HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(amounts in thousands)
(Unaudited)
March 31, December 31,
2002 2001 *
----------------- ------------------
ASSETS:
Cash and due from banks (non-interest bearing) $ 140,961 $ 164,808
Interest-bearing time deposits with other banks 9,664 8,433
Securities available for sale (amortized cost of
$1,182,977 and $1,078,129) 1,186,511 1,085,425
Securities held to maturity (fair value of $267,997
and $292,650) 263,201 287,370
Federal funds sold 187,959 92,000
Loans, net of unearned income 1,879,720 1,890,039
Less: Allowance for loan losses (31,585) (34,417)
----------------- ----------------
Loans, net 1,848,135 1,855,622
Property and equipment, net of accumulated
depreciation of $65,144 and $62,912 68,090 66,266
Other real estate, net 5,718 3,003
Accrued interest receivable 27,123 27,860
Goodwill and other intangibles 53,807 53,910
Other assets 33,604 35,148
----------------- -----------------
TOTAL ASSETS $ 3,824,773 $ 3,679,845
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 629,844 $ 624,058
Interest-bearing savings, NOW, money market
and time 2,532,085 2,415,676
----------------- -----------------
Total deposits 3,161,929 3,039,734
Federal funds purchased 1,550 125
Securities sold under agreements to repurchase 171,186 161,208
Other liabilities 28,870 22,556
Long-term notes 51,487 51,606
----------------- -----------------
TOTAL LIABILITIES 3,415,022 3,275,229
STOCKHOLDERS' EQUITY:
Preferred Stock-$20 par value per share; 50,000,000
shares authorized and 1,658,564 shares issued 37,069 37,069
Common Stock-$3.33 par value per share; 75,000,000
shares authorized and 11,072,770 issued 36,872 36,872
Capital surplus 196,244 196,169
Retained earnings 148,680 141,099
Unrealized gain on securities available for
sale, net 2,297 4,742
Unearned compensation (916) (433)
Treasury stock (10,495) (10,902)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 409,751 404,616
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,824,773 $ 3,679,845
================= =================
* The balance sheet at December 31, 2001 has been taken from the audited balance sheet at that date
See notes to condensed consolidated financial statements.
Page 3 of 14
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------
(UNAUDITED)
---------
(amounts in thousands except per share)
Three Months Ended March 31,
----------------------------------
2002 2001
-------------- -------------
INTEREST INCOME:
Loans $ 38,814 $ 39,188
U. S. Treasury securities 353 1,073
Obligations of U. S. government agencies 6,406 4,886
Obligations of states and political subdivisions 2,755 2,379
Mortgage-backed securities 1,634 1,935
CMOs 6,448 3,759
Federal funds sold 521 2,357
Other investments 674 487
-------------- -------------
Total interest income 57,605 56,064
-------------- -------------
INTEREST EXPENSE:
Deposits 18,186 24,266
Federal funds purchased and securities sold
under agreements to repurchase 536 1,712
Notes and other interest-bearing liabilities 598 78
-------------- -------------
Total interest expense 19,320 26,056
-------------- -------------
NET INTEREST INCOME 38,285 30,008
Provision for loan losses 5,329 2,032
-------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 32,956 27,976
-------------- -------------
NON-INTEREST INCOME
Service charges on deposit accounts 9,448 6,643
Other service charges, commissions and fees 4,837 3,104
Other 3,105 2,419
-------------- -------------
Total non-interest income 17,390 12,166
-------------- -------------
NON-INTEREST EXPENSE
Salaries and employee benefits 19,066 15,723
Net occupancy expense of premises 2,037 1,822
Equipment rentals, depreciation and maintenance 1,888 1,841
Amortization of intangibles 188 909
Other 10,417 7,321
-------------- -------------
Total non-interest expense 33,596 27,616
-------------- -------------
EARNINGS BEFORE INCOME TAXES 16,750 12,526
Income taxes 5,329 3,922
-------------- -------------
NET EARNINGS 11,421 8,604
PREFERRED DIVIDEND REQUIREMENT 663 -
-------------- -------------
NET EARNINGS AVAILABLE TO COMMON STOCKHOLDERS $ 10,758 $ 8,604
============== =============
BASIC EARNINGS PER COMMON SHARE $ 1.02 $ 0.80
============== =============
DILUTED EARNINGS PER COMMON SHARE $ 1.00 $ 0.80
============== =============
DIVIDENDS PAID PER COMMON SHARE $ 0.30 $ 0.28
============== =============
============== =============
WEIGHTED AVG. COMMON SHARES OUTSTANDING-BASIC 10,595 10,739
============== =============
WEIGHTED AVG. COMMON SHARES OUTSTANDING-DILUTED 11,402 10,756
============== =============
See notes to condensed consolidated financial statements
Page 4 of 14
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
UNAUDITED
(amounts in thousands)
Three Months Ended March 31,
------------------------------------------
2002 2001
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 11,421 $ 8,604
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 1,536 1,410
Amortization of software 546 579
Provision for loan losses 5,329 2,032
Provision for losses on real estate owned 741 41
Decrease in interest receivable 737 1,357
Amortization of intangible assets 188 909
(Decrease) increase in interest payable (2,184) 1,271
Other, net 11,566 2,152
-------------- -------------
Net cash provided by operating activities 29,880 18,355
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest-bearing time deposits (1,231) (1,779)
Proceeds from maturities of securities held
to maturity 24,169 30,054
Purchase of securities held to maturity - -
Proceeds from maturities of securities available
for sale 353,883 91,293
Purchase of securities available for sale (458,731) (194,166)
Net increase in federal funds sold (95,959) (170,000)
Net (increase) decrease in loans (1,512) 26,181
Purchase of property, equipment and software, net (4,243) (1,573)
Proceeds from sales of other real estate 318 184
-------------- -------------
Net cash used in investing activities (183,306) (219,806)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 122,195 181,371
Dividends paid (3,900) (3,061)
Net increase in federal funds purchased and
securities sold under agreements to repurchase
and other temporary funds 11,403 27,038
Reductions of long-term notes (119) (139)
--------------- --------------
Net cash provided by financing activities 129,579 205,209
-------------- -------------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (23,847) 3,758
CASH AND DUE FROM BANKS, BEGINNING 164,808 130,380
-------------- -------------
CASH AND DUE FROM BANKS, ENDING $ 140,961 $ 134,138
=============== ================
See notes to condensed consolidated financial statements.
Page 5 of 14
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(At and For the Three Months Ended March 31, 2002 and 2001)
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 2001 Annual Report to Shareholders.
GOODWILL AND OTHER INTANGIBLES
In June 2001 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 “Business Combinations” and No. 142 “Goodwill and Other Intangibles”. These Statements provide that, among other things, (1) all business combinations on or after July 1, 2001 be accounted for as purchases, (2) any related goodwill on those acquisitions does not require amortization, but is subject to a periodic impairment test and that (3) goodwill on any of the Company’s acquisitions prior to July 1, 2001 not be amortized after January 1, 2002, but is subject to a periodic impairment test. The Company has performed a transitional fair value based impairment test on its goodwill and determined that the fair value exceeded the recorded value at December 31, 2001. No impairment loss, therefore, was recorded on January 1, 2002. There was no amortization of goodwill recorded in the three months ended March 31, 2002. Amortization of goodwill by the Company amounted to approximately $3.6 million in the year ended December 31, 2001 and is not deductible for income tax purposes. The Company has approximately $5.5 million of other intangible assets that will continue to amortize.
COMPREHENSIVE EARNINGS
Following is a summary of the Company's comprehensive earnings for the three months ended March 31, 2002 and 2001.
Page 6 of 14
(Amounts in thousands)
Three Months Ended March 31,
-------------------------------------
2002 2001
------------ ------------
Net earnings $ 11,421 $ 8,604
Other comprehensive income(loss) (net of income tax):
Unrealized holding (losses)/gains on
securities available for sale (2,445) 4,210
------------ ------------
Total Comprehensive Earnings $8,976 $12,814
============ ============
ACQUISITIONS
On July 1, 2001 the Company acquired 100% of the common stock of Lamar Capital Corporation (LCC), Purvis, Mississippi and its subsidiaries, The Lamar Bank and Southern Financial Services, Inc. The acquisition was accounted for as a purchase and the results of LCC’s operations are included in the consolidated financial statements of the Company from the date of acquisition. LCC operated 9 banking offices in southern Mississippi. The Company acquired LCC in order to expand the geographic area in which its services are offered. The aggregate price was approximately $51.3 million, including cash of $14.2 million and 1,658,275 shares of manditorily redeemable convertible preferred stock with a fair value of $37.1 million at December 31, 2001.
The unaudited pro forma consolidated results of operations give effect to the acquisition of LCC as though it had occurred on January 1, 2001 (in thousands, except per share data):
Three Months Ended March 31,
2002 2001
------------ -------------
Interst Income $ 57,605 $ 63,836
Interest expense 19,320 30,937
Provision for loan losses 5,329 2,427
------------ -------------
Net interest income after provision for loan losses 32,956 30,472
Net earnings available to common stockholders $ 10,758 $ 8,327
Basic earnings per common share $ 1.02 $ 0.78
Diluted earnings per common share $ 1.00 $ 0.78
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.
Page 7 of 14
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:
March 31, December 31,
2002 2001
------------- -------------
Total securities to total deposits 45.85% 45.16%
Total loans (net of unearned
income) to total deposits 59.45% 62.18%
Interest-earning assets
to total assets 92.22% 91.20%
Interest-bearing deposits
to total deposits 80.08% 79.47%
Capital Resources
The Company continues to maintain an adequate capital position. The ratios as of March 31, 2002 and December 31, 2001 are as follows:
2002 2001
------------- -------------
Average equity to average assets 10.05% 10.51%
Total capital to risk-weighted assets (2) 17.40% 15.99%
Tier 1 capital to risk-weighted assets (3) 16.12% 14.74%
Leverage capital to average total assets (4) 8.44% 9.49%
(1) Equity capital consists of stockholder's equity (excluding unrealized gains/(losses)).
(2) Total capital consists of equity capital less intangible assets plus a limited amount of the
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
Page 8 of 14
RESULTS OF OPERATIONS
Net Earnings
Net earnings increased approximately $2.8 million or 32.75% for the first quarter of 2002 compared to the first quarter of 2001. Following is selected information for quarterly comparison:
Three Months Ended March 31,
-------------------------------------
2002 2001
------------- -------------
Results of Operations:
Return on average assets 1.23 % 1.12 %
Return on average equity 12.25 % 10.12 %
Net Interest Income:
Yield on average interest-earning assets
(tax equivalent) 6.95 % 8.17 %
Cost of average interest-bearing funds 2.88 % 4.73 %
------------- -------------
Net interest spread 4.07 % 3.44 %
============= =============
Net yield on interest-earning assets
(net interest income on a tax equivalent basis
divided by average interest-earning assets) 4.68 % 4.48 %
============= =============
Net Interest Income
Net interest income for the first three months of 2002 increased $8.2 million, compared to the same period one year ago. The Company’s net interest margin for the three-month period ended March 31, 2002 was 4.68% compared to 4.48% for the prior year period. Interest income for the current year increased $1.5 million and results primarily from growth in the loan portfolio in total and also from changes made to deposit pricing. The Company’s loan portfolio growth is the result of the Company’s acquisition of Lamar Capital Corporation in July 2001. The cost of funds was favorably impacted by decreasing interest rates offered for certain types of deposit accounts.
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 financial condition and the value of any collateral, that collection of the loan is unlikely.
The following information is useful in determining the adequacy of the loan loss reserve and loan loss provision and ratios are calculated using average loan balances. (Amounts shown are in thousands)
Page 9 of 14
At and For the Three Months Ended March 31,
-------------------------------------------------
2002 2001
------------------- ------------------
Annualized net charge-offs to average loans 1.67% 0.49%
Annualized provision for loan losses to average loans 1.15% 0.49%
Average allowance for loan losses to average loans 1.68% 1.71%
Gross charge-offs (1) $ 9,200 $ 3,173
Gross recoveries $ 1,438 $ 1,141
Non-accrual loans (2) $ 14,119 $ 12,200
Accruing loans 90 days or more past due $ 6,805 $ 8,523
(1) The significant increase in gross charge-offs results from the removal of credits
acquired in the Lamar Capital Corporation acquisition that have been determined to be
uncollectible.
(2) The increase in non-accrual loans is primarily associated with the acquisition of Lamar Capital
Corporation in July 2001.
Non-Interest Income
Non-interest income increased $5.3 million to $17.4 million for the three-month period ended March 31, 2002, compared to $12.1 million for the same period in 2001. The largest factor contributing to that increase is a $2.8 million or 42.2% increase in Service Charges on Deposit Accounts. Approximately 16.3% of the increase resulted from the acquisition of Lamar Capital Corporation in July 2001.
Non-Interest Expense
Non-interest expense for the three-month period ended March 31, 2002 increased $5.8 million, or 20.9%, compared to the same period the previous year. Increases from the previous year result primarily from the acquisition of Lamar Capital Corporation in July 2001.
In accordance with Financial Accounting Standards Board Statement No. 142 “Goodwill and other Intangibles”, goodwill is no longer amortized on the Company’s books. The favorable impact of that change is a reduction in non-interest expense of $900,000 for the three months ended March 31, 2002.
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 three months of 2002 was $3,512,000 compared to $3,056,000 for the comparable period in 2001.
Net Earnings Per Common Share
Following is a summary of the information used in the computation of earnings per common share (in thousands).
Page 10 of 14
Three Months Ended March 31,
--------------------------------------
2002 2001
--------------- --------------
Net earnings - used in computation of diluted
earnings per common share $ 11,421 $ 8,604
Preferred divdend requirement 663 -
--------------- --------------
Net earnings available to common stockholders -
used in computation of basic earnings
per common share $ 10,758 $ 8,604
=============== ==============
Weighted average number of common shares
outstanding - used in computation of
basic earnings per common share 10,595 10,739
Effect of dilutive securities
Stock options 70 17
Convertible preferred stock 737 -
--------------- --------------
Weighted average number of common shares
outstanding plus effect of dilutive
securities - used in computation of
diluted earnings per common share 11,402 10,756
=============== ==============
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 protect 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 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.
Page 11 of 14
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 March 31, 2002 the Company had $443 million of regular savings and club accounts and $984 million of money market and NOW accounts, representing 56.4% of total interest-bearing depositor accounts.
The Company does not currently engage in significant 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
A. Annual Meeting held February 28, 2002.
B. Directors elected at the Annual Meeting held February 28, 2002:
Votes Cast
---------------
Affirmed Withheld
-------- --------
1. Frank E. Bertucci, Jr. 9,536,674 57,572
2. Joseph F. Boardman, Jr. 9,536,674 57,572
3. Charles H. Johnson, Sr. 9,544,169 50,078
Continuing Directors:
4. James B. Estabrook, Jr.
5. James H. Horne
6. Robert W. Roseberry
7. George A. Schloegel
8. Leo W. Seal, Jr.
9. Christine L. Smilek
C. Approval of Deloitte & Touche LLP as the independent public accountants of the
Company. Approval was made with a favorable vote of 99.47%
For Against Abstained
--------- ------- -----------
9,544,169 29,932 20,145
Page 12 of 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
None
Reports on Form 8-K:
None
Page 13 of 14
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
May 13, 2002 By: /s/ George A. Schloegel
- ----------------------- -------------------------------
Date George A. Schloegel
Vice-Chairman of the Board and
Chief Executive Officer
May 13, 2002 By: /s/ Carl J. Chaney
- ----------------------- --------------------------------
Date Carl J. Chaney
Executive Vice President and
Chief Financial Officer
Page 14 of 14
