SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 18, 2009
HANCOCK HOLDING COMPANY
(Exact name of registrant as specified in its charter)
Mississippi 0-13089 64-0693170
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification Number)
incorporation)
One Hancock Plaza
Gulfport, Mississippi 39501
(Address of principal executive offices) (Zip code)
(228) 868-4727
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following provisions
(see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
Explanatory Note
On December 23, 2009, Hancock Holding Company (the Company) filed a Current Report on Form 8-K (the
Original Report) to report that its wholly-owned subsidiary, Hancock Bank (the Bank) had entered into a
purchase and assumption agreement on December 18, 2009 (the Agreement) with the Federal Deposit
Insurance Corporation (FDIC) and the FDIC as receiver, pursuant to which the Bank acquired certain
assets and assumed substantially all of the deposits and certain liabilities of Panama City, FL, based
Peoples First Community Bank (Peoples First). In connection with the Peoples First acquisition, the Bank
did not acquire any other real estate owned as of December 18, 2009. The final fair values of acquired
loans and the final list of the assets acquired and liabilities assumed remains subject to finalization
and revision by the FDIC and the Bank, in accordance with accounting guidance on business acquisitions.
This Current Report on Form 8-K/A (the Amendment) amends and supplements the disclosure provided in
Items 2.01 of the Original Report. Except as otherwise provided herein, the other disclosures made in
the Original Report remain unchanged. All financial and other numeric measures of Peoples First as
described below were based upon information as of December 31, 2009 and may be subject to change.
The Company has omitted certain financial information of Peoples First required by Rule 3-05 of
Regulation S-X and the related pro forma financial information under Article 11 of Regulation S-X in
accordance with a request for relief submitted to the Commission in accordance with the guidance
provided in Staff Accounting Bulletin 1:K, Financial Statements of Acquired Troubled Financial
Institutions ("SAB:1K"). SAB 1:K provides relief from the requirements of Rule 3-05 in certain
instances, such as the transaction, where a registrant engages in an acquisition of a significant amount
of assets of a troubled financial institution that involves pervasive federal assistance and audited
financial statements of the troubled financial institution that are not reasonably available.
Statements made in this Amendment, other than those concerning historical financial information, may be
considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995 and are subject to risks and uncertainties. These forward-looking statements include, without
limitation, statements regarding the Company's expectations concerning its financial condition,
operating results, cash flows, liquidity and capital resources. A discussion of risks, uncertainties and
other factors that could cause actual results to differ materially from management's expectations is set
forth under the captions "Forward-Looking Statements", "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K
for the year ended December 31, 2009.
Item 2.01 Completion of Acquisition or Disposition of Assets
The following discussion of assets acquired and liabilities assumed are presented at estimated fair
value on the date of the Agreement. The fair values of the assets acquired and liabilities assumed were
determined as described in Note 2 to the Company's 2009 Annual Report on Form 10-K filed on February 17,
2010, which should be read in conjunction with this filing. These fair value estimates are based on the
information available, and are subject to change for up to one year after the closing date of the
acquisition as additional information relative to closing date fair values becomes available. The Bank
and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are
ultimately acquired or assumed by the Bank and/or the purchase price. In addition, the tax treatment of
FDIC assisted acquisitions is complex and subject to interpretations that may result in future
adjustments of deferred taxes as of the acquisition date. The disclosure set forth in this Item 2.01
reflects the status of these items to the best of management's knowledge as of February 17, 2010, the
date of the Company's 2009 Annual Report Form 10-K.
The Company acquired assets with a fair value of approximately $1.72 billion; including $950.4 million
of loans, $10.3 million of FHLB stock, $5.9 million of securities available for sale, $98.1 million of
cash and cash equivalents, $325.6 million related to the FDIC's indemnification of the Bank against
certain future losses described below, $11.6 million in core deposit intangibles, and $11.2 million
of other assets. The Bank received cash of $302.2 million from the FDIC for the assumption of the net
liability from the FDIC. Liabilities with a fair value of approximately $1.69 billion were assumed,
including $1.56 billion of deposits, $116.3 million of FHLB advances, and $15.3 million of other
liabilities. The Bank recognized a pre-tax, bargain purchase gain of $33.6 million resulting in an
after-tax gain of $20.7 million.
The Bank also entered into loss sharing agreements with the FDIC that collectively cover approximately
$1.46 billion of assets which include single family residential mortgage loans, commercial real estate
and commercial and industrial loans and other loans. Pursuant to the terms of the loss sharing
agreements, the FDIC's obligation to reimburse the Bank for losses with respect to covered assets begins
with the first dollar of loss incurred. The FDIC will reimburse the Bank for 80% of losses of up to
$385.0 million with respect to covered assets. The FDIC will reimburse the Bank for 95% of losses in
excess of this amount. The Bank will reimburse the FDIC for its share of recoveries with respect to
losses for which the FDIC paid the Bank a reimbursement under the loss sharing agreements. Certain other
assets of Peoples First were acquired by the Bank that are not covered by loss sharing agreements with
the FDIC. These assets include marketable securities purchased at fair market value and other tangible
assets.
The following table summarizes the assets covered by the loss sharing agreements, the amount covered by
the FDIC and the estimated fair values:
December 18, 2009
Amount Covered Fair Value
--------------------- ------------
(dollars in millions)
----------------------------------
Assets subject to stated threshold:
Loans $ 1,461.5 $ 950.4
===================== ============
The loss sharing agreement applicable to single family residential mortgage loans provides for FDIC loss
sharing and Bank reimbursement to the FDIC for recoveries for ten years. The loss sharing agreement
applicable to commercial loans and other covered assets provides for FDIC loss sharing for five years
and Bank reimbursement to the FDIC for a total of eight years for recoveries.
The loss sharing agreements are subject to certain servicing procedures as specified in an agreement
with the FDIC. The fair value of the loss sharing agreements was recorded as an indemnification asset at
an estimated fair value of $325.6 million on the Acquisition date.
The foregoing summary of the Agreement, including the loss sharing agreements, is not complete and is
qualified in its entirety by reference to the full text of the Agreement, which is incorporated herein
by reference.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
Discussion
As set forth in Item 2.01 above, on December 18, 2009, the Bank acquired certain assets and assumed
substantially all of the deposits and certain liabilities of Peoples First pursuant to the Agreement. A
narrative description of the anticipated effects of the Acquisition on the Company's financial
condition, liquidity, capital resources and operating results is presented below. This discussion should
be read in conjunction with the historical financial statements and the related notes of the Company,
which have been filed with the Securities and Exchange Commission (the Commission).
The acquisition increased the Company's total assets and total deposits by approximately 25.2% and
28.8%, respectively, as compared with balances at September 30, 2009, and is expected to positively
affect the Company's operating results, to the extent the Company earns more from interest earned on its
assets than it pays in interest on deposits and other borrowings. The ability of the Company to
successfully collect interest and principal on loans acquired and collect reimbursement from the FDIC on
the related indemnification asset will also impact cash flows and operating results.
The acquisition was accounted for under the purchase method of accounting in accordance with generally
accepted accounting principles regarding acquisitions. However, the amount that the Company realizes on
these assets could differ materially from the fair value primarily as a result of changes in the timing
and amount of collections on the acquired loans in future periods. Because of the loss sharing
agreements with the FDIC on these assets, as described in Item 2.01 above, the Company does not expect
to incur significant losses. To the extent the actual values realized for the acquired loans differ from
the estimated amounts, the indemnification asset will generally be impacted in an offsetting manner due
to the loss sharing support from the FDIC.
Financial Condition
In the Acquisition, the Bank purchased $950.4 million of loans at fair value, net of a $511.1 million
estimated discount to the outstanding principal balance, representing approximately 18.8% of the
Company's total loans and leases (net of the allowance for loan and lease losses) at December 31, 2009.
The Bank acquired $98.1 million in cash and cash equivalents, excluding cash paid by the FDIC in
conjunction with the acquisition, $10.3 million of FHLB stock, and $5.9 million of securities at fair
value.
The following table presents information with respect to the fair value of interest earning cash and
cash equivalents, FHLB stock, as well as their book balance at acquisition date, contractual term and
contractual yield, as of December 18, 2009 (dollars in thousands).
Weighted Average Weighted Average
Type of Asset Par Value Fair Value Months to Maturity Contractual Yield
- ------------------------------------------------------ ------------ -------------- ------------------- -------------------
Interest earning deposits in other banks, the Federal
Reserve and federal funds sold $ 54,546 $ 54,546 - 0.24%
Federal Home Loan Bank of Atlanta stock 10,288 10,288 n/a n/a
The table below reflects the acquired securities available for sale at acquisition date:
December 18, 2009
------------------------------------------------
Fair Value Weighted Average
Contractual Yield
------------------------------------------------
(dollars in thousands)
U.S. treasury note $ 982 5.75%
U.S. agency mortgage backed securities 4,879 4.11%
----------------------
Total $ 5,861 4.38%
======================
All of the acquired investment securities were pledged as collateral to secure public funds at
acquisition date.
The estimated fair values of investment securities are shown below by contractual maturity. Expected
maturities may differ from contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
December 18, 2009
--------------------------------------------------------
Fair Value Weighted
Average
Contractual
Yield
--------------------------------------------------------
(dollars in thousands)
Due within one year $ 982 5.75%
Due after one through five years 1,579 2.81%
Due after five through ten years 2,379 4.17%
Due after ten years 921 4.81%
----------------------------
Total $ 5,861
============================
The following table presents information regarding the loan portfolio acquired on December 18, 2009
(dollars in thousands):
Unpaid
Principal Fair Value Weighted Average Weighted Average
Type of Loan Balance Adjustment Fair Value Months to Maturity Contractual Yield
- ----------------------------- ---------------- ---------------- ---------------- ------------------- -------------------
Construction $ 470,681 $ 197,242 $ 273,439 9 6.26%
Real estate secured 943,947 306,672 637,275 174 5.88%
Commerical and Industrial 17,524 4,102 13,422 25 5.80%
Consumer 29,389 3,095 26,294 34 10.94%
------------- ---------------- ----------------
Total $ 1,461,541 $ 511,111 $ 950,430 119 6.13%
============= ================ ================
At December 18, 2009, the fair values of loans with fixed interest rates and variable interest rates
were $221.3 million and $729.1 million, respectively. The fair value of loans receivable with
deterioration of credit quality accounted for using the cost recovery method was $55.6 million due to
our initial assessment of the uncertainty of the expected cash flows. Each of the loans is on
nonaccrual status. Loans with deterioration of credit quality that have an accretable difference are
not included in nonperforming balances even though the customer may be contractually past due. These
loans will accrete interest income over the remaining life of the loan.
The Bank assumed $1.56 billion in deposits at estimated fair value. This amount represents approximately
21.7% of the Bank's total deposits of $7.20 billion at December 31, 2009.
Deposits assumed are composed of the following at acquisition date:
December 18, 2009
-----------------------------------------------
Fair Value Weighted
Average
Contractual
Yield
-----------------------------------------------
(dollars in thousands)
Non-interest bearing demand deposits $ 96,106 n/a
Interest bearing demand deposits 337,786 1.07%
Savings deposits 52,651 0.73%
Time deposits 1,076,394 3.00%
----------------------
Total $ 1,562,937
======================
At acquisition date, the scheduled maturities of certificates of deposit and other time deposits of more
than $100,000 were as follows:
December 18, 2009
------------------------------
Fair Value
------------------------------
(dollars in thousands)
Three months $ 205,464
Over three through six months 105,913
Over six months through one year 122,634
Over one year 64,965
------------------------------
Total $ 498,976
==============================
In its assumption of the deposit liabilities, the Bank believed that the customer relationships
associated with these deposits have intangible value, in accordance with accounting for goodwill and
other intangible assets in a business combination. The Bank determined the estimated fair value of the
core deposit intangible asset totaled $11.6 million, which will be amortized utilizing an accelerated
amortization method over an estimated economic life not to exceed 10 years. In determining the valuation
amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest
rates, and age of deposit relationships.
Future amortization of this core deposit intangible asset over the estimated life will decrease results
of operations, net of any potential tax effect. Since amortization is a noncash item, it will have no
effect upon future liquidity and cash flows. For the calculation of regulatory capital, this core
deposit intangible asset is disallowed and is a reduction to equity capital. The Company expects that
disallowing this intangible asset should not materially adversely affect the Company's or the Bank's
regulatory capital ratios.
The core deposit intangible asset is subject to significant estimates by management of the Company
related to the value and the life of the asset. These estimates could change over time. The Company
will review the valuation of this asset periodically to ensure that no impairment has occurred. If any
impairment is subsequently determined, the Company will record the impairment as an expense in its
consolidated statement of operations.
The Bank also assumed $116.3 million in FHLB advances, at estimated fair value. Within five days after
acquisition, the Company paid off $85.5 million of the FHLB advances which had overnight maturities.
The advances were secured by a blanket lien on eligible loans plus cash. The advances were recorded at
their estimated fair values which were derived using prepayment pricing supplied by the FHLB and have a
weighted average effective interest rate of 3.41%. The remaining advances mature in less than 2 years.
Operating Results and Cash Flows
The Company's management has from time to time become aware of acquisition opportunities and has
performed various levels of review related to potential acquisitions in the past. This acquisition was
attractive to the Company for a variety of reasons, including the:
o ability to increase the Company's market share in Florida;
o attractiveness in the pricing of the acquired loan portfolios including the indemnification assets;
o attractiveness of immediate low cost core deposit funds given that over the past several years,
organic core deposit growth has been exceptionally difficult as financial institutions compete for
deposits; and
o opportunities to enhance income and efficiency due to duplications of effort and decentralized
processes as the Company expects to enhance income by centralizing some duties and removing
duplications of effort.
Based on these and other factors, including the level of FDIC support related to the acquired loans, and
other real estate, the Company believes that the acquisition will have an immediate positive impact on
its earnings.
The acquisition had an immediate accretive impact to the Company's financial results as it recognized a
day 1 pre-tax gain upon acquisition of $33.6 million. The transaction resulted in an after-tax gain of
$20.7 million. Based on December 31, 2009 information, excluding post-acquisition balance sheet changes,
total assets acquired make up 19.7%, or $1.72 billion, of the Company's total assets of $8.70 billion,
and total deposits assumed make up 21.7%, or $1.56 billion, of the Company's total deposits of $7.20
billion. The Company believes that the transaction will improve the Bank's net interest income, as the
Bank earns more from interest earned on its loans and investments than it pays in interest on deposits
and borrowings.
The extent to which the Bank's operating results may be adversely affected by the acquired loans is
largely offset by the loss sharing agreements and the related discounts reflected in the estimated fair
value of these assets at the acquisition date. In accordance with the provisions of accounting for loans
with evidence of credit deterioration, the fair values of the acquired loans reflect an estimate of
expected credit losses related to these assets. As a result, the Company's operating results would only
be adversely affected by loan losses to the extent that such losses exceed the expected credit losses
reflected in the fair value of these assets at the acquisition date. In addition, to the extent that the
stated interest rate on acquired loans was not considered a market rate of interest at the acquisition
date, appropriate adjustments to the acquisition-date fair value were recorded. These adjustments
mitigate the risk associated with the acquisition of loans earning a below-market rate of return.
The accounting guidance for loans with evidence of deterioration of credit quality since origination
applies to a loan, for which it is probable, at acquisition, that the investor will be unable to collect
all contractually required payments receivable. This accounting guidance prohibits carrying over or
creating an allowance for loan losses upon initial recognition for loans that fall under its scope. The
Company also has elected to recognize income on loans without evidence of deterioration of credit
quality in the same manner as loans with credit quality deterioration. As of the date of the
acquisition, the preliminary estimate of the contractual principal and interest payments for all
purchased impaired and non-impaired loans was $1.92 billion, a non-accretable amount of $653.8 million,
and the estimated fair value of the loans was $950.4 million, net of an accretable yield of $315.8
million. These amounts were determined based upon the estimated remaining life of the underlying loans,
which include the effects of estimated prepayments, expected credit losses and market liquidity and
interest rates. Additionally, the Bank has elected to treat $55.6 million of loans under the cost
recovery method as expected cash flows could not be reasonably estimated.
The loss sharing agreements will likely have a material impact on the cash flows and operating results
of the Company in both the short-term and the long-term. In the short-term, as stated above, it is
likely that there will be a significant amount of the covered assets that will experience deterioration
in payment performance or will be determined to have inadequate collateral values to repay the loans. In
such instances, the Company will likely no longer receive payments from the borrowers, which will impact
cash flows. The loss sharing agreements will not fully offset the financial effects of such a situation.
However, if a loan is subsequently charged off or charged down after the Company exhausts its best
efforts at collection, the loss sharing agreements will cover a substantial portion of the loss
associated with the covered assets.
The long-term effects that the Company may experience will depend primarily on the ability of the
borrowers under the various loans covered by the loss sharing agreements to make payments over time. As
the loss sharing agreements cover up to a 10-year period (5 years for commercial loans and other
assets), changing economic conditions will likely impact the timing of future charge-offs and the
resulting reimbursements from the FDIC. The Company believes that any recapture of interest income and
recognition of cash flows from the borrowers or received from the FDIC (as part of the FDIC
indemnification asset) may be recognized unevenly over this period, as the Company exhausts its
collection efforts under its normal practices. In addition, the Company recorded substantial discounts
related to the purchase of these covered assets. A portion of these discounts will be accretable to
income over the economic life of the loans and will be dependent upon the timing and success of the
Company's collection efforts on the covered assets.
Liquidity and Capital Resources
The transaction significantly enhanced the liquidity position of the Bank. The Company acquired $98.1
million in cash and cash equivalents, excluding cash paid by the FDIC to consummate the acquisition, as
well as $5.9 million of securities available for sale. The acquired securities provide monthly cash
flows in the form of principal and interest payments. These additions to the Company's balance sheet
represent additional support for the Company's liquidity needs. In addition, the Company received $302.2
million in cash from the FDIC to compensate for the liabilities assumed in excess of assets acquired.
Deposits in the amount of $1.56 billion were also assumed. Of this amount, 27.8%, or $433.9 million,
were in the form of highly liquid transaction accounts. Certificates of deposit and other time deposits
comprised 68.9%, or $1.08 billion, of total deposits.
At December 31, 2009, the Company and the Bank were considered "well-capitalized" based on a calculation
of relevant regulatory ratios. The transaction did not significantly impact the Company or the Bank's
capital ratios, and both remain "well-capitalized" after taking into consideration the results of the
transaction.
Following are the capital ratios at December 31, 2009 and September 30, 2009.
December 31, 2009
-----------------------------------------------------------------
Company Bank Well-capitalized
requirement
------------------ ----------------- ----------------------
Total capital (to risk weighted assets) 13.04% 11.24% 10.00%
Tier 1 capital (to risk weighted assets) 11.99% 10.33% 6.00%
Tier 1 leverage capital 10.60% 9.45% 5.00%
September 30, 2009
-----------------------------------------------------------------
Company Bank Well-capitalized
requirement
------------------ ----------------- ----------------------
Total capital (to risk weighted assets) 12.30% 11.73% 10.00%
Tier 1 capital (to risk weighted assets) 11.13% 10.54% 6.00%
Tier 1 leverage capital 8.33% 7.14% 5.00%
Financial Statements
Note 2 of the Company's 2009 Annual Report on Form 10-K filed on February 17, 2010, contains additional
informational related to the acquired assets and assumed liabilities in connection with the acquisition
of Peoples First, which should be read in conjunction with this filing.
(d) Exhibits
2.1 Purchase and Assumption Agreement ("Agreement") with the Federal Deposit Insurance Corporation,
Receiver of Peoples First Community Bank, Panama City Florida ("PCFB") and the Federal Deposit
Insurance Corporation acting in its corporate capacity ("FDIC"), dated as of December 18, 2009
(filed as Exhibit 10.8 to the Company's 2009 Annual Report on Form 10-K on February 17, 2010,
and incorporated herein by reference).
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
Date: March 5, 2010 By: /S/ Michael M. Achary
-------------------------------------------------
Michael M. Achary
Chief Financial Officer
Form 8-K Hancock Holding Company
Exhibit Index
Exhibit No. Description
2.1 Purchase and Assumption Agreement ("Agreement") with the Federal Deposit Insurance
Corporation, Receiver of Peoples First Community Bank, Panama City Florida ("PCFB") and
the Federal Deposit Insurance Corporation acting in its corporate capacity ("FDIC"),
dated as of December 18, 2009 (filed as Exhibit 10.8 to Form 10-K on February 17, 2010,
and incorporated herein by reference).
