net interest margin 5.13% 4.75% 4.89%
- ---------- (1) Includes tax equivalent adjustments to interest income of $2.3 million, $2.1 million and $2.3 million in 1995, 1994 and 1993, respectively, using a tax rate of 35%. (2) Interest income includes fees on loans of $4.1 million in 1995, $3.2 million in 1994 and $3.3 million in 1993. (3) Includes nonaccrual loans. See "Nonperforming Assets." -23- 24 The following table sets forth, for the periods indicated, a summary of the changes in interest income on interest-earning assets and interest expense on interest-bearing liabilities relating to rate and volume variances. Nonaccrual loans are included in average amounts of loans and do not bear interest for purposes of the presentation. Changes that are not solely due to volume or rate are allocated to volume. Analysis of Changes in Net Interest Income
Years Ended December 31, --------------------------------------------------------------------------------------- 1995 1994 1993 ------------------------- --------------------------- --------------------------- Volume Rate Total Volume Rate Total Volume Rate Total ------ ---- ----- ------ ---- ----- ------ ---- ----- (Amounts in thousands) INTEREST INCOME Investment securities: U.S. Treasury $(3,327) $ 727 $(2,600) $ 1,301 $ (994) $ 307 $ 96 $ (3,834) $(3,738) U.S. government obligations 4,761 4,193 8,954 1,528 (1,630) (102) 3,271 (2,382) 889 Municipal obligations (1) 837 (323) 514 463 (751) (288) (1,251) 11 (1,240) Other securities 827 691 1,518 (602) 540 (62) 1,065 (1,072) (7) Federal funds sold & securities purchased under agreements to resell 594 1,394 1,988 (1,536) 1,765 229 482 (1,074) (592) Interest-bearing time deposits with other banks (14) 7 (7) (19) 12 (7) (34) (2) (36) Net loans (2) 9,261 5,801 15,062 5,459 (3,136) 2,323 4,898 (5,331) (433) ------- ------- ------- ------- -------- ------- ------- -------- ------- Total 12,939 12,490 25,429 6,594 (4,194) 2,400 8,527 (13,684) (5,157) ------- ------- ------- ------- -------- ------- ------- -------- ------- INTEREST EXPENSE Deposits: Savings, NOW and money market (490) 302 (188) 978 359 1,337 2,171 (3,902) (1,731) Time 3,097 6,510 9,607 (212) 133 (79) (702) (5,431) (6,133) Federal funds purchased (189) 298 109 24 193 217 (97) (43) (140) Securities sold under agreements to repurchase 1,202 299 1,501 63 171 234 (1) (246) (247) Long-term bonds (62) 9 (53) (69) (25) (94) (167) (111) (278) Capital notes 265 (76) 189 12 (26) (14) 25 41 66 ------- ------- ------- ------- -------- ------ ------- -------- ------- Total 3,823 7,342 11,165 796 805 1,601 1,229 (9,692) (8,463) ------- ------- ------- ------- -------- ------ ------- -------- ------- Increase (decrease) in net interest income $ 9,116 $ 5,148 $14,264 $ 5,798 $ (4,999) $ 799 $ 7,298 $ (3,992) $ 3,306 ======= ======= ======= ======= ======== ======= ======= ======== =======
- ---------- (1) Yields on tax-exempt investments have been adjusted to a tax equivalent basis utilizing a 35% tax rate. (2) Interest earned includes fees on loans of $3.3 million in 1993, $3.2 million in 1994 and $4.1 million in 1995. -24- 25 RATE SENSITIVITY To control interest rate risk, management regularly monitors the volume of interest sensitive assets compared with interest sensitive liabilities over specific time intervals. The Company's interest rate management policy is to attempt to maintain a 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. Interest rate risk is monitored, quantified and managed to produce a 5% or less impact on short-term earnings. The interest sensitivity gap is the difference between total interest sensitive assets and liabilities in a given time period. At December 31, 1995, the Company's cumulative interest sensitivity gap in the one year interval was (18.44%) as compared to a cumulative interest sensitivity gap in the one year interval of (15.80%) at December 31, 1994. The percentage reflects a higher level of interest sensitive liabilities than assets repricing within one year. Generally, when rate sensitive liabilities exceed rate sensitive assets, the net interest margin is expected to be positively affected during periods of decreasing interest rates and negatively affected during periods of increasing rates. The following tables set forth the Company's interest rate sensitivity gap at December 31, 1995 and 1994: -25- 26 Analysis of Interest Sensitivity at December 31, 1995
After Three Within Through One After Five Three Twelve Through Years and Months Months Five Years Insensitive Total --------- --------- ---------- ----------- ---------- (Amounts in thousands) Net loans $ 281,636 $ 103,346 $ 429,298 $ 220,697 $1,034,977 Securities and time deposits 181,199 137,057 219,763 311,837 849,856 Federal funds 153,725 -- -- -- 153,725 --------- --------- --------- --------- ---------- Total earning assets $ 616,560 $ 240,403 $ 649,061 $ 532,534 $2,038,558 ========= ========= ========= ========= ========== 30.25% 11.79% 31.84% 26.12% 100.00% ========= ========= ========= ========= ========== Interest-bearing deposits, excluding CDs greater than $100,000 $ 566,967 $ 443,939 $ 234,772 $ 15 $1,245,693 CDs greater than $100,000 73,320 79,031 61,191 -- 213,542 Short-term borrowings 66,585 -- -- -- 66,585 Other borrowings 1,045 1,970 2,100 -- 5,115 --------- --------- --------- --------- ---------- Total interest-bearing funds 707,917 524,940 298,063 15 1,530,935 Interest-free funds -- -- -- 507,623 507,623 --------- --------- --------- --------- ---------- Funds supporting earning assets $ 707,917 $ 524,940 $ 298,063 $ 507,638 $2,038,558 ========= ========= ========= ========= ========== 34.73% 25.75% 14.62% 24.90% 100.00% ========= ========= ========= ========= ========== Interest sensitivity gap $ (91,357) $(284,537) $ 350,998 $ 24,896 -- Cumulative gap $ (91,357) $(375,894) $ (24,896) -- -- Percent of total earning assets (4.48%) (18.44%) (1.22)% -- -- ========= ========= ========= ========= ==========
Analysis of Interest Sensitivity at December 31, 1994
After Three Within Through One After Five Three Twelve Through Years and Months Months Five Years Insensitive Total --------- --------- ---------- ----------- ---------- (Amounts in thousands) Net loans $ 236,825 $ 70,147 $ 400,668 $ 218,025 $ 925,665 Securities and time deposits 266,501 182,695 335,839 83,755 868,790 Federal funds 55,900 -- -- -- 55,900 --------- --------- --------- --------- ---------- Total earning assets $ 559,226 $ 252,842 $ 736,507 $ 301,780 $1,850,355 ========= ========= ========= ========= ========== 30.22% 13.67% 39.80% 16.31% 100.00% ========= ========= ========= ========= ========== Interest-bearing deposits, excluding CD's greater than $100,000 $ 539,127 $ 397,897 $ 275,853 $ 253 $1,213,130 CD's greater than $100,000 62,228 48,754 61,310 230 172,522 Short-term borrowings 54,296 -- -- -- 54,296 Other borrowings 1,386 700 2,255 -- 4,341 --------- --------- --------- --------- ---------- Total interest-bearing funds 657,037 447,351 339,418 483 1,444,289 Interest-free funds -- -- -- 406,066 406,066 --------- --------- --------- --------- ---------- Funds supporting earning assets $ 657,037 $ 447,351 $ 339,418 $ 406,549 $1,850,355 ========= ========= ========= ========= ========== 35.51% 24.18% 18.34% 21.97% 100.00% ========= ========= ========= ========= ========== Interest sensitivity gap $ (97,811) $(194,509) $ 397,089 $(104,769) -- Cumulative gap $ (97,811) $(292,320) $ 104,769 -- -- Percent of total earning assets (5.29%) (15.80%) 5.66% -- -- ========= ========= ========= ========= ==========
-26- 27 INCOME TAXES The Company had income tax expense of $13.1 million and $10.5 million for the years ended December 31, 1995 and 1994, respectively. This represents effective tax rates of 32.6% and 31.2% for December 31, 1995 and 1994, respectively; a greater portion of the Company's income in 1995 has been generated from taxable sources contributing to the rise in the effective tax rate. PERFORMANCE AND EQUITY RATIOS The following table sets forth, for the periods indicated, the percentage of net income to average assets and average stockholders' equity, the percentage of common stock dividends to net income and the percentage of average stockholders' equity to average assets.
Years Ended December 31, ------------------------ 1995 1994 1993 ---- ---- ---- Return on average assets (%) 1.22 1.13 1.27 Return on average stockholders' equity (%) 12.50 13.22 15.61 Dividend payout ratio (%) 32.06 31.90 28.03 Average stockholders' equity to average assets (%) 9.74 8.56 8.11
SECURITIES PORTFOLIO The Company generally purchases securities to be held-to-maturity, with a maturity schedule that provides ample liquidity. Securities classified as held-to-maturity are carried at amortized cost. Certain securities have been classified as available-for-sale based on management's internal assessment of the portfolio considering future liquidity, earning requirements and capital position. The Company increased its available-for-sale portfolio during 1995 to approximate the dollar volume of excess capital over internal and regulatory requirements. Generally, securities with market risk have been placed in this category. The December 31, 1995, book value of the held-to-maturity portfolio was $739 million and the market value was $749 million. The available-for-sale portfolio balance was $110 million at December 31, 1995. -27- 28 The book values of securities classified as available-for-sale as of December 31, 1995, 1994 and 1993 were as follows (in thousands):
December 31, ----------------------------------------- 1995 1994 1993 -------- ------- ------- U.S. Treasury securities $ 1,493 $ --- $ --- Other U.S. gov. obligations 61,470 --- --- Municipal obligations 962 997 930 Other securities 544 --- --- Mortgage-backed securities 5,140 --- --- CMOs 34,695 19,385 27,314 Equity securities 4,993 --- --- -------- ------- ------- $109,297 $20,382 $28,244 ======== ======= =======
The book value, book yield and market value of the debt securities classified as available-for-sale as of December 31, 1995, by estimated maturity, were as follows (in thousands):
Book Value Yield (%) Market Value ---------- --------- ------------ Due in one year or less $ 6,053 6.88 $ 5,968 Due after one year through five years 89,654 6.80 90,097 Due after five years through ten years 8,014 6.87 8,122 Due after ten years 583 6.80 597 -------- ---- -------- $104,304 6.81 $104,784 ======== ==== ========
The book values of securities classified as held-to-maturity as of December 31, 1995, and 1994 and 1993 were as follows (in thousands):
December 31, ----------------------------------------- 1995 1994 1993 -------- ------- ------- U.S. Treasury securities $239,892 $280,578 $282,629 Other U.S. gov. obligations 317,140 275,209 241,987 Municipal obligations 56,961 58,224 40,561 Other securities 11,027 15,747 13,316 Mortgage-backed securities 50,427 129,028 95,406 CMOs 63,082 88,807 87,171 -------- -------- -------- $738,529 $847,593 $761,070 ======== ======== ========
The book value, book yield and market value of the securities classified as held-to-maturity as of December 31, 1995, by contractual maturity, were as follows (in thousands):
Book Value Yield (%) Market Value ---------- --------- ------------ Due in one year or less $183,484 6.61 $184,132 Due after one year through five years 190,193 6.64 193,781 Due after five years through ten years 142,856 6.70 145,098 Due after ten years 221,996 6.65 226,486 -------- ---- -------- $738,529 6.64 $749,497 ======== ==== ========
-28- 29 LOAN PORTFOLIO The Banks' primary lending focus is to provide commercial, consumer and real estate loans to consumers and to small and middle market businesses in their respective market areas. Diversification in the loan portfolio is a means of reducing the risks associated with economic fluctuations. The Banks have no concentrations of loans to particular borrowers or loans to any foreign entities. Loan underwriting standards and loan loss reserve maintenance further reduce the impact of credit risk to the Company. Loans are underwritten on the basis of cash flow capacity and collateral market value. Generally, real estate mortgage loans are made when the borrower produces sufficient cash flow capacity and equity in the property to offset historical market devaluations. The loan loss reserve adequacy is tested monthly based on historical losses through different economic cycles and projected future losses specifically identified. The following table sets forth, for the periods indicated, the composition of the loan portfolio of the Company:
Loan Portfolio -------------- December 31, ------------------------------------------------------------ 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (Amounts in thousands) Real estate: Residential mortgages 1-4 family $ 224,646 $214,247 $213,216 $211,931 $203,591 Residential mortgages multifamily 9,674 7,302 7,124 7,804 5,308 Home equity lines 11,825 11,740 13,147 12,873 12,205 Construction and development 41,602 35,719 24,234 18,454 14,729 Nonresidential 127,027 112,957 119,094 111,504 130,495 Commercial, industrial and other 176,942 119,997 160,385 157,797 147,560 Consumer 409,608 397,879 366,401 297,401 278,645 Lease financing and depository institutions 13,811 10,074 6,673 6,079 9,733 Political subdivisions 14,394 12,806 11,668 12,791 15,655 Credit card 32,104 30,794 27,466 26,482 16,436 ---------- -------- -------- -------- -------- 1,061,633 953,515 949,408 863,116 834,357 Less, unearned income 26,656 27,850 26,396 22,393 20,385 ---------- -------- -------- -------- -------- Net loans $1,034,977 $925,665 $923,012 $840,723 $813,972 ========== ======== ======== ======== ========
-29- 30 Prior to July 1991, a correspondent bank of Hancock Bank MS issued credit cards under the Bank's name to customers of Hancock Bank MS and retained the outstanding receivables. In July 1991, Hancock Bank MS purchased, at par, from its correspondent bank, certain credit cards with outstanding balances of approximately $7.8 million and simultaneously transferred, at par, the cards and balances to Hancock Bank LA. The resulting combined consumer and corporate credit card portfolio aggregated approximately $11.5 million with approximately 17,700 cards outstanding. At December 31, 1995, the portfolio balance had increased to approximately $32.1 million with approximately 36,000 cards outstanding. The following table sets forth, for the periods indicated, the approximate maturity by type of the loan portfolio of the Company:
Loan Maturity Schedule ---------------------- December 31, 1995 December 31, 1994 --------------------------------------- --------------------------------------- Maturity Range Maturity Range --------------------------------------- --------------------------------------- After One After One Within Through After Five Within Through After Five One Year Five Years Years Total One Year Five Years Years Total -------- ---------- ------ ----- -------- ---------- ----- ----- (Amounts in thousands) Commercial, industrial and other $ 70,958 $ 77,897 $ 28,087 $ 176,942 $ 59,776 $ 50,459 $ 9,762 $119,997 Real estate - construction 20,227 14,685 6,690 41,602 18,885 11,597 5,237 35,719 All other loans 154,587 454,385 234,117 843,089 257,361 339,299 201,139 797,799 -------- -------- -------- -------- -------- -------- -------- -------- Total loans $245,772 $546,967 $268,894 $1,061,633 $336,022 $401,355 $216,138 $953,515 ======== ======== ======== ========== ======== ======== ======== ========
The sensitivity to interest rate changes of that portion of the Company's loan portfolio that matures after one year is shown below: Loan Sensitivity to Changes in Interest Rates
December 31, December 31, 1995 1994 ----------- ----------- (Amounts in thousands) Commercial, industrial, and real estate construction maturing after one year: Fixed rate $150,111 $ 55,674 Floating rate 80,298 19,156 Other loans maturing after one year: Fixed rate 559,592 476,321 Floating rate 25,860 66,342 -------- -------- Total $815,861 $617,493 ======== ========
-30- 31 NONPERFORMING ASSETS The following table sets forth nonperforming assets by type for the periods indicated, consisting of nonaccrual loans, restructured loans, real estate owned and loans past due 90 days or more and still accruing:
December 31, -------------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (Amounts in thousands) Nonaccrual loans: Real estate $ 2,406 $ 1,914 $ 1,888 $ 4,050 $ 5,121 Commercial, industrial and other 1,144 525 1,424 399 940 Consumer 1,176 1,287 1,322 1,735 1,335 Lease financing -- -- -- 22 -- Depository institutions -- -- -- -- -- Political subdivisions -- -- -- -- -- Restructured loans 611 614 482 194 111 ------- ------- ------- ------- ------- Total nonperforming loans 5,337 4,340 5,116 6,400 7,507 Acquired real estate owned 140 -- -- -- -- Real estate owned 946 1,001 1,029 1,673 4,549 ------- ------- ------- ------- ------- Total nonperforming assets $ 6,423 $ 5,341 $ 6,145 $ 8,073 $12,056 ======= ======== ======= ======= ======= Loans 90+ days past due and still accruing $ 4,089 $ 2,692 $ 4,338 $ 7,356 $ 5,958 ======= ======== ======= ======= ======= Ratios (%): Nonperforming loans to net loans 0.52 0.47 0.55 0.76 0.92 Nonperforming assets to net loans and real estate owned 0.62 0.58 0.67 0.96 1.47 Nonperforming loans to average net loans 0.53 0.48 0.60 0.80 0.97 Reserve for loan losses to nonperforming loans 325.86 354.19 299.18 229.41 170.57
The following table sets forth, for the periods indicated, the amount of interest that would have been recorded on nonaccrual loans had the loans not been classified as "nonaccrual" as well as the interest that would have been recorded under the original terms of restructured loans:
December 31, -------------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (Amounts in thousands) Nonaccrual $ 463 $ 340 $ 441 $ 603 $ 712 Restructured 60 56 45 17 10 ------- ------- ------- ------- ------- Total $ 523 $ 396 $ 486 $ 620 $ 722 ======= ======= ======= ======= =======
Interest actually received on nonaccrual and restructured loans was insignificant. -31- 32 LOAN LOSS, CHARGE-OFF AND RECOVERY EXPENSES The following table sets forth, for the periods indicated, average net loans outstanding, reserve for loan losses, amounts charged-off and recoveries of loans previously charged-off:
December 31, ------------------------------------------------------------------ 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (Amounts in thousands) Net loans outstanding at end of period $1,034,978 $925,665 $923,012 $840,723 $813,972 ========== ======== ======== ======== ======== Average net loans outstanding $1,000,907 $904,342 $847,526 $796,018 $777,915 ========== ======== ======== ======== ======== Balance of reserve for loan losses at beginning of period $ 15,372 $ 15,306 $ 14,682 $ 12,805 $ 13,052 Loans charged-off: Real estate 210 106 318 766 514 Commercial 636 637 2,218 2,516 2,853 Consumer 4,524 2,706 3,087 3,981 2,868 Lease financing 13 -- 53 2 -- Depository institutions -- -- -- -- -- Political subdivisions -- -- -- -- -- ---------- -------- -------- -------- -------- Total charge-offs 5,383 3,449 5,676 7,265 6,235 ---------- -------- -------- -------- -------- Recoveries of loans previously charged-off: Real estate 15 53 102 85 100 Commercial 971 570 695 430 413 Consumer 839 886 869 648 465 Lease financing 5 8 2 1 6 Depository institutions -- -- -- -- -- Political subdivisions -- -- -- -- -- ---------- -------- -------- -------- -------- Total recoveries 1,830 1,517 1,668 1,164 984 ---------- -------- -------- -------- -------- Net charge-offs 3,553 1,932 4,008 6,101 5,251 Provision for loan losses 4,425 1,998 4,632 7,978 5,004 Balance acquired through acquisition 1,147 -- -- -- -- --------- -------- -------- -------- -------- Balance of reserve for loan losses at end of period $ 17,391 $ 15,372 $ 15,306 $ 14,682 $ 12,805 ========== ======== ======== ======== ========
The following table sets forth, for the periods indicated, certain ratios related to the Company's charge-offs, reserve for loan losses and outstanding loans:
Years Ended December 31, ----------------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Ratios (%): Net charge-offs to average net loans 0.35 0.21 0.47 0.77 0.68 Net charge-offs to period-end net loans 0.34 0.21 0.43 0.73 0.65 Reserve for loan losses to average net loans 1.74 1.70 1.81 1.84 1.65 Reserve for loan losses to period-end net loans 1.68 1.66 1.66 1.75 1.57 Net charge-offs to loan loss reserve 20.43 12.57 26.19 41.55 41.01 Net charge-offs to loan loss provision 80.29 96.70 86.53 76.47 104.94
-32- 33 An allocation of the loan loss reserve by major loan category is set forth in the following table. The allocation is not necessarily indicative of the category of future losses, and the full reserve at December 31, 1995, is available to absorb losses occurring in any category of loans.
December 31, ----------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------------- ---------------- ----------------- ------------------ ------------------ Reserve % of Reserve % of Reserve % of Reserve % of Reserve % of for Loans for Loans for Loans for Loans for Loans Loan to Total Loan to Total Loan to Total Loan to Total Loan to Total Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- (Amounts in thousands) Real estate $ 2,000 39.08 $ 1,250 40.06 $ 1,250 39.69 $ 1,250 42.00 $ 1,250 43.90 Commercial, industrial and other 5,250 19.32 5,000 14.98 5,000 18.82 4,750 20.47 4,250 20.73 Consumer 7,500 38.58 6,500 41.73 6,500 38.60 6,250 34.46 5,750 33.40 Credit card 500 3.02 500 3.23 500 2.89 500 3.07 500 1.97 Unallocated 2,141 -- 2,122 -- 2,056 -- 1,932 -- 1,055 -- ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ $17,391 100.00 $15,372 100.00 $15,306 100.00 $14,682 100.00 $12,805 100.00 ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
DEPOSITS AND OTHER DEBT INSTRUMENTS The following table sets forth the distribution of the average deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits:
1995 1994 1993 ------------------------------- --------------------------------- ---------------------------------- Percent Percent Percent of of of Amount Deposits Rate (%) Amount Deposits Rate (%) Amount Deposits Rate (%) ------ -------- -------- ------ -------- -------- ------ -------- -------- (Amounts in thousands) Non-interest bearing accounts $ 439,495 23.18 -- $ 393,120 21.76 -- $ 364,612 20.88 -- NOW accounts 288,947 15.24 2.64 293,347 16.24 2.58 237,288 13.59 2.93 Money market and other savings accounts 450,144 23.75 2.86 462,541 25.60 2.84 481,309 27.57 2.58 Time deposits 717,064 37.83 5.17 657,587 36.40 4.18 662,646 37.96 4.16 ---------- ------ ---------- ------ ---------- ------ $1,895,650 100.00 $1,806,595 100.00 $1,745,855 100.00 ========== ====== ========== ====== ========== ======
The Banks traditionally price their deposits to position themselves in the middle of the local market. The Banks' policy is not to accept brokered deposits. -33- 34 Time certificates of deposit of $100,000 and over at December 31, 1995, had maturities as follows:
December 31, 1995 ----------------- (Amounts in thousands) Three months or less $ 73,320 Over three through six months 25,290 Over six through twelve months 53,741 Over twelve months 61,191 -------- Total $213,542 ========
SHORT-TERM BORROWINGS The following table sets forth certain information concerning the Company's short-term borrowings, which consist of federal funds purchased and securities sold under agreements to repurchase.
Years ended December 31, --------------------------- 1995 1994 1993 ---- ---- ---- (Amounts in thousands) Federal funds purchased: Amount outstanding at period-end $11,300 $29,150 $14,650 Weighted average interest at period-end 4.85% 5.63% 2.75% Maximum amount at any month-end during period $16,325 $37,000 $27,725 Average amount outstanding during period $15,284 $18,622 $18,023 Weighted average interest rate during period 5.65% 4.05% 2.98% Securities sold under agreements to repurchase: Amount outstanding at period-end $55,285 $25,146 $31,148 Weighted average interest at period-end 4.33% 3.00% 2.50% Maximum amount at any month-end during period $88,070 $43,096 $31,289 Average amount outstanding during period $53,924 $24,710 $22,480 Weighted average interest rate during period 4.12% 2.91% 2.15%
LIQUIDITY Liquidity represents an institution's ability to provide funds to satisfy demands from depositors, borrowers and other commitments by either converting assets into cash or accessing new or existing sources of incremental funds. The principal sources of funds that provide liquidity are customer deposits, payments of interest and principal on loans, maturities in and sales of investment securities, earnings and borrowings. At December 31, 1995, cash and due from banks, securities available-for-sale, federal funds sold and repurchase agreements were in excess of 10% of total deposits at December 31, 1995. The Company depends upon the dividends paid to it from the Banks as a principal source of funds for its debt service requirements. As of December -34- 35 31, 1995, there was approximately $65 million available to be dividended to the Company from the Banks. CAPITAL RESOURCES Risk-based and leverage capital ratios for the Company and the Banks for the periods indicated are shown in the following table:
Risk-Based Capital Ratios Tier 1 Leverage -------------------------------------------------------- -------------------------- Total Tier 1 Ratio -------------------------- -------------------------- -------------------------- December 31, December 31, December 31, December 31, December 31, December 31, 1995 1994 1995 1994 1995 1994 ---- ---- ---- ---- ---- ---- Hancock Bank MS 17.98% 15.93% 17.18% 15.10% 9.26% 8.12% Hancock Bank LA 22.35 19.77 21.10 19.77 9.61 9.43 Denham 11.50 -- 10.25 -- 7.38 -- Company 18.64 18.53 17.69 17.58 9.28 8.84
Risk-based capital requirements are intended to make regulatory capital more sensitive to risk elements of the Company. Currently, the Company is required to maintain a minimum risk-based capital ratio of 8.0%, with not less than 4.0% in Tier 1 capital. In addition, the Company must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 3.0% based upon the regulator's latest composite rating of the institution. RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires the investment portfolio to be classified into one of three reporting categories, held-to-maturity, available-for-sale or trading. On December 29, 1995, as permitted by "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" issued by the Financial Accounting Standards Board, the Company reclassified securities with a book value of $67,789,000 and unrealized gains of $251,000 from securities held-to-maturity to securities available-for-sale. The Company's adoption of this statement in 1994 did not have a material effect on its financial statements. IMPACT OF INFLATION: Unlike most industrial companies, the assets and liabilities of financial -35- 36 institutions such as the Banks are primarily monetary in nature. Therefore, interest rates have a more significant effect on the Banks' performance than the effect of general levels of inflation on the price of goods and services. Interest rates earned and paid by the Banks are affected to a degree by the rate of inflation, and noninterest income and expenses can be affected by increasing rates of inflation; however, the Company believes that the effects of inflation are generally manageable through asset/liability management. -36- 37 ITEM 2 - PROPERTIES The Company's main offices are located at One Hancock Plaza, Gulfport, Mississippi. The building has fourteen stories, of which seven are utilized by the Company. The remaining seven stories are presently leased to outside parties. The building is leased from the City of Gulfport in connection with an urban development revenue bond issue with a present balance of $2,035,000. The lease payments by Hancock Bank MS, which are equivalent in amount to the payments of principal and interest on the bonds, are used by the City to make payments on the bonds. Hancock Bank MS, however, effectively has ownership of the building since title will revert when all outstanding bonds have been paid. For this reason, the Company carries the building as an asset and the bonds as a long term payable on its balance sheet. The bonds mature at various dates through 1997. The following banking offices in Mississippi and Louisiana are held in fee (number of locations shown in parenthesis): Albany, LA (1) Gulfport, MS (6) Angie, LA (1) Long Beach, MS (2) Baker, LA (2) Lyman, MS (1) Baton Rouge, LA (12) Moss Point, MS (2) Bay St. Louis, MS (2) Mt. Hermon, LA (1) Biloxi, MS (3) Ocean Springs, MS (2) Bogalusa, LA (2) Pascagoula, MS (4) Denham Springs, LA (4) Pass Christian, MS (1) D'Iberville, MS (1) Picayune, MS (2) Escatawpa, MS (1) Poplarville, MS (1) Franklinton, LA (2) Walker, LA (1) French Settlement, LA (1) Waveland, MS (1) Gautier, MS (1) The following banking offices in Mississippi and Louisiana are leased under agreements with unexpired terms of from one to twelve years including renewal options (number of locations shown in parenthesis): Baton Rouge, LA (5) Pascagoula, MS (1) Bay St. Louis, MS (2) Picayune, MS (2) Biloxi, MS (1) Springfield, LA (1) Diamondhead, MS (1) Vancleave, MS (1) Gulfport, MS (5) -37- 38 In addition to the above, Hancock Bank MS owns land and other properties acquired through foreclosures of loans. The major item is approximately 3,700 acres of timber land in Hancock County, Mississippi, which Hancock Bank MS acquired by foreclosure in the 1930's. ITEM 3 - LEGAL PROCEEDINGS The Company is party to various legal proceedings arising in the ordinary course of business. In the opinion of management, after consultation with outside legal counsel, all such matters are adequately covered by insurance or, if not so covered, are not expected to have a material adverse effect on the financial condition of the Company. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information under the caption "Market Information" on page 6 of the Company's 1995 Annual Report to Stockholders is incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA The information under the caption "Consolidated Summary of Selected Financial Information" on Page 7 of the Company's 1995 Annual Report to Stockholders is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on Pages 33 and 34 of the Company's 1995 Annual Report to Stockholders is incorporated herein by reference. -38- 39 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Company and subsidiaries, and the independent auditors' report, appearing on Pages 18 through 32 of the Company's 1995 Annual Report to Stockholders is incorporated herein by reference: Consolidated Balance Sheets on Page 18 Consolidated Statements of Earnings on Page 19 Consolidated Statements of Stockholders' Equity on Page 20 Consolidated Statements of Cash Flow on Page 21 Notes to Consolidated Financial Statements on Pages 22 through 31 Independent Auditors' Report on Page 32 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's independent accountants and auditors on any matter of accounting principles or practices or financial statement disclosure. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information concerning this item, see "Election of Directors" (Pages 2-7) and "Management Compensation" (Pages 15-20) in the Proxy Statement for the Annual Meeting of Stockholders held February 22, 1996, which was filed by the Registrant in definitive form with the Commission on January 23, 1996, and is incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION For information concerning this item see "Management Compensation" (Pages 15-20) in the Proxy Statement for the Annual Meeting of Stockholders held February 22, 1996, which was filed by the Registrant in definitive form with the Commission on January 23, 1996, and is incorporated herein by reference. -39- 40 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT For information concerning this item see "Principal Stockholders" (Page 12) and "Election of Directors" (Pages 2-7) in the Proxy Statement for the Annual Meeting of Stockholders held February 22, 1996, which was filed by the Registrant in definitive form with the Commission on January 23, 1996, and is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information concerning this item see "Certain Transactions and Relationships" (Page 21) in the Proxy Statement for the Annual Meeting of Stockholders held February 22, 1996, which was filed by the Registrant in definitive form with the Commission on January 23, 1996, and is incorporated herein by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K HANCOCK HOLDING COMPANY AND CONSOLIDATED SUBSIDIARIES (a) 1. and 2. Consolidated Financial Statements: The following have been incorporated herein from the Company's 1995 Annual Report to Stockholders and are incorporated herein by reference: - Independent Auditors' Report - Consolidated Balance Sheets as of December 31, 1995 and 1994 - Consolidated Statements of Earnings for the three years ended December 31, 1995 - Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1995 - Consolidated Statements of Cash Flows for the three years ended December 31, 1995 - Notes to Consolidated Financial Statements for the three years ended December 31, 1995 All other financial statements and schedules are omitted as the required information is inapplicable or the required information is presented in the -40- 41 consolidated financial statements or related notes. (a) 3. Exhibits: (2.1) Agreement and Plan of Merger dated May 30, 1985, among Hancock Holding Company, Hancock Bank and Pascagoula-Moss Point Bank (filed as Exhibit 2 to the Registrant's Form 8-K dated June 6, 1985, and incorporated herein by reference). (2.2) Amendment dated July 9, 1985, to Agreement and Plan of Merger dated May 30, 1985, among Hancock Holding Company, Hancock Bank and Pascagoula-Moss Point Bank (filed as Exhibit 19 to Registrant's Form 10-Q for the quarter ended June 30, 1985, and incorporated herein by reference). (2.3) Stock Purchase Agreement dated February 12, 1990, among Hancock Holding Company, Metropolitan Corporation and Metropolitan National Bank (filed as Exhibit 2.3 to Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (2.4) Modified Purchase and Assumption Agreement dated August 2, 1990, among Hancock Bank of Louisiana and the Federal Deposit Insurance Corporation, receiver of American Bank and Trust Company of Baton Rouge, Louisiana (filed as Exhibit 2.1 to the Registrant's Form 10-Q for the quarter ended June 30, 1990, and incorporated herein by reference). (2.5) Agreement and Plan of Reorganization dated November 30, 1993, among Hancock Holding Company, Hancock Bank of Louisiana and First State Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana (filed as Exhibit 2.5 to the Registrant's Form 10-K dated December 31, 1993). (2.6) Agreement and Plan of Reorganization dated July 6, 1994, among Hancock Holding Company and Washington Bancorp, Franklinton, Louisiana (filed as Exhibit 2 to the Registrant's Form S-4, Registration Number 33- 56505, dated November 16, 1994). (2.7) Agreement and Plan of Reorganization dated August 20, 1994, among -41- 42 Hancock Holding Company and First Denham Bancshares, Inc., Denham Springs, Louisiana (filed as Exhibit 2 to the Registrant's Form S-4, Registration Number 33-56285, dated November 2, 1994). (3.1) Amended and Restated Articles of Incorporation dated November 8, 1990 (filed as Exhibit 3.1 to the Registrant's Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). (3.2) Amended and Restated Bylaws dated November 8, 1990 (filed as Exhibit 3.2 to the Registrant's Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). (3.3) Articles of Amendment to the Articles of Incorporation of Hancock Holding Company, dated October 16, 1991 (filed as Exhibit 4.1 to the Registrant's Form 10-Q for the quarter ended September 30, 1991). (3.4) Articles of Correction, filed with Mississippi Secretary of State on November 15, 1991 (filed as Exhibit 4.2 to the Registrant's Form 10-Q for the quarter ended September 30, 1991). (3.5) Articles of Amendment to the Articles of Incorporation of Hancock Holding Company, adopted February 13, 1992 (filed as Exhibit 3.5 to the Registrant's Form 10-K for the year ended December 31, 1992, and incorporated herein by reference). (3.6) Articles of Correction, filed with Mississippi Secretary of State on March 2, 1992 (filed as Exhibit 3.6 to the Registrant's Form 10-K for the year ended December 31, 1992, and incorporated herein by reference). (4.1) Specimen stock certificate (reflecting change in par value from $10.00 to $3.33, effective March 6, 1989) (filed as Exhibit 4.1 to the Registrant's Form 10-Q for the quarter ended March 31, 1989, and incorporated herein by reference). (4.2) By executing this Form 10-K, the Registrant hereby agrees to deliver to the Commission upon request copies of instruments defining the rights of holders of long-term debt of the Registrant or its consolidated subsidiaries or its unconsolidated subsidiaries for which financial statements are required to be filed, where the total amount of such securities authorized thereunder does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. -42- 43 (10.1) 1996 Long Term Incentive Plan (described on pages 8-12 of the Registrant's definitive Proxy Statement for its annual shareholders' meeting on February 22, 1996, filed with the Registrant's definitive proxy materials on January 23, 1996, and in full text at Exhibit A). (10.2) Description of Hancock Bank Executive Supplemental Reimbursement Plan, as amended (provided on page 19 of the Registrant's definitive Proxy Statement for its annual shareholders' meeting on February 22, 1996, filed with the Registrant's definitive proxy materials on January 23, 1996, and incorporated herein by reference). (10.3) Description of Hancock Bank Automobile Plan (provided on page 19 of the Registrant's definitive Proxy Statement for its annual shareholders' meeting on February 22, 1996, filed with the Registrant's definitive proxy materials on January 23, 1996, and incorporated herein by reference). (10.4) Description of Deferred Compensation Arrangement for Directors (provided on pages 15-20 of the Registrant's definitive Proxy Statement for its annual shareholders' meeting on February 22, 1996, filed with the Registrant's definitive proxy materials on January 23, 1996, and incorporated herein by reference). (10.5) Site Lease Agreement between Hancock Bank and City of Gulfport, Mississippi dated as of March 1, 1989 (filed as Exhibit 10.4 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (10.6) Project Lease Agreement between Hancock Bank and City of Gulfport, Mississippi dated as of March 1, 1989 (filed as Exhibit 10.5 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). -43- 44 (10.7) Deed of Trust dated as of March 1, 1989, from Hancock Bank to Deposit Guaranty National Bank as trustee (filed as Exhibit 10.6 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (10.8) Trust Indenture between City of Gulfport, Mississippi and Deposit Guaranty National Bank dated as of March 1, 1989 (filed as Exhibit 10.7 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (10.9) Guaranty Agreement dated as of March 1, 1989, from Hancock Bank to Deposit Guaranty National Bank as trustee (filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (10.10) Bond Purchase Agreement dated as of February 23, 1989, among Hancock Bank, J. C. Bradford and Co. and City of Gulfport, Mississippi (filed as Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (13) Annual Report to Stockholders for the year ending December 31, 1995 (furnished for the information of the Commission only and not deemed "filed" except for those portions which are specifically incorporated herein by reference). (21) Proxy Statement for the Registrant's Annual Meeting of Shareholders on February 22, 1996 (deemed "filed" for the purposes of this Form 10-K only for those portions which are specifically incorporated herein by reference). -44- 45 (22) Subsidiaries of the Registrant.
Jurisdiction Holder of Name Of Incorporation Outstanding Stock (1) ---- ---------------- --------------------- Hancock Bank Mississippi Hancock Holding Company Hancock Bank of Louisiana Louisiana Hancock Holding Company First National Bank of Denham Springs Louisiana Hancock Holding Company Hancock Bank Securities Corporation Mississippi Hancock Bank Hancock Insurance Agency Mississippi Hancock Bank Town Properties, Inc. Mississippi Hancock Bank The Gulfport Building, Inc. of Mississippi Mississippi Hancock Bank Harrison Financial Services, Inc. Mississippi Hancock Bank Hancock Mortgage Corporation Mississippi Hancock Bank and Hancock Securities Corp. Harrison Life Insurance Mississippi 79% owned by Hancock Company Bank Hancock Investment Services Mississippi Hancock Bank
(1) All are 100% owned except as indicated. (23) Independent Auditors' Consent. (27) Selected financial data. -45- 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 DATE March 26, 1996 /s/ Leo W. Seal, Jr. -------------------------- ------------------------------ By Leo W. Seal, Jr., President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Leo W. Seal, Jr. President and Director March 26, 1996 - ------------------------------ (Principal Executive, Leo W. Seal, Jr. Financial, and Accounting Officer) /s/ Joseph F. Boardman, Jr. Director, March 26, 1996 - ------------------------------ Chairman of the Board Joseph F. Boardman, Jr. /s/ Thomas W. Milner, Jr. Director March 26, 1996 - ------------------------------ Thomas W. Milner, Jr. /s/ George A. Schloegel Director, March 26, 1996 - ------------------------------ Vice-Chairman of the Board George A. Schloegel /s/ Dr. Homer C. Moody, Jr. Director March 26, 1996 - ------------------------------ Dr. Homer C. Moody, Jr. /s/ James B. Estabrook, Jr. Director March 26, 1996 - ------------------------------ James B. Estabrook, Jr. /s/ Charles H. Johnson Director March 26, 1996 - ------------------------------ Charles H. Johnson /s/ L. A. Koenenn, Jr. Director March 26, 1996 - ------------------------------ L. A. Koenenn, Jr. /s/ Victor Mavar Director March 26, 1996 - ------------------------------ Victor Mavar -46- 47 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION ------- ----------- (2.1) Agreement and Plan of Merger dated May 30, 1985, among Hancock Holding Company, Hancock Bank and Pascagoula-Moss Point Bank (filed as Exhibit 2 to the Registrant's Form 8-K dated June 6, 1985, and incorporated herein by reference). (2.2) Amendment dated July 9, 1985, to Agreement and Plan of Merger dated May 30, 1985, among Hancock Holding Company, Hancock Bank and Pascagoula-Moss Point Bank (filed as Exhibit 19 to Registrant's Form 10-Q for the quarter ended June 30, 1985, and incorporated herein by reference). (2.3) Stock Purchase Agreement dated February 12, 1990, among Hancock Holding Company, Metropolitan Corporation and Metropolitan National Bank (filed as Exhibit 2.3 to Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (2.4) Modified Purchase and Assumption Agreement dated August 2, 1990, among Hancock Bank of Louisiana and the Federal Deposit Insurance Corporation, receiver of American Bank and Trust Company of Baton Rouge, Louisiana (filed as Exhibit 2.1 to the Registrant's Form 10-Q for the quarter ended June 30, 1990, and incorporated herein by reference). (2.5) Agreement and Plan of Reorganization dated November 30, 1993, among Hancock Holding Company, Hancock Bank of Louisiana and First State Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana (filed as Exhibit 2.5 to the Registrant's Form 10-K dated December 31, 1993). (2.6) Agreement and Plan of Reorganization dated July 6, 1994, among Hancock Holding Company and Washington Bancorp, Franklinton, Louisiana (filed as Exhibit 2 to the Registrant's Form S-4, Registration Number 33-56505, dated November 16, 1994). (2.7) Agreement and Plan of Reorganization dated August 20, 1994, among 48 Hancock Holding Company and First Denham Bancshares, Inc., Denham Springs, Louisiana (filed as Exhibit 2 to the Registrant's Form S-4, Registration Number 33-56285, dated November 2, 1994). (3.1) Amended and Restated Articles of Incorporation dated November 8, 1990 (filed as Exhibit 3.1 to the Registrant's Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). (3.2) Amended and Restated Bylaws dated November 8, 1990 (filed as Exhibit 3.2 to the Registrant's Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). (3.3) Articles of Amendment to the Articles of Incorporation of Hancock Holding Company, dated October 16, 1991 (filed as Exhibit 4.1 to the Registrant's Form 10-Q for the quarter ended September 30, 1991). (3.4) Articles of Correction, filed with Mississippi Secretary of State on November 15, 1991 (filed as Exhibit 4.2 to the Registrant's Form 10-Q for the quarter ended September 30, 1991). (3.5) Articles of Amendment to the Articles of Incorporation of Hancock Holding Company, adopted February 13, 1992 (filed as Exhibit 3.5 to the Registrant's Form 10-K for the year ended December 31, 1992, and incorporated herein by reference). (3.6) Articles of Correction, filed with Mississippi Secretary of State on March 2, 1992 (filed as Exhibit 3.6 to the Registrant's Form 10-K for the year ended December 31, 1992, and incorporated herein by reference). (4.1) Specimen stock certificate (reflecting change in par value from $10.00 to $3.33, effective March 6, 1989) (filed as Exhibit 4.1 to the Registrant's Form 10-Q for the quarter ended March 31, 1989, and incorporated herein by reference). (4.2) By executing this Form 10-K, the Registrant hereby agrees to deliver to the Commission upon request copies of instruments defining the rights of holders of long-term debt of the Registrant or its consolidated subsidiaries or its unconsolidated subsidiaries for which financial statements are required to be filed, where the total amount of such securities authorized thereunder does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. 49 (10.1) 1996 Long Term Incentive Plan (described on pages 8-12 of the Registrant's definitive Proxy Statement for its annual shareholders' meeting on February 22, 1996, filed with the Registrant's definitive proxy materials on January 23, 1996, and in full text at Exhibit A). (10.2) Description of Hancock Bank Executive Supplemental Reimbursement Plan, as amended (provided on page 19 of the Registrant's definitive Proxy Statement for its annual shareholders' meeting on February 22, 1996, filed with the Registrant's definitive proxy materials on January 23, 1996, and incorporated herein by reference). (10.3) Description of Hancock Bank Automobile Plan (provided on page 19 of the Registrant's definitive Proxy Statement for its annual shareholders' meeting on February 22, 1996, filed with the Registrant's definitive proxy materials on January 23, 1996, and incorporated herein by reference). (10.4) Description of Deferred Compensation Arrangement for Directors (provided on pages 15-20 of the Registrant's definitive Proxy Statement for its annual shareholders' meeting on February 22, 1996, filed with the Registrant's definitive proxy materials on January 23, 1996, and incorporated herein by reference). (10.5) Site Lease Agreement between Hancock Bank and City of Gulfport, Mississippi dated as of March 1, 1989 (filed as Exhibit 10.4 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (10.6) Project Lease Agreement between Hancock Bank and City of Gulfport, Mississippi dated as of March 1, 1989 (filed as Exhibit 10.5 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). 50 (10.7) Deed of Trust dated as of March 1, 1989, from Hancock Bank to Deposit Guaranty National Bank as trustee (filed as Exhibit 10.6 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (10.8) Trust Indenture between City of Gulfport, Mississippi and Deposit Guaranty National Bank dated as of March 1, 1989 (filed as Exhibit 10.7 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (10.9) Guaranty Agreement dated as of March 1, 1989, from Hancock Bank to Deposit Guaranty National Bank as trustee (filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (10.10) Bond Purchase Agreement dated as of February 23, 1989, among Hancock Bank, J. C. Bradford and Co. and City of Gulfport, Mississippi (filed as Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). (13) Annual Report to Stockholders for the year ending December 31, 1995 (furnished for the information of the Commission only and not deemed "filed" except for those portions which are specifically incorporated herein by reference). (21) Proxy Statement for the Registrant's Annual Meeting of Shareholders on February 22, 1996 (deemed "filed" for the purposes of this Form 10-K only for those portions which are specifically incorporated herein by reference). 51 (22) Subsidiaries of the Registrant (included as part of this Form 10-K on page 45). (23) Independent Auditors' Consent. (27) Selected financial data. EX-13 2 ANNUAL REPORT 1 HANCOCK HOLDING COMPANY AND SUBSIDIARIES FINANCIAL HIGHLIGHTS Amounts in thousands (except per share data)
1995 1994 % Change ----------- ------------ ----------- EARNINGS STATEMENT DATA: Net interest income $ 100,367 $ 86,282 16.32 Provision for loan losses 4,425 1,998 121.47 Earnings before income taxes 40,082 33,623 19.21 Net earnings 27,017 23,130 16.81 PER SHARE DATA: Net earnings $ 3.05 $ 2.86 6.64 Cash dividends paid 0.96 0.92 4.35 Book value (period end) 25.24 22.49 12.23 Weighted average shares outstanding 8,853 8,099 9.31 Shares outstanding 12/31 8,880 8,105 9.56 BALANCE SHEET DATA (PERIOD END): Securities $ 848,306 $ 867,340 (2.19) Net loans 1,034,978 925,665 11.81 Reserve for loan losses 17,391 15,372 13.13 Total assets 2,234,286 2,026,929 10.23 Total deposits 1,927,681 1,775,664 8.56 Long-term bonds 2,035 2,955 (31.13) Total stockholders' equity 224,179 182,277 22.99 BALANCE SHEET DATA (AVERAGE FOR THE YEAR): Securities $ 895,150 $ 923,545 (3.07) Net loans 1,000,907 906,342 10.43 Reserve for loan losses 16,532 15,251 8.40 Total assets 2,215,526 2,043,275 8.43 Total deposits 1,854,668 1,789,499 3.64 Long-term bonds 2,799 4,136 (32.33) Total stockholders' equity 215,734 174,938 23.32 PERFORMANCE RATIOS (%): Return on average assets 1.22 1.13 7.96 Return on average stockholders' equity 12.50 13.22 (5.45) Reserve for loan losses to average net loans 1.74 1.70 2.35 Reserve for loan losses to non-performing loans 325.86 354.19 (8.00) Net charge-offs to average net loans 0.35 0.21 66.67 Net interest margin 5.13 4.75 8.00 CAPITAL RATIOS (%): REQUIRED MINIMUM ---------------- Primary capital 10.03 9.02 -- Tier 1 leverage 9.28 8.84 3%-5% Tier 1 risk-based 17.69 17.58 4% Total risk-based 18.64 18.53 8%
5 2 HANCOCK HOLDING COMPANY AND SUBSIDIARIES DESCRIPTION OF BUSINESS Hancock Holding Company (the "Company") is a bank holding company headquartered in Gulfport, Mississippi with total consolidated assets of approximately $2.2 billion at December 31, 1995. The Company operates a total of 73 banking offices and 102 automated teller machines ("ATMs") in the states of Mississippi and Louisiana through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi , Hancock Bank of Louisiana, Baton Rouge, Louisiana and First National Bank of Denham Springs, Denham Springs, Louisiana (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. SUMMARY OF QUARTERLY OPERATING RESULTS
1995 1994 ----------------------------------------- ----------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH -------- ------- ------- -------- -------- ------- ------- ------- (Amounts in thousands, except per share data) Net interest income $ 24,105 $ 25,147 $ 25,407 $ 25,708 $ 20,209 $ 20,953 $ 22,145 $ 22,975 Provision for loan losses 175 1,002 1,140 2,108 463 366 494 675 Earnings before income taxes 10,122 9,878 10,080 10,002 7,772 8,051 9,167 8,633 Net earnings 6,780 6,612 6,719 6,906 5,465 5,405 6,307 5,953 Net earnings per share $ 0.76 $ 0.75 $ 0.75 $ 0.79 $ 0.68 $ 0.66 $ 0.78 $ 0.74
MARKET INFORMATION The Company's common stock trades on the NASDAQ National Market System under the symbol "HBHC" and is listed in the newspaper under NASDAQ market quotations under "HancHd." The following table sets forth the high and low sale prices of the Company's common stock as reported on the NASDAQ National Market System. These prices do not reflect retail mark-ups, mark-downs or commissions.
CASH HIGH LOW DIVIDENDS SALE SALE PAID ------ ------ ----- 1995 1st Quarter $30.25 $28.75 $0.23 2nd Quarter $31.75 $29.25 $0.23 3rd Quarter $36.75 $30.75 $0.25 4th Quarter $38.00 $35.50 $0.25 1994 1st Quarter $33.00 $28.50 $0.23 2nd Quarter $29.75 $26.25 $0.23 3rd Quarter $30.00 $28.00 $0.23 4th Quarter $30.00 $28.50 $0.23
On January 3, 1996, the high and low sale prices of the Company's common stock as reported on the NASDAQ National Market System were $37.50 and $36.50, respectively. The principal source of funds to the Company to pay cash dividends are the earnings of the Bank subsidiaries. Consequently, dividends are dependent upon earnings, capital needs, regulatory policies and other policies affecting the Banks. For example, federal and state banking laws and regulations restrict the amount of dividends and loans a bank may make to its parent company. Dividends paid to the Company by Hancock Bank are subject to approval by the Commissioner of Banking and Consumer Finance of the State of Mississippi. The Company's management does not expect regulatory restrictions to affect its policy of paying cash dividends, although no assurance can be given that Hancock Holding Company will continue to declare and pay regular quarterly cash dividends on its common stock. However, since 1937, the Company or its predecessor has paid regular cash dividends without interruption. 6 3 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED SUMMARY OF SELECTED FINANCIAL INFORMATION Amounts In Thousands (except for share and per share data)
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ---------- ------------ ----------- ----------- INTEREST INCOME: Interest and Fees on Loans $ 97,626 $ 82,563 $ 80,176 $ 80,434 $ 84,554 Income on Federal Funds Sold 5,820 3,832 3,603 4,196 7,330 Interest and Dividends on Investments 58,083 49,884 49,936 53,898 46,531 ----------- ---------- ------------ ----------- ----------- TOTAL INTEREST INCOME 161,529 136,279 133,715 138,528 138,415 ----------- ---------- ------------ ----------- ----------- INTEREST EXPENSE: Interest on Deposits 57,612 48,193 46,935 54,649 70,059 Interest on Federal Funds Purchased 3,082 1,472 1,021 1,408 3,366 Interest on Bonds and Notes 468 332 440 652 2,288 ----------- ---------- ------------ ----------- ----------- TOTAL INTEREST EXPENSE 61,162 49,997 48,396 56,709 75,713 ----------- ---------- ------------ ----------- ----------- NET INTEREST INCOME 100,367 86,282 85,319 81,819 62,702 Provision for Loan Losses 4,425 1,998 4,632 7,978 5,003 ----------- ---------- ------------ ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 95,942 84,284 80,687 73,841 57,699 Other Income 23,956 20,557 22,153 21,225 21,652 Other Expenses 79,816 71,218 67,450 65,935 60,892 ----------- ---------- ------------ ----------- ----------- Earnings before Income Taxes 40,082 33,623 35,390 29,131 18,459 Income Taxes 13,065 10,493 10,528 7,721 4,576 ----------- ---------- ------------ ----------- ----------- NET EARNINGS $ 27,017 $ 23,130 $ 24,862 $ 21,410 $ 13,883 =========== ========== ============ =========== =========== PER COMMON SHARE: Net Earnings $ 3.05 $ 2.86 $ 3.07 $ 2.65 $ 2.08 Cash Dividends .96 .92 .90 .68 .60 Stock Splits and Dividends 2 for 1 Weighted Average Number of Shares 8,852,809 8,099,162 8,092,885 8,092,885 6,664,885 RETURN ON AVERAGE ASSETS 1.22% 1.13% 1.27% 1.17% 0.84% BALANCE SHEET DATA DECEMBER 31: Total Assets $ 2,234,286 $2,026,929 $ 1,988,125 $ 1,899,709 $ 1,719,805 Total Deposits 1,927,681 1,775,664 1,759,189 1,693,255 1,512,365 Total Long-Term Debt and Capital Notes 2,035 2,955 4,300 5,727 7,898 Stockholders' Equity 224,179 182,277 166,712 148,822 132,731
On August 9, 1991, Hancock Bank acquired certain assets and assumed the liabilities of Peoples Federal Savings Association (PEOPLES). This acquisition was accounted for as a purchase and the results of operations since the date of acquisition have been included in the consolidated statements of earnings. On April 29, 1994, the Company merged Hancock Bank of Louisiana, a wholly-owned subsidiary of the Company, with First State Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana (BAKER). On February 1, 1995, the Company merged Hancock Bank of Louisiana with Washington Bank and Trust Company, Franklinton, Louisiana (WASHINGTON). These mergers were accounted for using the pooling-of-interest method, and, therefore, all prior years' financial information has been restated. On January 13, 1995, the Company acquired First Denham Bancshares, Inc., Denham Springs, Louisiana, which owned 100% of the stock of First National Bank of Denham Springs (DENHAM). This acquisition was accounted for using the purchase method and the results of operations since the date of acquisition have been included in the consolidated statements of earnings. 7 4 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------------- 1995 1994 --------------- --------------- ASSETS: Cash and due from banks (non-interest bearing) $ 124,276,406 $ 120,531,961 Interest bearing time deposits with other banks 1,550,001 1,450,001 Securities available-for-sale (cost of $109,297,000 and $20,382,000) 109,776,725 19,747,208 Securities held-to-maturity (market value of $749,497,000 and $828,968,000) 738,528,901 847,592,567 Federal funds sold and securities purchased under agreements to resell 153,725,000 55,900,000 Loans 1,061,633,083 953,514,823 Less: Reserve for loan losses (17,390,847) (15,372,230) Unearned income (26,655,590) (27,849,928) --------------- --------------- Loans, net 1,017,586,646 910,292,665 Property and equipment 38,746,085 35,234,276 Other real estate 1,085,569 1,000,222 Accrued interest receivable 19,360,385 17,425,264 Other assets 29,650,269 17,755,227 --------------- --------------- TOTAL ASSETS $ 2,234,285,987 $ 2,026,929,391 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 468,445,574 $ 390,012,303 Interest bearing savings, NOW, money market and other time 1,459,235,318 1,385,651,650 --------------- --------------- Total Deposits 1,927,680,892 1,775,663,953 Federal funds purchased and securities sold under agreements to repurchase 66,585,313 54,296,358 Other liabilities 13,806,265 11,737,195 Long-term bonds 2,035,000 2,955,000 --------------- --------------- TOTAL LIABILITIES 2,010,107,470 1,844,652,506 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY: Common stock-$3.33 par value per share; 20,000,000 shares authorized, 9,021,949 and 8,247,851 shares issued and outstanding 30,043,090 27,465,344 Capital surplus 130,000,000 104,170,000 Undivided profits 63,823,349 51,056,611 Unrealized gain (loss) on securities available-for-sale 312,078 (415,070) --------------- --------------- TOTAL STOCKHOLDERS' EQUITY 224,178,517 182,276,885 --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,234,285,987 $ 2,026,929,391 =============== ===============
See notes to consolidated financial statements. 18 5 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- INTEREST INCOME: Interest and fees on loans $ 97,626,040 $ 82,562,712 $ 80,176,352 Interest on: U.S. Treasury securities 14,567,927 17,168,143 16,861,100 Obligations of other U.S. government agencies and corporations 33,726,484 24,771,874 24,874,164 Obligations of states and political subdivisions 3,526,973 3,193,334 3,379,388 Interest on federal funds sold and securities purchased under agreements to resell 5,820,225 3,831,582 3,603,493 Interest on time deposits and other 6,261,921 4,752,102 4,820,205 ------------- ------------- ------------- Total interest income 161,529,570 136,279,747 133,714,702 ------------- ------------- ------------- INTEREST EXPENSE: Interest on deposits 57,612,465 48,192,868 46,934,652 Interest on federal funds purchased and securities sold under agreements to repurchase 3,081,896 1,471,992 1,021,161 Interest on bonds and notes 468,029 332,051 439,833 ------------- ------------- ------------- Total interest expense 61,162,390 49,996,911 48,395,646 ------------- ------------- ------------- NET INTEREST INCOME 100,367,180 86,282,836 85,319,056 Provision for loan losses 4,424,701 1,998,367 4,631,983 ------------- ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 95,942,479 84,284,469 80,687,073 ------------- ------------- ------------- NON-INTEREST INCOME: Service charges on deposit accounts 15,040,119 12,389,600 11,822,927 Other service charges, commissions and fees 4,693,062 5,565,439 5,841,827 Securities gains (losses) (49,121) -- 783,468 Other 4,271,598 2,602,392 3,704,802 ------------- ------------- ------------- Total non-interest income 23,955,658 20,557,431 22,153,024 ------------- ------------- ------------- NON-INTEREST EXPENSE: Salaries and employee benefits 41,319,402 36,550,246 33,600,909 Net occupancy expense of premises 3,751,201 3,541,259 3,394,947 Equipment rentals, depreciation and maintenance 9,968,619 9,710,148 6,792,116 Other 24,777,018 21,416,772 23,662,010 ------------- ------------- ------------- Total non-interest expense 79,816,240 71,218,425 67,449,982 ------------- ------------- ------------- EARNINGS BEFORE INCOME TAXES 40,081,897 33,623,475 35,390,115 INCOME TAXES 13,065,000 10,493,058 10,528,049 ------------- ------------- ------------- NET EARNINGS $ 27,016,897 $ 23,130,417 $ 24,862,066 ============= ============= ============= NET EARNINGS PER COMMON SHARE $ 3.05 $ 2.86 $ 3.07 ============= ============= =============
See notes to consolidated financial statements. 19 6 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
UNREALIZED GAIN COMMON STOCK (LOSS) ------------------------- ON SECURITIES SHARES CAPITAL UNDIVIDED AVAILABLE-FOR ISSUED AMOUNT SURPLUS PROFITS SALE --------- ------------ ------------- ------------ ----------- BALANCE, JANUARY 1, 1993 As previously reported 7,705,201 $ 25,658,319 $ 84,168,834 $ 28,985,637 $ -- Merger with Washington accounted for as a pooling-of-interest 542,650 1,807,025 8,198,587 --------- ------------ ------------- ------------ ----------- As restated 8,247,851 27,465,344 84,168,834 37,184,224 -- Net earnings 24,862,066 Cash dividends-$.90 per share (6,460,171) Cash dividends paid by Baker (346,500) Cash dividends paid by Washington (161,688) Transfer from undivided profits 14,000,000 (14,000,000) --------- ------------ ------------- ------------ ----------- BALANCE, DECEMBER 31, 1993 8,247,851 27,465,344 98,168,834 41,077,931 -- Unrealized gain on securities available-for-sale 384,800 Net earnings 23,130,417 Cash dividends-$.92 per share (6,967,488) Cash dividends paid by Baker (86,625) Cash dividends paid by Washington (323,376) Transfer from undivided profits 5,774,248 (5,774,248) Change in unrealized gain on securities available-for-sale (799,870) Sale of common stock by subsidiary 226,918 --------- ------------ ------------- ------------ ----------- BALANCE, DECEMBER 31, 1994 8,247,851 27,465,344 104,170,000 51,056,611 (415,070) Net earnings 27,016,897 Cash dividends-$.96 per share (8,661,027) Change in unrealized loss on securities available-for-sale 727,148 Merger with Denham accounted for as a purchase 774,098 2,577,746 20,240,868 Transfer from undivided profits 5,589,132 (5,589,132) --------- ------------ ------------- ------------ ----------- BALANCE, DECEMBER 31, 1995 9,021,949 $ 30,043,090 $ 130,000,000 $ 63,823,349 $ 312,078 ========= ============ ============= ============ ===========
See notes to consolidated financial statements. 20 7 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, --------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings $ 27,016,897 $ 23,130,417 $ 24,862,066 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 4,343,507 4,440,327 3,931,838 Provision for loan losses 4,424,701 1,998,367 4,631,983 Provision for losses on real estate owned 179,119 104,625 174,796 Deferred income taxes (credit) (790,000) (519,611) 160,023 Losses (gains) on sales of securities 49,121 -- (783,468) Decrease (increase) in interest receivable (1,130,794) (2,385,935) 1,671,538 Amortization of intangible assets 2,450,553 1,473,756 1,513,500 Increase (decrease) in interest payable 1,869,527 759,623 (552,262) Other-net 680,968 (575,031) (7,591,250) ------------- ------------- ------------- Net cash provided by Operating Activities 39,093,599 28,426,538 28,018,764 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in interest bearing time deposits (100,000) 624,000 3,598,000 Proceeds and maturities of securities held-to-maturity 394,491,517 279,469,817 296,403,777 Purchases of securities held-to-maturity (363,531,311) (359,108,402) (282,657,472) Proceeds from sales and maturities of securities available-for-sale 6,502,389 1,035,000 -- Purchase of securities available-for-sale 1,831,268 -- -- Net (increase) decrease in federal funds sold and securities purchased under agreements to resell (96,725,000) 63,290,000 (31,885,000) Net increase in loans (39,410,863) (6,321,335) (86,225,725) Purchase of property and equipment, net (3,460,209) (3,900,479) (3,810,149) Proceeds from sales of other real estate 628,300 1,660,589 386,096 Net cash received in connection with purchase of Denham 7,872,000 -- -- ------------- ------------- ------------- Net cash used in Investing Activities (91,901,909) (23,250,810) (104,190,473) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 54,419,827 16,474,901 65,932,897 Dividends paid (8,661,027) (7,377,489) (6,968,359) Repayments of long-term bonds and notes (920,000) (1,345,000) (1,426,667) Net increase in federal funds purchased, securities sold under agreements to repurchase and other temporary funds 11,713,955 8,497,427 9,407,950 ------------- ------------- ------------- Net cash provided by Financing Activities 56,552,755 16,249,839 66,945,821 ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 3,744,445 21,425,567 (9,225,888) CASH AND DUE FROM BANKS, BEGINNING 120,531,961 99,106,394 108,332,282 ------------- ------------- ------------- CASH AND DUE FROM BANKS, ENDING $ 124,276,406 $ 120,531,961 $ 99,106,394 ============= ============= =============
See notes to consolidated financial statements. 21 8 HANCOCK HOLDING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS--Hancock Holding Company (the "Company") is a bank holding company headquartered in Gulfport, Mississippi operating in the states of Mississippi and Louisiana through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi, Hancock Bank of Louisiana, Baton Rouge, Louisiana and First National Bank of Denham Springs, Denham Springs, Louisiana (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. CONSOLIDATION--The consolidated financial statements of the Company include the accounts of the Company, the Banks, and other subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management 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 from those estimates. SECURITIES--Securities are being accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115, which was adopted effective January 1, 1994, requires the classification of securities into one of three categories: Trading, Available-for-Sale, or Held-to-Maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically. Trading account securities are held for resale in anticipation of short-term market movements. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities not classified as held-to-maturity or trading are classified as available-for-sale. The Company had no trading account securities during the three years ended December 31, 1995. Held-to-maturity securities are stated at amortized cost. Available-for-sale securities are stated at market value, with unrealized gains and losses, net of income taxes, reported as a separate component of stockholders' equity until realized. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Amortization, accretion and accrued interest are included in interest income on securities. Realized gains and losses, and declines in value judged to be other than temporary, are included in net securities gains. Gains and losses on the sale of securities available-for-sale are determined using the specific-identification method. The related income tax provision (credit) on securities gains (losses) was $(17,000) in 1995 and $270,000 in 1993. RESERVE FOR LOAN LOSSES--The reserve for loan losses is a valuation account available to absorb probable losses on loans. All losses are charged to the reserve for loan losses when the loss actually occurs or when a determination is made that a loss is likely to occur; recoveries are credited to the reserve for loan losses at the time of recovery. Periodically during the year management estimates the likely level of future losses to determine whether the reserve is adequate to absorb reasonable anticipated losses in the existing portfolio based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current economic conditions. Based on these estimates, the reserve for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). PROPERTY AND EQUIPMENT--Property and equipment are recorded at amortized cost. Depreciation is computed principally by the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the term of the lease or the asset's useful life. INTANGIBLE ASSETS--Intangible assets, which amounted to $16,865,000 and $3,588,000 at December 31, 1995 and 1994, respectively, include the values assigned to the core deposits of acquired banks which are being amortized over lives ranging from six to seven years using accelerated methods, and goodwill which is being amortized over fifteen years. OTHER REAL ESTATE--Other real estate acquired through foreclosure and bank acquisitions is stated at the lower of cost or fair market value, net of the costs of disposal. When a reduction to fair market value is required, it is charged to the reserve for loan losses at the time of foreclosure and any subsequent adjustments are charged to expense. Transfers from loans to other real estate amounted to approximately $574,000, $1,600,000 and $910,000 in 1995, 1994 and 1993, respectively. Loans made in connection with the sale of other real estate amounted to approximately $500,000, $900,000 and $1,200,000 in 1995, 1994 and 1993, respectively. Reserve balances associated with other real estate amounted to $822,000 and $760,000 in 1995 and 1994, respectively. 22 9 LOANS--Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. Interest on commercial and real estate mortgage loans is recorded as income based upon the principal amount outstanding. Unearned income on installment loans is credited to operations based on a method which approximates the interest method. Where doubt exists as to collectibility of a loan, the accrual of interest is discontinued and payments received are applied first to principal. Upon such discontinuances, all unpaid accrued interest is reversed. Interest income is recorded after principal has been satisfied and as payments are received. The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company's impaired loans include troubled debt restructurings, and performing and non-performing major loans in which full payment of principal or interest is not expected. The Company calculates a reserve required for impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of its collateral. Generally, loans of all types which become 90 days delinquent are in the process of collection through repossesion, foreclosure or have been deemed currently uncollectible. Loans deemed currently uncollectible are charged-off against the reserve account. As a matter of policy, loans are placed on a non-accrual status where doubt exists as to collectibility. TRUST FEES--Trust fees are recorded when received, which is the general practice within the banking industry. INCOME TAXES--Provisions for income taxes are based on taxes payable or refundable for the current year (after exclusion of non-taxable income such as interest on state and municipal securities) and deferred taxes on temporary differences between the amount of taxable income and pre-tax financial income and between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred taxes on temporary differences are calculated at the currently enacted tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. NET EARNINGS PER COMMON SHARE--Net earnings per share of common stock is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period, after giving retroactive effect to stock dividends and shares issued in acquisitions accounted for as pooling-of-interest. CASH--For the purpose of presentation in the Statements of Cash Flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and Due from Banks." NOTE 2--ACQUISITIONS On April 29, 1994, the Company merged Hancock Bank of Louisiana, a wholly-owned subsidiary of the Company, with First State Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana (BAKER). The merger was consummated by the exchange of all outstanding common stock of BAKER in return for approximately 527,000 shares of common stock of the Company. The merger was accounted for using the pooling-of-interest method. On February 1, 1995, the Company merged Hancock Bank of Louisiana, a wholly-owned subsidiary of the Company, with Washington Bank and Trust Company (WASHINGTON). The merger was consummated by the exchange of all outstanding common stock of WASHINGTON in return for approximately 543,000 shares of common stock of the Company. The merger was accounted for using the pooling-of-interest method, therefore all prior years' financial information has been restated. Net interest income and net earnings of the separate companies for the periods preceding the acquisition were as follows (in thousands):
JANUARY 1,1995 YEARS ENDED THROUGH DECEMBER 31, JANUARY 31, 1995 1994 1993 ---------------- ------- ------- Net interest income: Company $ 7,535 $82,050 $81,060 Washington 372 4,232 4,259 ------- ------- ------- Combined $ 7,907 $86,282 $85,319 ======= ======= ======= Net Earnings: Company $ 2,382 $21,795 $23,368 Washington 144 1,335 1,494 ------- ------- ------- Combined $ 2,526 $23,130 $24,862 ======= ======= =======
23 10 On January 13, 1995, the Company acquired First Denham Bancshares, Inc., for approximately $4,000,000 cash and 774,000 shares of common stock of the Company. First Denham Bancshares, Inc. owned 100% of the stock of First National Bank of Denham Springs (DENHAM). The acquisition was accounted for using the purchase method and the results of operations since January 13, 1995 are included in the consolidated statements of earnings. The excess of the purchase price over the value of the net tangible assets acquired was assigned to goodwill and is being amortized over 15 years. The following unaudited proforma consolidated results of operations (after restatement for the pooling referred to above) give effect to the acquisition of DENHAM as though it had occurred on January 1, 1994 (amounts in thousands, except for share amounts):
YEARS ENDED DECEMBER 31, ------------------------ 1995 1994 ------- ------- Net interest income after provision for loan losses $96,221 $91,580 Net earnings $27,092 $24,610 Net earnings per common share $3.05 $2.77
The unaudited proforma information is not necessarily indicative either of results of operations that would have occurred had the purchase been made as of January 1, 1994 or of future results of operations of the combined companies. In connection with the 1995 acquisition, liabilities were assumed as follows (in thousands): Fair value of tangible and intangible assets, excluding cash $120,407 Cash acquired, net of amount paid 7,872 Market value of common stock issued (22,819) -------- Liabilities assumed $105,460 ========
NOTE 3--SECURITIES The book and market values of securities classified as available-for-sale as of December 31, 1995 and 1994 were as follows (in thousands):
DECEMBER 31, 1995 DECEMBER 31, 1994 -------------------------------------- ------------------------------------- GROSS GROSS GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE -------- ----- -------- -------- ------- ------ -------- ------- U.S. Treasury securities $ 1,493 $ 2 $ 3 $ 1,492 $ -- $ -- $ -- $ -- Other U.S. gov. obligations 61,470 659 353 61,776 -- -- -- -- Municipal obligations 962 5 -- 967 997 -- 26 971 Other securities 544 -- 52 492 -- -- -- -- Mortgage-backed securities 5,140 101 21 5,220 -- -- -- -- CMO's 34,695 372 230 34,837 19,385 134 743 18,776 Equity securities 4,993 -- -- 4,993 -- -- -- -- -------- ----- -------- -------- ------- ------ -------- ------- $109,297 $,139 $ 659 $109,777 $20,382 $ 134 $ 769 $19,747 ======== ===== ======== ======== ======= ====== ======== =======
The book value and market value of the debt securities classified as available-for-sale at December 31, 1995, by estimated maturity, were as follows (in thousands):
BOOK MARKET VALUE VALUE --------- -------- Due in one year or less $ 6,053 $ 5,968 Due after one year through five years 89,654 90,097 Due after five years through ten years 8,014 8,122 Due after ten years 583 597 -------- -------- $104,304 $104,784 ======== ========
24 11 The book and market values of securities classified as held-to-maturity as of December 31, 1995 and 1994, were as follows (in thousands):
DECEMBER 31, 1995 DECEMBER 31, 1994 -------------------------------------- -------------------------------------- GROSS GROSS GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE ----- ----- ------ ----- ----- ----- ------ ----- U.S.Treasury securities $239,892 $ 4,074 $ 70 $243,896 $280,578 $ 362 $ 5,030 $275,910 Other U.S. gov. obligations 317,140 1,977 417 318,700 275,209 194 6,644 268,759 Municipal obligations 56,961 2,319 1,232 58,048 58,224 968 1,324 57,868 Other securities 11,027 1,891 -- 12,918 15,747 92 521 15,318 Mortgage-backed securities 50,427 3,881 1,706 52,602 129,028 349 4,129 125,248 CMO's 63,082 301 50 63,333 88,807 57 2,999 85,865 -------- ------- -------- -------- -------- ------ ------- -------- $738,529 $14,443 $ 3,475 $749,497 $847,593 $2,022 $20,647 $828,968 ======== ======= ======== ======== ======== ====== ======= ========
The book value and market value of securities classified as held-to-maturity as of December 31, 1995, by contractual maturity, were as follows (in thousands):
BOOK MARKET VALUE VALUE -------- -------- Due in one year or less $183,484 $184,132 Due after one year through five years 190,193 193,781 Due after five years through ten years 142,856 145,098 Due after ten years 221,996 226,486 -------- -------- $738,529 $749,497 ======== ========
Proceeds from sales of securities were $13,543,000 in 1995 and $9,765,000 in 1993. Gross gains of $16,000 in 1995 and $810,000 in 1993 and gross losses of $65,000 in 1995 and $27,000 in 1993 were realized on those sales. There were no sales of securities in 1994. On December 31, 1993, the Company reclassified securities with a book value of $28,244,000 and unrealized gains of $592,000 from investment securities to securities held-for-sale. On January 1, 1994, the Company reclassified these same securities to securities available-for-sale. On December 29, 1995 as permitted by A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities issued by the Financial Accounting Standards Board, the Company reclassified securities with a book value of $67,789,000 and unrealized gains of $251,000 from securities held-to-maturity to securities available-for-sale. Securities with a book value of approximately $387,000,000 at December 31, 1995 and $384,000,000 at December 31, 1994, were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law. The Company's collateralized mortgage obligations (CMO's) generally consist of first and second tranche sequential pay and/or planned amortization class (PAC) instruments. Interest income on CMO's and mortgage-backed securities is generally included with interest on obligations of other U.S. government agencies and corporations due to their guarantees of the underlying mortgages. NOTE 4-LOANS Loans consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1995 1994 ----------- ----------- Real estate loans-primarily mortgage $ 414,774 $ 381,965 Commercial and industrial loans 176,770 119,032 Loans to individuals for household, family and other consumer expenditures 441,712 428,673 Leases 13,570 10,074 Other loans 14,807 13,771 ----------- ----------- $ 1,061,633 $ 953,515 =========== ===========
25 12 Changes in the reserve for loan losses are as follows (in thousands):
1995 1994 1993 ----------- ---------- ---------- Balance at January 1 $ 15,372 $ 15,306 $ 14,682 Balance acquired through acquisition 1,147 -- -- Recoveries 1,830 1,517 1,668 Loans charged off (5,383) (3,449) (5,676) Provision charged to operating expense 4,425 1,998 4,632 ----------- ---------- ---------- Balance at December 31 $ 17,391 $ 15,372 $ 15,306 =========== ========== ==========
The Company generally makes loans in its market areas of South Mississippi and Southeastern Louisiana. Loans are made in the normal course of business to its directors and executive officers, and their associates on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Such loans did not involve more than normal risk of collectibility or contain other unfavorable features. The balance of loans to related parties at December 31, 1995 and 1994 was approximately $5,017,000 and $5,971,000, respectively. Non-accrual and renegotiated loans amounted to approximately 1% of total loans at December 31, 1995 and 1994. The amount of interest not accrued on these loans did not have a significant effect on earnings in 1995, 1994 or 1993. The Company's impaired loans amounted to approximately 1/2% of total loans at December 31, 1995 and the related reserve amount was not significant at that date. There was no significant change in these amounts during the year ended December 31, 1995. Interest income recognized on these loans amounted to approximately $300,000 for the year ended December 31, 1995. NOTE 5--PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization as follows (in thousands):
DECEMBER 31, -------------------------- 1995 1994 ----------- ---------- Land, buildings and leasehold improvements $ 41,207 $ 39,849 Furniture, fixtures and equipment 35,179 33,984 ----------- ---------- 76,386 73,833 Less accumulated depreciation and amortization 37,640 38,599 ----------- ---------- $ 38,746 $ 35,234 =========== ==========
NOTE 6--LONG-TERM BONDS Long-term bonds consist of Urban Development Refunding Revenue Bonds, with interest at 7% to 7.25%. Interest is payable semi-annually. Principal payments are payable in the amount of $985,000 in 1996 and $1,050,000 in 1997. The Urban Development Refunding Revenue Bonds are obligations of Hancock Bank and are collateralized by land and buildings with a book value of $11,400,000. The Bank has deposited with the bond trustee U.S. Treasury securities whose principal maturities and interest payments will be sufficient to service all future principal and interest payments due on the Urban Development Refunding Revenue Bonds. NOTE 7--STOCKHOLDER'S EQUITY Earnings per common share is based on the weighted average number of shares outstanding of approximately 8,853,000 in 1995, 8,099,000 in 1994 and 8,093,000 in 1993, reduced by shares of stock owned by subsidiaries. At December 31, 1995, these subsidiaries owned 141,044 shares of stock. Stockholders' equity of the Company includes the undistributed earnings of the subsidiary Banks. Dividends are payable only out of undivided profits or current earnings. Moreover, dividends to the Company's stockholders can generally be paid only from dividends paid to the Company by the Banks which, with respect to Hancock Bank, are subject to approval by the Commissioner of Banking and Consumer Finance of the State of Mississippi. The amount of capital of the subsidiary banks available for dividends at December 31, 1995 was approximately $65,000,000. 26 13 The Company and its bank subsidiaries are required to maintain certain minimum capital levels. At December 31, 1995, the Company and the banks were in compliance with their respective statutory minimum capital requirements. Following is a summary of the actual capital levels at December 31, 1995:
RISK-BASED CAPITAL RATIOS TIER 1 LEVERAGE ------------------------- --------------- TOTAL TIER 1 RATIO ------ ------ ----- Hancock Bank 17.98% 17.18% 9.26% Hancock Bank of Louisiana 22.35 21.10 9.61 First National Bank of Denham Springs 11.50 10.25 7.38 Company 18.64 17.69 9.28
Risk-based capital requirements are intended to make regulatory capital more sensitive to risk elements of the Company. Currently, the Company and its bank subsidiaries are required to maintain a minimum risk-based capital ratio of 8.0%, with not less than 4.0% in Tier 1 capital. In addition, the Company and its bank subsidiaries must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 3.0% based upon the regulators latest composite rating of the institutions. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") required each federal banking agency to implement prompt corrective actions for institutions that it regulates. The rules provide that an institution is "well capitalized" if its total risk-based capital ratio is 10% or greater, its Tier 1 risked-based capital ratio is 6% or greater, its leverage is 5% or greater and the institution is not subject to a capital directive. Under this regulation, the Company and each of its subsidiary banks are deemed to be "well capitalized" as of December 31, 1995 based upon the most recent notifications from their regulators. There are no conditions or events since those notifications that management believes would change their classifications. NOTE 8--INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method as required by Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." The cumulative effect of this accounting change did not have a significant effect on the Company's financial statements and was recorded in income tax expense in the year ended December 31, 1993. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1995 and 1994 are as follows (in thousands):
DECEMBER 31, --------------------------- Deferred tax assets: 1995 1994 ---------- ---------- Postretirement benefit obligation $ 653 $ 442 Reserve for loan losses not currently deductible 4,750 4,310 Reserve for other real estate not currently deductible 312 291 Deferred compensation 670 618 Lease accounting 117 117 Unrealized loss on securities available-for-sale -- 220 Other 353 125 ---------- ---------- $ 6,855 $ 6,123 ---------- ---------- Deferred tax liabilities: Tax over book depreciation (3,537) (3,306) Core deposit intangible (355) (770) Prepaid pension (772) (716) Unrealized gain on securities available-for-sale (168) -- Market discount accretion (618) (516) ---------- ---------- (5,450) (5,308) ---------- ---------- Net deferred tax asset $ 1,405 $ 815 ========== ==========
27 14 Income taxes consist of the following components (in thousands):
1995 1994 1993 ----------- ---------- ---------- Currently payable $ 13,855 $ 11,013 $ 10,368 Deferred (790) (520) 160 ----------- ---------- ---------- $ 13,065 $ 10,493 $ 10,528 =========== ========== ==========
Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 35% to earnings before income taxes. The reasons for these differences are as follows (in thousands):
1995 1994 1993 -------------- ------------- ------------- AMOUNT % AMOUNT % AMOUNT % -------- -- -------- -- -------- -- Taxes computed at statutory rate $ 14,029 35 $11,768 35 $ 12,387 35 Increases (decreases) in taxes resulting from: Tax exempt interest income (1,355) (3) (1,245) (4) (1,294) (4) Miscellaneous items - net 391 1 (30) - (565) (1) -------- -- -------- -- -------- -- Income tax expense $ 13,065 33 $10,493 31 $ 10,528 30 ======== == ======== == ======== ==
NOTE 9--EMPLOYEE BENEFIT PLANS The Company has a non-contributory pension plan covering substantially all salaried full-time employees who have been employed by the Company the required length of time. The Company's current policy is to contribute annually the minimum amount that can be deducted for federal income tax purposes. The benefits are based upon years of service and employee's compensation during the last five years of employment. Data relative to the pension plan follows (in thousands):
DECEMBER 31, --------------------- Actuarial present value of benefit obligations: 1995 1994 -------- -------- Vested benefit obligation $ 19,611 $ 17,835 ======== ======== Accumulated benefit obligation $ 19,674 $ 17,892 ======== ======== Projected benefit obligation for service rendered to date ($21,491) ($20,545) Plan assets at fair value 20,878 17,892 -------- -------- Projected benefit obligation in excess of plan assets (613) (2,653) Remaining unrecognized portion of net obligation being amortized over 15 years 274 320 Unrecognized prior service cost 843 935 Unrecognized net loss from past experience different from that assumed 1,858 3,404 -------- -------- Prepaid pension cost included in other assets $ 2,362 $ 2,006 ======== ========
YEARS ENDED DECEMBER 31, ------------------------- Net pension expense included the following (income) expense components: 1995 1994 1993 ------- ------- ------- Service cost - benefits earned during the period $ 836 $ 818 $ 698 Interest cost on projected benefit obligation 1,555 1,463 1,369 Return on plan assets (2,411) (93) (1,158) Net amortization and deferral 1,275 (1,112) (89) ------- ------ ------ Net pension expense $ 1,255 $ 1,076 $ 820 ======= ======= =======
The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.75% in 1995 and 1994. The expected rate of return on plan assets was 8% in 1995 and 1994. The plan's assets consist primarily of U.S. government and agency obligations, certificates of deposit and other fixed income obligations. The Company sponsors two defined benefit postretirement plans other than the pension plan that cover full time employees who have reached 45 years of age. One plan provides medical benefits and the other provides life insurance benefits. The postretirement health care plan is contributory, with retiree contributions adjusted annually and subject to certain employer contribution maximums; the life insurance plan in noncontributory. The actuarial and recorded liabilities 28 15 for these postretirement benefits, none of which have been funded, are as follows at December 31, 1995 and December 31, 1994 (in thousands):
DECEMBER 31, ------------------- 1995 1994 ------- ------- Accumulated postretirement benefit obligations: Retirees $ 1,397 $ 2,052 Fully eligible active plan participants 1,155 1,103 Other active plan participants 933 1,417 ------- ------- 3,485 4,572 Unrecognized transition obligation (2,293) (2,436) Unrecognized net (loss) gain 675 (873) ------- ------- Accrued postretirement benefit cost $ 1,867 $ 1,263
======= ======= Net periodic postretirement benefit costs for 1995, 1994 and 1993 included the following components (in thousands):
1995 1994 1993 ---- ---- ---- Amortization of unrecognized net gain (loss) $ 55 $ 18 $ (5) Service cost-benefits attributed to service during the year 264 200 162 Interest costs on accumulated postretirement benefit obligations 390 266 254 Amortization of transition obligation over 20 years 143 143 143 ---- ---- ---- Net periodic postretirement benefit cost $852 $627 $554 ==== ==== ====
For measurement purposes in 1995, a 9.5% annual rate of increase in the per capita cost of covered health care benefits was assumed. The rate was assumed to decrease gradually to 5.5% for 2003 and remain at that level thereafter. In 1994, rates of 9.5% and 5% were assumed, and in 1993, rates of 12% and 5.5% were assumed. The health care cost trend rate assumption has an affect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995, by $405,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $98,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% in 1995, 8.5% in 1994 and 7% in 1993. The Company has a non-contributory profit sharing plan covering substantially all salaried full-time employees who have been employed the required length of time. Contributions are made at the discretion of the Board of Directors and amounted to $456,000 in 1995, $413,000 in 1994 and $450,000 in 1993. In addition, the Company has an employee stock purchase plan that is designed to provide the employees of the Company a convenient means of purchasing common stock of the Company. Substantially all salaried, full-time employees , with the exception of Leo W. Seal, Jr., who have been employed by the Company the required length of time are eligible to participate, if they so elect. The Company contributes an amount equal to 25% of each participant's contribution, which contribution cannot exceed 5% of the employee's base pay. The Company's contribution amounted to $58,000 in 1995, $52,000 in 1994 and $45,000 in 1993. The postretirement plans relating to health care payments and life insurance and the stock purchase plan are not guaranteed and are subject to immediate cancellation and/or amendment. These plans are predicated on future Company profit levels that will justify their continuance. Overall health care costs are also a factor in the level of benefits provided and continuance of these postretirement plans. There are no vested rights under the postretirement health or life insurance plans. NOTE 10--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH, SHORT-TERM INVESTMENTS AND FEDERAL FUNDS SOLD--For those short-term instruments, the carrying amount is a reasonable estimate of fair value. SECURITIES--For securities, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS--The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS--The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. 29 16 LONG-TERM BONDS AND NOTES--Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. COMMITMENTS--The fair value of commitments to extend credit was not significant. The estimated fair values of the Company's financial instruments are as follows at December 31, 1995 and 1994 (in thousands):
DECEMBER 31, ----------------------------------------------------------- 1995 1994 ----------------------------------------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- --------- --------- --------- Financial assets: Cash, short-term investments and federal funds sold $ 279,551 $ 279,551 $ 177,882 $ 177,882 Securities available-for-sale 109,777 109,777 19,747 19,747 Securities held-to-maturity 738,529 749,497 847,593 828,968 Loans 1,034,978 1,024,316 925,665 920,093 Less: Reserve for loan losses (17,391) (17,391) (15,372) (15,372) ---------- ---------- --------- ---------- Loans, net of reserve 1,017,587 1,006,925 910,293 904,721 Financial liabilities: Deposits $1,927,681 $ 1,932,198 $1,775,664 $1,772,827 Federal funds purchased, etc. 66,585 66,585 54,296 54,296 Long-term bonds 2,035 2,014 2,955 2,700
NOTE 11--OFF-BALANCE-SHEET RISK 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 which are not reflected in the accompanying consolidated financial statements until they are funded or related fees are incurred or received. These instruments 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 nonperformance 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. These obligations are summarized below as of December 31, 1995 and 1994 (in thousands):
1995 1994 -------- -------- Commitments to extend credit $209,000 $165,000 Letters of credit 5,500 10,600
Approximately $154,000,000 of commitments to extend credit at December 31, 1995, were at variable rates and the remainder were at fixed rates. Most commitments to extend credit at December 31, 1994, were at variable rates. The difference between the interest rates on commitments to extend credit and market rates is reflected in the consolidated financial statements over the terms of the related loans when, and if, they are made. 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 creditworthiness 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. NOTE 12--CONTINGENCIES The Company is party to various legal proceedings arising in the ordinary course of business. In the opinion of management, after consultation with outside legal counsel, all such matters are adequately covered by insurance or, if not so covered, are not expected to have a material adverse effect on the financial condition of the Company. 30 17 NOTE 13--SUPPLEMENTAL INFORMATION The following is selected supplemental information for the years ended December 31, 1995, 1994, and 1993 (in thousands):
1995 1994 1993 ----------- ------------ ------------- Other non-interest income: Trust fee income $ 2,525 $ 2,500 $ 2,600 Other non-interest expense: Deposit insurance premium expense 2,221 4,164 3,766 Postage expense 2,354 2,319 1,670 Interest paid 60,910 49,260 48,771 Income taxes paid 13,600 10,951 11,100
NOTE 14--SUMMARIZED FINANCIAL INFORMATION OF HANCOCK HOLDING COMPANY (PARENT COMPANY ONLY) BALANCE SHEETS
December 31, --------------------------- 1995 1994 ---------- ------------- ASSETS: Investment in subsidiaries 224,137,396 $181,971,705 Other 42,250 317,171 ------------ ------------ $224,179,646 $182,288,876 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Accrued expenses 1,133 -- Stockholders' equity 224,178,513 182,288,876 =========== ============ $224,179,646 $182,288,876 =========== ============
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 ------------ ------------ ------------- Dividends received from subsidiaries $ 9,112,361 $ 7,297,502 $ 6,343,450 Excess equity in earnings of subsidiaries over dividends received 18,201,558 16,046,640 18,552,302 Interest and other expenses (398,472) (327,632) (56,738) Income tax credit 101,450 113,907 23,052 ------------ ----------- ----------- Net earnings $ 27,016,897 $ 23,130,417 $ 24,862,066 ============ ============ ============
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ Cash Flows from Operating Activities-principally dividends from subsidiaries $ 10,054,361 $ 6,928,267 $ 6,291,142 ------------ ------------ ------------ Cash Flows from Financing Activities-principally dividends paid (10,028,311) (6,967,488) (6,460,169) ------------ ------------ ------------ Net increase (decrease) in cash 26,050 (39,221) (169,027) Cash, Beginning 74,124 113,345 282,372 ------------ ------------ ------------ Cash, Ending $ 100,174 $ 74,124 $ 113,345 ============ ============ ============
31 18 INDEPENDENT AUDITORS' REPORT BOARD OF DIRECTORS AND STOCKHOLDERS HANCOCK HOLDING COMPANY GULFPORT, MISSISSIPPI We have audited the accompanying consolidated balance sheets of Hancock Holding Company and subsidiaries as of December 31, 1995 and 1994, and the related statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Hancock Holding Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 12, 1996 32 19 HANCOCK HOLDING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 The Company's net income was $27.0 million, $3.05 per share, for the year ended December 31, 1995, compared with $23.1 million, or $2.86 per share, for the year ended December 31, 1994. The increase in net income can be attributed to the acquisition of DENHAM which accounted for $1.4 million or 35 % of the $3.9 million increase and an increase in the net interest margin from an average of 4.75% in 1994 to 5.13% in 1995. The Banks' balance sheets are liability sensitive with deposits repricing faster than loans and investment securities. Non-interest income increased $3.4 million or 16.5% while non-interest expenses increased 12.1% or $8.6 million. This included the contribution by DENHAM of $2.6 million of non-interest income and $6.6 million of non-interest expenses. The provision for loan loss increased from $2 million to $4.4 million in 1995 as a result of increased loan charge-off activity and increased loan volume. The loan loss reserve balance was 1.74% of average loans and represented 326% of non-performing loan balances at December 31, 1995. FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 The Company's net income decreased to $23.1 million, $2.86 per share, for the year ended December 31, 1994, compared to $24.9 million, or $3.07 per share, for the year ended December 31, 1993. The merger of WASHINGTON was accounted for using the pooling-of-interest method, therefore all prior financial information has been restated. The change in net income was attributable in part to a 6% increase in non-interest expense and an 8% decline in non-interest income. Rising interest rates lowered the net interest margin causing net interest income to rise only slightly from the previous year even though earning assets grew 9%. A lower level of loan charge-offs in 1994 reduced loan loss expense from $4.6 million in 1993 to $2.0 million in 1994. The loan loss reserve balance was 1.70% of average loans in 1994 and represented 354% of non-performing loans at December 31, 1994. The net interest margin declined to 4.75% from 4.87% in 1993. The Company's balance sheet is liability sensitive as deposits tend to reprice faster than loans and investment securities. Therefore, in a rising interest rate environment the Company's net interest margin will decline. FINANCIAL CONDITION SECURITIES The Company generally purchases securities to be held to maturity, with a maturity schedule that provides ample liquidity. Securities classified as held-to-maturity are carried at amortized cost. Certain securities have been classified as available-for-sale based on management's internal assessment of the portfolio considering future liquidity and earning requirements. The December 31, 1995 book value of the held-to-maturity portfolio was $739 million and the market value was $749 million. The available-for-sale portfolio balance was $110 million at December 31, 1995. LOANS Average loans outstanding increased $94 million in 1995 bringing the December 31, 1995, net loan portfolio balances to $1 billion or 51% of earning assets. Loans acquired through the transaction accounted for as a purchase amounted to $72 million or 77% of the increase. Non-performing loans were $5.3 million or less than 1% of the December 31, 1995, loan balances. Restructured loans were insignificant and the amount of interest not accrued on non-performing loans did not significantly effect earnings in 1995, 1994 or 1993. The Company generally makes loans in its market areas of South Mississippi and Southeastern Louisiana. DEPOSITS Deposits increased $152 million bringing the total to $1.9 billion on December 31, 1995. Savings and time deposit balances increased 5%. Deposits acquired through the transaction accounted for as a purchase amounted to $105 million or 69% of the increase. Deposits are the Company's primary source of funds supporting its earning assets base. 33 20 LIQUIDITY Liquidity represents the Company's ability to provide funds to satisfy demands from depositors, borrowers and other commitments by either converting assets to cash or accessing new or existing sources of funds. The principal sources of funds which provide liquidity are customer deposits, payments of principal and interest on loans, maturities and sales of securities, earnings and borrowings. During 1994, the Company established a line of credit with the Federal Home Loan Bank in excess of $30 million, providing an additional liquidity source. At December 31, 1995, cash and due from banks, securities available-for-sale, federal funds sold and repurchase agreements were in excess of 20% of total deposits. CAPITAL RESOURCES Composite ratings by the respective regulatory authorities of the Company and Banks, establish minimum capital levels. Currently, the Company and the Banks are required to maintain minimum risk-based capital ratios of 8%, with not less that 4% in Tier 1 capital. Additionally, the Company and the Banks must maintain minimum Tier 1 leverage ratios of at least 3%, subject to increase to at least 4% to 5%, depending on the composite rating. As of December 31, 1995, the Company and the Banks capital balances were in excess of current regulatory minimum requirements. RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires the investment portfolio to be classified into one of three reporting categories, held-to-maturity, available-for-sale, or trading. On December 29, 1995 as permitted by A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities issued by the Financial Accounting Standards Board, the Company reclassified securities with a book value of $67,789,000 and unrealized gains of $251,000 from securities held-to-maturity to securities available-for-sale. The Company's adoption of this Statement in 1994 did not have a material effect on its financial statements. 34 21 GLOSSARY OF FINANCIAL TERMS BOOK VALUE PER COMMON SHARE--Total stockholders' equity divided by common shares outstanding. CHARGE-OFFS--Loan balances written off against the reserve for possible loan losses, once a loan is deemed to be uncollectible. CORE DEPOSITS--Deposits that are traditionally stable, including all deposits other than time deposits of $100,000 or more. EARNING ASSETS--Interest- or dividend-bearing assets, including loans and securities. EARNINGS PER SHARE--Net income divided by weighted average common shares outstanding. FEDERAL FUNDS--Generally one-day loans of excess reserves from one bank to another. When a bank buys (borrows) federal funds, these funds are called "federal funds purchased." When it sells (lends) them, they are called "federal funds sold." FORECLOSED ASSETS--Property, including OREO, acquired because the borrower defaulted on the loan. LEVERAGE RATIO--A ratio of equity to assets adjusted for goodwill and other disallowed intangibles. NET INTEREST INCOME--The difference between interest income on earning assets and interest expense on interest-bearing liabilities. NET INTEREST MARGIN--Taxable-equivalent net interest income as a percentage of average earning assets for the period. NET INTEREST SPREAD--The difference between the yield on earning assets and the cost of funds. NON-PERFORMING ASSETS--Non-performing loans plus foreclosed assets. NON-PERFORMING LOANS--Loans which interest income is not currently recognized because of the borrower's financial problems (non-accrual loans), or loans which have been restructured. OTHER REAL ESTATE OWNED (OREO)--Real estate which the bank takes or to which it assumes title in order to sell the property, obtained as the result of a loan default. POOLING-OF-INTERESTS METHOD--An accounting method that, following a merger, restates historical financial information of the surviving company as if the two entities were always one. PROVISION FOR LOAN LOSSES--A charge against current-period earnings which reflects actual and expected loan losses. PURCHASE ACCOUNTING METHOD--An accounting method that adds the fair market value of assets and liabilities acquired to those of the acquirer at the time of the acquisition. Historical information of the acquirer is not restated. RESERVE FOR LOAN LOSSES--A balance sheet account which is an estimation of future loan losses. The provision for possible loan losses is added to the reserve account each quarter. Charge-offs decrease the reserve. Recoveries on loans previously charged off increase the reserve. RETURN ON ASSETS--Net income as a percentage of average total assets for the period. The return on assets measures profitability in terms of how efficiently assets are being utilized. RETURN ON EQUITY--Net income as a percentage of average total equity. The return on equity measures profitability in terms of how efficiently equity or capital is being invested. RISK-BASED CAPITAL--The amount of capital (Tier 1 plus Tier 2 capital) required by federal regulatory standards, based on a risk-weighting of assets. For example, more capital is required for an unsecured loan than for investments in U.S. Treasury securities. The minimum ratio of capital to risk-weighted assets is 8%. TAXABLE-EQUIVALENT BASIS--The result of adding to income earned on tax-free loans and investments the amount necessary to make yields comparable to yields on taxable assets. TIER 1 CAPITAL--Common stockholders' equity less goodwill and other disallowed intangibles. TIER 2 CAPITAL--Tier 1 Capital, plus reserve for possible loan losses (limited to a certain percentage of risk-weighted assets). 35 22 HANCOCK HOLDING COMPANY HANCOCK BANK OF MISSISSIPPI HANCOCK BANK OF LOUISIANA HANCOCK BANK OFFICES CORPORATE OFFICERS SENIOR MANAGEMENT BOARD OF DIRECTORS WASHINGTON PARISH J.F. Boardman, Jr., Chairman Leo W. Seal, Jr., President and Bruce R. Easterly Roy Richard, President A.F. Dantzler, Chairman, C.E.O. A. Bridger Eglin W.C. Byrd, Executive V.P. Executive Committee George A. Schloegel, Vice A.T. Furr, Jr.** Angie George A. Schloegel, Vice Chairman Rufus D. Hayes ** Bogalusa, Austin Street Chairman Theresa M. Johnson, Executive Richard M. Hill, M.D. Bogalusa, Columbia Street Leo W. Seal, Jr., President and V.P. & Treasurer J.C. Keller, Sr.** Franklinton, Eastgate C.E.O. Charles A. Webb, Jr., Executive J.B. Olinde Franklinton, Washington Street Theresa M. Johnson, Executive V.P. & Secretary John H. Pace Mount Hermon V.P. & Treasurer C. Stanley Bailey, Executive George A. Schloegel Charles A. Webb, Jr., Executive V.P. and C.F.O. Leo W. Seal, Jr.** FIRST NATIONAL BANK V.P. & Secretary James R. Ginn, V.P. & C.R.O. Mansel S. Slaughter, Sr.** OF DENHAM SPRINGS C. Stanley Bailey, Executive John M. Hairston, V.P. Jose R. Tarajano, Sr. BOARD OF DIRECTORS V.P. and C.F.O. Charles A. Webb, Jr. Robert G. Chatham, V.P. & HANCOCK BANK OFFICES Bruce R. Easterly Auditor MISSISSIPPI **Advisory Director Robert E. Easterly James R. McIlwain, V.P. and A. Bridger Eglin General Counsel ONE HANCOCK PLAZA DIVISION WASHINGTON PARISH G.C. Mercier James R. Ginn, V.P. & C.R.O. Alfred G. Rath, V.P. & ADVISORY BOARD John H. Pace John M. Hairston, V.P. Division Manager William R. Powers Allen I. Rushing, V.P. & Sr. William Arlt George A. Schloegel Trust Officer BILOXI-OCEAN SPRINGS DIVISION Gerald L. Foret, M.D. Leo W. Seal, Jr.* David L. Biliter, V.P. G.H. English, V.P. & Truett C. Jones Ruben Spillman, Sr. Division Manager Robert E. Magee Thomas L. Sullivan, Sr. HANCOCK BANK OF MISSISSIPPI Biloxi Main Roy Richard Huey Taylor BOARD OF DIRECTORS AND D'Iberville Ronald B. Simmons Oscar P. Waldrep, Jr., D.D.S. ADVISORY DIRECTORS East Ocean Springs Don N. Spiers Charles A. Webb, Jr. Edgewater Alcous E. Stewart W.E. Wild, Jr. Alton G. Bankston Ocean Springs Elton Thomas Frank E. Bertucci Popps Ferry Walter E. Tisdale, D.D.S. FIRST NATIONAL BANK J.F. Boardman, Jr.* St. Martin Donald D. White OF DENHAM SPRINGS Robert E. Easterly Vancleave MANAGEMENT James B. Estabrook, Jr.* HANCOCK BANK OF LOUISIANA Robert P. Fant CENTRAL DIVISION MANAGEMENT Robert E. Easterly, Chairman, Douglass L. Fontaine S.S. Domino, V.P. & President & C.E.O. Donald R. Green Division Manager A. Bridger Eglin, President Steven D. Barnett, Senior V.P. R.K. Hollister, Jr. Courthouse Road Robert E. Easterly, Chief Robert A. Seals, Jr., Senior Charles H. Johnson* Dedeaux Road Operating Officer V.P. L.A. Koenenn, Jr.* Long Beach Irwin Felps, Senior V.P. L. Boyd Letcher, Jr. Lyman Charles Ray Pourciau, V.P. FIRST NATIONAL BANK OFFICES Victor Mavar* Mississippi City Arnold Wethey, V.P. Denham Springs T.W. Milner, Jr.* Northeast Albany H.C. Moody, Jr., D.V.M.* Norwood Village HANCOCK BANK OFFICES French Settlement Roy Newman Pineville Road EAST BATON ROUGE PARISH South Range Robert J. Occhi U.S. Naval CBCenter Springfield Gordon L. Redd, Jr. U.S. Naval Home Irwin Felps, Senior V.P. Walker Robert M. Riemann WalMart SuperCenter Charles Ray Pourciau, V.P. Watson George A. Schloegel* Airline Leo W. Seal, Jr.* EASTERN DIVISION Baker SUBSIDIARIES Christine L. Smilek T. Moreno Jones, Senior V.P. & Bluebonnet George T. Watson Division Manager Broadmoor HANCOCK INSURANCE AGENCY Charles A. Webb, Jr. Bayou Casotte Brownfields Betsy Ashman, V.P. Doctors Plaza Central *Hancock Holding Company Escatawpa College HANCOCK MORTGAGE CORPORATION Director Gautier Coursey Diane Havard, V.P. Kreole Essen PEARL RIVER COUNTY Market Street Florida East HANCOCK INVESTMENT SERVICES, ADVISORY BOARD Moss Point Greenwell Springs INC. Pascagoula Main Highland David L. Biliter, President L. Hudson Holliday Triangle Mid-City Oren C. Smith Vancleave One American Place HARRISON FINANCE COMPANY B.J. Stegall Plank Betsy Ashman, V.P. P.A. Tims, Jr. WESTERN DIVISION Sherwood David F. Travis L. Clinton Necaise, V.P. & Tara GULFPORT Jon Williams Division Manager Wooddale Don Norris, Assistant V.P. Bay St. Louis Main & Manager JACKSON COUNTY ADVISORY BOARD Bay 90 Diamondhead PICAYUNE Thad R. Brumfield, Jr. Kiln H.G. Dean, Jr., Assistant M. Duane Cronier Pass Christian V.P. & Manager Douglass L. Fontaine Stennis Space Center R.K. Hollister, Jr. Waveland PASCAGOULA James R. Horne Buford L. Tolbert, Theresa M. Johnson PEARL RIVER DIVISION Assistant V.P. & Manager T. Moreno Jones Edward L. Hilliard, V.P. & W.P. Keene Division Manager Harry D. Lane Picayune Downtown John A. McKinney Picayune Northside Carl A. Megehee Picayune Southside Picayune West Canal Poplarville
26 EX-23 3 CONSENT OF DELOITTE & TOUCHE, LLP 1 Exhibit (23) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statement of Hancock Holding Company on Form S-8 (No. 2-99863) and on Form S-3 (No. 33-31782) of our report dated January 12, 1996, incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1995. DELOITTE & TOUCHE LLP New Orleans, Louisiana March 26, 1996 EX-27 4 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 124,276 1,550 153,725 0 109,777 738,529 828,968 1,034,978 17,391 2,234,28 1,927,681 66,585 13,806 2,035 30,043 0 0 194,136 2,234,286 97,626 57,641 6,262 161,529 57,612 61,162 100,367 4,425 (49) 79,816 40,082 40,082 0 0 27,017 3.05 3.05 5.13 5,337 4,089 0 0 15,372 5,383 1,830 17,391 17,391 0 2,141
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