10-K405 1 FORM 10-K 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, 1994 . 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 14, 1995 was approximately $177,832,000. 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, 1994 the registrant had outstanding 7,562,049 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, 1994 filed with the Registrant's definitive proxy materials on January 28, 1995 are incorporated herein 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 to be held February 23, 1995 filed by the Registrant on January 28, 1995 are herein incorporated by reference into Part III of this report. 3 PART I ITEM 1 - BUSINESS BACKGROUND AND CURRENT OPERATIONS BACKGROUND GENERAL: Hancock Holding Company (the "Company") was organized in 1984 as a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company, headquartered in Gulfport, Mississippi, operates 58 banking offices and 85 automated teller machines ("ATM's") (29 of which are free-standing) in the states of Mississippi and Louisiana through two wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi ("Hancock Bank MS") and Hancock Bank of Louisiana, Baton Rouge, Louisiana ("Hancock Bank LA"). Hancock Bank MS and Hancock Bank LA hereinafter 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, 1994, the Company had total assets of $1.9 billion and employed on a full-time basis 819 persons in Mississippi and 383 persons in Louisiana. Hancock Bank MS was originally chartered as Hancock County Bank in 1899 and 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, -2- 4 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 $1.3 billion, Hancock Bank MS currently ranks as the fifth largest bank in Mississippi. Beginning with the 1985 acquisition of the Pascagoula-Moss Point Bank ("PMP") in Pascagoula, Mississippi, the Company has acquired approximately $685.9 million in assets and approximately $618.2 million in deposit liabilities through selected acquisitions or purchase and assumption transactions. RECENT ACQUISITION ACTIVITY: The majority of the Company's acquisition activity occurred in 1990 and 1991, beginning with the June 1990, merger of Metropolitan National Bank ("MNB") Biloxi, Mississippi into Hancock Bank MS. At the time of its acquisition, MNB had total assets of approximately $98.8 million and total deposit liabilities of approximately $95.1 million. Also in June 1990, pursuant to a purchase and assumption agreement, Hancock Bank MS acquired the Poplarville, Mississippi branch of Unifirst Bank for Savings from the Resolution Trust Corporation ("RTC"). The acquisition increased Hancock Bank MS total assets by approximately $7.8 million and its total deposit liabilities by approximately $7.4 million. In August 1990, the Company formed Hancock Bank LA for the purpose of assuming the deposit liabilities and acquiring the consumer loan portfolio, corporate credit card portfolio and non-adversely classified securities portfolio of American Bank and Trust ("AmBank") Baton Rouge, Louisiana, from the Federal Deposit Insurance Corporation ("FDIC"). As a result of this transaction, Hancock Bank LA acquired 15 banking offices in the greater Baton Rouge area, approximately $337.5 million in assets and approximately $300.9 million in deposit liabilities. At December 31, 1994, Hancock Bank LA's deposits were $506 million. It is currently one of the five largest banks in East Baton Rouge Parish. Economic expansion in East Baton Rouge Parish has resulted primarily from growth in state government and related service -3- 5 industries, educational and medical complexes, petrochemical industries, port facility activities and transportation and related industries. 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. In connection with the MNB and AmBank acquisitions, the Company borrowed $18,750,000 from Whitney National Bank, New Orleans, Louisiana ("Whitney") to partially fund these acquisitions. On November 28, 1991, the Company sold 1,552,500 shares of its common stock at $17 per share, following a two-for-one stock split in the form of a 100% stock dividend on October 15, 1991 and an increase in the number of authorized shares to 20,000,000. The net proceeds of this sale, after underwriting discount and expenses, of approximately $24,700,000, were used to pay the interest, retire $18,500,000 of principal debt on the Whitney loans and increase Hancock Bank LA's capital by $5,000,000. In April 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. The merger was consummated by the exchange of all outstanding common stock of First State Bank 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. In July 1994, the Company agreed to merge Hancock Bank of Louisiana with Washington Bank & Trust Company ("Washington"), Franklinton, Louisiana. The merger was consummated by the exchange of all outstanding common stock of Washington in return for 542,350 shares of common stock of the Company. The merger was accounted for using the pooling-of- interests method on February 1, 1995. Washington had total assets of approximately $86,100,000 (unaudited) and stockholders' equity of approximately $12,400,000 (unaudited) as of December 31, 1994 and net earnings of approximately $1,300,000 (unaudited) for the year then ended. -4- 6 On January 13, 1995, the Company merged with First Denham Bancshares, Inc. ("Bancshares") which owns 100% of the stock of First National Bank of Denham Springs, Denham Springs, Louisiana. 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 (unaudited) and stockholders' equity of approximately $10,300,000 (unaudited) as of December 31, 1994 and net earnings of approximately $2,500,000 (unaudited) for the year then ended. CURRENT OPERATIONS LOAN PRODUCTION AND CREDIT REVIEW: 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. The Banks have no concentrations of loans to particular borrowers or loans to any foreign 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 $150,000 must be approved by his or her region's loan committee or by another loan officer with greater lending authority. If a borrower's total indebtedness exceeds $150,000, any loan must be reviewed and approved by both the regional loan committee and the Bank's senior loan committee. 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 the Bank's senior loan committee or by another loan officer with greater lending authority. Aggregate lending relationships above the loan officers' authority of up to -5- 7 $500,000 must be approved by the Company's loan committee. 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 continually reviewed by the respective Bank to identify any deficiencies and to take corrective actions as necessary. Credit relationships aggregating less than $250,000 are reviewed on a periodic basis. As a result of such reviews, each Bank places on its Watchlist loans that are 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 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 an additional loan. All lines of credit are reviewed annually prior to renewal. The Banks currently have mechanisms in place which 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. As a matter of policy, the Banks place loans on nonaccrual status whenever debt service becomes impaired or collection becomes questionable. The Banks follow the standard FDIC loan classification system which is designed to serve the dual purpose of providing 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 which 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, 1994, the book value of nonperforming assets held for resale was approximately $808 thousand. -6- 8 SECURITIES PORTFOLIO: The Banks maintain portfolios of securities consisting primarily of U.S. Treasury securities, U.S. Government agency issues 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 maturities or durations of less than 7 years. Investments are limited by the Banks' policies to securities having a rating of no less than "Baa" by Moody's Investors' Service, Inc., except that non-rated but creditworthy general obligations of Mississippi or Louisiana governmental agencies or political subdivisions are permissible. DEPOSITS: The Banks have a number of programs designed to attract depository accounts which are offered to consumers and to small and middle market businesses at interest rates generally consistent with market conditions. Additionally, the Banks offer 85 ATMs, 56 ATMs at their 58 banking offices and 29 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 of such deposits 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 individual, 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 -7- 9 religious organizations. As of December 31, 1994, the Trust Departments of the Banks had approximately $1.6 billion of assets under management, of which $1.0 billion were corporate accounts and $600 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 operating income and to reduce operating expense. Management has taken steps beginning in January of 1988 to improve operating efficiencies and as a result, employees at Hancock Bank MS have been reduced from 0.78 per $1.0 million in assets in February 1988 to .60 as of December 31, 1994. Since its acquisition in August 1990, Hancock Bank LA's employees have been reduced from 0.97 per $1.0 million of assets to .67 as of December 31, 1994. 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 $.53 per $1.00 of total salary and benefit costs at Hancock Bank MS. Hancock Bank LA has a higher level of fee income and through December 31, 1994 has achieved a ratio of $.77 to $1.00 of salary and benefit costs. OTHER ACTIVITIES: Hancock Bank MS has six 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; and marketing credit life insurance. The income of these subsidiaries generally accounts for less than 10% of the Company's total income annually. -8- 10 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 which 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. Less than 1% of the Company's annual income is generated from timber sales and oil and gas leases on this acreage. COMPETITION: The deregulation of the financial services industry, the elimination of many previous distinctions between commercial banks and other types of financial institutions and the enactment in Mississippi, Louisiana and other states of legislation permitting state-wide branching or multi-bank holding companies as well as 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 which have greater resources than those available to the Company. -9- 11 SUPERVISION AND REGULATION BANK HOLDING COMPANY REGULATION GENERAL: As a bank holding company, 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 or managing or controlling banks or other permissible subsidiaries or from acquiring or obtaining direct or indirect control of any company engaged in activities other than those activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. 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 certain other types of insurance in connection with credit transactions and 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 -10- 12 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 terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that continuation of such activity or ownership of such subsidiary or control 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 obtain the prior approval of the Federal Reserve: (1) before it may acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, such bank holding company will directly or indirectly 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 or substantially all of the assets of a bank, or (3) before it may merge or consolidate with any other bank holding company. In reviewing a proposed acquisition, the Federal Reserve considers financial, managerial and competitive aspects, and must take into consideration the future prospects of the companies and banks concerned and the convenience and needs of the community to be served. As part of its review, the Federal Reserve reviews the indebtedness to be incurred by a bank holding company in connection with the proposed acquisition to ensure that the bank holding company can service such indebtedness in a manner that does not adversely affect the capital requirements of the holding company or its subsidiaries. The Bank Holding Company Act further requires that consummation of approved acquisitions or mergers be delayed for a period of not less than 30 days following the date of such 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 -11- 13 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 ("BOPEC"). The leverage ratios adopted by the Federal Reserve requires all but the most highly rated bank holding companies to maintain Tier 1 Capital at 4% to 5% of total assets. Certain bank holding companies having a composite 1 BOPEC 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: stockholder's 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, 1994, was 8.59%. 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; these are 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. The risk weight of off-balance sheet items such as standby letters of credit is determined by a two-step process. 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, 1994, the Company's off-balance -12- 14 sheet items aggregated $194.5 million; however, after the credit conversion these items represented $13.2 million of balance sheet equivalents. The primary component of risk-based capital is defined as 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. Under these guidelines bank holding companies are required to maintain 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%. At December 31, 1994, the Company's Tier 1 and Total Capital ratios were 16.87% and 17.78%, respectively. 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 Company, as a bank holding company within the meaning of the Bank Holding Company Act, is required to obtain the prior approval of the Federal Reserve before it 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 the acquisition by the Company of the voting shares, or substantially all the assets, 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 -13- 15 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 which 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 itself engaging in, or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in, non-banking activities. With passage of "The Interstate Banking and Branching Efficiency Act" adequately capitalized bank holding companies will be permitted to acquire control of banks in any state. States could limit acquisition eligibility and states also can opt-in to interstate branching earlier, or opt-out before the June 1, 1997 date. Branching where an out of state bank opens a new branch in another state would require a state's specific approval. The legislation further provides that no bank could acquire more than ten percent of nationwide insured deposits or thirty percent of deposits statewide. States would have the right to waive the thirty percent limit. Additional provisions require that interstate activities conform to the Community Reinvestment Act. As a bank holding company, 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 purchase or redemption 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 -14- 16 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 not pay dividends except out of current earnings and 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. The interpretation, scope and application of the provisions of the Act currently are being reviewed by regulators and legislators. The outcome of the current examination and appraisal of the provisions in the Act and effect of such 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 which limit the ability of the Banks to 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 imposed by the Federal Reserve Act 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 the regulations of the Federal Reserve and of the FDIC. Such statutes and regulations relate to, among other things, required reserves, investments, loans, mergers and consolidations, issuance of -15- 17 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. 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. 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 (the "FDIC Improvement Act") was enacted. The Federal Deposit Insurance Act as amended by Section 302 of the FDIC Improvement Act 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. There is currently a proposal by the FDIC to lower banks' deposit insurance premiums from the current rates of 23 to 31 cents per hundred dollars in insured deposits to a rate of 4 to 31 cents. This change is scheduled to be effective in the third quarter of 1995 and will reduce the Banks' premium payments. The Banks have received a risk classification of 1A for assessment purposes and paid BIF premiums of 23 cents per hundred dollars of insured deposits which amounted to $3.8 million in 1994. In general, the FDIC Improvement Act subjects banks and bank holding companies to significantly increased regulation and supervision. The FDIC -16- 18 Improvement Act increased the borrowing authority of the FDIC in order to bolster the Bank Insurance Fund, and the future borrowings are to be repaid by increased assessments on FDIC member banks. Other significant provisions of the FDIC Improvement Act require a new regulatory emphasis linking supervision to bank capital levels and require the federal banking regulators 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, including underwriting standards and minimum earnings levels. The FDIC Improvement Act contains a "prompt regulatory action" section which is intended to resolve problem institutions at the least possible long-term cost to the deposit insurance funds. Pursuant to this section, which applies to both banks and savings associations, the federal banking agencies are required to prescribe both a leverage limit and a risk- based capital requirement indicating levels at which institutions will be deemed to be "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." In the case of a depository institution which is "critically undercapitalized" (a term defined to include institutions which still have a positive net worth), the federal banking regulators are generally required to appoint a conservator or receiver. The FDIC Improvement Act 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. As previously discussed, deposit insurance premiums for the Bank Insurance Fund have changed from flat premiums to fees that will require banks engaging in risk practices or with low capital to pay higher deposit insurance premiums than conservatively managed banks. The FDIC Improvement Act 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 the FDIC Improvement Act required new regulations. -17- 19 In addition to regulating capital, the FDIC has broad authority to prevent the development or continuance of unsafe or unsound banking practices. Pursuant to this authority, the FDIC has adopted regulations which, among other things, restrict preferential loans and loan amounts by banks 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 the Banks. Although the Banks 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. Subject to an exemption from reserve requirements on a limited amount of an institution's transaction accounts, 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 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. The foregoing is a brief summary of certain statutes, rules and regulations affecting the Company and the Banks and 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: In general, the difference between the interest rate paid by a bank on its deposits and its other borrowings, and the interest rate received by a bank on loans extended to its customers and securities held in its portfolios, -18- 20 will comprise a major portion of the 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 not only by general economic conditions, both domestic and foreign, but also by the monetary and fiscal policy of the United States Government and its agencies, particularly the Federal Reserve. The Federal Reserve can and does implement national monetary policy, such as seeking to curb inflation and combat recession by its open-market operations in United States Government securities, adjustments in the amount of reserves that banks and other financial institutions are required to maintain and adjustments to the discount rates applicable to borrowings by banks which are members of the Federal Reserve System 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 charged on loans and paid on deposits. The nature and timing of any future changes in monetary policies and their potential impact on the Company cannot be predicted. -19- 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 34% in 1992, 35% in 1993 and 1994 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, non- interest 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 1993 and 1994 was 4.88% and 4.60%, 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. -20- 22 The following table shows interest income on earning assets and related average yields earned as well as interest expense on interest bearing liabilities and related average rates paid for the periods indicated:
Comparative Average Balances - Yields and Costs ----------------------------------------------- Years Ended December 31, --------------------------------------------------------------------------------------- 1992 1993 1994 ------------------------- --------------------------- --------------------------- Amount Average Amount Average Amount Average Average Paid or Yield or Average Paid or Yield or Average Paid or Yield or Amount Earned Rate Amount Earned Rate Amount Earned Rate ------- -------- -------- ------- -------- -------- ------- -------- ------- (Amounts in thousands) ASSETS Earning assets: Investment securities: U.S. Treasury $ 277,614 $ 19,750 7.11% $ 278,842 $ 18,998 6.81% $ 310,191 $ 16,838 5.43% U.S. Government 335,388 23,985 7.15% 391,740 21,932 5.60% 419,064 24,772 5.91% Municipal securities 54,153 6,438 11.89% 42,736 5,167 12.09% 46,706 4,847 10.38% Other securities 66,565 4,782 7.18% 85,712 4,775 5.57% 75,956 4,713 6.07% Federal funds sold & repos 98,933 3,424 3.46% 114,337 3,245 2.84% 67,948 2,662 3.92% Interest bearing deposits 1,121 41 3.66% 597 25 4.19% 576 32 5.56% Net loans (1)(2)(3) 745,048 75,969 10.20% 798,168 75,929 9.51% 859,926 78,656 8.96% ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ Total earning assets/ interest income 1,578,822 134,389 8.51% 1,712,132 130,071 7.60% 1,780,367 132,520 7.35% Less: reserve for loan losses (12,323) --- (14,545) --- (14,120) --- Nonearning assets: Cash and due from banks 88,559 --- 100,774 --- 107,661 --- Fixed assets 35,073 --- 34,045 --- 34,298 --- Other assets 45,825 --- 45,874 --- 49,544 --- ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ Total assets $1,735,956 $134,389 7.74% $1,878,280 $130,071 6.93% $1,957,750 $132,520 6.68% ========== ======== ====== ========== ======== ====== ========== ======== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Savings, NOW and money market $ 611,662 $ 20,279 3.32% $ 690,662 $ 18,733 2.71% $ 728,624 $ 20,080 2.76% Time 642,111 32,094 5.00% 631,451 26,522 4.20% 628,684 26,487 4.21% Federal funds purchased 21,261 677 3.18% 18,023 537 2.98% 18,622 754 4.05% Reverse repurchase agreement 22,571 731 3.24% 22,480 484 2.15% 24,710 718 2.91% Long-term bonds and notes 6,523 543 8.32% 4,501 333 7.40% 3,656 256 7.00% Capital notes & other borrowings 480 24 5.00% 1,163 90 7.74% 1,571 76 4.84% ---------- -------- ------ ---------- -------- ------ ---------- ------- ------ Total interest bearing liabilities/interest expense 1,304,608 54,348 4.17% 1,368,280 46,699 3.41% 1,405,867 48,371 3.44%
-21- 23 Noninterest bearing liabilities: Demand 286,221 --- 348,665 --- 375,728 --- Other liabilities 13,860 --- 12,699 --- 13,073 --- Stockholders' equity 131,267 --- 148,636 --- 163,082 --- ---------- -------- ----- ---------- -------- ------ ---------- -------- ------ Total liabilities & stockholders' equity $1,735,956 $ 54,348 3.13% $1,878,280 $ 46,699 2.49% $1,957,750 $ 48,371 2.47% ========== ======== ====== ========== ======== ====== ========== ======== ====== Interest earning assets $1,578,822 $1,712,132 $1,780,367 Interest bearing liabilities $1,304,608 $1,368,280 $1,405,867 Interest income $134,389 $130,071 $132,520 Interest expense 54,348 46,699 48,371 -------- -------- -------- Interest income/interest earning assets 8.51% 7.60% 7.35% Interest expense/interest bearing liabilities 4.17% 3.41% 3.50% Interest spread 4.35% 4.18% 3.84% Interest differential $ 80,041 $ 83,372 $ 84,149 ======== ======== ======== Interest margin 5.07% 4.87% 4.63%
---------- (1) Includes tax equivalent adjustments to interest earned of $2.5 million, $2.3 million and $2.1 million in 1992, 1993 and 1994 respectively, using an effective tax rate of 34% in 1992 and 35% in 1993 and 1994. (2) Interest earned includes fees on loans of $2.9 million in 1992, $3.1 million in 1993 and $2.9 million in 1994. (3) Includes nonaccrual loans. See "Nonperforming Assets." -22- 24 The following table sets forth, for the periods indicated, a summary of the changes in interest income on 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.
Analysis of Changes in Net Interest Income ------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------------------------ 1992 1993 1994 --------------------------- --------------------------- --------------------------- Volume Rate Total Volume Rate Total Volume Rate Total ------ ---- ----- ------ ---- ----- ------ ---- ----- (Amounts in thousands) INTEREST INCOME Investment securities: U.S. Treasury $ (186) $(1,804) $(1,990) $ 87 $ (839) $ (752) $ 2,136 $ (4,296) $(2,160) U.S. Government agencies 10,769 (3,069) 7,700 4,030 (6,083) (2,053) 1,530 1,310 2,840 Municipals (1) (1,253) 195 (1,058) (1,357) 86 (1,271) 480 (800) (320) Other securities 3,731 (642) 3,089 1,376 (1,383) (7) (544) 482 (62) Federal funds sold (826) (2,014) (2,840) 553 (712) (179) (1,317) 734 (583) Interest bearing deposits with banks (527) (8) (535) (19) 3 (16) (1) 8 7 Net loans 2,113 (5,873) (3,760) 5,416 (5,456) (40) 5,875 (3,148) 2,727 ------- ------- ------- ------- -------- ------- ------- -------- ------- Total 13,821 (13,215) 606 10,066 (14,384) (4,318) 8,159 (5,710) 2,449 ------- ------- ------- ------- -------- ------- ------- -------- ------- INTEREST EXPENSE Deposits: Savings, NOW and money market 9,048 (9,572) (524) 2,619 (4,165) (1,546) 1,030 317 1,347 Time (3,063) (10,203) (13,266) (533) (5,039) (5,572) (116) 81 (35) Federal funds purchased 29 (472) (443) (103) 447 344 18 199 217 Reverse repurchase agreements (1,011) (504) (1,515) (3) (728) (731) 48 186 234 Long-term bonds and notes (1,524) (50) (1,574) (168) (42) (210) (63) (14) (77) Capital notes -- -- -- 34 32 66 32 (46) (14) ------- ------- ------- ------- -------- ------- ------- -------- ------- Total 3,479 (20,801) (17,322) 1,846 (9,495) (7,649) 949 723 1,672 ------- ------- ------- ------- -------- ------- ------- -------- ------- Increase (decrease) in net interest income $10,342 $ 7,586 $17,928 $ 8,220 $ (4,889) $ 3,331 $ 7,210 $ (6,433) $ 777 ======= ======= ======= ======= ======== ======= ======= ======== =======
---------- (1) Yields on tax-exempt investments have been adjusted to a tax equivalent basis utilizing a 34% effective tax rate in 1992 and 35% in 1993 and 1994. -23- 25 RATE SENSITIVITY In order to control interest rate risk, management regularly monitors the volume of interest sensitive assets relative to 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. The interest sensitivity gap is the difference between total interest sensitive assets and liabilities in a given time period. At December 31, 1994, the Company's cumulative interest sensitivity gap in the one year interval was (17.15%) as compared to a cumulative interest sensitivity gap in the one year interval of (19.72%) at December 31, 1993. The percentage reflects a higher level of interest sensitive liabilities than assets repricing within one year. Generally, where rate sensitive liabilities exceed rate sensitive assets, the net interest margin is expected to be positively impacted during periods of decreasing interest rates and negatively impacted during periods of increasing rates. The following tables set forth the Company's interest rate sensitivity gap at December 31, 1994 and December 31, 1993: -24- 26 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 $ 225,264 $ 58,279 $ 379,946 $ 217,798 $ 881,287 Securities and time deposits 263,390 175,697 331,301 83,754 854,142 Federal funds 34,600 -- -- -- 34,600 --------- --------- --------- --------- ---------- Total earning assets $ 523,254 $ 233,976 $ 711,247 $ 301,552 $1,770,029 ========= ========= ========= ========= ========== 29.56% 13.22% 40.18% 17.04% 100.00% ========= ========= ========= ========= ========== Interest bearing deposits, excluding CD's greater than $100,000 $ 516,219 $ 380,990 $ 264,132 $ 241 $1,161,582 CD's greater than $100,000 59,854 47,282 61,210 230 168,576 Short-term borrowings 54,324 -- -- -- 54,324 Other borrowings 1,386 700 2,255 -- 4,341 --------- --------- --------- --------- ---------- Total interest-bearing funds 631,783 428,972 327,597 471 1,388,823 Interest-free funds -- -- -- 381,206 381,206 --------- --------- --------- --------- ---------- Funds supporting earning assets $ 631,783 $ 428,972 $ 327,597 $ 381,677 $1,770,029 ========= ========= ========= ========= ========== 35.69% 24.24% 18.51% 21.56% 100.00% ========= ========= ========= ========= ========== Interest sensitivity gap $(108,529) $(194,996) $ 383,650 $ (80,125) (1,735,429) Cumulative gap $(108,529) $(303,525) $ 80,125 -- 1,770,029 Percent of total earning assets (6.13%) (17.15%) 4.53% -- 100.00% ========= ========= ========= ========= ==========
Analysis of Interest Sensitivity at December 31, 1993 -----------------------------------------------------
After Three Within Through One After Five Three Twelve Through Years and Months Months Five Years Insensitive Total --------- --------- ---------- ----------- ---------- (Amounts in thousands) Net loans $ 236,268 $ 87,134 $ 378,552 $ 172,603 $ 874,557 Securities and time deposits 170,805 175,697 351,441 83,754 781,697 Federal funds 97,705 -- -- -- 97,705 --------- --------- --------- --------- ---------- Total earning assets $ 504,778 $ 262,831 $ 729,993 $ 256,357 $1,753,959 ========= ========= ========= ========= ========== 28.78% 14.99% 41.62% 14.62% 100.00% ========= ========= ========= ========= ========== Interest bearing deposits, excluding CD's greater than $100,000 $ 639,836 $ 323,572 $ 207,071 $ 909 $1,171,388 CD's greater than $100,000 60,473 41,623 49,486 230 151,812 Short-term borrowings 45,799 -- -- -- 45,799 Other borrowings 1,373 780 3,588 320 6,061 --------- --------- --------- --------- ---------- Total interest-bearing funds 747,481 365,975 260,145 1,459 1,375,060 Interest-free funds -- -- -- 378,899 378,899 --------- --------- --------- --------- ---------- Funds supporting earning assets $ 747,481 $ 365,975 $ 260,145 $ 380,358 $1,753,959 ========= ========= ========= ========= ========== 42.62% 20.87% 14.83% 21.69% 100.00% ========= ========= ========= ========= ========== Interest sensitivity gap $(242,703) $(103,144) $ 469,848 $(124,001) -- Cumulative gap $(242,703) $(345,847) $ 124,001 -- -- Percent of total earning assets (13.84%) (19.72%) 7.07% -- -- ========= ========= ========= ========= ==========
-25- 27 The Company had income tax expense of $9.9 million and $10.2 million for the years ended December 31, 1994 and 1993, respectively. This represents effective tax rates of 31.2% and 30.4% for December 31, 1994 and 1993, respectively; a greater portion of the Company's income in 1994 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, ------------------------ 1992 1993 1994 ---- ---- ---- Return on average assets (%) 1.17 1.24 1.11 Return on average stockholders' equity (%) 15.42 15.72 13.36 Dividend payout ratio (%) 25.83 29.13 32.37 Average stockholders' equity to average assets (%) 7.57 7.91 8.33
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 and earning requirements. The December 31, 1994 book value of the held-to-maturity portfolio was $833 million and the market value was $815 million. The available-for-sale portfolio balance was $20 million at December 31, 1994. -26- 28 The book and market values of securities classified as available-for-sale as of December 31, 1994, and held-for-sale as of December 31, 1993, were as follows (in thousands):
December 31, 1994 December 31, 1993 --------------------------------------- --------------------------------------- Gross Gross Gross Gross Book Unrealized Unrealized Market Book Unrealized Unrealized Market Value Gains Losses Value Value Gains Losses Value -------- ---------- ---------- ------ -------- ---------- ---------- ------ CMO's $ 19,385 $ 134 $ 743 $ 18,776 $ 27,314 $ 791 $ 209 $ 27,896 Municipal obligations 997 0 26 971 930 10 0 940 -------- ------ ------- -------- -------- ------- ------ -------- $ 20,382 $ 134 $ 769 $ 19,747 $ 28,244 $ 801 $ 209 $ 28,836 ======== ====== ======= ======== ======== ======= ====== ========
The book value, book yield and market value of the securities classified as available-for-sale as of December 31, 1994, by estimated maturity, were as follows (in thousands):
Book Value Yield (%) Market Value ---------- --------- ------------ Due in one year or less $ 31 4.12 $ 31 Due after one year through five years 966 4.20 940 Due after five years through ten years 19,385 6.05 18,776 -------- ---- -------- $ 20,382 5.96 $ 19,747 ======== ==== ========
The book value and market values of securities classified as held-to-maturity as of December 31, 1994, and December 31, 1993, were as follows (in thousands):
December 31, 1994 December 31, 1993 --------------------------------------- --------------------------------------- Gross Gross Gross Gross Book Unrealized Unrealized Market Book Unrealized Unrealized Market Value Gains Losses Value Value Gains Losses Value -------- ---------- ---------- ------ -------- ---------- ---------- ------ U.S. Treasury Securities $271,664 $ 362 $ 5,000 $267,026 $279,461 $ 6,048 $ 104 $285,405 Other U.S. Govt obligations 270,727 194 6,618 264,303 237,487 5,457 427 242,517 Municipal obligations 57,073 968 1,297 56,744 38,737 3,544 459 41,822 Other securities 15,746 92 520 15,318 13,316 3 76 13,243 Mortgage-backed securities 129,028 349 4,129 125,248 95,406 1,737 2,583 94,560 CMO's 88,807 57 2,999 85,865 87,171 2,148 250 89,069 -------- ------ ------- -------- -------- ------- ------ -------- $833,045 $2,022 $20,563 $814,504 $751,578 $18,937 $3,899 $766,616 ======== ====== ======= ======== ======== ======= ====== ========
-27- 29 The book value, book yield and market value of the securities classified as held-to-maturity as of December 31, 1994, by contractual maturity, were as follows (in thousands):
Book Value Yield (%) Market Value ---------- --------- ------------ Due in one year or less $161,154 4.87 $159,904 Due after one year through five years 307,313 6.40 301,079 Due after five years through ten years 122,204 6.99 118,353 Due after ten years 242,374 7.17 235,168 -------- ---- -------- $833,045 6.40 $814,504 ======== ==== ========
-28- 30 LOAN PORTFOLIO The following tables set forth, for the periods indicated, the composition of the loan portfolio of the Company:
Loan Portfolio -------------- December 31, ------------------------------------------------------------ 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- (Amounts in thousands) Real estate: Residential mortgages 1-4 family $166,558 $182,981 $198,308 $201,633 $227,574 Residential mortgages multifamily 3,352 5,308 8,130 7,509 8,476 Home equity lines 10,505 12,205 13,412 13,858 13,628 Construction and development 8,294 10,815 15,462 22,785 40,039 Nonresidential 119,987 121,657 107,338 117,638 125,142 Commercial, industrial and other 139,018 137,728 149,121 147,042 104,640 Consumer 256,160 270,160 275,043 345,059 339,248 Lease financing and depository institutions 4,044 9,733 6,079 6,673 10,075 Political subdivisions 18,337 15,710 12,791 11,668 12,806 Credit card 3,616 16,432 26,482 26,581 27,087 -------- -------- -------- -------- -------- 729,871 782,729 812,166 900,446 908,715 Less, unearned income 19,738 19,713 21,703 25,888 27,428 -------- -------- -------- -------- -------- Net loans $710,133 $763,016 $790,463 $874,558 $881,287 ======== ======== ======== ======== ========
1990 consumer loan balances reflect an increase of 99.8% as a result of the acquisitions of MNB (approximately $7.8 million) and AmBank (approximately $127.0 million). 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, 1994, the portfolio balance had increased to approximately $27.1 million with approximately 35,000 cards outstanding. -29- 31 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, 1993 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 $ 95,940 $ 40,137 $ 10,965 $147,042 $ 51,956 $ 43,750 $ 8,934 $104,640 Real estate - construction 13,259 7,579 1,947 22,785 21,169 12,798 6,072 40,039 All other loans 157,818 337,445 235,356 730,619 238,663 323,398 201,975 764,036 -------- -------- -------- -------- -------- -------- -------- -------- Total loans $267,017 $385,161 $248,268 $900,446 $311,788 $379,946 $216,981 $908,715 ======== ======== ======== ======== ======== ======== ======== ========
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, 1993 1994 ----------- ----------- (Amounts in thousands) Commercial, industrial, and real estate construction maturing after one year: Fixed rate $ 33,956 $ 52,398 Floating rate 26,672 19,156 Other loans maturing after one year: Fixed rate 537,552 459,031 Floating rate 35,249 66,342 -------- -------- Total $633,429 $596,927 ======== ========
-30- 32 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, -------------------------------------------------------- 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- (Amounts in thousands) Nonaccrual loans: Real estate $ 3,153 $ 5,057 $ 3,986 $ 1,671 $ 1,828 Consumer 903 843 293 1,371 525 Lease financing 1,588 1,214 1,715 1,322 1,287 Depository institutions -- -- 22 -- -- Political subdivisions -- -- -- -- -- Commercial, industrial and other -- -- -- -- -- Restructured loans 120 111 194 482 614 ------- ------- ------- ------- ------- Total nonperforming loans 5,764 7,225 6,210 4,846 4,254 Acquired real estate owned 1,843 -- -- -- -- Real estate owned 4,127 4,208 1,425 695 808 ------- ------- ------- ------- ------- Total nonperforming assets $11,734 $11,433 $ 7,635 $ 5,541 $ 5,062 ======= ======= ======= ======= ======= Loans 90+ days past due and still accruing $ 6,541 $ 5,825 $ 7,204 $ 4,175 $ 2,633 ======= ======= ======= ======= ======= Ratios (%): Nonperforming loans to net loans 0.81 0.95 0.79 0.55 0.48 Nonperforming assets to net loans and foreclosed properties 1.64 1.49 0.96 0.63 0.57 Nonperforming loans to average loans 1.02 1.00 0.83 0.61 0.49 Allowance to nonperforming loans 206.56 162.19 218.53 293.40 333.76
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 which would have been recorded under the original terms of restructured loans:
December 31, -------------------------------------------------------- 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- (Amounts in thousands) Nonaccrual $ 557 $ 685 $ 585 $ 506 $ 327 Restructured 10 10 17 43 55 ------- ------- ------- ------- ------- Total $ 567 $ 695 $ 602 $ 549 $ 382 ======= ======= ======= ======= =======
Interest actually received on nonaccrual and restructured loans was insignificant. -31- 33 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, -------------------------------------------------------------------- 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- (Amounts in thousands) Net loans outstanding at end of period $710,603 $763,016 $790,463 $874,557 $881,287 ======== ======== ======== ======== ======== Daily average net loans outstanding $563,478 $726,068 $745,410 $798,168 $859,926 ======== ======== ======== ======== ======== Balance of reserve for loan losses at beginning of period $ 6,218 $ 11,906 $ 11,718 $ 13,571 $ 14,218 Loans charged-off: Real estate 268 270 584 111 60 Commercial 1,637 2,834 2,516 2,202 586 Consumer 1,885 2,779 3,857 3,021 2,614 Lease financing 99 -- 2 53 -- Depository institutions -- -- -- -- -- Political subdivisions -- -- -- -- -- -------- -------- -------- -------- -------- Total charge-offs 3,889 5,883 6,959 5,387 3,260 -------- -------- -------- -------- -------- Recoveries of loans previously charged-off: Real estate -- 54 57 51 23 Commercial 363 412 430 669 487 Consumer 249 429 556 830 862 Lease financing 6 6 1 2 8 Depository institutions -- -- -- -- -- Political subdivisions -- -- -- -- -- -------- -------- -------- -------- -------- Total recoveries 618 901 1,044 1,552 1,380 -------- -------- -------- -------- -------- Net charge-offs 3,271 4,982 5,915 3,835 1,880 Provision for loan losses 3,023 4,794 7,768 4,482 1,860 Reserves of acquired companies 5,936 -- -- -- -- -------- -------- -------- -------- -------- Balance of reserve for loan losses at end of period $ 11,906 $ 11,718 $ 13,571 $ 14,218 $ 14,198 ======== ======== ======== ======== ========
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, ----------------------------------------------------------- 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- Ratios (%): Net charge-offs to average net loans 0.58 0.69 0.79 0.48 0.21 Net charge-offs to period end net loans 0.46 0.65 0.75 0.44 0.22 Reserve for loan losses to average net loans 2.11 1.61 1.82 1.78 1.65 Reserve for loan losses to period end net loans 1.68 1.54 1.72 1.63 1.61 Net charge-offs to loan loss reserve 27.47 42.52 43.59 26.97 13.24 Net charge-offs to loan loss provision 108.20 103.92 76.15 85.56 101.08
-32- 34 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, 1994 is available to absorb losses occurring in any category of loans.
December 31, 1990 1991 1992 1993 1994 ----------------- ----------------- ----------------- ------------------ ------------------ 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 $ 1,000 42.29 $ 1,000 42.54 $ 1,000 42.19 $ 1,000 40.36 $ 1,000 45.65 Commercial, industrial and other 4,000 22.11 4,000 20.85 4,500 20.68 4,750 18.37 4,750 14.03 Consumer 5,000 35.10 5,000 34.52 5,500 33.87 5,750 38.32 5,750 37.33 Credit card 500 .50 500 2.10 500 3.26 500 2.95 500 2.98 Unallocated 1,406 -- 1,218 -- 2,071 -- 2,218 -- 2,198 -- ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ $11,906 100.00 $11,718 100.00 $13,571 100.00 $14,218 100.00 $14,198 100.00 ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
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:
1992 1993 1994 ------------------------------- --------------------------------- ---------------------------------- Percent Percent Percent of of of Amount Deposits Rate (%) Amount Deposits Rate (%) Amount Deposits Rate (%) ------ -------- -------- ------ -------- -------- ------ -------- -------- (Amounts in thousands) Noninterest bearing accounts $ 286,874 18.63 -- $ 344,340 20.69 -- $ 375,728 21.77 -- NOW accounts 229,581 14.91 2.98 243,457 14.63 2.84 291,325 16.88 2.58 Money market and other savings accounts 380,888 24.74 3.49 471,769 28.35 2.51 437,216 25.33 2.87 Time deposits 642,435 41.72 5.05 604,348 36.32 4.39 621,874 36.03 4.26 ---------- ------ ---------- ------ ---------- ------ $1,539,778 100.00 $1,663,914 100.00 $1,726,143 100.00 ========== ====== ========== ====== ========== ======
-33- 35 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. Maturities of CD's of $100,000 and Over
Less Than Three After Percent Three to Twelve Twelve of Total Months Months Months Total Deposits ------ ------ ------ ----- -------- At December 31, 1994 $59,854 $47,282 $61,440 $168,576 9.9% At December 31, 1993 60,473 41,623 49,716 151,812 9.0%
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, --------------------------- 1992 1993 1994 ---- ---- ---- Federal funds purchased: Amount outstanding at period end $19,300 $14,650 $42,659 Weighted average interest at period end 3.12% 2.75% 5.63% Maximum amount at any month end during period $41,625 27,725 $37,000 Average amount outstanding during period 21,261 18,046 15,247 Weighted average interest rate during period 3.18% 2.70% 4.81% Securities sold under repurchase agreements: Amount outstanding at period end $17,091 $31,149 $11,637 Weighted average interest at period end 2.50% 2.50% 3.00% Maximum amount at any month end during period $44,418 $31,289 $43,096 Average amount outstanding during period 22,571 23,607 23,553 Weighted average interest rate during period 3.24% 2.26% 3.13%
Hancock Bank LA acts as a correspondent bank for 70 Louisiana financial institutions. Many of those banks maintain federal funds relationships which accounts for most of the volume of federal funds bought and sold. -34- 36 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 which 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, 1994, 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, 1994. 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 31, 1994, there was approximately $47 million available to be dividended up 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, 1993 1994 1993 1994 1993 1994 ---- ---- ---- ---- ---- ---- Hancock Bank MS 15.45% 16.67% 14.62% 15.84% 8.14% 8.12% Hancock Bank LA 17.34 18.44 16.39 17.25 7.48 8.66 Company 16.86 17.78 15.61 16.87 7.90 8.59
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 regulators latest composite rating of the institution. -35- 37 RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS During 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions." This Statement requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides services. The costs of these benefits were previously expenses on a pay-as-you-go basis. The adoption of this Statement decreased net earnings by $250,000 ($0.03 per share) in 1992. 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. Prior years were not restated. 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. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of Certain Loans," which requires the present value of expected future cash flows of impaired loans be discounted at the loan's effective interest rate. The Financial Accounting Standards Board has also issued Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of Loan-Income Recognition and Disclosures," which allows a creditor to use existing methods for recognizing interest income on impaired loans. The Company does not anticipate that the adoption of this Statement in 1995 will have a significant effect on its financial condition or results of operations. The Financial Accounting Standards Board has issued Statement of Financial Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which required the investment portfolio to be classified into one of three reporting categories, held-to-maturity, available-for-sale, or trading. The Company's Adoption of this statement did not have a material effect on its financial statements. -36- 38 IMPACT OF INFLATION: Unlike most industrial companies, the assets and liabilities of financial 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. While 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, the Company believes that the effects of inflation are generally manageable through asset/liability management. -37- 39 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 a urban development revenue bond issue with a present balance of $2,955,000. 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) Long Beach, MS (2) Angie, LA (1) Lyman, MS (1) Baker, LA (3) Mississippi City, MS (1) Baton Rouge, LA (13) Moss Point, MS (2) Bay St. Louis, MS (2) Ocean Springs, MS (3) Biloxi, MS (2) Orange Grove, MS (1) Bogalusa, LA (2) Pascagoula, MS (4) Denham Springs, LA (2) Pass Christian, MS (1) D'Iberville, MS (1) Picayune, MS (4) Escatawpa, MS (1) Poplarville, MS (1) Franklinton, LA (2) Walker, LA (1) French Settlement, LA (1) Washington Parish, LA (1) Gautier, MS (1) Watson, LA (1) Gulfport, MS (4) Waveland, 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): Baker, LA (2) Gulfport, MS (3) Baton Rouge, LA (1) Pascagoula, MS (1) Bay St. Louis, MS (1) Springfield, LA (1) Biloxi, MS (1) Vancleave, MS (1) Diamondhead, MS (1) -38- 40 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 Not applicable. ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS The information under the caption "Market Information" on page 6 of the Company's 1994 Annual Report to Stockholders (filed with the Registrant's definitive proxy materials on January 28, 1995 and 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 1994 Annual Report to Stockholders (filed with the Registrant's definitive proxy materials on January 28, 1995 and incorporated herein by reference). -39- 41 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 32 and 33 of the Company's 1994 Annual Report to Stockholders (filed with the Registrant's definitive proxy materials on January 28, 1995 and incorporated herein by reference). 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 31 of the Company's 1994 Annual Report to Stockholders (filed with the Registrant's definitive proxy materials on January 28, 1995 and 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 Flows on Page 21 Notes to Consolidated Financial Statements on Pages 22 through 30 Independent Auditors' Report on Page 31 ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information responsive to this Item, see "Election of Directors" (Pages 2-6) and "Management Compensation" (Pages 10-15) in the Proxy Statement for the Annual Meeting of Stockholders held February 23, 1995 which was filed by the Registrant in definitive form with the Commission on January 28, 1995 and is incorporated herein by reference. -40- 42 ITEM 11 - EXECUTIVE COMPENSATION For information responsive to this item see "Management Compensation" (Pages 10-15) in the Proxy Statement for the Annual Meeting of Stockholders held February 23, 1994 which was filed by the Registrant in definitive form with the Commission on January 28, 1995 and is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT For information responsive to this item see "Principal Stockholders" (Page 7) and "Election of Directors" (Pages 2-6) in the Proxy Statement for the Annual Meeting of Stockholders held February 23, 1994 which was filed by the Registrant in definitive form with the Commission on January 28, 1995 and is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information responsive to this item see "Certain Transactions and Relationships" (Page 16) in the Proxy Statement for the Annual Meeting of Stockholders held February 23, 1994 which was filed by the Registrant in definitive form with the Commission on January 28, 1995 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 1993 Annual Report to Stockholders (filed with the Registrant's definitive proxy materials on January 28, 1995 and incorporated herein by reference): - Independent Auditors' Report -41- 43 - Consolidated Balance Sheets as of December 31, 1994 and 1993 - Consolidated Statements of Earnings for the three years ended December 31, 1994 - Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1994 - Consolidated Statements of Cash Flows for the three years ended December 31, 1994 - Notes to Consolidated Financial Statements for the three years ended December 31, 1994 All other financial statements and schedules are omitted as the required information is inapplicable or the required information is presented in the 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). -42- 44 (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 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). -43- 45 (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. (10.1) Description of Hancock Bank Executive Supplemental Reimbursement Plan, as amended (provided on page 14 of the Registrant's definitive proxy statement for its annual shareholders' meeting on February 23, 1995 filed with the Registrant's definitive proxy materials on January 28, 1995 and incorporated herein by reference). (10.2) Description of Hancock Bank Automobile Plan (provided on page 14 of the Registrant's definitive proxy statement for its annual shareholders' meeting on February 23, 1995 filed with the Registrant's definitive proxy materials on January 28, 1995 and incorporated herein by reference). (10.3) Description of Deferred Compensation Arrangement for Directors (provided on pages 10-15 of the Registrant's definitive proxy statement for its annual shareholders' meeting on February 23, 1995 filed with the Registrant's definitive proxy materials on January 28, 1995 and incorporated herein by reference). -44- 46 (10.4) 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). (10.5) 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). (10.6) 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). (10.7) 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). (10.8) 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). (10.9) Bond Purchase Agreement dated as of February 23, 1989 among Hancock Bank, J. C. Bradford & 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 year ending December 31, 1994 (furnished for the information of the Commission only and not deemed "filed" except for those portions which are specifically incorporated herein by reference). -45- 47 (21) Proxy Statement for the Registrant's Annual Meeting of Shareholders on February 23, 1995 (deemed "filed" for the purposes of this Form 10-K only for those portions which are specifically incorporated herein by reference). (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 Hancock Bank Securities Mississippi Hancock Bank Corporation Hancock Insurance Agency Mississippi Hancock Bank Town Properties, Inc. Mississippi Hancock Bank The Gulfport Building, Inc. Mississippi Hancock Bank of Mississippi Harrison Financial Services, Mississippi Hancock Bank Inc. Hancock Mortgage Corporation Mississippi Hancock Bank and Hancock Securities Corp. Harrison Life Insurance Mississippi 79% owned by Hancock Company Bank
(1) All are 100% owned except as indicated. (23) Consent of Independent Accountants. -46- 48 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 9, 1995 /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 9, 1995 ------------------------------ (Principal Executive Leo W. Seal, Jr. Financial, and Accounting Officer) /s/ Joseph F. Boardman, Jr. Director, March 9, 1995 ------------------------------ Chairman of the Board Joseph F. Boardman, Jr. /s/ Thomas W. Milner, Jr. Director March 9, 1995 ------------------------------ Thomas W. Milner, Jr. /s/ George A. Schloegel Director, March 9, 1995 ------------------------------ Vice-Chairman of the Board George A. Schloegel /s/ Dr. Homer C. Moody, Jr. Director March 9, 1995 ------------------------------ Dr. Homer C. Moody, Jr. /s/ James B. Estabrook, Jr. Director March 9, 1995 ------------------------------ James B. Estabrook, Jr. /s/ Charles H. Johnson Director March 9, 1995 ------------------------------ Charles H. Johnson /s/ L. A. Koenenn, Jr. Director March 9, 1995 ------------------------------ L. A. Koenenn, Jr. /s/ Victor Mavar Director March 9, 1995 ------------------------------ Victor Mavar
-47- 49 INDEX TO EXHIBITS
Exhibit Description ------- ----------- Exhibit 13 Annual Report to Stockholders for year ending December 31, 1994 (furnished for the information of the Commission only and not deemed "filed" except for those portions which are specifically incorporated herein by reference). Exhibit 22 Subsidiaries of the Registrant. Exhibit 23 Consent of Independent Accountants. Exhibit 27 Financial Data Schedule.
EX-13 2 ANNUAL REPORT 1 EXHIBIT (13) 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 $1.9 billion at December 31, 1994. The Company operates a total of 58 banking offices and 85 automated teller machines ("ATMs") (30 of which are free-standing) in the states of Mississippi and Louisiana through two wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi and Hancock Bank of Louisiana, Baton Rouge, Louisiana. 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
1994 1993 ---------------------------------------------- ------------------------------------------------ FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH -------- --------- -------- -------- --------- -------- -------- --------- (Amounts in thousands, except per share data) Net interest income $ 19,207 $ 19,873 $ 21,014 $ 21,956 $ 20,629 $ 20,725 $ 20,008 $ 19,698 Provision for loan losses 373 336 494 675 1,560 1,366 287 1,269 Earnings before income taxes 7,362 7,536 8,686 8,106 8,944 8,590 8,720 7,313 Net earnings 5,056 5,132 5,961 5,646 6,200 6,002 6,001 5,165 Net earnings per share $ 0.67 $ 0.68 $ 0.79 $ 0.74 $ 0.82 $ 0.80 $ 0.80 $ 0.68
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 last 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.
HIGH BID LOW BID CASH OR LAST OR LAST DIVIDENDS SALE PRICE SALE PRICE PAID ---------- ---------- --------- 1994 1st Quarter $32.50 $28.50 $0.23 2nd Quarter $29.50 $26.25 $0.23 3rd Quarter $28.75 $28.00 $0.23 4th Quarter $29.25 $28.25 $0.23 1993 1st Quarter $28.75 $28.25 $0.17 2nd Quarter $35.00 $30.50 $0.17 3rd Quarter $32.75 $28.75 $0.17 4th Quarter $34.50 $32.00 $0.39
On January 5, 1995, the high and low last sale prices of the Company's common stock as reported on the NASDAQ National Market System were $29.00 and $28.75, 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 2 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, --------------------------------------------------------------------------- 1994 1993 1992 1991 1990 ------------ ----------- ------------- ------------ ----------- INTEREST INCOME: Interest and Fees on Loans $ 78,252 $ 75,433 $ 75,326 $ 78,841 $ 64,007 Income on Federal Funds Sold 2,662 3,245 3,424 6,264 6,549 Interest and Dividends on Investments 49,506 49,090 53,008 45,358 37,459 ------------ ----------- ------------- ------------ ----------- TOTAL INTEREST INCOME 130,420 127,768 131,758 130,463 108,015 INTEREST EXPENSE: Interest on Deposits 46,567 45,264 52,223 66,164 61,155 Interest on Federal Funds Purchased 1,472 1,021 1,408 3,366 3,671 Interest on Bonds and Notes 332 423 567 2,141 1,382 ------------ ----------- ------------- ------------ ----------- TOTAL INTEREST EXPENSE 48,371 46,708 54,198 71,671 66,208 NET INTEREST INCOME 82,049 81,060 77,560 58,792 41,807 Provision for Loan Losses 1,878 4,482 7,768 4,793 3,023 ------------ ----------- ------------- ------------ ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 80,171 76,578 69,792 53,999 38,784 Other Income 19,472 21,104 20,228 20,703 13,354 Other Expenses 67,953 64,116 62,755 57,669 42,291 ------------ ----------- ------------- ------------ ----------- Earnings before Income Taxes 31,690 33,566 27,265 17,033 9,847 Income Taxes 9,895 10,199 7,027 4,122 1,537 ------------ ----------- ------------- ------------ ----------- NET EARNINGS $ 21,795 $ 23,367 $ 20,238 $ 12,911 $ 8,310 ============ =========== ============= ============ =========== PER COMMON SHARE: Net Earnings $ 2.88 $ 3.10 $ 2.68 $ 2.11 $ 1.39 Cash Dividends 0.92 0.90 0.68 0.60 0.57 Stock Splits and Dividends 2 for 1 Weighted Average Number of Shares 7,556,512 7,550,235 7,550,235 6,122,235 5,993,235 RETURN ON AVERAGE ASSETS 1.11% 1.24% 1.17% 0.83% 0.68% BALANCE SHEET DATA DECEMBER 31: Total Assets $ 1,940,845 $ 1,903,159 $ 1,812,208 $ 1,628,712 $ 1,483,753 Total Deposits 1,702,079 1,685,657 1,616,633 1,431,496 1,289,173 Total Long-Term Debt and Capital Notes 2,955 4,300 5,115 6,880 25,350 Stockholders' Equity 169,927 155,374 138,804 123,804 90,040
On June 4, 1990, the Company acquired Metropolitan National Bank (MNB), pursuant to a merger of MNB into Hancock Bank. On August 2, 1990, a newly-created subsidiary of the Company, Hancock Bank of Louisiana, acquired certain assets and deposit liabilities of American Bank & Trust Company (AMBANK), Baton Rouge, Louisiana, a failed institution. On August 9, 1991, Hancock Bank acquired certain assets and assumed the deposit liabilities of Peoples Federal Savings Association (PEOPLES). These acquisitions have been accounted for as purchases and the results of operations since the dates 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). This merger was accounted for using the pooling-of-interests method, and, therefore, all prior years' financial information has been restated. 7 3 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------------------- 1994 1993 ---------------- ------------------ ASSETS: Cash and due from banks (non-interest bearing) $ 114,900,228 $ 94,198,284 Interest bearing time deposits with other banks 1,350,001 1,875,001 Securities available-for-sale (cost of $20,382,000) 19,747,208 -- Securities held-for-sale (market value of $28,836,000) -- 28,244,000 Securities held-to-maturity-(market value of $814,504,000 and $766,616,000) 833,045,196 751,578,446 Federal funds sold and securities purchased under agreements to resell 34,600,000 97,705,000 Loans 908,715,372 900,445,375 Less: Reserve for loan losses (14,197,795) (14,218,231) Unearned income (27,428,257) (25,887,947) ---------------- ------------------ Loans, net 867,089,320 860,339,197 Property and equipment 34,755,860 35,219,064 Other real estate 807,625 695,288 Accrued interest receivable 17,092,047 14,668,688 Other assets 17,457,623 18,636,096 ---------------- ------------------ TOTAL ASSETS $ 1,940,845,108 $ 1,903,159,064 ================ ================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 371,920,719 $ 362,457,264 Interest bearing savings, NOW, money market and other time 1,330,157,906 1,323,199,994 ---------------- ------------------ Total Deposits 1,702,078,625 1,685,657,258 Federal funds purchased and securities sold under agreements to repurchase 54,296,358 45,798,931 Other liabilities 11,588,295 12,029,100 Capital notes-5% due December 31, 1994 -- 480,000 Long-term bonds and notes 2,955,000 3,820,000 ---------------- ------------------ TOTAL LIABILITIES 1,770,918,278 1,747,785,289 COMMITMENTS -- -- STOCKHOLDERS' EQUITY: Common stock-$3.33 par value per share; 20,000,000 shares authorized, 7,705,201 shares issued and outstanding 25,658,319 25,658,319 Capital surplus 104,170,000 98,168,834 Undivided profits 40,513,581 31,546,622 Unrealized loss on securities available-for-sale (415,070) -- ---------------- ------------------ TOTAL STOCKHOLDERS' EQUITY 169,926,830 155,373,775 ---------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,940,845,108 $ 1,903,159,064 ================ ==================
See notes to consolidated financial statements. 18 4 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1994 1993 1992 -------------- ---------------- ------------------ INTEREST INCOME: Interest and fees on loans $ 78,252,094 $ 75,432,984 $ 75,325,595 Interest on: U.S. Treasury Securities 16,837,738 16,056,255 19,749,117 Obligations of other U.S. Government agencies and corporations 24,771,874 24,874,164 23,984,662 Obligations of states and political subdivisions 3,151,272 3,359,774 4,345,678 Interest on federal funds sold and securities purchased under agreements to resell 2,661,592 3,245,386 3,424,008 Interest on time deposits and other 4,745,819 4,800,246 4,928,531 -------------- ---------------- ------------------ Total interest income 130,420,389 127,768,809 131,757,591 -------------- ---------------- ------------------ INTEREST EXPENSE: Interest on deposits 46,566,632 45,264,190 52,222,926 Interest on federal funds purchased and securities sold under agreements to repurchase 1,471,992 1,021,161 1,407,842 Interest on bonds and notes 332,051 423,666 566,861 -------------- ---------------- ------------------ Total interest expense 48,370,675 46,709,017 54,197,629 -------------- ---------------- ------------------ NET INTEREST INCOME 82,049,714 81,059,792 77,559,962 Provision for loan losses 1,878,367 4,481,983 7,767,996 -------------- ---------------- ------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 80,171,347 76,577,809 69,791,966 -------------- ---------------- ------------------ NON-INTEREST INCOME: Service charges on deposit accounts 11,548,460 11,001,587 11,253,040 Other service charges, commissions and fees 5,565,439 5,841,827 5,162,548 Securities gains -- 783,468 632,580 Other 2,358,139 3,477,240 3,180,115 -------------- ---------------- ------------------ Total non-interest income 19,472,038 21,104,122 20,228,283 -------------- ---------------- ------------------ NON-INTEREST EXPENSE: Salaries and employee benefits 34,936,695 32,012,442 29,897,510 Net occupancy expense of premises 3,541,259 3,394,947 3,708,558 Equipment rentals, depreciation and maintenance 9,402,089 6,471,618 6,765,037 Other 20,073,022 22,236,268 22,383,758 -------------- ---------------- ------------------ Total non-interest expense 67,953,065 64,115,275 62,754,863 -------------- ---------------- ------------------ EARNINGS BEFORE INCOME TAXES 31,690,320 33,566,656 27,265,386 INCOME TAXES 9,895,000 10,199,000 7,027,000 -------------- ---------------- ------------------ NET EARNINGS $ 21,795,320 $ 23,367,656 $ 20,238,386 ============== ================ ================== NET EARNINGS PER COMMON SHARE $ 2.88 $ 3.10 $ 2.68 ============== ================ ==================
See notes to consolidated financial statements. 19 5 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992 COMMON STOCK UNREALIZED LOSS --------------------------- ON SECURITIES SHARES CAPITAL UNDIVIDED AVAILABLE-FOR ISSUED AMOUNT SURPLUS PROFITS SALE ----------- ------------ ------------- ------------- ------------- BALANCE, JANUARY 1, 1992 As previously reported 7,177,966 $ 23,902,625 $ 68,130,500 $ 21,806,583 $ Merger with Baker accounted for as a pooling-of-interests 527,235 1,755,694 3,038,334 5,168,183 ----------- ------------ ------------- ------------- ------------- As restated 7,705,201 25,658,319 71,168,834 26,974,766 Net earnings 20,238,386 Cash dividends-$.68 per share (4,881,015) Cash dividends paid by Baker (346,500) Transfer from undivided profits 13,000,000 (13,000,000) ----------- ------------ ------------- ------------- ------------- BALANCE, DECEMBER 31, 1992 7,705,201 25,658,319 84,168,834 28,985,637 Net earnings 23,367,656 Cash dividends-$.90 per share (6,460,171) Cash dividends paid by Baker (346,500) Transfer from undivided profits 14,000,000 (14,000,000) ----------- ------------ ------------- ------------- ------------- BALANCE, DECEMBER 31, 1993 7,705,201 25,658,319 98,168,834 31,546,622 Net earnings 21,795,320 Cash dividends-$.92 per share (6,967,488) Cash dividends paid by Baker (86,625) Transfer from undivided profits 5,774,248 (5,774,248) Unrealized loss on securities available-for-sale (415,070) Sale of common stock by subsidiary 226,918 ----------- ------------ ------------- ------------- ------------- BALANCE, DECEMBER 31, 1994 7,705,201 $ 25,658,319 $ 104,170,000 $ 40,513,581 $ (415,070) =========== ============ ============= ============= =============
See notes to consolidated financial statements. 20 6 HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, --------------------------------------------------------- 1994 1993 1992 -------------- ---------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings $ 21,795,320 $ 23,367,656 $ 20,238,386 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 4,358,463 3,854,959 3,951,758 Provision for loan losses 1,878,367 4,481,983 7,767,996 Provision for losses on real estate owned 104,625 174,796 710,322 Deferred income taxes (credit) (477,000) 113,600 (345,000) Gain on sales of securities -- (783,468) (632,580) Decrease (increase) in interest receivable (2,423,359) 1,581,413 1,682,540 Amortization of intangible assets 1,473,756 1,513,500 1,655,700 Increase (decrease) in interest payable 706,366 (386,862) (1,746,327) Other -- net (605,161) (6,872,584) 5,651,646 -------------- ---------------- ------------------ Net cash provided by Operating Activities 26,811,377 27,044,993 38,934,441 -------------- ---------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in interest bearing time deposits 525,000 3,000,000 (4,000,001) Proceeds from maturities of securities 271,134,817 251,534,085 344,303,200 Proceeds from sales of investment securities -- 9,764,692 65,448,000 Purchase of securities (344,739,845) (269,118,458) (530,700,034) Net (increase) decrease in federal funds sold and securities sold under agreements to repurchase 63,105,000 (10,650,000) (22,600,000) Net increase in loans (10,088,252) (87,724,795) (30,752,206) Purchase of property and equipment, net (3,895,259) (3,725,820) (2,924,260) Proceeds from sales of other real estate 1,242,800 338,306 916,367 -------------- ---------------- ------------------ Net cash used in Investing Activities (22,715,739) (106,581,990) (180,308,934) -------------- ---------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 16,421,367 69,023,473 185,137,919 Dividends paid (6,967,488) (6,806,671) (5,227,515) Repayments of long-term bonds and notes (1,345,000) (815,000) (1,765,000) Net increase (decrease) in federal funds purchased, securities sold under agreements to repurchase and other temporary funds 8,497,427 9,407,950 (17,116,796) -------------- ---------------- ------------------ Net cash provided by Financing Activities 16,606,306 70,809,752 161,028,608 -------------- ---------------- ------------------ NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 20,701,944 (8,727,245) 19,654,115 CASH AND DUE FROM BANKS, BEGINNING 94,198,284 102,925,529 83,271,414 -------------- ---------------- ------------------ CASH AND DUE FROM BANKS, ENDING $ 114,900,228 $ 94,198,284 $ 102,925,529 ============== ================ ==================
21 7 HANCOCK HOLDING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION -- The consolidated financial statements of Hancock Holding Company (Company) includes the accounts of the Company, its wholly-owned banks, Hancock Bank (Mississippi) and Hancock Bank of Louisiana, and other subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation. 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 at December 31, 1994. 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. Securities classified as held-for-sale at December 31, 1993, were recorded at the lower of cost or market value. 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 accruing 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 provisions on securities gains were $270,000 in 1993 and $214,000 in 1992. 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 for loan losses is adequate to absorb reasonable anticipated losses in the existing portfolio based upon management's knowledge of the loan portfolio and current and expected economic conditions. Based on these estimates, an amount is charged to the provision for loan losses and credited to the reserve for loan losses in order to adjust the reserves to a level determined by management to be adequate to absorb future losses. PROPERTY AND EQUIPMENT -- Property and equipment are recorded at 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 include the values assigned to the core deposits of acquired banks, are being amortized over lives ranging from six to seven years using accelerated methods and goodwill which is being amortized over fifteen years using an accelerated method. 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 $1,400,000, $780,000 and $1,900,000 in 1994, 1993 and 1992, respectively. Loans made in connection with the sale of other real estate amounted to approximately $900,000, $1,200,000 and $2,200,000 in 1994, 1993 and 1992, respectively. 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 principle 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. 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 22 8 between the amount of taxable income and pre-tax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statement. 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 number of shares of common stock outstanding during the period, after giving retroactive effect to stock dividends and shares issued in acquisitions. CASH -- For the purpose of presentation in the Statement 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 -- ACQUISITION 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-interests method, therefore all prior years' financial information has been restated. Net interest income and net earnings of the separate companies for the periods preceeding the acquisition were as follows (in thousands):
JANUARY 1,1994 YEARS ENDED THROUGH DECEMBER 31, APRIL 29, 1994 1993 1992 -------------- ---------------- ------------------ Company $ 24,778 $ 77,904 $ 74,325 Baker 992 3,156 3,235 -------------- ---------------- ------------------ Combined $ 25,770 $ 81,060 $ 77,560 ============== ================ ================== Net Earnings: Company $ 6,575 $ 22,116 $ 19,212 Baker 248 1,252 1,026 -------------- ---------------- ------------------ Combined $ 6,823 $ 23,368 $ 20,238 ============== ================ ==================
NOTE 3 -- PROPOSED ACQUISITIONS In July 1994, the Company agreed to merge Hancock Bank of Louisiana, with Washington Bank & Trust Company (Washington), Franklinton, Louisiana. The merger will be consummated by the exchange of all outstanding common stock of Washington in return for approximately 542,000 shares of common stock of the Company. Completion of the merger is contingent upon approval by Washington's shareholders. It is intended that the merger will be accounted for using the pooling-of-interests method and will be consummated on February 1, 1995. Washington had total assets of approximately $86,100,000 (unaudited) and stockholders' equity of approximately $12,400,000 (unaudited) as of December 31, 1994 and net earnings of approximately $1,300,000 (unaudited) for the year then ended. On January 13, 1995, the Company merged with First Denham Bancshares, Inc. (Bancshares) which owns 100% of the stock of First National Bank of Denham Springs, Denham Springs, Louisiana. The merger was in return for approximately $4,000,000 cash and 775,000 shares of common stock of the Company. It is intended that the merger will be accounted for using the purchase method. Bancshares had total assets of approximately $111,000,000 (unaudited) and stockholders' equity of approximately $10,300,000 (unaudited) as of December 31, 1994 and net earnings of approximately $2,500,000 (unaudited) for the year then ended. Following is certain selected unaudited proforma combined financial information as of December 31, 1994, and for the year then ended, assuming that both of the above acquisitions are consummated and had been effective January 1, 1994 (in thousands except per share data): Total Assets $ 2,144,000 Stockholders' Equity 205,000 Net Interest Income 95,750 Net Earnings 24,400 Net Earnings Per Share 2.75 23 9 NOTE 4 -- SECURITIES The book and market values of securities classified as available-for-sale as of December 31, 1994, and held-for-sale as of December 31, 1993, were as follows (in thousands):
DECEMBER 31, 1994 DECEMBER 31, 1993 --------------------------------------------- --------------------------------------------- GROSS GROSS GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE --------- -------- --------- --------- --------- ------- --------- --------- CMO'S $ 19,385 $ 134 $ 743 $ 18,776 $ 27,314 $ 791 $ 209 $ 27,896 Municipal obligations 997 26 971 930 10 0 940 --------- -------- --------- --------- --------- ------- --------- --------- $ 20,382 $ 134 $ 769 $ 19,747 $ 28,244 $ 801 $ 209 $ 28,836 ========= ======== ========= ========= ========= ======= ========= =========
The book value and market value of the securities classified as available-for-sale at December 31, 1994, by estimated maturity, were as follows (in thousands):
BOOK VALUE MARKET VALUE ------------ ------------ Due in one year or less $ 31 $ 31 Due after one year through five years 966 940 Due after five years through ten years 19,385 18,776 ------------ ---------- $ 20,382 $ 19,747 ============ ==========
The book and market values of securities classified as held-to-maturity as of December 31, 1994, and December 31, 1993, were as follows (in thousands):
DECEMBER 31, 1994 DECEMBER 31, 1993 --------------------------------------------- --------------------------------------------- GROSS GROSS GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE --------- -------- --------- --------- --------- ------- --------- --------- U.S.Treasury Securities $ 271,664 $ 362 $ 5,000 $ 267,026 $ 279,461 $ 6,048 $ 104 $ 285,405 Other U.S. Gov. obligations 270,727 194 6,618 264,303 237,487 5,457 427 242,517 Municipal obligations 57,073 968 1,297 56,744 38,737 3,544 459 41,822 Other securities 15,746 92 520 15,318 13,316 3 76 13,243 Mortgage-backed securities 129,028 349 4,129 125,248 95,406 1,737 2,583 94,560 CMO's 88,807 57 2,999 85,865 87,171 2,148 2508 9,069 --------- -------- --------- --------- --------- ------- --------- --------- $ 833,045 $ 2,022 $ 20,563 $ 814,504 $ 751,578 $18,937 $ 3,899 $ 766,616 ========= ======== ========= ========= ========= ======= ========= =========
The book value and market value of securities classified as held-to-maturity as of December 31, 1994, by contractual maturity, were as follows (in thousands):
BOOK VALUE MARKET VALUE ------------ ------------ Due in one year or less $ 161,154 $ 159,904 Due after one year through five years 307,313 301,079 Due after five years through ten years 122,204 118,353 Due after ten years 242,374 235,168 ------------ ---------- $ 833,045 $ 814,504 ============ ==========
Proceeds from sales of securities were $9,765,000 in 1993 and $65,448,000 in 1992. Gross gains of $810,000 in 1993 and $654,000 in 1992 and gross losses of $27,000 in 1993, and $21,000 in 1992 were realized on those sales. There were no sales of securities in 1994. At December 31, 1993, the Company reclassified securities with a book value of $28,244,000 from investment securities to securities held-for-sale. On January 1, 1994, the Company reclassified these same securities to securities available- for-sale which resulted in an increase of stockholders' equity of $390,000 at that date. Securities with a book value of approximately $382,000,000 at December 31, 1994, and $335,000,000 at December 31, 1993, 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. 24 10 NOTE 5 -- LOANS Loans consisted of the following (in thousands):
DECEMBER 31, ----------------------------- 1994 1993 ------------ ---------- Real estate loans-primarily mortgage $ 353,427 $ 344,768 Commercial and industrial loans 114,179 151,224 Loans to individuals for household, family and other consumer expenditures 417,939 384,018 Leases 10,074 6,673 Other loans 13,096 13,762 ------------ ---------- $ 908,715 $ 900,445 ============ ==========
Changes in the reserve for loan losses are as follows (in thousands):
1994 1993 1992 ------------ ---------- --------- Balance at January 1 $ 14,218 $ 13,571 $ 11,718 Recoveries 1,380 1,552 1,044 Loans charged off (3,260) (5,387) (6,959) Provision charged to operating expense 1,860 4,482 7,768 ------------ ---------- --------- Balance at December 31 $ 14,198 $ 14,218 $ 13,571 ============ ========== =========
The Company generally makes loans in its market areas of South Mississippi and East Baton Rouge Parish, 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, 1994, was approximately $4,635,000. Nonaccrual and renegotiated loans amounted to approximately 1% of total loans at December 31, 1994 and 1993. The amount of interest not accrued on these loans did not have a significant effect on earnings in 1994, 1993 or 1992. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of Certain Loans", which requires the present value of expected future cash flows of impaired loans be discounted at the loan's effective interest rate. The Financial Accounting Standards Board has also issued Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures", which allows a creditor to use existing methods for recognizing interest income on impaired loans. The Bank does not anticipate that the adoption of these Statements in 1995 will have a significant effect on its financial condition or results of operations NOTE 6 -- PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization as follows (in thousands):
DECEMBER 31, ----------------------------- 1994 1993 ------------ ---------- Land, buildings and leasehold improvements $ 38,565 $ 36,764 Furniture, fixtures and equipment 32,649 30,537 ------------ ---------- 71,214 67,301 Less accumulated depreciation and amortization 36,458 32,082 ------------ ---------- $ 34,756 $ 35,219 ============ ==========
NOTE 7 -- 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 as follows (in thousands): 1995 $ 920 1996 985 1997 1,050 ---------- $ 2,955 ==========
25 11 The Urban Development Refunding Revenue Bonds are obligations of Hancock Bank and are collateralized by land and buildings with a book value of $11,700,000. The Bank has deposited with the bond trustee U.S. Treasury securities whose principle maturities and interest payments will be sufficient to service all future principle and interest payments due on the Urban Development Refunding Revenue Bonds. NOTE 8 -- STOCKHOLDERS' EQUITY Earnings per common share is based on the weighted average number of shares outstanding of approximately 7,550,000 in 1994, 1993, and 1992, reduced by shares of stock owned by subsidiaries. At December 31, 1994, these subsidiaries owned 143,000 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, 1994 was approximately $47,000,000. The Company and its Bank subsidiaries are required to maintain certain minimum capital levels. At December 31, 1994, the Company and the Banks were in compliance with their respective statutory minimum capital requirements. Following is a summary of the minimum required consolidated capital levels and the actual amounts at December 31, 1994:
REQUIRED MINIMUM ACTUAL ---------------- ------- Tier 1 leverage 4% - 5% 9% Tier 1 Risk-based 4% 17% Total Risk-based 8% 18%
NOTE 9 -- 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. Prior years have not been restated. 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, 1994, and 1993 are as follows (in thousands):
1994 1993 ------------ ---------- Deferred tax assets: Postretirement benefit obligation $ 442 $ 279 Reserve for loan losses not currently deductible 4,091 4,055 Reserve for other real estate not currently deductible 291 370 Deferred compensation 532 521 Lease accounting 117 522 Unrealized loss on securities available-for-sale 220 -- Other 123 47 ------------ ---------- $ 5,816 $ 5,794 ------------ ---------- Deferred tax liabilities: Tax over book depreciation (3,296) (3,123) Core deposit intangible (770) (2,365) Prepaid pension (716) (154) Market discount accretion (516) (331) ------------ ---------- (5,298) (5,973) ------------ ---------- Net deferred tax liability $ 518 $ (179) ============ ==========
Income taxes consists of the following components (in thousands):
1994 1993 1992 ------------ ---------- --------- Currently payable $ 10,372 $ 10,085 $ 7,372 Deferred (477) 114 (345) ------------ ---------- --------- $ 9,895 $ 10,199 $ 7,027 ============ ========== =========
26 12 Deferred income taxes resulted from the following (in thousands):
1992 ------------ Accelerated depreciation $ 100 Provision for loan losses (800) AMT credit restoration (100) Other - net 455 ------------ $ (345) ============
Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 35% in 1994 and 1993, and 34% in 1992, to earnings before income taxes. The reasons for these differences are as follows (in thousands):
1994 1993 1992 ------------------- ----------------- ------------------ Amount % Amount % Amount % ------------ ----- ---------- ----- ----------- ----- Taxes computed at statutory rate $ 11,092 35 $ 11,748 35 $ 9,270 34 Increases (decreases) in taxes resulting from: (1,245) (4) Tax exempt interest income (1,294) (4) (1,703) (6) Alternative minimum tax -- -- (980) (4) Miscellaneous items - net 48 (255) (1) 440 2 ------------ ----- ---------- ----- ----------- ----- Income tax expense $ 9,895 31 $ 10,199 30 $ 7,027 26 ============ ===== ========== ===== =========== =====
The Tax Reform Act of 1986 generally became effective with respect to the Company in 1987. The Act provides for an alternative minimum tax (AMT) which decreased the tax otherwise payable by the Company by $980,000 in 1992. NOTE 10 -- 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, ----------------------------- 1994 1993 ------------ ---------- Actuarial present value of benefit obligations: Vested benefit obligation $ 17,835 $ 16,403 ============ ========== Accumulated benefit obligation $ 17,892 $ 16,471 ============ ========== Projected benefit obligation for service rendered to date $ (20,545) $ (19,246) Plan assets at fair value 17,892 17,465 ------------ ---------- Projected benefit obligation in excess of plan assets (2,653) (1,781) Remaining unrecognized portion of net obligation being amortized over 15 years 320 366 Unrecognized prior service cost 935 1,026 Unrecognized net loss from past experience different from that assumed 3,404 2,207 ------------ ---------- Prepaid pension cost included in other assets $ 2,006 $ 1,818 ============ ========== 1994 1993 1992 ------------ ---------- --------- Net pension expense included the following (income) expense components: Service cost - benefits earned during the period $ 818 $ 698 $ 757 Interest cost on projected benefit obligation 1,463 1,369 1,218 Return on plan assets (93) (1,158) (1,454) Net amortization and deferral (1,112) (89) 235 ------------ ---------- --------- Net pension expense $ 1,076 $ 820 $ 756 ============ ========== =========
The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.75% and 4%, respectively, in 1994 and 1993. The expected rate of return on plan assets was 8% in 1994 and 1993. The plan's assets consist primarily of U.S. government and agency obligations, certificates of deposit and other fixed income obligations. During 1992 the Company adopted Statement of Financial Accounting Standards No. 106, Employer's Accounting for 27 13 Postretirement Benefits Other Than Pensions. This Statement requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides services. The costs of these benefits were previously expensed on a pay-as-you-go basis. The adoption of this Statement decreased 1992 net earnings by $250,000 ($.03 per share). 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 for these postretirement benefits, none of which have been funded, are as follow at December 31, 1994, and December 31, 1993 (in thousands):
1994 1993 ------------ ---------- Accumulated postretirement benefit obligations: Retirees $ 2,052 $ 1,888 Fully eligible active plan participants 1,103 826 Other active plan participants 1,417 1,161 ------------ ---------- 4,572 3,875 Unrecognized transition obligation (2,436) (2,579) Unrecognized net (loss) gain (873) (499) ------------ ---------- Accrued postretirement benefit cost $ 1,263 $ 797 ============ ==========
Net periodic postretirement benefit costs for 1994, 1993 and 1992 included the following components (in thousands):
1994 1993 1992 ------------ ---------- --------- Amortization of unrecognized net gain $ 18 $ (5) $ -- Service cost-benefits attributed to service during the year 200 162 165 Interest costs on accumulated postretirement benefit obligations 266 254 237 Amortization of transition obligation over 20 years 143 143 146 ------------ ---------- --------- Net periodic postretirement benefit cost $ 627 $ 554 $ 548 ============ ========== =========
For measurement purposes in 1994, 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% for 2006 and remain at that level thereafter. In 1993, rates of 12% and 5.5% were assumed, and in 1992, rates of 12% and 6% 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, 1994, by $81,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $10,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.5% in 1994, 7% in 1993, and 8.75% in 1992. 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 $413,000 in 1994, $450,000 in 1993, and $346,000 in 1992. 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 his base pay. The Company's contribution amounted to $52,000 in 1994, $45,000 in 1993, $45,000 in 1992. The postretirement plans relating to health care payments, 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 11 -- 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 28 14 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. 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, 1994 and 1993 (in thousands):
1994 1993 ------------------------------ ------------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------------ ------------ ------------ ------------ Financial assets: Cash, short-term investments and federal funds sold $ 150,850 $ 150,850 $ 193,788 $ 193,788 Securities available-for-sale 19,747 19,747 28,244 28,836 Securities held-to-maturity 833,045 814,504 751,578 766,616 Loans 881,287 875,715 874,557 883,000 Less: reserve for loan losses (14,198) (14,198) (14,218) (14,218) ------------ ------------ ------------ ------------ Loans, net of reserve 867,089 861,517 860,339 868,782 Financial liabilities: Deposits $ 1,702,078 $ 1,699,242 $ 1,685,657 $ 1,688,000 Federal Funds purchased, etc. 54,296 54,296 45,799 45,799 Long-term bonds and notes 2,955 2,700 4,300 4,600
NOTE 12--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, 1994, and 1993 (in thousands):
1994 1993 ------------ ---------- Commitments to extend credit $ 165,000 $ 200,000 Letters of credit 9,500 7,000
Approximately $130,000,000 of commitments to extend credit at December 31, 1994, were at variable rates and the remainder were at fixed rates. Most commitments to extend credit at December 31, 1993, 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. 29 15 NOTE 13 -- SUPPLEMENTAL INFORMATION The following is selected supplemental information for the years ended December 31, 1994, 1993, and 1992 (in thousands):
1994 1993 1992 ------------ ---------- --------- Trust fee income $ 2,500 $ 2,600 $ 2,300 Deposit insurance premium expense 4,000 3,600 3,360 Postage expense 2,200 1,670 1,708 Interest paid 47,660 47,050 55,950 Income taxes paid 10,320 10,560 7,750
NOTE 14 -- SUMMARIZED FINANCIAL INFORMATION OF HANCOCK HOLDING COMPANY (PARENT COMPANY ONLY) BALANCE SHEETS
DECEMBER 31, ------------------------------ 1994 1993 ------------- ------------- ASSETS: Investment in subsidiaries $ 169,609,659 $ 155,171,417 Other 317,171 202,412 ------------- ------------- $ 169,926,830 $ 155,373,829 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: Accrued expenses $ -- $ 54 Stockholders' equity 169,926,830 155,373,775 ------------- ------------- $ 169,926,830 $ 155,373,829 ============= =============
STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, -------------------------------------------- 1994 1993 1992 ------------ ------------ ----------- Dividends received from subsidiary $ 7,297,502 $ 6,343,450 $ 5,428,570 Excess equity in earnings of subsidiaries over dividends received 14,284,093 16,990,520 15,064,920 Interest and other (expenses) income 327,632 56,738 (375,104) Income tax credit (expense) (113,907) (23,052) 120,000 ------------ ------------ ----------- Net earnings $ 21,795,320 23,367,656 $20,238,386 ============ ============ ===========
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------------------- 1994 1993 1992 ------------ ------------ ----------- Cash Flows from Operating Activities--principally dividends from subsidiary $ 6,928,267 $ 6,291,142 $ 5,409,484 ------------ ------------ ----------- Cash Flows from Financing Activities: Prepayments of notes payable -- -- (1,000,000) Dividends paid (6,967,488) (6,460,169) (4,881,015) ------------ ------------ ----------- Net cash used in financing activities (6,967,488) (6,460,169) (5,881,015) ------------ ------------ ----------- Net decrease in cash (39,221) (169,027) (471,531) Cash, Beginning 113,345 282,372 753,903 ------------ ------------ ----------- Cash, Ending $ 74,124 $ 113,345 $ 282,372 ============ ============ ===========
30 16 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, 1994 and 1993, and the related statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 17, 1995 31 17 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, 1994 AND 1993 The Company's net income was $21.8 million, $2.88 per share, for the year ended December 31, 1994, compared with $23.4 million, or $3.10 per share, for the year ended December 31, 1993. 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 $4.5 million in 1993 to $1.9 million in 1994. The loan loss reserve balance was 1.65% of average loans in 1994 and represented 237% of non-performing loans at December 31, 1994. The net interest margin declined to 4.63% 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. FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 The Company's net income increased to $23.4 million, $3.10 per share, for the year ended December 31, 1993, compared to $20.2 million, or $2.68 per share, for the year ended December 31, 1992. The $3.1 million increase in net income was attributable to deposit growth which funded additional earning assets and a lower level of loan charge-offs. Growth in earning assets resulted in a $3.5 million increase in net interest income. A 26% decline in non-performing asset balances and a lower level of loan charge-offs in 1993 allowed the Company to reduce its loan loss provision by $3.3 million from $7.8 million in 1992 to $4.5 million in 1993. The reserve for loan losses balance was 1.78% of average loans in 1993 and represented 211% of non-performing loans at December 31, 1993. The net interest margin declined from 5.09% in 1992 to 4.87% in 1993. 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, 1994 book value of the held-to-maturity portfolio was $833 million and the market value was $815 million. The available-for-sale portfolio balance was $20 million at December 31, 1994. LOANS Average loans outstanding increased $60 million in 1994 bringing the December 31, 1994, net loan portfolio balances to $881 million or 50% of earning assets. Non-performing loans were $5.9 million or .67% of the December 31, 1994, loan balances. Restructured loans were insignificant and the amount of interest not accrued on non-performing loans did not significantly effect earnings in 1994 or 1993. The Company generally makes loans in its market areas of South Mississippi and East Baton Rouge Parish. DEPOSITS Deposits grew $16 million bringing total deposits to $1.7 billion on December 31, 1994. Savings deposit balances grew 6% compared with 3% growth in the time deposit category. Deposits are the Company's primary source of funds supporting its earning assets base. 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 32 18 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, 1994, cash and due from banks, securities available-for-sale, federal funds sold and repurchase agreements were in excess of 10% 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, 1994, the Company and the Banks capital balances were in excess of current regulatory minimum requirements. RECENT CHANGES IN FINANCIAL ACCOUNTING STANDARDS During 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions." This Statement requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides services. The costs of these benefits were previously expensed on a pay-as-you-go basis. The adoption of this Statement decreased net earnings by $250,000 ($0.03 per share) in 1992. 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. Prior years were not restated. 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. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of Certain Loans", which requires the present value of expected future cash flows of impaired loans be discounted at the loan's effective interest rate. The Financial Accounting Standards Board has also issued Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures," which allows a creditor to use existing methods for recognizing interest income on impaired loans. The Bank does not anticipate that the adoption of these Statements in 1995 will have a significant effect on its financial condition or results of operations. 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. The Company's adoption of this Statement did not have a material effect on its financial statements. FORM 10-K ANNUAL REPORT HANCOCK HOLDING COMPANY FILES AN ANNUAL REPORT WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K. A COPY OF THE REPORT FILED ON FORM 10-K, WHEN COMPLETED, WILL BE SENT FREE OF CHARGE TO ANY SHAREHOLDER BY WRITING TO: GEORGE A. SCHLOEGEL, VICE-CHAIRMAN, HANCOCK HOLDING COMPANY, P.O. BOX 4019, GULFPORT, MS 39502. 33 EX-22 3 SUSIDIARIES OF THE REGISTRANT 1 Exhibit (22) (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 Hancock Bank Securities Mississippi Hancock Bank Corporation Hancock Insurance Agency Mississippi Hancock Bank Town Properties, Inc. Mississippi Hancock Bank The Gulfport Building, Inc. Mississippi Hancock Bank of Mississippi Harrison Financial Services, Mississippi Hancock Bank Inc. Hancock Mortgage Corporation Mississippi Hancock Bank and Hancock Securities Corp. Harrison Life Insurance Mississippi 79% owned by Hancock Company Bank
(1) All are 100% owned except as indicated. EX-23 4 CONSENT OF DELOITTE & TOUCHE 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 17, 1995 incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1994. DELOITTE & TOUCHE New Orleans, Louisiana March 24, 1995 EX-27 5 FINANCIAL DATA SCHEDULE
9 0000750577 HANCOCK HOLDING COMPANY 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 114,900 1,350 34,600 0 19,747 833,045 814,504 881,287 14,198 1,940,845 1,702,079 54,296 11,588 2,955 25,658 0 0 144,269 1,940,845 78,252 47,423 4,745 130,420 46,567 1,804 82,049 1,878 0 26,686 31,690 21,795 0 0 21,795 2.88 2.88 4.63 3,640 2,633 614 0 14,218 3,379 1,481 14,198 14,198 0 2,198