HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Amounts in thousands)
(Unaudited)
June 30 December 31,
2000 1999 *
--------------------- ---------------------
ASSETS:
Cash and due from banks (non-interest bearing) $150,129 $156,738
Interest-bearing time deposits with other banks 100 100
Securities available for sale (amortized cost of
$644,270 and $660,591) 623,656 639,416
Securities held to maturity (fair value of $438,088
and $498,467) 448,626 509,306
Federal funds sold 22,000 3,000
Loans, net of unearned income 1,612,284 1,541,521
Less: Allowance for loan losses (26,651) (25,713)
--------------------- ---------------------
Loans, net 1,585,633 1,515,808
Property and equipment, net of accumulated
depreciation of $57,181 and $56,267 53,751 55,008
Other real estate, net 1,268 1,616
Accrued interest receivable 23,758 23,806
Goodwill and other intangibles 42,576 44,513
Other assets 40,181 42,563
--------------------- ---------------------
TOTAL ASSETS $2,991,678 $2,991,874
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $560,935 $527,219
Interest-bearing savings, NOW, money market
and time 1,900,241 1,870,435
--------------------- ---------------------
Total deposits 2,461,176 2,397,654
Securities sold under agreements to repurchase 137,281 213,773
Federal Home Loan Bank advance 47,000 50,000
Other liabilities 19,351 17,306
Long-term notes 2,450 2,714
--------------------- ---------------------
TOTAL LIABILITIES 2,667,258 2,681,447
STOCKHOLDERS' EQUITY:
Common Stock-$3.33 par vaule per share; 75,000,000
shares authorized and 11,072,770 issued 36,872 36,872
Capital surplus 196,062 196,047
Retained earnings 105,546 92,153
Unrealized loss on securities available for
sale, net (13,399) (13,764)
Unearned compensation (579) (808)
Treasury stock (82) (73)
--------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 324,420 310,427
--------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,991,678 $2,991,874
===================== =====================
* The balance sheet at December 31, 1999 has been taken from the audited
balance sheet at that date.
See notes to condensed consolidated financial statements.
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HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(UNAUDITED)
-----------
(amounts in thousands except per share)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- -----------------------------
2000 1999 2000 1999
------------- ----------------- --------------- ------------
INTEREST INCOME:
Loans $ 36,061 $ 32,507 $ 71,487 $ 64,675
U. S. Treasury securities 1,398 2,854 2,987 5,845
Obligations of U. S. government agencies 7,623 8,938 15,492 17,689
Obligations of states and political subdivisions 2,338 2,367 4,727 4,661
Federal funds sold 1,279 231 2,029 616
Other investments 5,126 4,808 10,558 9,471
------------- ------------- --------------- ------------
Total interest income 53,825 51,705 107,280 102,957
------------- ------------- --------------- ------------
INTEREST EXPENSE:
Deposits 20,643 19,318 40,437 39,083
Federal funds purchased and securities sold
under agreements to repurchase 2,259 1,609 4,642 2,978
Bonds and notes 48 71 102 107
------------- ------------- --------------- ------------
Total interest expense 22,950 20,998 45,181 42,168
------------- ------------- --------------- ------------
NET INTEREST INCOME 30,875 30,707 62,099 60,789
Provision for loan losses 2,434 1,621 4,203 3,041
------------- ------------- --------------- ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 28,441 29,086 57,896 57,748
------------- ------------- --------------- ------------
NON-INTEREST INCOME
Service charges on deposit accounts 6,764 5,932 13,310 11,048
Other service charges, commissions and fees 4,670 4,347 9,370 8,691
Securities gains, net 9 11 9 14
Other 376 621 3,662 1,174
------------- ------------- --------------- ------------
Total non-interest income 11,819 10,911 26,351 20,927
------------- ------------- --------------- ------------
NON-INTEREST EXPENSE
Salaries and employee benefits 15,232 15,230 30,940 29,837
Net occupancy expense of premises 1,827 1,816 3,465 3,630
Equipment rentals, depreciation and maintenance 2,218 2,411 4,329 4,663
Amortization of intangibles 969 952 1,937 1,845
Other 7,722 7,802 15,857 16,056
------------- ------------- --------------- ------------
Total non-interest expense 27,968 28,211 56,528 56,031
------------- ------------- --------------- ------------
EARNINGS BEFORE INCOME TAXES 12,292 11,786 27,719 22,644
Income taxes 3,750 3,975 8,791 7,202
------------- ------------- --------------- ------------
NET EARNINGS $ 8,542 $ 7,811 $ 18,928 $ 15,442
============= ============= =============== ============
BASIC AND DILUTED EARNING PER COMMON SHARE $ 0.79 $ 0.72 $ 1.74 $ 1.42
============= ============= =============== ============
DIVIDENDS PAID PER COMMON SHARE $ 0.25 $ 0.25 $ 0.50 $ 0.50
============= ============= =============== ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC 10,880 10,882 10,878 10,885
============= ============= =============== ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-DILUTED 10,886 10,896 10,884 10,906
============= ============= =============== ============
See notes to condensed conslidated financial statements.
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HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
UNAUDITED
---------
(Amounts in thousands)
Six Months Ended June 30,
----------------------------------------
2000 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 18,928 $ 15,442
Adjustments to reconcile net earnings to net
cash by operating activities:
Depreciation 3,582 3,125
Provision for loan losses 4,203 3,041
Provision for losses on real estate owned (95) 91
Gain on sales of securities (9) (14)
Decrease in interest receivable 48 1,070
Amortization of intangible assets 1,937 1,845
Increase (decrease) in interest payable 480 (1,164)
Other, net (12,337) (4,443)
------- ------
Net cash provided by operating activities 16,737 18,993
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing time deposits - 96
Proceeds from maturities of securities held
to maturity 60,681 278,275
Purchase of securities held to maturity - (79,243)
Proceeds from maturities of securities available
for sale 99,474 76,662
Purchase of securities available for sale (66,822) (228,460)
Net increase in federal funds sold (19,000) (10,500)
Net increase in loans (74,052) (49,653)
Purchase of property, equipment and software, net (2,325) (9,096)
Proceeds from sales of other real estate 467 596
Net cash received in connection with purhcase
transaction - 23,927
------ ------
Net cash provided by investing activities (1,577) 2,604
------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 63,522 (70,145)
Dividends paid (5,535) (5,544)
Net (decrease) increase in federal funds purchased and
securities sold under agreements to repurchase (76,492) 26,545
Reductions to long-term notes (264) (249)
Repayment of FHLB advances, net (3,000) -
------ -------
Net cash provided by financing activities (21,769) (49,393)
------- -------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (6,609) (27,796)
CASH AND DUE FROM BANKS, BEGINNING 156,738 161,294
------- -------
CASH AND DUE FROM BANKS, ENDING $ 150,129 $ 133,498
========= =========
See notes to condensed consolidated financial statements.
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HANCOCK HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(At And For the Six Months Ended June 30, 2000 and 1999)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements include the accounts of Hancock Holding Company, its wholly-owned banks, Hancock Bank and Hancock Bank of Louisiana and other subsidiaries. Intercompany profits, transactions and balances have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year. For further information, refer to the consolidated financial statements and notes thereto of Hancock Holding Company's 1999 Annual Report to Shareholders.
COMPREHENSIVE EARNINGS Following is a summary of the Company's comprehensive earnings for the three and six months ended June 30, 2000 and 1999.
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
Net earnings $ 8,542 $ 7,811 $ 18,928 $ 15,442
Other comprehensive income(loss)
(net of income tax):
Unrealized holding (losses)/gains on
securities available for sale 1,195 (6,662) 365 (8,487)
----------- ----------- ------------ ------------
Total Comprehensive Earnings $ 9,737 $ 1,149 $ 19,293 $ 6,955
=========== =========== ============ ============
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HANCOCK HOLDING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides management's analysis of certain factors which have affected the Company's financial condition and operating results during the periods included in the accompanying condensed consolidated financial statements.
CHANGES IN FINANCIAL CONDITION
Liquidity
The Company manages liquidity through traditional funding sources of core deposits, federal funds, and maturities of loans and securities held to maturity and sales and maturities of securities available for sale.
The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:
June 30, March 31, December 31,
2000 2000 1999
---- ---- ----
Total securities to total deposits 43.57% 44.87% 47.79%
Total loans (net of unearned
income) to total deposits 65.51% 61.88% 64.29%
Interest-earning assets
to total assets 90.47% 90.65% 90.02%
Interest-bearing deposits
to total deposits 77.21% 77.54% 78.01%
Capital Resources
The Company continues to maintain an adequate capital position. The ratios as of June 30, 2000, March 31, 2000 and December 31, 1999 (as amended) are as follows:
June 30, March 31, December 31,
2000 2000 1999
---- ---- ----
Equity capital to total assets (1) 11.29% 11.00% 10.84%
Total capital to risk-weighted assets (2) 17.28% 17.19% 16.85%
Tier 1 capital to risk-weighted 16.03% 15.94% 15.61%
assets (3)
Leverage capital to average total assets (4) 9.98% 9.74% 9.61%
(1) Equity capital consists of stockholders' equity (excluding unrealized gains/(losses)).
(2) Total capital consists of equity capital less intangible assets plus a
Page 7 of 12
limited amount of loan loss allowance. Risk-weighted assets represent the assigned risk portion of all on and
off-balance-sheet assets. Based on Federal Reserve Board guidelines, assets are assigned a risk factor percentage from
0% to 100%. A minimum ratio of total capital to risk-weighted assets of 8% is required.
(3) Tier 1 capital consists of equity capital less intangible assets. A minimum ratio of tier 1 capital to risk-
weighted assets of 4% is required.
(4) Leverage capital consists of equity capital less goodwill and core deposit intangibles. Regulations
require a minimum 4% leverage capital ratio for an entity to be considered adequately capitalized.
RESULTS OF OPERATIONS
Net Earnings
For the first six months of 2000, regular net earnings have increased $1.6 million or 10.13% over the same period in 1999. In addition to the increase in regular net earnings, in the first quarter of the current year the Company recognized additional after-tax earnings of $1.9 million from the sale of its credit card portfolio.
Regular net earnings increased $731,000 or 9.36% for the second quarter of 2000 compared to the second quarter of 1999. Following is selected information for quarterly comparison:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
Results of Operations:
Return on average assets before sale
of credit card portfolio 1.13% 1.02% 1.14% 1.02%
Return on average assets 1.13% 1.02% 1.27% 1.02%
Return on average equity before sale
Of credit card portfolio 10.59% 10.18% 10.78% 10.12%
Return on average equity 10.59% 10.18% 12.00% 10.12%
Net Interest Income:
Yield on average interest-earning assets
(tax equivalent) 8.17% 7.71% 8.16% 7.78%
Cost of average interest-bearing funds 4.38% 3.88% 4.30% 4.00%
Net interest spread 3.80% 3.84% 3.86% 3.78%
Net yield on interest-earning assets
(net interest income on a tax equivalent basis
divided by average interest-earning assets) 4.78% 4.66% 4.82% 4.68%
Page 8 of 12
Net Interest Income
Net interest income for the first six three months of 2000 increased $1.3 million, compared to the same period one year ago. The Company's net interest margin for the six month period ended June 30, 2000 was 4.82% compared to 4.68% for the prior year period. The increase in interest income for the current year results from growth in the loan portfolio as a percentage of total interest-earning assets. The Company's loan portfolio, which yields a higher rate of interest compared to the securities portfolio, has experienced growth during the current year. The cost of funds was impacted by increasing interest rates offered for certain types of deposit accounts.
Net interest income for the quarter ended June 30, 2000 increased $168,000, compared to the same period last year. The Company's net interest margin for the quarter was 4.78%, compared to 4.66% in the prior year.
Provision for Loan Losses
The amount of the allowance equals the cumulative total of the provisions for loan losses, reduced by actual loan charge-offs, and increased by allowances acquired in acquisitions and recoveries of loans previously charged-off. Provisions are made to the allowance to reflect the currently perceived risks of loss associated with the bank's loan portfolio. A specific loan is charged-off when management believes, after considering, among other things, the borrower's condition and the value of any collateral, that collection of the loan is unlikely.
The following information is useful in determining the adequacy of the loan loss reserve and loan loss provision and ratios are calculated using average loan balances. (Amounts shown are in thousands)
At and For the
--------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
Annualized net charge-offs to average loans 0.49% 0.41% 0.42% 0.51%
Annualized provision for loan losses to average 0.62% 0.45% 0.45% 0.43%
loans
Average allowance for loan losses to average loans 1.66% 1.66% 1.67% 1.68%
Gross charge-offs $ 2,579 $ 1,910 $ 4,501 $ 4,663
Gross recoveries $ 657 $ 486 $ 1,236 $ 1,706
Non-accrual loans (1) $ 12,492 $ 7,002 $ 12,492 $ 7,002
Accruing loans 90 days or more past due $ 6,341 $ 8,717 $ 6,341 $ 8,717
(1) The increase in non-accrual loans is primarily associated with three relationships totaling $7.7 million.
The largest single relationship, which comprises 68% of the increase over June 1999, is 90%
guaranteed by the United States Department of Agriculture.
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Non-Interest Income
Non-interest income increased $5.4 million to $26.4 million for the six month period ended June 30, 2000, compared to $20.9 million for the same period in 1999. The largest factor contributing to that increase is a gain recognized by the Company on the sale of its credit card portfolio, which totaled $2.9 million. Deposit service charge income has increased $2.3 million and is largely due to a change in the fee structure associated with NSF and overdraft items.
Non-interest income for the quarter ended June 30, 2000 increased $900,000 to $11.8 million when compared to the same period in 1999. The increase is attributable to changes made in the fee structure related to NSF and overdraft items.
Non-Interest Expense
Non-interest expense for the six month period ended June 30, 2000 increased $497,000, or 0.9%, compared to the same period the previous year. Salaries and benefits increased $1.1 million during the current year compared to the same period of 1999. The current year includes the expense associated with one additional pay period for the bank (American Security Bancshares) acquired by the Company January 15, 1999. Additionally, accruals related to certain benefits have been made in 2000 whereas these accruals were not made in the comparable period of 1999. Decreases in other expenses, as compared to the same period last year, result from the implementation of initiatives to reduce or hold expenses at prior year levels.
For the quarter ended June 30, 2000, non-interest expense decreased $243,000 from the level experienced in the same quarter last year.
Income Taxes
The effective federal income tax rate of the Company continues to be less than the statutory rate of 35%, due primarily to tax-exempt interest income. The amount of tax-exempt income earned during the first six months of 2000 was $5,613,000 compared to $5,235,000 for the comparable period in 1999.
Forward Looking Information
Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This Act provides a safe harbor for such disclosures which protects the companies from unwarranted litigation if the actual results are different from management expectations. This report contains forward-looking statements and reflects management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause the Company’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's net earnings are dependent, in part, on its net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than
Page 10 of 12
interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. In an attempt to manage its exposure to changes in interest rates, management monitors the Company's interest rate risk. The Company's interest rate management policy is designed to produce a relatively stable net interest margin in periods of interest rate fluctuations. Interest sensitive assets and liabilities are those that are subject to maturity or repricing within a given time period. Management also reviews the Company's securities portfolio, formulates investment strategies and oversees the timing and implementation of transactions to assure attainment of the Board's objectives in the most effective manner. Notwithstanding the Company's interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income and the fair value of the Company's investment securities.
In adjusting the Company's asset/liability position, the Board and management attempt to manage the Company's interest rate risk while enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company's interest rate risk position somewhat in order to increase its net interest margin. The Company's results of operations and net portfolio values remain vulnerable to increases in interest rates and to fluctuations in the difference between long and short-term interest rates.
The Company also controls interest rate risk reductions by emphasizing non-certificate depositor accounts. The Board and management believe that a material portion of such accounts may be more resistant to changes in interest rates than are certificate accounts. At June 30, 2000 the Company had $302 million of regular savings and club accounts and $658 million of money market and NOW accounts, representing 50.5% of total interest-bearing depositor accounts.
The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk. Even though such activities may be permitted with the approval of the Board of Directors, the Company does not intend to engage in such activities in the immediate future.
Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company's business activities.
Part II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibit (27) Selected financial data.
Page 11 of 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
HANCOCK HOLDING COMPANY
---------------------------
Registrant
August 11, 2000 By: /s/ George A. Schloegel
--------------- ----------------------------
Date George A. Schloegel
Vice-Chairman of the Board &
Chief Executive Officer
August 11, 2000 By: /s/ Carl J. Chaney
--------------- ----------------------------
Date Carl J. Chaney
Senior Vice President &
Chief Financial Officer
Page 12 of 12
