As filed with the Securities and Exchange Commission on November 23, 1998
Registration Number: 333-67181
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NUMBER ONE TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
HANCOCK HOLDING COMPANY
(Exact name of Registrant as specified in its charter)
MISSISSIPPI 6022 64-0693170
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
ONE HANCOCK PLAZA, 2510 14TH STREET
GULFPORT, MISSISSIPPI 39501
(228) 868-4000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
CHARLES A. WEBB, JR.
ONE HANCOCK PLAZA, 2510 14TH STREET
GULFPORT, MISSISSIPPI 39501
(228) 868-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
L. KEITH PARSONS, ESQ. ANTHONY J. CORRERO, III
WATKINS LUDLAM WINTER & STENNIS, P.A. CORRERO FISHMAN HAYGOOD PHELPS
POST OFFICE BOX 427 WEISS WALMSLEY & CASTEIX, L.L.P.
633 NORTH STATE STREET 201 ST. CHARLES AVENUE, 46TH FLOOR
JACKSON, MISSISSIPPI 39202 NEW ORLEANS, LA 70170-4600
(601) 949-4900 (504) 586-5253
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFERING: As soon as
practicable after the effective date of this Registration Statement.
If securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
[AMERICAN LETTERHEAD]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
November 24, 1998
Dear Shareholders:
You are cordially invited to a Special Meeting of Shareholders of American
Security Bancshares of Ville Platte, Inc., to be held at the offices of American
Security Bank on December 29, 1998.
American has agreed on a merger into Hancock Holding Company. If the merger
is completed, American shareholders will receive 13.8651 shares of Hancock
common stock and a cash payment of $285.22 in exchange for each share of
American common stock owned, except that American shareholders with twenty-five
or fewer shares of American common stock will receive a cash payment of $950.75
per American share. We estimate that, on completion of the merger, about 6% of
the outstanding common stock of Hancock will be owned by former American
shareholders and about 94% will be owned by those persons who were Hancock
shareholders just before the merger is completed.
We can't complete the merger unless the shareholders of American approve
it. We have scheduled a special meeting for the shareholders of American to
approve the merger.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, PLEASE TAKE THE TIME TO VOTE BY COMPLETING AND PROMPTLY MAILING THE
ENCLOSED PROXY CARD TO US. IF YOU SIGN, DATE AND MAIL YOUR PROXY CARD WITHOUT
INDICATING HOW YOU WANT TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR
OF THE MERGER. IF YOU DON'T RETURN YOUR CARD, THE EFFECT WILL BE A VOTE AGAINST
THE MERGER.
This Proxy Statement-Prospectus provides you with detailed information
about the proposed merger. You can also get information about Hancock from
documents it has filed with the Securities and Exchange Commission. We encourage
you to read this entire document carefully.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE MERGER.
Very truly yours,
Drouet W. Vidrine
Chairman of the Board
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES +
+ COMMISSION HAVE APPROVED THE HANCOCK COMMON STOCK TO BE ISSUED UNDER THIS +
+ PROXY STATEMENT-PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT-PROSPECTUS+
+ IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL +
+ OFFENSE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Proxy Statement-Prospectus dated November 24, 1998, and first mailed to
shareholders on November 24, 1998.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders of American
Security Bancshares of Ville Platte, Inc. ("American") will be held at the
offices of American Security Bank, 126 E. Main Street, Ville Platte, La., on
December 29, 1998, at 2:00 p.m.
1. Approval and adoption of the Amended and Restated Agreement and Plan
of Merger and related merger agreements dated as of October 15, 1998,
and the transactions contemplated in the agreements pursuant to which
(a) American will be merged into Hancock Holding Company and (b) the
Bank will be merged into Hancock Bank of Louisiana.
2. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only those shareholders of record at the close of business on November 1, 1998,
are entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the Meeting. To ensure your
representation at the Meeting, please complete and promptly mail your proxy in
the return envelope enclosed. This will not prevent you from voting in person,
but will help to secure a quorum and avoid added solicitation costs. Your proxy
may be revoked at any time before it is voted. Please review the Proxy
Statement-Prospectus accompanying this notice for more complete information
regarding the merger and the Meeting.
Dissenting shareholders who comply with the procedural requirements of the
Business Corporation Law of Louisiana will be entitled to receive payment of the
fair cash value of their shares if the Merger is effected upon approval by less
than 80 percent of the total voting power of American. Please see the section
entitled "THE MERGER -- Dissenters' Appraisal Rights" in the attached Proxy
Statement-Prospectus for a discussion of the procedures to be followed in
asserting these dissenters' rights.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ June Hamlin
-----------------------------------------
Secretary
Ville Platte, Louisiana
November 24, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING.
THE BOARD OF DIRECTORS OF AMERICAN UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT.
QUESTIONS AND ANSWERS
Q(1): WHY IS AMERICAN MERGING WITH HANCOCK?
A: American's Board has approved the merger with Hancock based upon its
assessment of the financial condition and prospects of American in
particular and the competitive and regulatory environment for financial
institutions generally. Hancock is a Mississippi bank holding company
for Hancock Bank, a Mississippi chartered state bank which operates
offices in Mississippi and Hancock Bank of Louisiana, a Louisiana
chartered state bank which operates offices in Louisiana. Its common
stock is traded on the Nasdaq Stock Market under the symbol HBHC. The
merger will enable American shareholders to hold stock in a larger and
more diversified entity whose shares are more widely held and more
actively traded. The merger will also enable us to better serve our
customers with more products and services. Based upon these and other
factors we believe that the merger is in the best interest of American
shareholders. To review the background and reasons for the merger see
page 11.
Q(2): AS AN AMERICAN SHAREHOLDER, WHAT WILL I RECEIVE IN THE MERGER?
A: If you own 25 or fewer shares of American common stock, Hancock will pay
you $950.75 in exchange for each share of American common stock you own.
If you own more than 25 shares of American common stock, Hancock will
pay you 13.8651 shares of Hancock common stock and a cash payment of
$285.22 in exchange for each share of American common stock you own.
However, Hancock will not issue any fractional shares. Instead, Hancock
will pay you cash for any fraction of a Hancock share based upon a price
of $48.00 per Hancock share.
Example: If you own 100 shares of American common stock, upon completion
of the merger you will have the right to receive 1,386 shares of Hancock
common stock and a check for $28,546.48 ($48 x .51 + $28,522).
Q(3): WHAT HAPPENS AS THE MARKET PRICE OF HANCOCK COMMON STOCK FLUCTUATES?
A: The exchange ratio is based upon a formula that is not determined by the
market price of Hancock common stock and is not expected to change.
Since the market value of the Hancock common stock will fluctuate before
and after the closing date of the merger, the value of the Hancock stock
you will receive in the merger (if you receive Hancock stock) will
fluctuate as well and could decrease.
Q(4): WHAT HAPPENS TO MY DIVIDENDS IN THE FUTURE?
A: After the merger, Hancock expects to pay quarterly dividends on its
common stock in the amount of $0.25 per share, the amount Hancock has
recently paid as a regular quarterly cash dividend to its shareholders.
While we currently expect to pay those dividends, we can't assure these
payments. Hancock's board of directors will use its discretion to decide
whether and when to declare dividends and in what amount, and it will
consider all relevant factors in doing so.
Q(5): WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger by the end of 1998 following the approval
of American shareholders.
Q(6): WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: We expect that for U.S. federal income tax purposes, your receipt of
Hancock stock in exchange for your shares of American common stock in
the merger generally will not cause you to recognize any gain or loss.
You will, however, have to recognize gain in connection with the cash
payment and any
cash received instead of fractional shares, as a shareholder of 25 or
fewer shares of American common stock, or if you exercise dissenters'
appraisal rights under Louisiana law.
We provide a more detailed review of the U.S. federal income tax
consequences of the merger on page 20 of this document.
Q(7): AS AN AMERICAN SHAREHOLDER, DO I HAVE TO ACCEPT HANCOCK COMMON STOCK IN
EXCHANGE FOR MY SHARES IF THE MERGER IS APPROVED?
A: It depends. If the merger is completed with the approval of less than
80% of the total voting power of the American shareholders and you
follow the procedures prescribed by Louisiana law, you may dissent from
the merger and have the fair value of your stock determined by a court.
If you follow those procedures, you won't receive Hancock common stock.
The fair value of your American stock, determined in the manner
prescribed by Louisiana law, will be paid to you in cash.
For a more complete description of these dissenters' rights, see page 22
of this document.
Q(8): WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail
the proxy card in the enclosed return envelope as soon as possible so
that your shares may be represented at the meeting. If you sign and send
in your proxy but don't indicate how you want to vote, your proxy will
be counted as a vote in favor of the merger. If you don't return your
proxy card or you abstain, the effect will be a vote against the merger.
The meeting will take place on December 29, 1998. You are invited to the
meeting to vote your shares in person rather than signing and mailing
your proxy card. If you do sign your proxy card, you can take back your
proxy until and including the date of the meeting and either change your
vote or attend the meeting and vote in person. We provide more detailed
instructions about voting on page 9.
THE BOARD OF DIRECTORS OF AMERICAN UNANIMOUSLY RECOMMENDS VOTING IN
FAVOR OF THE PROPOSED MERGER.
Q(9): SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. No one should send their stock certificates in now. After the merger
is completed, Hancock will send you written instructions on how to
exchange your American common stock for Hancock common stock.
Q(10): WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger you should contact:
American Security Bank
126 E. Main Street
Ville Platte, Louisiana 70586
Attention: George Comeau
Phone Number: (318) 363-5602, Ext. 313
TABLE OF CONTENTS
Page
----
SUMMARY
The Companies..................................................................................... 1
Reasons for the Merger............................................................................ 1
The Shareholders' Meeting......................................................................... 1
Our Recommendations to Shareholders............................................................... 1
Record Date; Voting Power......................................................................... 1
Votes Required.................................................................................... 2
The Merger........................................................................................ 2
Selected Financial Data........................................................................... 5
Comparative Per Share Data (Unaudited)............................................................ 8
THE MEETING
Introduction...................................................................................... 9
Purpose of the Meeting............................................................................ 9
Solicitation, Voting and Revocation of Proxies.................................................... 9
Shares Entitled to Vote; Quorum................................................................... 9
Vote Required..................................................................................... 10
THE MERGER
Description of the Mergers........................................................................ 10
Background of and Reasons for the Merger Agreement................................................ 11
Opinion of American's Financial Advisor........................................................... 12
Closing........................................................................................... 15
Exchange of Certificates.......................................................................... 16
Regulatory Approvals and Other Conditions......................................................... 16
Conduct of Business Prior to the Effective Date................................................... 17
Waiver, Amendment and Termination................................................................. 18
Interests of Certain Persons...................................................................... 18
Employee Benefits................................................................................. 19
Expenses.......................................................................................... 19
Status Under Federal Securities Laws; Certain Restrictions on Resales of Securities............... 19
Accounting Treatment.............................................................................. 19
Material Federal Income Tax Consequences of the Merger............................................ 20
Dissenters' Appraisal Rights...................................................................... 22
INFORMATION ABOUT AMERICAN
Principal Business................................................................................ 23
Competition....................................................................................... 23
Seasonality of Business and Customers............................................................. 24
Employees......................................................................................... 24
Property.......................................................................................... 24
Stock Prices and Dividends........................................................................ 24
Ownership of American Stock....................................................................... 24
Management Discussion & Analysis of Financial Condition and Results of Operations................. 25
INFORMATION ABOUT HANCOCK
General........................................................................................... 41
Merger Activity................................................................................... 41
Common Stock Prices and Dividends................................................................. 42
Change of Control................................................................................. 42
DESCRIPTION OF HANCOCK CAPITAL STOCK
Authorized and Outstanding Stock.................................................................. 44
Voting Rights..................................................................................... 44
Dividend Rights................................................................................... 44
Preemptive Rights................................................................................. 45
Fully Paid and Nonassessable...................................................................... 45
Liquidation Rights................................................................................ 45
Limitation of Liability of Directors.............................................................. 45
Indemnification of Directors, Officers and Employees.............................................. 45
Transfer Agent.................................................................................... 45
Changes in Control................................................................................ 45
Common Stock Purchase Rights...................................................................... 46
COMPARISON OF RIGHTS OF SHAREHOLDERS
Authorized Capital................................................................................ 46
Board of Directors................................................................................ 46
Removal of Directors.............................................................................. 46
Amendment of the Articles of Incorporation........................................................ 46
Amendment of Bylaws............................................................................... 47
Meetings of Shareholders.......................................................................... 47
Reports to Shareholders........................................................................... 47
Dividends......................................................................................... 47
Redemption and Retirement of Shares............................................................... 47
Reversion of Unclaimed Dividends.................................................................. 48
Shareholders Inspection Rights.................................................................... 48
Limitation of Liability of Directors.............................................................. 48
Indemnification................................................................................... 49
Supermajority Voting Requirements; Business Combinations.......................................... 50
Dissenters' Appraisal Rights...................................................................... 51
Shareholder Rights Plan........................................................................... 51
ADDITIONAL INFORMATION
Legal Matters..................................................................................... 51
Experts........................................................................................... 51
Other Matters..................................................................................... 51
Where You Can Find More Information............................................................... 52
INDEX TO AMERICAN FINANCIAL STATEMENTS............................................................F-1
APPENDICES
APPENDIX A -- FAIRNESS OPINION OF BROWN, BURKE CAPITAL PARTNERS, INC..............................A-1
SUMMARY
This summary highlights selected information from this document. It does not
contain all of the information that is important to you. You should carefully
read this entire document and the documents to which we have referred you in
order to understand fully the merger and to obtain a more complete description
of the legal terms of the merger. See "ADDITIONAL INFORMATION -- Where You Can
Find More Information" (page 52). Each item in this summary includes a page
reference that directs you to a more complete description in this document of
the topic discussed.
THE COMPANIES
(Pages 23 and 41)
HANCOCK HOLDING COMPANY
One Hancock Plaza
Gulfport, Mississippi 39501
(228) 868-4000
Hancock is incorporated in Mississippi and is a two-bank holding company.
Hancock provides commercial banking operations, credit card services, insurance
services, trust services and other related financial services in Mississippi and
Louisiana. As of September 30, 1998 Hancock's total assets were $2.7 billion,
deposits were $2.3 billion and shareholders' equity was $284.2 million.
AMERICAN SECURITY BANCSHARES
126 E. Main Street
Ville Platte, Louisiana 70586
(318) 363-5602
American Security Bancshares of Ville Platte, Inc. is a Louisiana corporation
that owns American Security Bank of Ville Platte. The Bank provides traditional
consumer and commercial deposit and loan services to individuals, families and
businesses in Evangeline, Rapides, Avoyelles, St. Landry and Allen Parishes in
Louisiana, through a full service main office and 17 branch offices. As of
September 30, 1998, our total assets were $229.3 million, our deposits were
about $195.8 million and shareholders' equity was about $24.9 million.
REASONS FOR THE MERGER
(Page 11)
We believe that the financial terms of the agreement were attractive based upon
the recent earnings performance of American, the current and prospective
economic and regulatory environment and the Board's belief that Hancock was an
attractive choice as a long-term affiliation partner for American and the Bank.
The merger will offer liquidity to the American shareholders and more products
and services to the Banks' customers.
To review the background of and reasons for the merger in greater detail, please
see page 11.
THE SHAREHOLDERS' MEETING
(Page 9)
The special meeting will be held at the offices of the Bank, at 2:00 p.m. on
December 29, 1998. At the meeting American shareholders will be asked to approve
the merger agreement.
OUR RECOMMENDATIONS TO SHAREHOLDERS
(Page 12)
The Board of Directors of American believes that the merger is fair to you and
in your best interests and unanimously recommends that you vote "FOR" the
proposal to approve the merger agreement.
RECORD DATE; VOTING POWER
(Page 9)
You can vote at the meeting if you owned American common stock as of the close
of business on November 1, 1998, the record date. On that date, 48,467 shares of
1
American common stock were outstanding and therefore are allowed to vote at the
meeting. You will be able to cast one vote for each share of American common
stock you owned on November 1, 1998.
VOTES REQUIRED
(Page 10)
In order for the merger to be approved, American shareholders holding two-thirds
of the outstanding shares of common stock present at the meeting must vote in
favor of the Merger. Altogether the directors and officers of American can cast
about 33% of the votes entitled to be cast at the meeting. We expect that they
will vote all of their shares in favor of the merger.
THE MERGER
(Page 10)
We have summarized the terms of the merger agreement, which is incorporated into
this Proxy Statement-Prospectus by reference. We encourage you to read the
merger agreement. It is the legal document that governs the merger.
THE EXCHANGE RATIO
(Page 10)
In the merger, if you own more than 25 shares of American common stock, each
outstanding share of American common stock will be converted into 13.8651 shares
of Hancock common stock and a cash payment of $285.22. Holders of 25 or fewer
shares will instead receive a cash payment of $950.75 in exchange for each
American share. The exchange ratio will be adjusted if Hancock or American
increases its number of shares of common stock outstanding from the figures
disclosed in this Proxy Statement-Prospectus.
CONDITIONS TO COMPLETION OF THE MERGER
(Page 16)
The completion of the merger depends on a number of conditions being met,
including the following:
1. American shareholders approving the merger;
2. the absence of any governmental order blocking completion of the merger or
of any proceedings by a governmental body trying to block it; and
3. receipt of opinions of Hancock's counsel that the U. S. federal income tax
treatment of American's shareholders, American and Hancock in the merger
will generally be as we've described it to you in this document.
In cases where the law permits, a party to the merger agreement could elect to
waive a condition that has not been satisfied and complete the merger although
it is entitled not to. We can't be certain whether or when any of the conditions
we've listed will be satisfied (or waived, where permissible), or that the
merger will be completed.
TERMINATION OF THE MERGER AGREEMENT
(Page 18)
We can agree at any time to terminate the merger agreement without completing
the merger, even if the shareholders of American have already voted to approve
it.
Moreover, either of us can terminate the merger agreement in the following
circumstances:
1. if the merger isn't completed by March 31, 1999;
2. if the American shareholders don't approve the merger; or
3. if the other party violates, in a significant way, any of its
representations, warranties or obligations under the merger agreement.
Generally, a party can only terminate the merger agreement in one of the
preceding three situations if that party isn't in violation of the merger
agreement or if its violations of the merger agreement aren't the cause of the
event permitting termination.
2
FEDERAL INCOME TAX CONSEQUENCES
(Page 20)
We have structured the merger with the intent that neither American nor its
shareholders will recognize any gain or loss for U.S. federal income tax
purposes due to the merger, except in connection with cash received by American
shareholders in exchange for their American stock. We have conditioned the
merger on the receipt of legal opinions that this will be the case, but these
opinions won't bind the Internal Revenue Service, which could take a different
view.
SHAREHOLDERS WHO RECEIVE CASH AS A RESULT OF EXERCISING THEIR DISSENTERS'
APPRAISAL RIGHTS UNDER LOUISIANA LAW WILL HAVE TO RECOGNIZE ANY REALIZED GAIN OR
LOSS. DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU CAN BE
COMPLICATED. THEY WILL DEPEND ON YOUR SPECIFIC SITUATION AND MANY VARIABLES NOT
WITHIN OUR CONTROL. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL
UNDERSTANDING OF THE MERGER'S TAX CONSEQUENCES.
ACCOUNTING TREATMENT
(Page 19)
We expect the merger to qualify for purchase accounting treatment, which means
that, for accounting and financial reporting purposes, we will combine the
earnings of Hancock and American from and after the effective date of the merger
and any goodwill or other intangibles recorded in the transaction will be
amortized through charges to income in future periods. In addition, assets and
liabilities of American will be recorded at fair value on the date of the
transaction.
OPINION OF FINANCIAL ADVISOR
(Page 12)
In deciding to approve the merger, our Board considered the opinion of its
financial advisor, Brown, Burke Capital Partners, Inc., that as of the date of
the opinion, the exchange ratio was fair from a financial point of view to
American's shareholders. We have attached this opinion as Appendix A to this
document. You should read it carefully.
INTERESTS OF OTHER PERSONS IN THE MERGER THAT ARE DIFFERENT FROM YOURS
(Page 18)
The directors and executive officers of American own shares of American common
stock, which will be converted into shares of Hancock common stock and cash
pursuant to the merger on the same terms and conditions as applied to all other
shares of American common stock.
None of these persons have agreements for additional compensation or any other
rights which become effective upon a change in control or which relate to the
merger other than change of control and retention bonuses that will be paid to
certain members of American's management. The bonuses are provided to ensure
that key personnel remain with the Bank up to the completion of the merger and
for a period of time after the merger.
Current retirement and benefit plans available to employees of American and the
Bank will terminate as of the effective time of the merger. Those American
employees who are retained following the merger will be eligible to participate
in Hancock's employee plans, on substantially the same basis and applying the
same eligibility standards as other Hancock Bank employees.
Hancock also has agreed to provide indemnification to American's Board members
and its officers.
DISSENTERS' APPRAISAL RIGHTS
(Page 22)
Louisiana law permits you to dissent from the merger and to have the fair value
of your American stock determined by a court. To do this, you must follow
certain procedures, including the filing of certain notices with us and voting
your shares against the merger. If you dissent from the merger, your shares of
American common stock will not be exchanged for shares of Hancock common
3
stock in the merger, and your only right will be to receive the fair value of
your shares in cash.
REGULATORY APPROVALS
(Page 16)
The merger has been approved by the Board of Governors of the Federal Reserve
System and the required waiting period has expired. No other regulatory
approvals are required for the merger of Hancock and American.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
(Pages 24 and 42)
Shares of Hancock are quoted on the Nasdaq Stock Market. Shares of American are
not publicly traded. The last transactions of which American management is aware
were trades which occurred during March 1998 of 149 shares for $400 per share.
American's book value per share as of September 30, 1998 was $513.58. On
October 14, 1998 the last full trading day prior to the public announcement of
the revised Merger Agreement, Hancock stock closed at $42.3125 per share. On
November 19, 1998 Hancock stock closed at $45 per share.
Based on a stock price of $42.3125 per Hancock share, the market value of
13.8651 shares of Hancock common stock that American shareholders will receive
in the merger for each share of their American stock would be $586.67 based on
Hancock's October 14, 1998 closing price and $623.93 based on Hancock's
November 19, 1998 closing price. When added to the cash payment of $285.22 per
American share results in total consideration of $871.89 as of October 14, 1998,
and $909.15 as of November 19, 1998. Of course, the market price of Hancock
common stock will fluctuate prior to and after completion of the merger, while
the exchange ratio is fixed. You should obtain current Hancock stock price
quotations.
4
SELECTED FINANCIAL DATA
The following tables show summarized unaudited historical financial data
for each of the companies.
The information set forth for the nine-month period ended September 30,
1998 doesn't necessarily indicate what the results will be for the full 1998
fiscal year.
The Hancock information in the following tables is derived from the
historical financial information that has been presented in prior filings with
the Securities and Exchange Commission. All of the summary financial information
provided in the following tables should be read along with this historical
financial information and with the more detailed financial information we have
provided in this Proxy Statement-Prospectus, which you can find beginning on
page F-1. The historical financial information of Hancock has been incorporated
into this Proxy Statement-Prospectus by reference -- see "ADDITIONAL
INFORMATION -- Where You Can Find More Information" on page 52. Hancock's annual
financial statements as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997 were audited by Deloitte & Touche,
LLP and American's annual financial statements as of December 31, 1997 and 1996
and for the years then ended were audited by Broussard, Poche, Lewis and Breaux,
L.L.P., independent Certified Public Accountants. The financial information as
of September 30, 1998 and for the nine month periods ended September 30, 1998
and 1997 has not been audited but in the respective opinions of management
reflects all adjustments (consisting only of normal recurring adjustments)
necessary to a fair presentation of such data.
5
AMERICAN SECURITY BANCSHARES, INC.
AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------------- -------------------------------------------------------
(UNAUDITED)
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
AMOUNTS IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net interest income $ 6,061 $ 6,295 $ 9,323 $ 9,694 $ 9,592 $ 7,894 $ 7,183
Provision for loan losses 1,340 1,430 1,490 1,220 1,060 335 240
Net earnings 3,698 1,814 1,946 3,086 3,552 2,465 2,324
BALANCE SHEET DATA:
Total assets 229,302 231,591 228,206 228,980 210,200 192,026 165,056
Net loans 101,514 112,346 108,941 111,858 101,265 81,675 74,441
Deposits 195,755 203,960 202,564 199,818 181,616 171,039 147,819
Shareholders' equity 24,891 22,130 20,930 19,978 18,533 13,192 12,567
PER SHARE DATA:
Basic & diluted earnings per share 76.31 37.42 40.16 63.68 73.29 50.85 47.95
Dividends declared 0.00 0.00 25.00 16.00 15.00 8.00 6.00
Dividends paid 0.00 0.00 25.00 16.00 15.00 8.00 6.00
AVERAGE SHARES OUTSTANDING 48 48 48 48 48 48 48
SELECTED RATIOS:
Return on average assets 2.07%* 1.04%* 0.84% 1.38% 1.73% 1.34% 1.45%
Return on average equity 21.37%* 12.00%* 9.73% 15.70% 21.92% 18.42% 20.29%
Average equity to assets 9.70% 8.67% 8.50% 8.62% 7.89% 7.25% 7.13%
Dividend payout N/A N/A 62.25% 25.13% 20.47% 15.73% 12.51%
*Annualized
6
HANCOCK HOLDING COMPANY
AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------------- -------------------------------------------------------
(UNAUDITED)
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
AMOUNTS IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net interest income $ 83,670 $ 83,410 $ 112,197 $ 106,719 $ 100,367 $ 86,282 $ 85,319
Provision for loan losses 3,491 5,337 6,399 6,154 4,425 1,998 4,632
Net earnings 23,437 23,137 30,624 31,603 27,017 23,130 24,862
BALANCE SHEET DATA:
Total assets 2,737,383 2,430,915 2,537,957 2,289,582 2,234,286 2,026,929 1,988,125
Net loans 1,271,710 1,219,079 1,220,629 1,173,967 1,034,977 925,665 921,925
Deposits 2,254,453 2,065,891 2,062,648 1,926,576 1,927,681 1,775,664 1,759,189
Shareholders' equity 284,174 283,468 288,573 261,938 224,179 182,277 166,712
PER SHARE DATA:
Basic & diluted earnings
per share $ 2.18 $ 2.13 $ 2.82 $ 3.08 $ 2.65 $ 2.48 $ 2.67
Dividends declared 0.75 0.75 1.00 0.88 0.84 0.80 0.78
Dividends paid 0.75 0.75 1.00 0.88 0.84 0.80 0.78
AVERAGE SHARES OUTSTANDING 10,766 10,857 10,870 10,277 10,181 9,314 9,307
SELECTED RATIOS:
Return on average assets 1.16%** 1.28%** 1.25% 1.38% 1.22% 1.13% 1.27%
Return on average equity 10.75%** 11.51%** 11.29% 13.74% 12.50% 13.22% 15.61%
Average equity to assets 10.87% 11.04% 11.11% 10.06% 9.74% 8.56% 8.11%
Dividend payout 34.40% 35.21% 36.05% 28.90% 31.45% 32.21% 29.29%
* Earnings and Cash Dividends Declared and Paid per Common Share are based upon
the weighted average number of shares after giving retroactive effect for a 15%
stock dividend in December 1996. Actual cash dividends paid in 1996, 1995, 1994
and 1993 were $1.00, $0.96, $0.92 and $0.90, respectively.
** Annualized
7
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table shows information about our companies' income per
share, dividend per share and book value per share, and similar information
reflecting the merger (which is referred to as "pro forma" information). The
Hancock information in the following table is based on the historical financial
information that has been presented in prior Securities and Exchange Commission
filings. This information has been incorporated into this Proxy Statement-
Prospectus by reference. See "ADDITIONAL INFORMATION -- Where You Can Find More
Information" on page 52.
The information listed as "pro forma equivalent" was obtained by
multiplying the pro forma amounts by an amended exchange ratio which assumes the
purchase of additional shares of Hancock stock with the cash portion of the
transaction. (This assumption uses a price of $48 per Hancock share and cash
that has been reduced for capital gains tax of 20%.) It is intended to reflect
the fact that American shareholders will be receiving more than one share of
Hancock common stock for each share of American common stock exchanged in the
merger.
The information we've set forth for the nine-month period ended
September 30, 1998 does not indicate what the results will be for the full 1998
fiscal year.
HISTORICAL PRO FORMA AMERICAN
-------------------- WITH PRO FORMA
HANCOCK AMERICAN AMERICAN EQUIVALENT
------- -------- --------- ----------
PER COMMON SHARE:
NET EARNINGS-Basic & Diluted
For the nine months ended
September 30, 1998 $ 2.18 $ 76.31 $ 2.24 $ 41.71
For the year ended
December 31, 1997 2.82 40.16 2.65 49.31
CASH DIVIDENDS PAID
For the nine months ended
September 30, 1998 $ 0.75 $ 0.00 $ 0.75 $ 13.96
For the year ended
December 31, 1997 1.00 25.00 1.00 18.62
BOOK VALUE
As of September 30, 1998 $27.12 $513.58 $28.38 $528.40
As of December 31, 1997 26.44 431.83 27.69 515.55
For purposes of the pro forma dividends paid equivalent presentation, it
has been assumed that the dividends paid per share would have been equal to what
Hancock actually paid.
For purposes of the pro forma net earnings presentation, it has been
assumed that the only material adjustments to the combined historical amounts of
Hancock and American would have been an amortization of approximately $21.1
million of goodwill over fifteen years, an interest income adjustment on the
$13.8 million cash payment at 6% per year and the related income tax effect of
that adjustment.
8
THE MEETING
INTRODUCTION
This Proxy Statement-Prospectus is first being mailed on or about
November 24, 1998 to the shareholders of American in connection with the
solicitation of proxies on behalf of American Board for use at a special meeting
(the "Meeting") of shareholders of American to be held at the date, time and
place set forth in the accompanying notice, and at any adjournment thereof and
is accompanied by the Notice of Meeting and Form of Proxy.
PURPOSE OF THE MEETING
At the Meeting American shareholders will be asked to consider and vote
upon a proposal to adopt an Amended and Restated Agreement and Plan of Merger
dated as of October 15, 1998 (the "Merger Agreement") by and between American
and Hancock Holding Company, a Mississippi corporation ("Hancock"), and pursuant
to which American will be merged into Hancock (the "Merger"). The Merger
Agreement also contemplates that Bank will be merged into Hancock Bank of
Louisiana following the Merger on a date to be determined by Hancock.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
When a proxy in the form accompanying this Proxy Statement-Prospectus is
properly executed and returned, the shares represented thereby will be voted in
the manner specified therein. ALL EXECUTED BUT UNMARKED PROXIES THAT ARE
RETURNED WILL BE VOTED "FOR" THE MERGER. An instruction to abstain from voting
on the Merger will be considered present for quorum purposes but will have the
same effect as a vote against the Merger. Only a vote against the Merger will
preserve any statutory dissenters' appraisal rights a shareholder may wish to
exercise.
No matters are expected to be considered at the Meeting other than the
proposal to approve the Merger, but if any other matters should properly come
before the Meeting, it is intended that proxies will be voted on all such
matters in accordance with the judgment of the person(s) voting them.
Any proxy may be revoked at any time before it is voted. A shareholder may
revoke a proxy (1) by submitting a subsequently dated proxy, (2) by giving
written notice of revocation to the Secretary of American or (3) upon request,
if such shareholder is present at the Meeting and elects to vote in person. Mere
attendance at the Meeting will not of itself revoke a previously submitted
proxy. Revocation of a proxy will not affect a vote on any matter taken before
receipt of the revocation.
The cost of soliciting proxies will be borne by American. In addition to
the use of the mails, proxies may be solicited personally, by telephone,
telecopier, or telegram, by directors, officers and employees of American or
Bank, who will not receive any additional compensation for so doing.
SHARES ENTITLED TO VOTE; QUORUM
Only shareholders as of the close of business on November 1, 1998, are
entitled to notice of and to vote at the Meeting (the "Record Date"). As of the
Record Date, there were 48,467 shares of American common stock outstanding, each
of which is entitled to one vote on all matters to come before the Meeting. The
presence at the Meeting, in person or by proxy, of the holders of a majority of
the outstanding shares of American common stock is necessary to constitute a
quorum. A quorum is based upon the total number of American shares outstanding.
Therefore, not returning your proxy card would make it more difficult to obtain
a quorum because your shares would not be counted as present at the Meeting for
quorum purposes.
9
VOTE REQUIRED
Approval of the Merger requires the affirmative vote of the holders of at
least two-thirds of American stock present, in person or by proxy, at the
Meeting. As of the Record Date, directors and executive officers of American and
their affiliates were the beneficial owners of approximately 33% percent of the
outstanding American stock entitled to vote at the Meeting, and it is expected
that all such shares will be voted in favor of the Merger. See "INFORMATION
ABOUT AMERICAN -- Ownership of American Stock." Under Mississippi law,
shareholders of Hancock are not required to approve the Merger.
THE MERGER
The following description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete Merger
Agreement itself, which is incorporated herein by reference. See "ADDITIONAL
INFORMATION -- Where You Can Find More Information" on how to get copy of the
Merger Agreement, if desired.
DESCRIPTION OF THE MERGERS
Subject to the terms and conditions of the Merger Agreement, American will
be merged into Hancock (the "Merger"). As a result of the Merger, the separate
corporate existence of American will cease and Hancock will be the surviving
corporation (the "Surviving Corporation") and will continue to exist as a
Mississippi corporation. Subject to the satisfaction or waiver of certain
conditions set forth in the Merger Agreement and described more fully in
"--Regulatory Approvals and Other Conditions," the Merger will become effective
(the "Effective Date") upon the filing of articles of merger in the offices of
the Secretary of State of the State of Louisiana in accordance with the
Louisiana Business Corporation Law ("LBCL") and in the offices of the Secretary
of State of Mississippi in accordance with the Mississippi Business Corporation
Act ("MBCA").
At and after the Effective Date, the Merger will have the effects set forth
in Article II of the MBCA, and the charter and bylaws of the Surviving
Corporation at the Effective Date shall be the charter and bylaws of Hancock in
effect immediately prior to the Effective Date. The directors of Hancock
immediately following the Merger shall be those directors of Hancock immediately
prior to the Merger without change.
The Merger Agreement also provides that the Bank, a Louisiana state
chartered bank, will be merged with and into Hancock Bank of Louisiana ("HBLA")
(the "Bank Merger") on a future date to be determined by Hancock. As a result of
the proposed Bank Merger, the separate legal existence of Bank will cease, and
HBLA will be the surviving bank and will continue to exist as a Louisiana state
chartered bank. The directors of HBLA immediately following the proposed merger
of Bank and HBLA shall be those directors of HBLA immediately prior to the
proposed merger of Bank and HBLA without change.
As a result of the Merger, all shares of American stock will cease to be
outstanding, and each holder of a certificate for shares of American stock
("Certificate") will thereafter cease to have any rights with respect to such
shares, and the Certificate with respect to holders of more than 25 shares of
American stock will thenceforth represent the number of shares of Hancock stock
into which the stock represented thereby was converted and a cash payment. With
respect to holders of more than 25 shares of American stock, each share of
American stock will be converted into 13.8651 shares of Hancock stock. The cash
payment will consist of $285.22 for each share of American stock and a cash
payment for fractional shares of Hancock stock at the rate of $48 per share of
Hancock stock. Holders of 25 or fewer shares of American will receive a check
for $950.75 for each share of American stock they own (the "De Minimus Holdings
Cash Payment").
10
If before the Effective Date of the Merger American or Hancock changes its
number of outstanding shares as a result of a stock split, reverse stock split,
stock dividend, recapitalization or other similar transaction, the exchange
ratio will be appropriately adjusted.
It is expected that the market price of Hancock common stock will fluctuate
between the date of this Proxy Statement-Prospectus and the date on which the
Merger is consummated and thereafter. Because the exchange ratio is fixed and
because the market price of Hancock common stock is subject to fluctuation, the
value of the shares of Hancock common stock that holders of American common
stock will receive in the Merger may increase or decrease prior to the Merger.
For further information concerning the historical market prices of Hancock
common stock and American common stock, see "INFORMATION ABOUT HANCOCK --
Common Stock Prices and Dividends" and "INFORMATION ABOUT AMERICAN -- Stock
Prices and Dividends." No assurance can be given concerning the market price of
Hancock common stock before or after the Effective Date.
The ultimate result of the transactions contemplated by the Merger
Agreement will be that the business and properties of American will become
Hancock's business and properties, American shareholders will become
shareholders of Hancock (except for American shareholders who hold 25 or fewer
shares and dissenting shareholders, who will receive cash) and upon the
effective date of the Bank Merger, the business and properties of Bank will
become HBLA's business and properties.
BACKGROUND OF AND REASONS FOR THE MERGER AGREEMENT
During the last several years there have been significant developments in
the banking industry. These developments have included the increased emphasis
and dependence on automation, specialization of products and services, increased
competition from other financial institutions, and a trend toward consolidation
and geographic expansion. American's Board concluded that it could best serve
American's shareholders, employees, customers and communities by combining with
a regional banking organization, provided that American could obtain a fair
price for its shareholders. Accordingly, in early 1998, representatives of
American and Hancock, with the assistance of American's financial advisor,
Brown, Burke Capital Partners, Inc., entered into extensive negotiations which
ultimately led to the execution of the Merger Agreement.
After the Merger Agreement was signed, American was informed that its lease
on the Centre Court branch facility in Alexandria, Louisiana would not be
renewed which led Hancock to the opinion that it was entitled to terminate the
Merger Agreement, and it notified American of its intent to do so. American
believed that Hancock was not entitled to terminate the Merger Agreement and
sued Hancock in Ville Platte asking the court to order Hancock to proceed with
the Merger. Shortly before the trial, the parties engaged in intensive
settlement negotiations. After discussions with American's financial and legal
advisors, and considering a number of factors, including the uncertainties and
cost of litigation and the absence of another potential acquirer that was
willing to acquire American on more favorable terms, American's Board determined
that it was in the best interest of American and American's shareholders to
settle the litigation to (1) reduce the merger consideration and its composition
from the amount set forth in the original merger agreement which consisted of
Hancock stock to a combination of Hancock stock and cash, (2) revise other terms
of the Merger Agreement to remove certain uncertainties to completion and to
increase the dividends American was allowed to pay pending completion of the
Merger, and (3) receive a payment of $2.5 million from Hancock that would be
retained by American if the Merger Agreement as revised was not completed. On
this basis, the basic terms of the Merger Agreement to be presented at the
Meeting was approved and executed by American's Board of Directors.
In deciding to enter into the Merger Agreement, American Board, after
considering various alternatives, concluded that the Merger Agreement was in the
best interest of American and its shareholders because it would permit
shareholders holding more than 25 American shares to exchange on favorable terms
their ownership interests in American for participation in the ownership of a
regional banking organization operating on a multi-state basis.
11
American Board also concluded that those shareholders of American would benefit
additionally in that they would attain greater liquidity in their investment by
obtaining shares of stock of a corporation whose securities are more widely held
and significantly more actively traded.
American's Board consulted with its financial and other advisors, as well
as with American's management and considered a number of factors, including, but
not limited to, the following: (1) the parties' respective earnings and dividend
records, financial conditions, historical stock prices and managements; (2) the
market for Bank's services and the competitive pressures existing in Bank's
market area; (3) the outlook for American and Bank in the financial institutions
industry; (4) the amount and type of consideration to be received by American
shareholders; (5) the fact that Hancock stock to be received pursuant to the
Merger Agreement will be listed for trading on the Nasdaq Stock Market and
should provide American shareholders with liquidity that is currently
unavailable to them; (6) recent changes in the regulatory environment will
result in American and Bank facing additional competitive pressures in the
Bank's market area from other financial institutions with greater financial
resources capable of offering a broad array of financial services; (7) the
opinion of Brown, Burke Capital Partners, Inc. as to the fairness of the
exchange ratio and (8) the fact that the Merger is expected to qualify as a tax-
free reorganization so that neither American nor American's shareholders (except
to the extent that cash is received as a (a) cash payment, (b) in respect of
fractional shares, (c) by American shareholders holding 25 or fewer American
shares, or (d) in payment of statutory dissenters' appraisal rights) will
recognize any gain due to the Merger.
American Board did not assign any specific or relative weight to the
foregoing factors in its considerations. American Board believes that the Merger
will provide significant value to all American shareholders and will enable them
to participate in opportunities for growth that American Board believes the
Merger makes possible.
BASED ON THE FOREGOING, AMERICAN BOARD HAS APPROVED THE MERGER AGREEMENT,
BELIEVES THAT IT IS IN THE BEST INTEREST OF AMERICAN SHAREHOLDERS, AND
RECOMMENDS THAT SHAREHOLDERS OF AMERICAN VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
OPINION OF AMERICAN'S FINANCIAL ADVISOR
American has retained Brown, Burke Capital Partners, Inc. ("BBCP") to act
as its financial advisor in connection with the Merger. Representatives of BBCP
participated in numerous meetings of the American Board including those held on
November 18, 1997, January 20, 1998 and March 31, 1998 and held numerous
discussions with management or representatives of the American Board through
September 25, 1998. At a meeting of the American Board on September 25, 1998,
the American Board approved the revised terms of a merger with Hancock, subject
to satisfactory completion of a merger agreement. BBCP rendered its oral opinion
to the effect that, as of such date, the Merger Consideration to be received by
the shareholders of American under the proposed revised terms (the "Per Share
Purchase Price and Terms") were fair to the shareholders of American from a
financial point of view. BBCP has also rendered a written opinion to the
American Board that, on the date of the opinion, based on the information set
forth therein, the Per Share Purchase Price and Terms were fair, from a
financial point of view, to the American shareholders.
THE FULL TEXT OF BBCP's WRITTEN OPINION IS ATTACHED AS APPENDIX A TO THIS
PROXY STATEMENT-PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX A. AMERICAN SHAREHOLDERS ARE URGED TO READ THE OPINION IN
ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY BBCP IN CONNECTION THEREWITH.
BBCP's opinion is addressed to the American Board only and is directed only
to the Per Share Purchase Price and Terms and does not constitute a
recommendation to any American shareholder regarding how such shareholder should
vote at the Meeting.
12
In arriving at its written opinion, BBCP, among other things: (i) analyzed
certain audited and unaudited financial statements and other information of
American and Hancock; (ii) reviewed and discussed with appropriate management
personnel of American and Hancock the past and current business activities and
financial results and the business and financial outlook of American and
Hancock; (iii) reviewed the historical price and trading activity of the common
stock of Hancock; (iv) compared certain financial and stock market data relating
to Hancock with similar data of other publicly held banking institutions
considered to be potential alternative affiliation candidates to Hancock for
American; (v) performed an analysis comparing the pro forma consequences of the
Merger to American shareholders with respect to fully diluted earnings per
share, tangible book value per share and dividends per share represented by the
Hancock common stock they will receive in the Merger to those same measures
represented by the American common stock they currently hold; (vi) reviewed the
prices paid in certain comparable acquisition transactions of community banking
institutions and the multiples of earnings and book value and the level of
deposit base premium received by the selling institutions; (vii) reviewed the
Merger Agreement and certain related documents; (viii) considered the financial
implications of certain other strategic alternatives available to American; and
(ix) performed such other analyses as BBCP deemed appropriate.
In conducting its analysis and arriving at its opinion, BBCP assumed and
relied upon, without independent verification, the accuracy and completeness of
the information it reviewed for the purposes of the opinion. BBCP also relied
upon the management of American with respect to the reasonableness and
achievability of the financial forecast (and the assumptions and bases
underlying such forecast) provided to it. American instructed BBCP that, for the
purposes of its opinion, BBCP should assume that such forecast will be realized
in the amounts and in the time periods currently estimated by the management of
American. BBCP also assumed, with American's consent, that the aggregate
allowances for loan losses for each of American and Hancock are adequate to
cover such losses. BBCP is not an expert in the evaluation of allowances for
loan losses and has not reviewed any individual credit files. BBCP did not make,
nor was it furnished with, independent valuations or appraisals of the assets or
liabilities of either American or Hancock or any of their subsidiaries. BBCP did
not, and was not asked to, express any opinion about what the value of Hancock
common stock actually will be when issued to the holders of American common
stock pursuant to the Merger or the price at which Hancock common stock will
trade subsequent to the Merger. Moreover, American has informed BBCP, and BBCP
has assumed, that the Merger will be recorded utilizing purchase accounting
treatment under generally accepted accounting principles.
No limitations were imposed by American or the American Board on the scope
of BBCP's investigation or the procedures to be followed by BBCP in rendering
its opinion. As part of its procedures, BBCP solicited major regional bank
holding companies for their indications of acquisition interest in American. The
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to BBCP as of, the date of its
analysis.
In arriving at the fairness, from a financial point of view, of the
consideration to be received by the shareholders of American, BBCP developed an
opinion of the value of American common stock should the institution remain
independent and analyzed such value in light of the premium represented by the
Per Share Purchase Price and Terms. In connection with rendering its opinion to
the American Board, BBCP also reviewed a variety of generally recognized
valuation methodologies and merger analyses and performed those, which it
believed were most appropriate for developing its opinion of fairness, from a
financial point of view.
The preparation of a fairness opinion involves various determinations of
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to summary description. In arriving
at its fairness opinion, BBCP did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments about
the significance and relevancy of each analysis and factor. None of the analyses
performed by BBCP was assigned a greater significance by BBCP than any other.
Accordingly, BBCP believes that its analyses must be considered as a whole and
that a review of selected portions of such analyses and the factors considered
therein, without
13
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying its opinion and any conclusions reached
therein. In its analyses, BBCP made numerous assumptions with respect to
industry performance, general business and economic conditions, and other
matters, many of which are beyond American's and Hancock's control. Any
estimates contained in BBCP's analyses are not necessarily indicative of actual
values or predictive of future results or values that may be significantly more
or less favorable than such estimates. Estimates of values of companies do not
purport to be appraisals or necessarily reflect the prices at which companies or
their securities actually may be sold. In addition, as described above, BBCP's
opinion and presentations to the American Board were only a few of many factors
taken into consideration by the American Board in making its determination to
approve the Merger Agreement.
On October 29, 1998, BBCP updated its oral opinion previously delivered to
the American Board. The following is a brief summary of analyses performed by
BBCP in connection with its updated opinion:
SUMMARY OF PROPOSAL. BBCP reviewed the terms of the proposed transaction
including the calculation of the Merger Consideration. BBCP stated that based on
the assumed price of Hancock common stock of $48, the Merger Consideration of
13.8651 shares of Hancock common stock per share of American common stock and
cash of $285.22 per share of American common stock would provide American
shareholders holding greater than 25 shares of American common stock, a per
share value of $950.74 (the "Per Share Purchase Price") or a total deal value of
$46.1 million.
INDICATED VALUE OF AMERICAN AS AN INDEPENDENT BANK. BBCP undertook an
analysis addressing the range of potential values which would be implied if
American were to remain an independent bank. BBCP computed this range of values
based on a discounted cash flow analysis, relying on projections extrapolated
from American's 1998 budget and its historical performance. In this analysis
methodology, BBCP assumed shareholders received, in addition to the projected
dividend stream, a terminal valuation at December 31, 2002 based upon a 13.0
times multiple of earnings for such year. These amounts were discounted at rates
ranging from 10% to 14% and indicated net present values to American
shareholders between $37.2 million and $44.1 million.
PER SHARE MERGER CONSEQUENCES ANALYSIS. Based upon Merger Consideration of
13.8651 shares of Hancock common stock and cash of $285.22 for each share of
American common stock and using the earnings estimates for American prepared by
American management and earnings estimates for Hancock prepared by independent
securities analysts, BBCP compared the estimated 1999 and 2000 fully diluted
earnings per share of American common stock on a stand-alone basis to the pro
forma equivalent fully diluted earnings per share of Hancock common stock which
would be received in the Merger. BBCP concluded that the Merger would result in
an earnings decrease of 12.11% in 1999 and 13.71% in 2000 for American
shareholders in the combined company.
BBCP also analyzed the impact of the Merger on the amount of fully diluted
book value represented by a share of American common stock. BBCP concluded that
the Merger would result in an increase of 1.5% in fully diluted book value on an
equivalent per share basis, respectively, for American shareholders pro forma as
of September 30, 1998.
Finally, BBCP compared the amount of dividends expected to be paid on a
share of American common stock before the Merger to the level expected to be
paid on a pro forma basis reflecting the Merger, pre-tax. BBCP concluded that
the Merger would result in a decrease of 35.8% in dividends per share for
American shareholders.
ANALYSIS OF SELECTED OTHER BANK MERGERS INVOLVING SOUTHEASTERN COMMUNITY
BANKS. BBCP reviewed seventeen mergers involving Louisiana community banks and
bank holding companies announced between January, 1997, and October, 1998. BBCP
noted in particular the prices paid in these mergers as a multiple of earnings
and book values and the transaction premiums paid in excess of tangible book
value as a percentage of core deposits. BBCP also reviewed other data in
connection with each of these mergers, including the amount of total assets and
14
the capital level of the acquired institutions and the return on equity and the
return on assets of the acquired institutions. BBCP then compared this data to
that of American and to the value to be received by American shareholders in the
Merger.
This comparison yielded a range of transaction values as multiples of
latest twelve-months earnings per share of a low of 12.3 times and a high of
42.1 times and a median value of 19.0 times. The American multiple of adjusted
trailing earnings was 19.2 times. This calculation removes noncore bank earnings
relating to the sale of branches from trailing earnings. The calculations
yielded a range of transaction values as multiples of book value per share of a
low of 1.52 times to a high of 4.86 times and a median value of 2.52 times. The
American multiple of book value was 1.85 times. American has an equity/assets
ratio of 10.86%, an amount generally considered to be in excess of that
necessary for normal bank operations, which has the effect of decreasing its
book value multiple. Finally, the calculations yielded a range of deposit base
premiums paid from a low of 5.10% to a high of 39.9%, with a median value of
20.1%. The equivalent premium on American deposits represented by the Per Share
Purchase Price and Terms was 12.3%.
The Per Share Purchase Price and Terms were agreed upon after a market
decline in bank stock prices and a large decline in Hancock's stock price. As a
large component of the Merger Consideration is stock, Hancock's market price of
common stock affects the nominal value of the transaction. Using Hancock's
52-week high of $63.50 in calculating the Per Share Price and Terms would result
in multiples to book value, trailing earnings and core deposits for American of
2.27 times, 23.5 times and 18.2%, respectively.
No company or transaction used in the above analyses as a comparison is
identical to American, Hancock, or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies to which they are being compared. Mathematical analysis (such as
determining the average or median) is not, in itself, a meaningful method of
using comparable company data.
In connection with its opinion dated the date of this Proxy Statement-
Prospectus, BBCP confirmed the appropriateness of its reliance on the analyses
used to render its September 25, 1998 opinion by performing procedures to update
certain of such analyses and by reviewing the assumptions on which such analyses
were based and the factors considered in connection therewith.
BBCP is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements, and
valuations for estate, tax, corporate and other purposes. American has paid BBCP
a fee of $25,000 in connection with its engagement. An additional fee of 1% of
the aggregate market value of the consideration received by American
shareholders plus 5% of the aggregate market value of the consideration received
by American shareholders in excess of a Base Valuation of $50 million, in the
case of Hancock not to exceed $350,000, will be payable to BBCP upon
consummation of the Merger. Based upon an assumed market price and value of a
share of Hancock common stock at the Effective Date of the Merger of $45 (the
closing price of Hancock common stock on November 19, 1998) this additional fee
would be approximately $350,000. If the Merger is not consummated, Hancock has
agreed to pay BBCP $100,000. No compensation payable to BBCP is contingent on
the conclusions reached in the opinion of BBCP. American has also agreed to
indemnify BBCP and certain related persons against certain liabilities relating
to or arising out of its engagement.
CLOSING
The closing of the Merger will take place on a date that is mutually agreed
to by Hancock and American that is within five days following the later of the
date of receipt of all applicable regulatory approvals, the expiration of all
applicable statutory and regulatory waiting periods, the date Hancock's
Registration Statement filed with the
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Securities and Exchange Commission is declared effective, and the date American
shareholders approve the Merger Agreement, or such later date as may be agreed
to by American and Hancock. Immediately upon consummation of the closing, or on
such other later date as the parties may agree, the Merger Agreement will be
filed with the respective Secretaries of State of Louisiana and Mississippi and
will thereupon become effective ("Effective Date").
EXCHANGE OF CERTIFICATES
Promptly after the Effective Date of the Merger, the Exchange Agent will
mail to each shareholder of American a letter of transmittal and instructions
for use in effecting the exchange of American Certificates for certificates for
shares of Hancock stock ("Hancock Certificates"), cash payments and cash in lieu
of fractional shares. SHAREHOLDERS OF AMERICAN ARE REQUESTED NOT TO SURRENDER
THEIR AMERICAN STOCK CERTIFICATES UNTIL THEY HAVE RECEIVED A LETTER OF
TRANSMITTAL AND FURTHER WRITTEN INSTRUCTIONS.
Upon surrender of an American Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, the holder of such certificate of greater than 25
shares of American stock will be entitled to receive in exchange therefor (1) a
Hancock Certificate for that number of whole shares of Hancock stock into which
his or her American stock were converted, cash in lieu of fractional shares, if
any, which such holder has the right to receive and (2) a check for the cash
payment, after giving effect to any required withholding tax. Holders of 25 or
fewer shares of American stock will receive a check representing the de minimus
holdings cash payment. No interest will be paid or accrued on the value of any
Hancock stock or cash payable to holders of American Certificates. If a transfer
of ownership of American stock is not registered in American's transfer records
but the American Certificate is presented to the Exchange Agent, ac companied by
all documents required to evidence such transfer and evidence that any
applicable stock transfer taxes have been paid, the Exchange Agent will either
(1) send the transferee a check for the cash payment for de minimus holdings or
(2) a Hancock Certificate for the proper number of shares of Hancock stock
together with a check for the cash payment and cash in lieu of fractional
shares, if any.
No dividends on Hancock stock into which shares of American stock were
converted will be paid until the American Certificate is surrendered as
described above. Subject to the effect of applicable laws, following surrender
of any such American Certificate, there will be paid to the holder of American
Certificates surrendered, except for de minimus shareholders, (1) at the time of
such surrender, the amount of dividends or other distributions with a record
date on or after the Effective Date theretofore payable with respect thereto and
not paid, less any applicable withholding taxes, and (2) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Date but prior to surrender, less applicable withholding
taxes. American Certificates surrendered for exchange by any "affiliate" of
American for purposes of Rule 145(c) under the Securities Act will not be
exchanged until Hancock has received a written agreement from such person as
provided in the Merger Agreement.
If any American Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact and, if required by Hancock, the posting of
a bond in such reasonable amount as Hancock may direct as indemnity against any
claim with respect to such American Certificate, the Exchange Agent will either
(1) send the transferee a check for the cash payment for de minimus holdings or
(2) a Hancock Certificate for the proper number of shares of Hancock stock
together with a check for the cash payment, cash in lieu of fractional shares,
if any, unpaid dividends, and distributions on shares of Hancock stock as
provided in the Merger Agreement.
REGULATORY APPROVALS AND OTHER CONDITIONS
The Merger is subject to approval by the Federal Reserve Board ("FRB")
under the Bank Holding Company Act of 1956 (the "BHCA"), which requires the FRB,
when approving a transaction such as the Merger, to
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take into consideration the financial and managerial resources (including the
competence, experience and integrity of the officers, directors and principal
shareholders) and future prospects of the existing and proposed institutions and
the convenience and needs of the communities to be served. In considering
financial resources and future prospects, the FRB will, among other things,
evaluate the adequacy of the capital levels of the parties to a proposed
transaction.
The BHCA prohibits the FRB from approving a merger if it would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or if its effect in any section of the country would be substantially to
lessen competition or to tend to create a monopoly, or if it would in any other
manner result in a restraint of trade, unless the FRB finds that the anti-
competitive effects of a merger are clearly outweighed in the public interest by
the probable effect of the transaction in meeting the convenience and needs of
the communities to be served. In addition, under the Community Reinvestment Act
of 1977 the FRB must take into account the record of performance of the existing
institutions in meeting the credit needs of the entire community, including low-
and moderate-income neighborhoods, served by such institutions.
Applicable U. S. federal law provides for the publication of notice and
public comment on applications or notices filed with the FRB and authorizes such
agency to permit interested parties to intervene in the proceedings. If an
interested party is permitted to intervene, such intervention could delay the
FRB approval required for consummation of the Merger.
The Merger generally may not be consummated until 30 days (which may be
shortened to 15 days with the consent of the U. S. Department of Justice)
following the date of applicable United States federal regulatory approval,
during which time the U. S. Department of Justice may challenge the Merger on
antitrust grounds. The commencement of an antitrust action by the U. S.
Department of Justice would stay the effectiveness of the regulatory agency's
approval unless a court specifically ordered otherwise.
On June 8, 1998, Hancock filed with the FRB an application for approval of
the Merger. On September 29, 1997, the FRB was notified that the Merger
Agreement had been restructured. On October 8, 1998, the FRB approved the Merger
application. The applicable waiting period has expired. No other regulatory
approvals are required for consummation of the Merger.
Hancock and American are not aware of any governmental approvals or actions
that are required in order to consummate the mergers except as described herein.
Should such other approval or action be required, it is contemplated that
Hancock and American would seek such approval or action. There can be no
assurance as to whether or when any such other approval or action, if required,
could be obtained.
In addition to the receipt of all necessary regulatory approvals, and the
approval of the Merger Agreement by the shareholders of American, consummation
of the Merger Agreement is subject to the satisfaction of certain other
conditions on or before the Effective Date. Generally, such additional
conditions include, among others, the following: (1) the Proxy Statement-
Prospectus must have been filed with the Securities and Exchange Commission (the
"SEC"), and the Registration Statement of which it is a part must have been
declared effective by the SEC and not be the subject of any stop order or
proceedings seeking a stop order; (2) no action or proceeding shall have been
threatened or instituted before a court or other governmental body to restrain
or prohibit the transactions contemplated by the Merger Agreement; and (3)
American must have received from Watkins Ludlam Winter & Stennis, P.A., an
opinion of counsel as to certain tax aspects of the Merger.
The obligations of American and Hancock to effect the Merger are also
subject to other conditions as set forth in the Merger Agreement to the effect,
among others, as follows: (1) each of the representations and warranties of the
other parties set forth in the Merger Agreement is true and correct in all
material respects on and as of the
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Closing; (2) the other parties have in all material respects performed all
obligations required by the Merger Agreement to be performed before the Closing;
(3) that there has not been a material adverse change in the financial
condition, results of operations or business of the other parties; and (4) the
receipt of customary legal opinion of the others' counsel.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE DATE
Pending consummation of the Merger Agreement, American has agreed to
conduct its business in the ordinary course consistent with prudent business
practices and in compliance with all applicable laws; and without Hancock's
prior consent, with certain exceptions, American will not, among other matters,
(1) amend its Articles of Incorporation or Bylaws, (2) sell, dispose of or
encumber any assets, issue or reacquire any stock, pay dividends (except as
described below under "INFORMATION ABOUT AMERICAN - Stock Prices and
Dividends"), (3) authorize any capital expenditure over $20,000, (4) extend any
new or renew any existing loan which individually exceeds $250,000, (5) adopt
any type of compensation or benefit plan for American or Bank officers or
employees, (6) grant any increase in compensation to any director, officer,
employee or representative of American except in the ordinary course of business
consistent with past practice, (7) enter into, amend, or terminate any
employment agreement, relationship or responsibilities with any director,
officer or key employee or representative of American or Bank, or (8) enter
into, amend, or terminate any employment agreement with any other person
otherwise than in the ordinary course of business, or take any action with
respect to the grant or payment of any severance or termination pay, except that
before the Effective Date, American and Bank will terminate all employment
contracts with employees as described under "--Interest of Certain Persons."
WAIVER, AMENDMENT AND TERMINATION
American and Hancock may waive their respective rights under the Merger
Agreement if any such waiver is in writing. The Merger Agreement may be amended
or modified only upon written agreement of both American and Hancock.
The Merger Agreement may be terminated at any time on or before the
Effective Date (a) by mutual consent; (b) by either party (1) if the Merger has
not become effective on or before March 31, 1999, (2) if the other party has
breached any covenant, representation or warranty that reflects a material
adverse change in the financial condition of the other party, (3) if regulatory
approvals are not obtained, and (4) if the Merger Agreement is not approved by
the required vote of American's shareholders.
Except under certain circumstances specified in the Merger Agreement, upon
termination of the Merger Agreement, no liability will result on the part of
either party or their respective directors, officers, employees, agents, or
shareholders unless there has been an intentional breach of the Merger Agreement
before the date of termination.
INTERESTS OF CERTAIN PERSONS
Certain officers of American and Bank have employment contracts which,
under the terms of the Merger Agreement, will be terminated on the Effective
Date in exchange for payments (the "Contract Payments") to the officers. In
addition, the Merger Agreement provides that certain officers will be paid
bonuses by Hancock ("Retention Bonuses") if they remain employed by Hancock, or
are terminated under certain circumstances, for six months after the Effective
Date and execute a noncompete agreement with Hancock. The following table shows
the amount of the Contract Payments and the Retention Bonuses.
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CONTRACT RETENTION
OFFICER PAYMENT BONUS
- ------- -------- ---------
Michael Rhodes $204,782 $102,391
John Fusilier 177,328 88,664
June Hamlin 62,075 31,037
Drouet Vidrine 65,460 32,730
Darryl Hebert 61,565 30,783
Anita Soileau 20,000 ---
George Comeau 10,000 20,000
From and after the Effective Date, Hancock has agreed to indemnify and hold
harmless each person who is an officer or director of American or Bank from
claims, based upon or arising from his capacity as an officer or director of
American or Bank, as the case may be, to the same extent he would have been
indemnified under the Articles of Incorporation and Bylaws of Hancock as they
were in effect on the date of the Merger Agreement as if he were an officer or
director of Hancock at all relevant times, up to an aggregate amount of $7.5
million.
EMPLOYEE BENEFITS
American's and Bank's Employee Stock Ownership Plan and 401(k) Plan
("Employee Plans") will remain operative and in effect through the Effective
Date. The Employee Plans will be terminated as of the Effective Date and
distributed to vested employees of American and Bank in accordance with the
terms of the Employee Plans after the normal and customary contributions have
been made consistent with past practices. All retained employees will be
eligible to enter the Hancock Bank Profit Sharing Plan, Hancock Bank 401(k)
Plan, and Hancock Bank Pension Plan based on the provisions set forth in the
respective plans. All retained employees will be granted full credit for all
prior service for vesting, eligibility and benefit purposes for the Hancock Bank
Profit Sharing Plan, for eligibility purposes for the Hancock Bank 401(k) Plan,
and for vesting and eligibility purposes for the Hancock Bank Pension Plan.
All other American and Bank benefit plans will continue through the
Effective Date. Thereafter, all retained employees will be eligible to
participate in all Hancock Bank employment benefit plans not set forth above
based on the provisions set forth in the plans with full credit for all prior
service.
EXPENSES
Hancock and American have each agreed to pay their respective expenses
incurred in connection with or incidental to the Merger Agreement. Hancock is
responsible for preparing the applications, regulatory filings and Registration
Statement necessary to obtain approval of the Merger and the issuance of the
Hancock stock. American is responsible for the cost of its accountants and legal
counsel and will bear all costs related to conducting the Meeting and obtaining
shareholder approval of the Merger Agreement.
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STATUS UNDER FEDERAL SECURITIES LAWS; CERTAIN RESTRICTIONS ON RESALES OF
SECURITIES
The shares of Hancock stock to be issued pursuant to the Merger Agreement
have been registered under the Securities Act of 1933 ("Securities Act"),
thereby allowing such shares to be sold without restriction by shareholders of
American who are not deemed to be "affiliates" (as that term is defined in the
rules under the Securities Act) of American and who do not become affiliates of
Hancock. The shares of Hancock stock to be issued to affiliates of American may
be resold only pursuant to an effective registration statement, pursuant to Rule
145 under the Securities Act (which, among other things, permits the resale of
securities subject to certain volume limitations) or in transactions otherwise
exempt from registration under the Securities Act. Hancock will not be obligated
and does not intend to register its shares under the Securities Act for resale
by shareholders who are affiliates.
Before the Effective Date, each affiliate of American will deliver to
Hancock a letter agreement pertaining to the limitations on the transferability
of such affiliate's shares of Hancock stock acquired in the Merger and whereby
such affiliate will agree, among other things, that he or she will not sell,
pledge, transfer, or otherwise dispose of such shares of Hancock stock in
violation of the Securities Act.
ACCOUNTING TREATMENT
It is intended that the Merger will qualify for purchase accounting
treatment under generally accepted accounting principles. Accordingly, the
earnings of American will be combined with the earnings of Hancock from and
after the Effective Date of the Company Merger and any goodwill or other
intangibles recorded in the transaction will be amortized through charges to
income in future periods. In addition, assets and liabilities of American will
be recorded at fair value on the date of the transaction.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion of the principal federal income tax consequences
of the Merger is based on provisions of the Internal Revenue Code of 1986 (the
"Code"), the regulations thereunder, judicial authority, and administrative
rulings and practice as of the date hereof or before the Effective Date.
Consummation of the Merger is conditioned on the receipt by Hancock and American
of an opinion of counsel to Hancock to the effect that the Merger will be
treated, for federal income tax purposes, as a reorganization under
Section 368(a) of the Code.
PART STOCK AND PART CASH RECEIVED. If the consideration received by an
American shareholder consists of part cash and part Hancock common stock, a
shareholder whose adjusted basis in the shares of American common stock
surrendered in the transaction is less than the value, as of the Effective Date,
of the Hancock common stock plus the amount of cash received will realize a gain
on the transaction. Such shareholders will recognize gain equal to the lesser of
(i) the excess, if any, of the value, as of the Effective Date, of the Hancock
common stock plus the amount of cash received, over the adjusted basis of the
shares of American common stock surrendered in the transaction, or (ii) the
amount of cash received. The character of such recognized gain (i.e., as a
dividend or capital gain) will depend upon whether, on a shareholder-by-
shareholder basis, the exchange of American common stock for Hancock common
stock and cash has the effect of the distribution of a dividend. In this case,
there are two applicable tests for this determination: (i) a test to see if the
hypothetical redemption of Hancock common stock (discussed below) is
"substantially disproportionate" with respect to the shareholder, and (ii) a
test to determine whether the hypothetical redemption of Hancock common stock is
"not essentially equivalent to a dividend," with both tests taking into account
the constructive stock ownership rules of Section 318(a) of the Code. If either
one of these tests is met, the American shareholder will be entitled to capital
gain treatment.
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Under the above two tests, each American shareholder is treated first as
hypothetically receiving 100 percent Hancock common stock in the Merger,
followed immediately by a hypothetical redemption for cash of a portion of those
shares assumed received. This hypothetical cash redemption is deemed to reduce
the shareholder's ownership interest in Hancock to the number of Hancock shares
which are actually received in the Merger by an American shareholder. The
"substantially disproportionate" test is met if the number of shares of Hancock
common stock actually received by an American shareholder in the Merger is less
than 80 percent of the number of shares which would have been received had
solely stock been issued to him, thus entitling the shareholder to receive
capital gain treatment with respect to cash received by him, determined in the
manner discussed above.
If the "substantially disproportionate" test is not met, the gain will
nevertheless qualify for capital gain treatment if the "not essentially
equivalent to a dividend' test is met. Under analogous Internal Revenue Service
rulings and case law, this test will be met with respect to any shareholder (i)
who is a minority shareholder whose relative stock ownership in Hancock after
the Merger is minimal and who exercises no control over the affairs of Hancock,
and (ii) whose ownership interest in Hancock is substantially less (after
consideration of pre-existing ownership of Hancock common stock either directly
or through attribution) than what would have resulted in an exchange solely for
stock. The application of these rules pertaining to capital gains treatment is
dependent upon each American shareholder's particular facts and circumstances
and is affected by the above-mentioned attribution rules. Each American
shareholder should consult his tax advisor as to the tax effects of the Merger,
including the receipt of cash.
In the event a shareholder realizes a loss, under current tax laws, such
loss would not be currently allowed and would not be recognized for federal
income tax purposes. Such disallowed loss would be reflected in the adjusted tax
basis of the shares of Hancock common stock received in the Merger.
ALL CASH RECEIVED. If the consideration received by an American
shareholder consists entirely of cash (as in the case of those American
shareholders who own 25 or fewer American shares entitled to receive the De
Minimus Holdings Cash Payment), gain or loss will be recognized by the
shareholder to the extent of the difference between the amount of cash received
and the adjusted tax basis of the shares of American common stock surrendered in
the transaction. Any such gain or loss recognized will be treated as capital
gain or loss if the American common stock surrendered in the transaction were
held as capital assets and if after the exchange such shareholder is not treated
as constructively owning any Hancock common stock. In determining constructive
ownership, stock owned by a shareholder's spouse, children, grandchildren and
parent generally must be attributed to that shareholder. Stock owned by
partnerships, estates, trusts and certain corporations is attributed to the
partners, beneficiaries and shareholders in applying these rules. If a
shareholder's interest after application of these attribution rules has not been
completely terminated in the transaction, that shareholder may nevertheless
receive capital gain treatment under the "substantially disproportionate" or
"not essentially equivalent to a dividend" tests discussed above.
FRACTIONAL SHARES. To avoid the expense and inconvenience to Hancock of
issuing fractional shares, no fractional shares of Hancock common stock will be
issued pursuant to the Merger. Any American shareholder who receives cash
pursuant to the Merger in lieu of a fractional share interest will be treated as
having received such fractional share pursuant to the Merger, and then as having
exchanged such fractional share for cash, at $48.00 per share of Hancock common
stock, in a redemption by Hancock subject to the provisions and limitations of
Section 302(a) of the Code. If the Hancock common stock represents a capital
asset in the hands of the shareholder, then the shareholder will generally
recognize capital gain or loss on such a deemed redemption of the fractional
share in an amount determined by the difference between the amount of cash
received for such fractional share and the shareholder's tax basis in the
fractional share.
DISSENTERS. American's shareholders who perfect statutory appraisal rights
will be treated as having received the fair value of the American common stock,
as determined in the dissenters' rights proceeding, in
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redemption of the American common stock subject to the proceeding. Such deemed
redemption will be subject to the provisions and limitations of Section 302(a)
of the Code, with the result that a holder who exercises statutory dissenters'
rights will recognize gain or loss equal to the difference between the amount
realized and such holder's tax basis in the American common stock subject to the
proceeding. Any such gain or loss recognized on such redemption will be treated
as capital gain or loss if the American common stock with respect to which
statutory dissenters' rights were exercised were held as capital assets and if
after the deemed redemption, such shareholder does not constructively own any
Hancock common stock. Each American shareholder who contemplates exercising
statutory dissenters' rights should consult his tax advisor as to the
possibility that all or a portion of the payment received pursuant to the
exercise of such rights will be treated as dividend income.
BACKUP WITHHOLDING. Unless an exemption applies under the applicable law
and regulations, Hancock Bank Trust Department as the Exchange Agent, will be
required to withhold thirty-one percent (31%) of any cash payments to which a
shareholder or other payee is entitled pursuant to the Merger unless the
shareholder or other payee provides his taxpayer identification number (social
security number or employer identification number) and certifies that such
number is correct. Each shareholder and, if applicable, each other payee should
complete and sign the substitute Form W-9 included as part of the transmittal
letter so as to provide the information and certification necessary to avoid
backup withholding, unless an applicable exemption exists and is established in
a manner satisfactory to Hancock and the Exchange Agent.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER WITHOUT REGARD TO THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH AMERICAN SHAREHOLDER. AMERICAN SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE COMPANY MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS.
DISSENTERS' APPRAISAL RIGHTS
If a shareholder of American who desires to perfect dissenters rights is
not timely in taking any of the following steps, the shareholder will lose the
right to dissent and the shares owned by such shareholder will be converted as
of the effective date into Hancock stock and cash, or cash in accordance with
the Merger Agreement.
Unless the Merger Agreement is approved by the holders of at least 80% of
the total voting power of American , Section 131 of the Louisiana Business
Corporation Law ("LBCL") allows a shareholder of American stock who objects to
the Merger Agreement and who complies with the provisions of that section to
dissent and to be paid the fair cash value of his shares of American stock as of
the day before the Meeting, as determined by agreement between the shareholder
and Hancock, or by the state district court for the Parish of Evangeline if the
shareholder and Hancock are unable to agree.
To exercise the right of dissent, a shareholder must (1) file with American
a written objection to the Merger Agreement before or at the Meeting, and (2)
vote his shares against the Merger Agreement at the Meeting. Neither a vote
against the Merger Agreement nor a specification in a proxy to vote against the
Merger Agreement will constitute the necessary written objection to the Merger
Agreement. Moreover, by voting in favor of the Merger Agreement, by abstaining
from voting on the Merger Agreement, or by returning the enclosed proxy without
instructing the proxy holders to vote against the Merger Agreement, a
shareholder waives his rights under Section 131.
If the Merger Agreement is approved by less than 80% of the total voting
power of American, and is subsequently completed, then promptly after the
Effective Date written notice of completion will be given to each
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shareholder who filed a written objection to and voted against the Merger
Agreement. Within twenty days of the mailing of such notice, the shareholder
must file with Hancock a written demand for payment of the fair cash value of
his shares as of the day before the Meeting and must state the amount demanded
and a post office address to which Hancock may reply. The shareholder also must
deposit the certificate(s) formerly representing his shares of American stock in
escrow with a bank or trust company located in Evangeline Parish, Louisiana.
With the above-mentioned demand, the shareholder must also deliver to Hancock
the written acknowledgment of such bank or trust company that it holds the
certificate(s), duly endorsed and transferred to Hancock, on the sole condition
that the certificate(s) will be delivered to Hancock upon payment of the value
of the shares in accordance with Section 131.
Unless the shareholder objects to and votes against the Merger Agreement,
demands payment, deposits his certificate(s) and delivers the required
acknowledgment in accordance with the above mentioned procedures and within the
time periods set forth above, the shareholder will conclusively be presumed to
have acquiesced to the Merger Agreement and will forfeit any right to seek
payment pursuant to Section 131.
If Hancock does not agree to the amount demanded by the shareholder, or
does not agree that payment is due, it will notify the shareholder within twenty
days after receipt of the shareholder's demand and acknowledgment, and state in
such notice the value it is willing to pay for the shares or its belief that no
payment is due. If the shareholder does not agree to accept the offered amount,
he must, within 60 days of receipt of such notice, file suit against Hancock in
the state district court for Evangeline Parish Louisiana for a judicial
determination of the fair cash value of the shares. Any shareholder entitled to
file such suit, within such 60-day period, but not thereafter, may intervene as
a plaintiff in any suit filed against Hancock by any other former American
shareholder for a judicial determination of the fair cash value of such other
shareholder's shares. If a shareholder fails to bring or to intervene in such a
suit within the applicable 60-day period, he will be deemed to have consented to
accept Hancock's statement that no payment is due or, if Hancock does not
contend that no payment is due, to accept the amount specified by Hancock in its
notice of disagreement. If, upon filing of any such suit or intervention,
Hancock deposits with the court the amount, if any, that it specified in its
notice of disagreement, and if in that notice Hancock offered to pay such amount
to the shareholder on demand, then the costs (not including legal fees) of the
suit or intervention will be taxed against the shareholder if the amount finally
awarded to him, exclusive of interest or costs, is equal to or less than the
amount so deposited; otherwise, the costs (not including legal fees) will be
taxed against Hancock.
Upon filing a demand for the value of his shares, a shareholder ceases to
have any rights as a shareholder except the rights created by Section 131. The
shareholder's demand may be withdrawn voluntarily at any time before Hancock
gives its notice of disagreement. Withdrawal of a demand thereafter requires the
written consent of Hancock. If withdrawn, or if the shareholder otherwise loses
his dissenters rights under Section 131, he will be restored to his rights as a
shareholder as of the time of filing his demand for fair cash value.
The foregoing summary of dissenters' rights under the LBCL is necessarily
incomplete and is qualified in its entirety by reference to Section 131 of the
LBCL.
INFORMATION ABOUT AMERICAN
PRINCIPAL BUSINESS
American conducts no business other than ownership of the Bank. At
September 30, 1998, American had total consolidated assets of approximately
$229.3 million and shareholders' equity of approximately $24.9 million. The Bank
provides traditional consumer and commercial deposit and loan services to
individuals, families and businesses in Evangeline, Rapides, Avoyelles, St.
Landry and Allen Parishes in Louisiana, through a full service
23
main office and 17 branch offices. In addition to traditional bank services, the
Bank offers mortgage loans, and VISA/MasterCard; as well as ATM funding,
Electronic Fund Transfer Network sponsoring and clearing services. Bank's
deposits are insured by the FDIC. At September 30, 1998, Bank had total assets
of approximately $229.3 million and total deposit liabilities of approximately
$198.5 million.
COMPETITION
Bank's primary market area, the Louisiana Parishes of Evangeline, St.
Landry, Rapides, Avoyelles and Allen, has a current population of approximately
305,544.
Competition among banks for loan customers is generally governed by such
factors as loan terms, including interest charges, restrictions on borrowers and
compensating balances, and other services offered by such banks. Bank competes
with numerous other commercial banks, savings and loan associations and credit
unions for customer deposits, as well as with a broad range of financial
institutions in consumer and commercial lending activities. In addition to
thrift institutions, other businesses in the financial services industry compete
with Bank for retail and commercial deposit funds and for retail and commercial
loan business. Competition for loans and deposits is intense among the financial
institutions in Bank's primary market area, including those located in the
surrounding parishes.
Currently, all Louisiana state banks are permitted to establish branches on
a statewide basis. Louisiana's banking laws also permit bank holding companies
domiciled in any other state to acquire Louisiana banks and bank holding
companies. Under recent federal banking legislation, banks have been allowed to
establish interstate branches since June 1, 1997.
SEASONALITY OF BUSINESS AND CUSTOMERS
Bank deposits represent a cross-section of the area's economy and there is
no material concentration of deposits from any single customer or group of
customers. No significant portion of Bank's loans is concentrated within a
single industry or group of related industries. Historically, the business of
Bank has not been seasonal in nature, and management of Bank does not anticipate
any seasonal trends in the future. Bank does not rely on foreign sources of
funds or income.
EMPLOYEES
As of the date of this Proxy Statement-Prospectus, American and Bank have,
in the aggregate, approximately 166 full-time employees. None of such employees
is represented by labor unions. Management of American considers its
relationship with its employees to be good.
PROPERTY
American and Bank have one office located in Ville Platte, Louisiana, which
houses the executive offices of American and the Bank and the Bank's main
office. The Bank also has 17 branch offices. All of the offices and the premises
on which they are located are owned by Bank, except 5 branch offices which are
leased.
STOCK PRICES AND DIVIDENDS
MARKET PRICES. There is no established public trading market for American
common stock. These securities are not traded on any exchange and are not quoted
on an automated system of a registered securities association. The most recent
transactions were two trades in March of 1998 of a total of 149 shares for $400
per share. No assurance can be given that these trades were effected on an
arm's-length basis. At the Record Date, there were 337 shareholders of record of
American stock.
24
AMERICAN DIVIDENDS. American paid a cash dividend of $25.00 per share in
1997. Under the Merger Agreement, American is permitted to and intends to pay a
dividend before the Effective Date of a pro rata portion of $29.00 per share. In
addition, if the Effective Date occurs after the record date for payment of
dividends on Hancock stock declared after December 31, 1998, American is
permitted to and intends to pay a dividend equal to what American shareholders
would have received if they were shareholders of Hancock on such record date.
Otherwise, American is not permitted to pay dividends without Hancock's consent.
Hancock has historically paid quarterly cash dividends of $0.25 per share.
There is no assurance that Hancock will continue to pay dividends in any amount.
OWNERSHIP OF AMERICAN STOCK
The following tables set forth, as of the Record Date, certain information
with respect to the beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of American stock for (1) each person who is
the beneficial owner of more than five percent of any class of the outstanding
voting securities of American; (2) each director and executive officer of
American; and (3) all directors and executive officers of American as a group.
Unless otherwise indicated, all shares indicated as beneficially owned are held
with sole voting and investment power.
NUMBER
NAME OF SHARES PERCENT
- ---- --------- -------
Drouet W. Vidrine 6,988 (1) 14.4
Jean P. Vidrine 1,175 (2) 2.4
Henri J. Vidrine 974 2.0
Pierre E. Vidrine 1,303 2.7
Jim Shipp, Jr. 100 *
Don Descant 100 *
Phillip Lemoine 174 *
Sarah Poret Webb 3,662 (2) (3) 7.6
Norbert Vidrine 192 (4) *
David Roberie 512 1.0
Michael Rhodes 693 (2) (5) 1.4
John Fusilier 116 (6) *
12 directors and executive
officers as a group 15,989 33.0
- -------------------
* Less than 1%.
(1) Mr. Vidrine's address is 901 E. Main Street, Ville Platte, LA 70586.
(2) Does not include 7,345 shares held by American's Employee Stock Ownership
Plan (the "ESOP"), of which Mr. Jean P. Vidrine, Ms. Webb and Mr. Rhodes
are the co-trustees. The ESOP shares will be voted at the Meeting by the
employees individually according to the number of shares allocated to their
respective accounts.
(3) Ms. Webb's address is P. O. Box 663, Ville Platte, LA 70586.
(4) Does not include 8,000 shares held by the Drouet Vidrine Trust, of which
Mr. Vidrine is one of three co-trustees.
(5) Includes approximately 511 shares allocated to his account in the ESOP.
(6) Includes approximately 55 shares allocated to his account in the ESOP.
-----------------------------
25
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion provides certain information concerning the
financial condition and results of operations of American as of and for the two
years ended December 31, 1997 and the nine months ended September 30, 1998. The
financial position and results of operations of American were due primarily to
its banking subsidiary, American Security Bank of Ville Platte, Inc.
Management's discussion should be read in conjunction with the financial
statements and accompanying notes presented elsewhere in this Proxy Statement-
Prospectus.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Overview. Net income for 1997 totaled $1,946,217 compared to $3,086,347
for 1996. The decrease in net income of $1,140,130 or 36.94% from 1996 to 1997
was caused by a non-recurring loss from ATM funding activities of $1,253,014, a
decrease in net interest income of $371,351, resulting primarily from a decease
in investment securities owned, an increase in the provision for loan losses of
$270,000, an increase in other operating expense of $1,270,444, resulting from a
$774,486 increase in salaries and benefits, a $103,705 increase in occupancy
expenses and a $392,253 increase in other non-interest expenses. These items
were partially offset by an increase in non-interest income of $1,348,153 and a
decrease in income tax expense of $676,526.
Return on average assets was 0.84% and return on average equity was 9.73%
for 1997, compared to 1.38% and 15.70%, respectively, for 1996.
Average assets in 1997 increased by $8,042,720, or 3.59%, from 1996. During
1997, there was an increase in average customer deposits of $12,577,420,
or 6.50%. The increase in average deposits was caused by increases in average
non-interest-bearing demand deposits of $9,270,375, average interest-bearing
demand deposits of $1,647,035 and average time deposits of $3,694,989, and was
partially offset by a decline in average savings deposits of $2,034,979. The
increase in average deposits along with the decrease in average mortgage-backed
and other investment securities of $4,416,073 helped to fund the increase in ATM
funding activities, which are not included in earning assets, and the changes in
other asset accounts.
The net interest margin, the percentage of net interest income to average
earning assets, decreased in 1997, from 5.37% to 5.17%. The net interest margin
of 5.17% in 1997 is favorable to American and is a reflection of the continued
low interest rates and healthy spread between rates on deposits and yields on
investments and loans. Average earning assets comprised 85.73% and 89.33% of
total average assets in 1997 and 1996, respectively.
RESULTS OF OPERATIONS. Net Interest Income. American's primary source of
revenue is net interest income. Net interest income is the difference between
interest earned on interest-earning assets and interest paid on interest-bearing
sources of funds. The level of net interest income is determined primarily by
the volume of interest-earning assets and the various spreads between the
interest-earning assets and their funding sources.
Net interest income for 1997 was $9,322,893, compared to $9,694,244 for
1996. The decrease of $371,351 or 3.83% from 1996 to 1997 was caused by the
decrease in average net interest-earning assets and the 0.20% decrease in the
net interest margin. The decrease in the net interest margin was due to lower
yields on all of American's interest earning assets. Average non-interest-
bearing deposits as a percent of total deposits increased 3.47% to 20.31% in
1997 from 16.84% in 1996.
Loans continued to be the largest component of earning assets. Total
average loans for 1997 were $113,031,081, or 56.88% of average earning assets.
The remaining earning assets of American were investment securities, its
position in federal funds sold and interest-earning deposits in another
institution. The yield on loans declined 0.36% from 1996 to 1997. The yield on
investment securities also declined 0.07% during that same period. The net yield
on total earning assets declined 0.18% from 1996 to 1997.
The following table presents the average balance sheets, net interest
income, yields earned and rates paid for each category of assets for each of the
periods indicated by setting forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of American from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average
26
rate; (iii) net interest income; (iv) interest rate spread; and (v) net interest
margin. Information is based on average daily balances during the indicated
periods. Interest income on loans receivable and investment securities has been
adjusted by $291,059 in 1997 and $291,731 in 1996 to a tax equivalent amount
using an effective tax rate of 34% to reflect the effect of non-taxable interest
on yields. Interest income includes fees on loans of $656,064 in 1997 and
$755,919 in 1996. Average loans include non-accrual loans.
27
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
(Dollars in thousands) Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------- ---------- --------- --------- ---------- ---------
Interest-earning assets:
Loans receivable $113,031 $11,909 10.54% $110,743 $12,068 10.90%
Investment securities 82,148 5,484 6.68% 86,564 5,843 6.75%
Federal funds sold and interest-earning
deposits 3,535 188 5.32% 2,557 145 5.67%
-------- ------- -------- -------
Total interest-earning assets 198,714 17,581 8.85% 199,864 18,056 9.03%
------- -------
Non-interest-earning assets 33,072 23,879
-------- --------
Total assets $231,786 $223,743
======== ========
Interest-bearing liabilities:
Deposits:
Demand $ 29,590 $ 570 1.93% $ 27,942 $ 532 1.91%
Money market 8,706 258 2.97% 10,559 313 2.96%
Savings 23,419 731 3.12% 23,601 735 3.11%
Time 102,357 5,484 5.36% 98,662 5,229 5.30%
-------- ------- -------- -------
Total interest-bearing deposits 164,072 7,043 4.29% 160,764 6,809 4.24%
Other interest-bearing liabilities 4,308 268 6.22% 8,979 506 5.64%
-------- ------- -------- -------
Total interest-bearing liabilities 168,380 7,311 4.34% 169,743 7,315 4.31%
------- -------
Non-interest-bearing demand deposits 41,817 32,547
Other non-interest-bearing liabilities 1,581 1,790
-------- --------
Total liabilities 211,778 204,080
Equity 20,008 19,663
-------- --------
Total liabilities and shareholders' equity $231,786 $223,743
======== ========
Net interest-earning assets $ 30,334 $ 30,121
======== ========
Net interest income/interest rate spread $10,270 4.51% $10,741 4.72%
======= =======
Net interest margin 5.17% 5.37%
Ratio of average interest-earning assets
to average interest-bearing liabilities 118.02% 117.75%
28
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
(Dollars in thousands) Average Average
Average Yield/ Average Yield/
Balance Interest Cost(1) Balance Interest Cost(1)
--------- ---------- --------- --------- ---------- ---------
Interest-earning assets:
Loans receivable $106,125 $ 8,154 10.24% $ 113,033 $ 9,055 10.68%
Investment securities 75,092 3,656 6.49% 83,586 4,194 6.69%
Federal funds sold and
interest-earning deposits 3,333 137 5.48% 1,730 68 5.24%
-------- ------- --------- -------
Total interest-earning assets 184,550 11,947 8.63% 198,349 13,317 8.95%
------- -------
Non-interest-earning assets 53,431 33,948
-------- ---------
Total assets $237,981 $ 232,297
======== =========
Interest-bearing liabilities:
Deposits:
Demand $ 29,800 $ 434 1.94% $ 29,073 $ 418 1.92%
Money market 8,069 180 2.97% 8,821 195 2.95%
Savings 21,546 501 3.10% 23,365 545 3.11%
Time 94,535 3,748 5.29% 103,461 4,143 5.34%
-------- ------- --------- -------
Total interest-bearing deposits 153,950 4,863 4.21% 164,720 5,301 4.29%
Other Interest-bearing liabilities 4,420 207 6.24% 4,596 215 6.24%
-------- ------- --------- -------
Total interest-bearing liabilities 158,370 5,070 4.27% 169,316 5,516 4.34%
------- -------
Non-interest-bearing demand deposits 54,984 41,215
Other non-interest-bearing liabilities 1,550 1,621
-------- ---------
Total liabilities 214,904 212,152
Equity 23,077 20,145
-------- ---------
Total liabilities and shareholders' equity $237,981 $ 232,297
======== =========
Net interest-earning assets $ 26,180 $ 29,033
======== =========
Net interest income/interest rate spread $ 6,877 4.36% $ 7,801 4.61%
======= =======
Net interest margin 4.97% 5.24%
Ratio of average interest-earning assets to
average interest-bearing liabilities 116.53% 117.15%
(1) Annualized
29
Rate/Volume Analysis. The following table provides the components of
changes in net interest income in the format of a rate/volume analysis and
analyzes the dollar amount of changes in interest income and interest expenses
for major components of interest-earning assets and interest-bearing
liabilities. The table distinguishes between (i) changes attributable to rate
(changes in rate multiplied by the prior period volume); (ii) changes
attributable to volume (changes in volume multiplied by the prior period's
rate); (iii) total increase (decrease) (sum of the previous columns). Changes
that are not solely due to volume or rate are allocated among the rate and
volume categories.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1997/1996 1996/1995
---------------------------------- -------------------------------
Change Attributable To Change Attributable To
---------------------------------- -------------------------------
(Dollars in thousands) Total Total
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------- ------- ------------- -------- ------- ------------
Interest-earning assets:
Loans receivable $ 245 $(403) $(159) $1,623 $ 131 $1,754
Investment securities (296) (63) (359) (23) 323 300
Other interest-earning assets 54 (11) 43 (179) 8 (171)
----- ----- ----- ------ ------ ------
Total net change in income on
interest-earning assets 3 (477) (475) 1,421 462 1,883
Interest-bearing liabilities:
Interest-bearing deposits:
Demand 48 (64) (17) 79 235 314
Savings (45) 41 (4) (27) (286) (313)
Time 197 58 255 416 (416) 0
Other interest-bearing liabilities (277) 39 (238) 150 (150) 0
----- ----- ----- ------ ------ ------
Total net change in expense on
interest-bearing liabilities (77) 74 (4) 618 (617) 1
----- ----- ----- ------ ------ ------
Net change in net interest income $ 80 $(551) $(471) $ 803 $1,079 $1,882
===== ===== ===== ====== ====== ======
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
1998/1997
--------------------------------------------------------
Change Attributable To
--------------------------------------------------------
(Dollars in thousands)
Volume Rate Total Increase (Decrease)
--------- -------- -----------------------------
Interest-earning assets:
Loans receivable $(542) $(359) $ (901)
Investment securities (420) (118) (538)
Other interest-earning assets 64 5 69
----- ----- -------
Total net change in income on
interest-earning assets (898) (472) (1,370)
Interest-bearing liabilities:
Interest-bearing deposits:
Demand 11 5 16
Savings (59) 0 (59)
Time (356) (39) (395)
Other interest-bearing liabilities (8) 0 (8)
----- ----- -------
Total net change in expense on
interest-bearing liabilities (412) (34) (446)
Net change in net interest income $(486) $(438) $ (924)
===== ===== =======
30
Interest Rate Sensitivity. The interest rate sensitivity gap is the
difference between the amount of interest-earning assets and interest-bearing
liabilities maturing in any given time frame. A primary objective of
asset/liability management is to maximize net interest margin while not
subjecting American to significant interest rate risk in periods of rising or
falling interest rates. At December 31, 1997, American's one year repricing gap,
defined as repricing assets minus repricing liabilities as a percentage of total
assets, was 34.62%, i.e. more of American's liabilities than assets reprice
within a one year time frame. Management regularly reviews interest rate
exposure to analyze the impact of changes in market interest rates on net
interest income.
The following table sets forth American's interest rate sensitivity at
various time intervals as of December 31, 1997. (Non-accrual loans and corporate
stock are not included.) Generally, when rate sensitive liabilities exceed rate
sensitive assets, the net interest margin is expected to be positively affected
during periods of decreasing interest rates and negatively affected during
periods of increasing rates.
INTEREST RATE SENSITIVITY
(Dollars in thousands) Within Three to More than More than
three twelve one year to three to five Over five
months months three years years years Total
---------- ------------ --------------- ----------------- ------------- ---------
Interest-earning assets:
Loans receivable $ 36,430 $ 12,058 $ 14,442 $ 22,433 $ 23,395 $108,758
Investment securities (fair value) 8,720 14,862 10,147 20,201 23,892 77,822
Other earning assets 1,870 0 0 0 0 1,870
-------- -------- -------- -------- -------- --------
Total interest-earning assets 47,020 26,920 24,589 42,634 47,287 188,450
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
Interest-bearing demand 33,650 0 0 0 0 33,650
Savings 32,333 0 0 0 0 32,333
Time 36,776 50,569 8,436 1,480 0 97,261
Other interest-bearing liabilities 0 0 0 0 3,396 3,396
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 102,759 50,569 8,436 1,480 3,396 166,640
-------- -------- -------- -------- -------- --------
Excess (deficiency) of interest-
earning assets over interest-
bearing liabilities (55,739) (23,649) 16,153 41,154 43,891 21,810
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities (55,739) (79,388) (63,235) (22,081) 21,810
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities as a
percent of total assets (24.31%) (34.62%) (27.58%) (9.56%) 9.58%
Provisions for Loan Losses. The provision for loan losses is the amount
that is added to the allowance for loan losses, by a charge against earnings, in
order to maintain a balance in the allowance that is deemed by management to be
adequate to absorb the inherent risk of future loan losses in the loan
portfolio. The provision for loan losses charged to operating expense is the
result of a continuing review and assessment of the loan portfolio, taking into
consideration the history of charge-offs in the loan portfolio by category, the
current economic conditions in the lending area , the payment history, the
ability to repay and strength of collateral of specific borrowers, and other
relevant factors. The 1997 provision is $1,490,000, compared to $1,220,000 in
1996. Actual charge-offs, net of recoveries were $1,359,383 in 1997, and
$857,414 in 1996 . The increase was due to charge-offs on a small number of
loans. Since the provision exceeded net charge-offs in all years presented
except 1993, the result was an increase in the allowance for loan losses in all
years presented except 1993.
31
Non-Interest Income. Non-interest income in 1997 totaled $5,849,952
compared to $4,501,799 in 1996. The increase from 1996 to 1997 was caused mostly
by an increase in ATM funding and electronic banking revenue of $1,191,321. The
largest component of non-interest income in 1997 was service charge income,
which accounted for 41.32% of total non-interest income and increased $219,768
in 1997. Other non-interest income increased $41,717. The increases were
partially offset by decreases in fee income on loans of $99,855 and in net
realized gain on sale of "available for sale" securities of $4,798.
Non-Interest Expenses. Non-interest expenses were $11,040,084 in 1997,
compared to $8,516,626 in 1996. Salaries and related benefits increased $774,486
from 1996 to 1997 while occupancy expenses increased $103,705 from 1996 to 1997.
Other operating expenses increased by $392,253. The largest change in non-
interest expenses from 1996 to 1997 was a non-recurring loss of $1,253,014 from
ATM funding activities recognized in 1997.
American provides funding for several ATMs owned by individual operators
throughout the United States. Losses were recognized in 1997 due to a
contractual violations by a small number of operators. American is presently
seeking restitution for most of these losses.
Income Taxes. American's effective tax rate was 26.36% in 1997, and 30.79%
in 1996. The effective rate is less than the highest statutory rate primarily
because of tax-free income from municipal investments.
ANALYSIS OF FINANCIAL CONDITION. Investment Securities. In 1997 average
investment securities which include mortgage-backed securities, decreased by
$4,416,073 from 1996. The decrease was primarily used to provide cash for the
increase in the ATM funding activities during 1997. The total fair value of
investment securities at December 31, 1997 was $79,687,500, including gross
unrealized gains of $866,691 and gross unrealized losses of $81,923. American
classifies its securities as either "available for sale" or "held to maturity"
at the time they are purchased. Securities which ASB has the ability and intent
to hold to maturity are classified as "held to maturity" and are stated at
amortized cost. All other securities are classified as "available for sale" and
are stated at fair value with net unrealized gains and losses reflected as a
separate component of shareholders' equity, net of estimated income tax effects.
"Available for sale" securities may be sold prior to maturity in response to
liquidity needs, market interest rate changes, or other factors. The investment
securities portfolio provides a means of managing interest rates and interest
rate sensitivity, and also serves as a source of collateral on certain deposits.
93.07% of the investment portfolio is classified as "available for sale" at
December 31, 1997. American has no "trading" portfolio.
Securities Portfolio. The carrying amount of securities at the dates
indicated is set forth in the table below:
December 31,
September 30, ------------------------------------------------------
1998 1997 1996
------------------------ ------------------------------------------------------
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
---------- ----------- ---------- ----------- ---------- -----------
U.S. Government agencies $62,158 86.23% $67,735 85.17% $68,902 85.92%
State and municipal securities 9,051 12.56% 10,087 12.68% 9,580 11.95%
Corporate stocks 874 1.21% 1,710 2.15% 1,710 2.13%
------- ------ ------- ------ ------- -----
Total $72,083 100.00% $79,532 100.00% $80,192 100.00%
======= ====== ======= ====== ======= ======
32
Investment Securities Maturity Distribution. The amortized cost and
estimated fair market value of debt securities "available for sale" and "held to
maturity" at December 31, 1997, by contractual maturity, are shown below.
Expected maturities may differ because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
(Dollars in thousands)
Amortized Cost Fair Value
------------------ --------------
Securities available for sale:
Due in one year or less $ 9,468 $ 9,484
Due from one to five years 29,505 29,998
Due from five to ten years 26,559 26,620
Due after ten years 7,856 7,915
------------------ --------------
$73,388 $74,017
======= =======
------------------ --------------
Amortized Cost Fair Value
------------------ --------------
Securities to be held to maturity:
Due in one year or less $ 1,243 $ 1,247
Due from one to five years 2,704 2,793
Due from five to ten years 1,567 1,630
Due after ten years 0 0
------------------ --------------
$ 5,514 $ 5,670
======= =======
Loans. American engages in commercial and industrial, real estate
(residential and non-residential), and consumer lending. Underwriting criteria
for each major loan category is outlined in detail in a formal written loan
policy that is approved by the board of directors. In general, each loan is
evaluated based on such things as the character and repayment capacity of the
borrower, the borrower's investment in a particular property (when applicable),
cash flow, the nature and value of collateral, general market conditions for the
borrower's business or projected and prevailing economic trends. American's loan
policy is changed periodically as considered appropriate to address regulatory
changes and other changes considered necessary by management. Each change is
approved by the board of directors before it becomes a part of the loan policy.
The loan policy and underwriting criteria are regularly reviewed by management
and external examiners to determine compliance with banking regulations and
sound lending principals. American's loan portfolio generally consists of loans
made to customers in the areas where its branches are located.
Net loans outstanding at December 31, 1997 totaled $108,941,320 compared to
$111,858,095 in 1996, a decrease of $2,916,775 or 2.61%. Total average loans in
1997 were $113,031,081, an increase of $2,287,760 or 2.07% from total average
loans of $110,743,321 for 1996. There were no major concentrations in the loan
portfolio to any one customer or industry classification.
The following table sets forth the composition of American's loan portfolio
by type of loan at the dates indicated.
LOAN PORTFOLIO COMPOSITION
December 31,
September 30, ----------------------------------------------------------
1998 1997 1996
-------------------------- ----------------------------------------------------------
(Dollars in thousands) Percent of Percent of Percent of
Balance Total Balance Total Balance Total
----------- ------------ ----------- ------------ ----------- ------------
Commercial loans $ 54,046 53.24% $ 55,875 51.29% $ 54,674 48.88%
Installment loans 29,234 28.80% 28,821 26.46% 28,085 25.11%
Mortgage loans 15,942 15.70% 19,244 17.66% 22,052 19.71%
Other loans 5,147 5.07% 6,672 6.12% 8,587 7.68%
----------- ------------ ----------- ------------ ----------- ------------
Total loans 104,369 102.81% 110,612 101.53% 113,398 101.38%
Allowance for loan loss (2,855) (2.81)% (1,671) (1.53)% (1,540) (1.38)%
----------- ------------ ----------- ------------ ----------- ------------
Total loans, net $101,514 100.00% $108,941 100.00% $111,858 100.00%
======== ====== ======== ====== ======== ======
33
DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994 1993
-------------------------- --------------------------- ---------------------------
(Dollars in thousands) Percent of Percent of Percent of
Balance Total Balance Total Balance Total
----------- ------------ ----------- ------------ ----------- ------------
Commercial loans $ 44,745 44.18% $29,594 36.23% $36,584 49.14%
Installment loans 23,937 23.64% 22,940 28.09% 25,188 33.84%
Mortgage loans 23,821 23.52% 22,516 27.57% 8,372 11.25%
Other loans 9,940 9.82% 7,432 9.10% 5,083 6.83%
----------- ------------ ----------- ------------ ----------- ------------
Total loans 102,443 101.16% 82,482 100.99% 75,227 101.06%
Allowance for loan loss (1,178) (1.16)% (807) (0.99)% (786) (1.06)%
----------- ------------ ----------- ------------ ----------- ------------
Total loans, net $101,265 100.00% $81,675 100.00% $74,441 100.00%
======== ====== ======= ====== ======= ======
Commercial loans is the largest category of loans, comprising of 51.29% and
48.88% of net loans at December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, fixed rate loans totaled $76,164,801 and
$72,858,309, respectively, and variable rate loans totaled $34,447,424 and
$40,540,074, respectively.
Non-Performing Assets. Non-performing assets include non-performing loans
and foreclosed assets held for sale. Non-performing loans include loans
classified as non-accrual or renegotiated to provide a reduction or deferral of
interest or principal and those past due 90 days or more on which interest is
still being accrued because the loan is both well secured and in the process of
collection. It is the general policy of American to place loans on non-accrual
status when, in the opinion of management, there exists sufficient uncertainty
as to the collectibility of the contractual interest or principal. Placing a
loan on non-accrual status causes an immediate charge against earnings for the
interest accrued but uncollected in the current fiscal year and a charge against
the loan loss reserve for accrued but uncollected interest attributable to prior
periods. Interest earnings are not recognized on such loans until the principal
is collected or until the loan is returned to performing status because it is
well secured and in the process of collection.
Non-performing assets decreased $734,112 during 1997 to $4,598,403 at
December 31, 1997. The decrease is attributable to a decrease in foreclosed real
estate and non-performing loans.
Non-accrual loans are loans on which the accrual of interest income has
been discontinued and previously accrued interest has been reversed because the
borrower's financial condition has deteriorated to the extent that the
collection of principal and interest is doubtful. Until the loan is returned to
performing status, generally as the result of the full payment of all past due
principal and interest, interest income is recorded on the cash basis.
34
The following table sets forth information with respect to non-performing
assets identified by American, including non-accrual loans, foreclosed assets
and troubled debt restructurings at the dates indicated:
NON-PERFORMING ASSETS
(Dollars in thousands) December 31,
September 30, -----------------------
1998 1997 1996
------ ------- ------
Non-accrual loans:
Commercial $2,797 $1,314 $ 1,218
Installment 157 213 221
Mortgage 360 327 481
------ ------ -------
Total non-accrual loans 3,314 1,854 1,920
Accruing loans past due ninety days or more:
Commercial 857 93 418
Installment 138 250 349
Mortgage 80 228 281
------ ------ -------
Total accruing loans past due ninety days or more 1,075 571 1,048
Total non-performing loans 4,389 2,425 2,968
Other real estate owned 1,048 1,993 2,220
Other foreclosed assets 74 180 144
------ ------ -------
Total non-performing assets $5,511 $4,598 $ 5,332
====== ====== =======
Non-performing assets to net loans and
foreclosed assets 5.37% 4.14% 4.67%
Allowance for loan losses to total loans at
end of period 2.74% 1.51% 1.36%
Allowance for loan losses to non-performing assets 51.81% 36.34% 28.88%
(Dollars in thousands) December 31,
----------------------------------------
1995 1994 1993
------ ------- ------
Non-accrual loans:
Commercial $ 877 $ 823 $ 257
Installment 272 217 46
Mortgage 549 245 200
------ ------ ------
Total non-accrual loans 1,698 1,285 503
Accruing loans past due ninety days or more:
Commercial 81 205 312
Installment 273 47 126
Mortgage 346 46 171
------ ------ ------
Total accruing loans past due ninety days or more 700 298 609
Total non-performing loans 2,398 1,583 1,112
Other real estate owned 2,075 2,394 2,815
Other foreclosed assets 132 29 67
------ ------ ------
Total non-performing assets $4,605 $4,006 $3,994
====== ====== ======
Non-performing assets to net loans and
foreclosed assets 4.45% 4.76% 5.17%
Allowance for loan losses to total loans at
end of period 1.15% 0.98% 1.04%
Allowance for loan losses to non-performing assets 25.58% 20.14% 19.68%
35
Allowance for Loan Losses. Inherent in American's lending activities is the
risk that loan losses will be experienced, that the risk of loss will vary with
the type of loan being made and the creditworthiness of the borrower over the
term of the loan. To reflect the currently perceived risk of loan loss
associated with American's loan portfolio, provisions are made to the allowance
for loan losses. The allowance is created by direct charges against income and
is available for loan losses. American charges to operating expense an amount
(provision) that is considered necessary to maintain the allowance for loan
losses at a level that it considers to be adequate to offset all anticipated
loan losses. The determination of the adequacy of the allowance is the result of
a continual monitoring and assessment of loan quality reviews, loan growth,
changes in the composition of the loan portfolio, concentrations of credit,
general economic factors, the financial condition of the borrowers and their
ability to repay the loan and the value and liquidity of collateral. The amount
of the allowance is reviewed by management through weekly special assets
meetings and monthly by the board of directors to evaluate its adequacy and
determine if additional provisions should be made. Between such reviews ,
management generally assures that the level of the allowance is maintained at no
less than the amount last approved by the board of directors. American maintains
an allowance for loan losses which it believes is adequate to absorb reasonably
foreseeable losses in the loan portfolio.
The allowance for loan losses increased $130,617 from December 31, 1996 to
1997, to $1,670,905 and was 1.51% of total loans. The 1996 balance in the
allowance for loan losses was $1,540,288 or 1.36% of total loans.
The following table summarizes the loan loss experience for each of the
periods indicated:
ALLOWANCE FOR LOAN LOSSES
September 30, December 31,
------------------------
(Dollars in thousands) 1998 1997 1996
----------------- ---------- ----------
Balance at beginning of year $1,671 $1,540 $1,178
Provisions charged to expense 1,340 1,490 1,220
Total charge-offs (255) (1,458) (962)
Total recoveries 99 99 104
----------------- ---------- ----------
Net loan charge-offs (156) (1,359) (858)
----------------- ---------- ----------
Balance at end of period $2,855 $1,671 $1,540
====== ====== ======
Allowance for loan losses to total loans at
end of period 2.74% 1.51% 1.36%
Allowance for loan losses to total non-
performing assets 51.81% 36.34% 28.88%
Allowance for loan losses as a multiple of
net loan charge-offs 18.30 1.23 1.79
Net loan charge-offs to average loans 0.15% 1.22% 0.78%
Recoveries as a percentage of charge-offs 38.82% 6.79% 10.81%
36
DECEMBER 31,
-------------------------------------------------
(Dollars in thousands) 1995 1994 1993
---------- ---------- ----------
Balance at beginning of year $ 807 $ 786 $ 910
Provisions charged to expense 1,060 335 240
Total charge-offs (833) (418) (510)
Total recoveries 144 104 146
------ ------- ------
Net loan charge-offs (689) (314) (364)
------ ------- ------
Balance at end of period $1,178 $ 807 $ 786
====== ======= ======
Allowance for loan losses to total loans at 1.15% 0.98% 1.04%
end of period
Allowance for loan losses to total non-
performing assets 25.58% 20.14% 19.68%
Allowance for loan losses as a multiple of
net loan charge-offs 1.71 2.57 2.16
Net loan charge-offs to average loans 0.73% 0.40% 0.54%
Recoveries as a percentage of charge-offs 17.29% 24.88% 28.63%
Deposits. Total deposits at December 31, 1997 were $202,564,320, an
increase of $2,745,835 from the December 31, 1996 total of $199,818,485. Average
deposits in 1997 increased $12,577,420 from 1996. As noted earlier, an increase
occurred in the average balance of non-interest-bearing demand deposits,
interest-bearing demand deposits, and time deposits, and was partially offset by
decreases in the average balances of savings deposits.
Time deposits of $100,000 or more were $22,286,878 at December 31, 1997,
which comprised 11.00% of total deposits. These deposits consist primarily of
deposits from customers with which American has other banking relationships.
American had no brokered deposits at December 31, 1997.
Deposit Average Balances and Rates. The following table indicates the
average daily amount of deposits and rates on such deposits for the periods
indicated:
September 30, December 31,
------------------------------ -------------------------------------------------------------
1998 1997 1996
------------------------------ ----------------------------- -----------------------------
(Dollars in thousands) Amount Rate Percent of Amount Rate Percent of Amount Rate Percent of
Total Total Total
-------- ----- ----------- -------- ----- ------------ -------- ----- ------------
Non-interest-bearing demand $ 54,984 0.00% 26.32% $ 41,817 0.00% 20.31% $ 32,547 0.00% 16.84%
Interest-bearing demand 29,800 1.94% 14.26% 29,590 1.93% 14.37% 27,943 1.91% 14.45%
Money market 8,069 2.97% 3.86% 8,706 2.97% 4.23% 10,559 2.96% 5.46%
Savings 21,546 3.10% 10.31% 23,419 3.12% 11.37% 23,601 3.11% 12.21%
Time 94,535 5.29% 45.25% 102,357 5.36% 49.72% 98,662 5.30% 51.04%
-------- ------ -------- ------ -------- ------
Total $208,934 100.00% $205,889 100.00% $193,312 100.00%
======== ====== ======== ====== ======== ======
37
Maturities of Time Deposits of $100,000 or More. The maturities of time
deposits of $100,000 or more are summarized in the table below:
September 30, December 31,
-----------------
1998 1997 1996
------------- ------- -------
(Dollars in thousands) Amount Amount Amount
------------- ------- -------
Three months or less $ 8,476 $11,218 $ 9,774
Over three months through twelve months 11,670 8,453 14,685
Over one year through three years 2,191 2,216 2,108
Over three years 200 400 101
------- ------- -------
Total $22,537 $22,287 $26,668
======= ======= =======
Liquidity. Liquidity involves American's ability to raise funds to support
asset growth or to reduce assets, meet deposit withdrawals and borrowing needs,
maintain reserve requirements and otherwise operate American on an ongoing
basis. The primary functions of asset and liability management as it relates to
a financial institution are to provide sufficient liquidity to react to normal
volatility in funding sources and to insulate net interest margins from adverse
effect that may be wrought by major fluctuations in interest rates while
maximizing net interest earnings. Liquidity reflects American's ability to meet
daily demands for funds from its customers and to meet other financial
commitments. Management monitors liquidity requirements as warranted by
interest rate and economic trends, changes in the scheduled maturity and
interest rate sensitivity of the investment and loan portfolios, and changes in
the maturity and perceived interest rate sensitivity of deposit accounts.
Management attempts to match (within acceptable risk guidelines established by
the board of directors) rate-sensitive assets and rate-sensitive liabilities in
order to minimize exposure from adverse fluctuations in interest rates and
maximize net interest earnings through periods of changing interest rates.
At September 30, 1998 American has available on a line of credit at the
Federal Home Loan Bank $22,130,543 to advance for assistance in liquidity needs.
The tables contained in this document indicate that the bulk of American's
deposits are due on demand or that they are time certificates that are generally
due within one year. However, historically the time certificates generally roll
over and the deposit base is core deposits that are stable.
As shown in the accompanying 1997 statement of cash flows, cash and cash
equivalents increased by $3,992,874 from December 31, 1996 to December 31, 1997.
Cash and cash equivalents were generated primarily by proceeds from the sale of
securities of $23,357,449, a net increase in customer deposits of $2,745,835 and
a net decrease in loans of $1,426,775. In addition, operating activities
provided net cash of $6,617,898. Offsetting these increases were investment
securities purchases of $22,489,988, a net increase in short-term investments of
$1,777,239 and purchases of premises and equipment for $344,980.
Capital Resources. American is subject to regulatory "risk-based" capital
guidelines. In the risk-based capital computation, all assets are weighted
based upon assigned risk factors, and certain off-balance sheet items are
included, such as loan commitments and standby letters of credit. Tier 1
capital includes common shareholder equity and perpetual preferred stock,
subject to certain limitations. Tier 2 capital includes Tier 1 capital plus the
reserve for loan losses and subordinate debt, subject to certain limitations.
American maintains adequate capital for regulatory purposes and has
sufficient capital to absorb the risks inherent in the business. Risk-based
capital requirements have been established that weight different assets
according to the level of risk associated with those types of assets. The table
below summarizes American's capital levels at the dates indicated:
December 31,
September 30, --------------- Regulatory
1998 1997 1996 Minimums
------------ ------ ------ -----------
Tier 1 capital to average assets 10.07% 9.03% 8.66% 4%
Tier 1 capital to risk-weighted assets 16.55% 15.65% 14.63% 4%
Total capital to risk-weighted assets 18.52% 16.95% 15.79% 8%
38
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
The following discussion provides certain information concerning the
financial condition and results of operations of American as of September 30,
1998 and 1997 and for the nine months then ended. The financial position and
results of operations of American were due primarily to its banking subsidiary,
American Security Bank of Ville Platte, Inc. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) which are necessary
for a fair presentation of results of operations for such nine month periods
have been made. Management's discussion should be read in conjunction with the
financial statements and accompanying notes presented elsewhere in this Proxy
Statement-Prospectus.
OVERVIEW. Net income for the nine months ended September 30, 1998 totaled
$3,698,308 compared to $1,813,793 for the same period in 1997.
Return on average assets was 2.07% and return on average equity was 21.37%
for the nine months ended September 30, 1998 compared to 1.04% and 12.00%,
respectively, for the comparable period in 1997.
RESULTS OF OPERATION. Net Interest Income. American's primary source of
revenue is net interest income. Net interest income is the difference between
interest earned on interest-earning assets and interest paid on interest-bearing
sources of funds. The level of net interest income is determined primarily by
the volume of interest-earning assets and the various rate spreads between the
interest-earning assets and their funding sources.
Net interest income for the nine months ended September 30, 1998 totaled
$6,060,872, a decrease of $864,073, or 12.48%, from the $6,924,945 total for the
comparable period in 1997. The decrease in net interest income was attributable
to a decrease in total interest income of $1,310,400 and a decrease in total
interest expense of $446,327.
Average interest-earning assets for the nine months ended September 30, 1998
were $184,549,873 and represented 77.55% of average total assets. Decreases in
total average loans outstanding of $6,907,798 and average investment securities
of $8,493,292, partially offset by increases in federal funds sold of $1,587,177
and interest-earning deposits of $14,881 resulted in a decrease in average
interest-earning assets of $13,799,032 from September 30, 1997.
As of September 30, 1998, non-interest-bearing demand deposits averaged
$54,984,460 or 26.32% of average deposits compared to $41,214,960 or 20.01% of
average deposits at September 30, 1997. The large percentage of non-interest-
bearing deposits has a positive impact on American's net interest margin.
Net interest margin, the ratio of net interest income to average earning
assets, for the nine months ended September 30, 1998 decreased to 4.97%, a
decrease of 27 basis points from September 30, 1997. The decrease in net
interest margin from September 30, 1997 to September 30, 1998 primarily resulted
from a decrease in the yields on loans and investment securities.
Net interest spread, the difference between the yield on earning assets and
the rate paid on interest-bearing liabilities was 4.36% for the nine months
ending September 30, 1998, a decrease from September 30, 1997 of 25 basis
points.
39
Interest Rate Sensitivity. The interest rate sensitivity gap is the difference
between the amount of interest-earning assets and interest-bearing liabilities
maturing in any given time frame. A primary objective of asset/liability
management is to maximize the net interest margin while not subjecting American
to significant interest rate risk in periods of rising or falling interest
rates. At September 30, 1998 American's one year repricing gap, defined as
repricing assets minus repricing liabilities as a percentage of total assets,
was 26.78%, i.e. more of American's liabilities than assets reprice within a one
year time frame. Management regularly reviews interest exposure to analyze the
impact of changes in market interest rates on net interest income.
The following table details American's interest rate sensitivity position at
various time intervals as of September 30, 1998. (Non-accrual loans and
corporate stocks are not included.)
INTEREST RATE SENSITIVITY
(Dollars in thousands) Within Three to More than More than
three twelve one year to three years to Over
months months three years five years five years Total
--------- --------- -------------- -------------- ---------- --------
Interest-earning assets:
Loans receivable $31,209 $ 11,846 $ 14,835 $ 17,917 $25,248 $101,055
Investment securities (fair
value) 12,304 16,630 8,236 14,932 19,107 71,209
Other earning assets 4,591 0 0 0 0 4,591
--------- --------- -------- -------- ------- --------
Total interest-earning assets 48,104 28,476 23,071 32,849 44,355 176,855
--------- --------- -------- -------- ------- --------
Interest-bearing liabilities:
Deposits:
Interest-bearing demand 21,265 0 0 0 0 21,265
Savings 30,596 0 0 0 0 30,596
Time 33,595 52,525 8,541 2,089 0 96,750
Other interest-bearing
liabilities 0 0 0 0 3,098 3,098
--------- --------- -------- -------- ------- --------
Total interest-bearing
liabilities 85,456 52,525 8,541 2,089 3,098 151,709
--------- --------- -------- -------- ------- --------
Excess (deficiency) of
interest-earning assets
over interest-bearing
liabilities (37,352) (24,049) 14,530 30,760 41,257 25,146
Cumulative excess
(deficiency) of interest-
earning assets over interest-
bearing liabilities (37,352) (61,401) (46,871) (16,111) 25,146
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities as a percent of
total assets (16.29%) (26.78%) (20.44%) (6.98%) 9.72%
Provision for Possible Loan Losses. The provisions for possible loan losses
charged to operating expense is the result of a continuing review and assessment
of the loan portfolio, taking into consideration the impact of economic
conditions on the borrower's ability to repay, past collection experience, the
risk characteristics of the loan portfolio and such other factors which deserve
current recognition. As of September 30, 1998, the provision for possible loan
losses totaled $1,340,000 compared to $1,430,000 for the same nine month period
in 1997. The decrease in the provision for the nine months ended September 30,
1998 was determined from management's monitoring of the amount in the allowance
for loan losses.
Non-Interest Income. Non-interest income for the nine months ended September
30, 1998 totaled $7,892,106 compared to $4,388,332 for the same period in 1997.
The increase was the result of a $2,500,510 non-recurring gain on the sale of
two branch banking locations, a $769,009 increase in ATM funding activities
income and an increase in other income of $474,517. These increases were
partially offset by decreases in fee income of $50,320 and service charge income
of $189,942.
40
Non-Interest Expense. For the nine months ended September 30, 1998, non-
interest expenses decreased $395,636 or 18.91% from the same period in 1997.
Decreases of $552,123 in salaries and employee benefits and $24,078 in net
occupancy expenses occurred and were offset by an increase of $180,565 in other
operating expenses.
Income taxes. American's effective tax rate was 35.03% for the nine month
period ended September 30, 1998 compared to 29.33% for the same period in 1997.
Income tax provision increased $1,240,821 for the current nine month period.
ANALYSIS OF FINANCIAL CONDITION. Investment Securities. Average investment
securities for the nine months ended September 30, 1998 were $75,092,431, or
41.25%, of average earning assets compared to $82,148,025 or 41.34% at December
31, 1997. Total investment securities at September 30, 1998 were $72,082,886
including gross unrealized gains of $1,319,524 and gross unrealized losses of
$94,219. The investment securities portfolio is used to make investments of
various maturities in order to improve the overall earning asset yield. It also
serves as a source of liquidity and as collateral to secure certain types of
deposits. Most of American's investment securities are classified as "available
for sale". The remainder are classified as "held to maturity". American has no
securities classified as "trading". The composition of the portfolio,
effectively managed, limits American's exposure to changes in interest rates and
economic conditions as they occur.
Securities Portfolio. The carrying amount of investment securities as of
September 30, 1998 is included with the Securities Portfolio table in the year
end comparison subsection.
Loans and Non-Performing Assets. The loan portfolio is the largest component
of American's earning assets. For the nine months ended September 30, 1998,
total average loans outstanding were $106,124,929 compared to $113,031,081 at
December 31, 1997. The amounts of loans outstanding according to types of loan
as of September 30, 1998 are included in the Loan Portfolio Composition table in
the year end comparison subsection.
The largest segment of American's loan portfolio is commercial loans which
represent approximately 53.24% of net loans as of September 30, 1998. As of
December 31, 1997 commercial loans comprised 51.29% of net loans.
Non-accrual, restructured and ninety days past due loans and other real
estate owned as of September 30, 1998 are summarized in the Non-Performing
Assets table in the year end comparison subsection. Also, several ratios that
measure American's level of non-performing assets are included in such table.
Total non-performing assets at September 30, 1998 were 2.56% of total assets.
This is a 0.57% increase from total non-performing assets at December 31, 1997.
The increase is primarily attributable to an increase in non-accrual loans.
Non-accrual loans are loans on which the accrual of interest income has been
discontinued and previously accrued interest has been reversed, because the
borrower's financial condition has deteriorated to the extent that the
collection of principal and interest is doubtful. Until the loan is returned to
performing status, generally as the result of the full payment of all past due
principal and interest, interest income is recorded on the cash basis.
Allowance for Loan Losses. The loan loss experience for the nine months
ended September 30, 1998 and the two years ended December 31, 1997 is summarized
in the Allowance for Loan Losses table in the year end comparison subsection.
At September 30, 1998 the allowance for possible loan losses was $2,854,518
as compared to $1,670,905 at December 31, 1997. The allowance as a percent of
total loans outstanding was 2.74% and 1.51% as of September 30, 1998 and
December 31, 1997, respectively. For the nine month period ending September 30,
1998, charge-offs exceeded recoveries by $156,387.
Deposits. Total deposits at September 30, 1998 were $195,754,793, which is
$6,809,527 or 3.36% lower than at December 31, 1997.
41
Time deposits of $100,000 or more were $22,536,967 at September 30, 1998.
These deposits consist primarily of deposits from local customers with which
American has other banking relationships. American had no brokered deposits at
September 30, 1998.
Deposit Average Balances and Rates. The average daily amount of deposits and
rates paid on such deposits as of September 30, 1998 is included with the
Deposit Average Balances and Rates table in the year end comparison subsection.
Maturities of Time Deposits of $100,000 or More. The maturities of time
deposits of $100,000 or more as of September 30, 1998 is included with the
Maturities of Time Deposits of $100,000 or More table in the year end comparison
subsection.
Liquidity. Liquidity is the ability of American to fund the needs of its
borrowers, depositors and creditors. American's management maintains a strategy
that provides adequate liquidity and manages interest rate risk. American's
liquidity sources, including cash flows from sales, maturities and paydowns of
loans and investment securities, federal funds purchased, securities sold under
agreements to repurchase and a base of core deposits, are considered adequate to
meet liquidity needs for normal operations.
Capital Resources. American is required to comply with the risk-based
capital guidelines adopted by the FDIC. Those guidelines apply weighting
factors which vary according to the level of risk associated with each asset
category. As of September 30, 1998, American exceeds all minimum capital
ratios. American's consolidated regulatory capital ratios as of September 30,
1998 are included with the Capital Resources in the year end comparison.
INFORMATION ABOUT HANCOCK
GENERAL
Hancock is a multi-bank holding company headquartered in Gulfport,
Mississippi with total consolidated assets of approximately $2.7 billion at
September 30, 1998. Hancock operates a total of 80 banking offices and 115
automated teller machines 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 ("HBLA").
Both Hancock Bank MS and HBLA 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. Hancock Bank MS and HBLA's operating strategy is to provide their
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.
MERGER ACTIVITY
In November 1996, Hancock acquired Community Bancshares, Inc. which owned
100% of the stock of Community State Bank. This acquisition expanded Hancock's
market to the Hammond, Louisiana area, where many of the people who are employed
in East Baton Rouge Parish reside.
On January 17, 1997, Hancock acquired Southeast National Bank, Hammond,
Louisiana ("Southeast"). The acquisition was in return for approximately
$3,700,000 cash and 121,000 shares of Hancock common stock. The acquisition was
accounted for using the purchase method. Southeast had total assets of
approximately $40,000,000 and shareholders' equity of approximately $4,000,000
as of December 31, 1996 and net earnings of approximately $500,000 for the year
then ended.
42
On July 15, 1997, Hancock acquired Commerce Corporation, St. Francisville,
Louisiana ("Commerce"), which owned 100% of the stock of Bank of Commerce and
Trust Company, for approximately $330,000 cash, 65,000 shares of common stock
and the assumption of $1,250,000 in debt. The acquisition was accounted for
using the purchase method. Commerce had total assets of approximately
$29,000,000 and shareholders' equity of approximately $800,000 at December 31,
1996 and net earnings of approximately $260,000 for the year then ended.
Hancock's regulatory capital at December 31, 1997, both on a historical basis
and after giving pro forma effect to the Merger, as of that date, substantially
exceeds all current minimum regulatory requirements.
COMMON STOCK PRICES AND DIVIDENDS
Hancock's common stock trades on the Nasdaq Stock Market under the symbol
"HBHC" and is listed in newspapers under Nasdaq market quotations under
"HancHd." The following table sets forth the high and low sale prices of
Hancock's common stock as reported on the Nasdaq Stock Market. These prices do
not reflect retail mark-ups, mark-downs or commissions.
CASH
HIGH LOW DIVIDENDS
SALE SALE PAID
------------ --------- --------------
1998
1st Quarter $62.75 $58.87 $0.25
2nd Quarter $63.50 $52.50 $0.25
3rd Quarter $55.50 $45.25 $0.25
4th Quarter (through November 19) $49.50 $42.31 $0.25**
1997
1st Quarter $42.50 $39.25 $0.25
2nd Quarter $49.00 $39.50 $0.25
3rd Quarter $51.50 $46.00 $0.25
4th Quarter $63.25 $50.12 $0.25
1996
RESTATED* ACTUAL CASH
----------------------------------- DIVIDENDS PAID
1st Quarter $32.83 $31.09 $0.22 $0.25
2nd Quarter $35.22 $31.09 $0.22 $0.25
3rd Quarter $35.00 $31.52 $0.22 $0.25
4th Quarter $42.50 $32.61 $0.22 $0.25
* The figures presented have been restated to reflect the effect of a 15% stock
dividend in 1996.
** Dividends declared in November 1998 to be paid in December 1998.
CHANGE OF CONTROL
Certain provisions of the Hancock Articles of Incorporation and Bylaws may
have the effect of preventing, discouraging or delaying any change in control of
Hancock which may (or may not) be in the best interest of the majority of the
shareholders.
SUPERMAJORITY VOTE. The Hancock Articles of Incorporation ("Hancock
Articles") contain provisions regarding the vote required to approve certain
business combinations or other significant corporate transactions involving
Hancock and a substantial shareholder. Mississippi law generally requires the
affirmative vote of the holders of a majority of the shares entitled to vote at
the meeting to approve a merger, consolidation or dissolution of Hancock or a
disposition of all or substantially all of its assets. Hancock's Articles raise
the required affirmative
43
vote to 80% of the total number of votes entitled to be cast to approve these
and other significant transactions ("business combinations") if a "Substantial
Shareholder" (as defined) is a party to the transaction or its percentage equity
interest in Hancock will be increased by the transaction. Two-thirds of the
whole Board of Directors ("Hancock Board") may, in all such cases, determine not
to require such 80% vote, but only if a majority of the directors making such
determination are "Continuing Directors" (as defined). Such determination may
only be made before the Substantial Shareholder in question achieves such
status.
A "Substantial Shareholder" generally is defined as the "beneficial owner" of
more than 10% of the outstanding shares of stock of Hancock entitled to vote in
the election of directors ("voting shares"). "Beneficial ownership" generally
is defined in accordance with Rule 13d-3 under the Exchange Act, and a
Substantial Shareholder is also deemed to beneficially own shares owned,
directly or indirectly, by an "affiliate" or "associate" of the Substantial
Shareholder, as well as (i) shares which it or any such "affiliate" or
"associate" has a right to acquire, (ii) shares issuable upon the exercise of
options or rights, or upon conversion of convertible securities held by the
Substantial Shareholder and (iii) shares beneficially owned by any other person
with whom the Substantial Shareholder or any of his "affiliates" or "associates"
acts as a partnership, syndicate or other group pursuant to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of shares of capital stock of Hancock.
A "business combination" includes, but is not limited to, a merger or
consolidation involving Hancock or any of its subsidiaries and a Substantial
Shareholder; a sale, lease or other disposition of a "substantial part" of the
assets of Hancock or any of its subsidiaries (i.e., assets constituting in
excess of 10% of the book value of the total consolidated assets of Hancock) to
a Substantial Shareholder; an issuance of equity securities of Hancock or any of
its subsidiaries to a Substantial Shareholder for consideration aggregating $5
million or more; a liquidation or dissolution of Hancock; and a reclassification
or recapitalization of securities of Hancock or any of its subsidiaries or a
reorganization, in any case having the effect, directly or indirectly, of
increasing the percentage interest of a Substantial Shareholder in any class of
equity securities of Hancock or such subsidiary.
The foregoing provisions may not be amended or repealed without the
affirmative vote of 80% or more of the votes entitled to be cast by all holders
of voting shares (which 80% vote must also include the affirmative vote of a
majority of the votes entitled to be cast by all holders of voting shares not
beneficially owned by any Substantial Shareholder).
The supermajority voting provisions may have the effect of discouraging any
takeover or change in control of Hancock. If the holders of a majority of
Hancock's outstanding common stock desire a takeover or change in control, and
if such takeover or change in control is opposed by Hancock management, the
above provisions could be used to thwart the desires of such majority.
DIRECTORS. The Hancock Articles provide that the number of Hancock directors
shall be fixed from time to time by Bylaw adopted by a majority of the Hancock
Board (but in no event less than nine). Under the Mississippi Business
Corporation Act ("MBCA"), the Hancock Board may only increase or decrease by 80%
or less the number of directors last approved by the shareholders; the
shareholders must approve any proposal by the Hancock Board to increase or
decrease by more than 30% the number of directors last approved by the
shareholders. These provisions may not be amended or repealed without the
approval of the holders of two-thirds of the outstanding Hancock stock.
The Hancock Board may consist of not less than nine persons, as set from time
to time by the Hancock Board, and currently consists of nine members. The
Hancock Board is divided into three classes, as nearly equal in number as
possible, with members of each class to serve for three years and with one class
being elected each year.
These provisions may have the effect of making it more difficult for
shareholders to replace or add directors, or to otherwise influence actions
taken by directors, which may discourage attempts to acquire control of Hancock
which may (or may not) be in the best interest of the majority of the
shareholders.
SHAREHOLDER STOCK PURCHASE RIGHTS. On February 21, 1997 the Hancock Board
declared a dividend of one common stock purchase right (a "Right") for each
outstanding share of Hancock's stock. In addition, all shares of
44
Hancock stock issued since this date, including shares issued in the Merger,
have been or will be accompanied by a Right. Each Right entitles the registered
holder, subject to the terms of the Rights Agreement, to purchase from Hancock
one share of stock. See "DESCRIPTION OF HANCOCK CAPITAL STOCK -- Common Stock
Purchase Rights."
The Rights are not currently exercisable, but will become exercisable at an
exercise price of 50% of the current market price of the Hancock stock upon the
public announcement that a person or group of persons has acquired 10% or more
of the outstanding Hancock stock (the "Stock Acquisition Date"), or upon the
announcement or commencement of a tender or exchange offer, without the prior
approval of Hancock's Board if at any time following the Stock Acquisition Date
(i) Hancock is acquired in a merger of other business combination and Hancock is
not the surviving corporation, (ii) any person or group effects a share exchange
or merger with Hancock and all or part of Hancock's stock is converted or
exchanged for securities, cash, or property of any other person or group, (iii)
50% or more of Hancock's assets or earning power is sold or transferred (any of
such events also being a "Triggering Event"), then, in each such case, each
holder of a Right shall have the right to receive, upon exercise, that number of
shares of common stock of the Acquiring Person purchasable for the Purchase
Price at a price of 50% of the current market value of such shares. The Rights
are generally designed to deter coercive takeover tactics and to encourage all
persons interested in potentially acquiring control of Hancock to treat each
shareholder on a fair and equal basis.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire Hancock on
terms not approved by Hancock's Board. The Rights should not interfere with any
merger of other business combination approved by the Hancock Board prior to the
time that a person or group has acquired, or obtained the right to acquire,
beneficial ownership of 10% or more of the Hancock stock, or has been determined
to be an Adverse Person, because until such time the Rights may be redeemed by
Hancock at $0.01 per Right.
DESCRIPTION OF HANCOCK CAPITAL STOCK
AUTHORIZED AND OUTSTANDING STOCK
As of September 30, 1998, the authorized capital stock of Hancock under its
Articles of Incorporation ("Hancock Articles") consists of 75,000,000 shares of
Hancock stock, of which 10,910,570 shares were outstanding including treasury
shares and/or restricted shares totalling 433,173 shares. Assuming consummation
of the Merger Agreement without any of American's shareholders exercising their
dissenters' appraisal rights and reissue of all treasury shares, Hancock will
have approximately 11,172,300 shares of common stock outstanding.
VOTING RIGHTS
The holders of Hancock stock are each entitled to one vote per share on all
matters brought before shareholders.
DIVIDEND RIGHTS
The holders of stock are entitled to receive such dividends as may be
declared, from time to time, by the Hancock Board out of funds legally available
therefor. Substantially all of the funds available to Hancock for payment of
dividends on the Hancock stock are derived from dividends paid by its
subsidiaries. The payment of dividends by Hancock is subject to the
restrictions of Mississippi law applicable to the declaration of dividends by a
business, under which no distribution may be made if, after giving it effect (1)
Hancock would not be able to pay its debts as they become due in the usual
course of business; or (2) Hancock's total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if Hancock were to
be dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distributions.
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Additionally, the Federal Reserve Board has 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.
PREEMPTIVE RIGHTS
The holders of Hancock stock do not have any preemptive or preferential right
to purchase or to subscribe for any additional shares of Hancock stock that may
be issued.
FULLY PAID AND NONASSESSABLE
The shares of Hancock stock presently outstanding, and those shares of
Hancock stock to be issued in connection with the Merger Agreement will be when
issued, fully paid and nonassessable. Such shares do not have any redemption
provisions.
LIQUIDATION RIGHTS
In the event of liquidation, dissolution or winding-up of Hancock, whether
voluntary or involuntary, the holders of Hancock stock will be entitled to share
ratably in any of the net assets or funds which are available for distribution
to shareholders after the satisfaction of all liabilities or after adequate
provision is made therefor and after payment of any preferences on liquidation
of preferred stock, if any.
LIMITATION OF LIABILITY OF DIRECTORS
The Hancock Articles provide that a director shall not be liable to Hancock
or its shareholders for money damages for any action taken, or any failure to
take any action, as a director, except liability for: (i) the amount of
financial benefit received by a director to which he is not entitled; (ii) an
intentional infliction of harm on Hancock or its shareholders; (iii) a violation
of Mississippi Code Annotated Section 79-4-8.33 (1972), as amended; or (iv) an
intentional violation of criminal law.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Hancock's Articles provide for indemnification of officers, directors and
employees in connection with a proceeding including reasonable expenses
(attorney's fees) to the fullest extent permitted by the MBCA in effect from
time to time and also provide for indemnification against liability to Hancock,
liability for improperly receiving a personal benefit and/or liability for any
other reason, provided that such person's conduct did not constitute gross
negligence or willful misconduct as determined by a board of directors or
committee designated by the board, by special legal counsel, by the shareholders
or by a court.
The Hancock Articles also provide for advances to persons for reasonable
expenses if the person furnishes a written undertaking to repay the advance if
these actions are adjudged to be grossly negligent or willful misconduct and a
determination is made that the facts known would not preclude indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Hancock
pursuant to the foregoing provisions, Hancock has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
TRANSFER AGENT
The registered transfer agent and registrar for Hancock stock is Hancock Bank
MS.
CHANGES IN CONTROL
See "INFORMATION ABOUT HANCOCK -- Changes in Control."
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COMMON STOCK PURCHASE RIGHTS
Attached to each share of Hancock stock held by a registered holder is a
common stock Purchase Right. Each Right entitles the registered holder, subject
to the terms of the rights agreement, to purchase from Hancock one share of
common stock in the event of a change in control. See "INFORMATION ABOUT
HANCOCK --Changes in Control."
COMPARISON OF RIGHTS OF SHAREHOLDERS
If the Merger Agreement is consummated, shareholders of American, other than
those exercising dissenter's rights, will become shareholders of Hancock, and
their rights as shareholders will be governed by the Hancock Articles and
Bylaws, rather than the Articles of Incorporation ("American Articles") and
Bylaws of American. The rights of Hancock's shareholders are governed by the
Hancock Articles and Bylaws and the laws of Mississippi. The rights of
American's shareholders are governed by the American Articles and Bylaws and the
laws of Louisiana, including the Louisiana Business Corporation Law ("LBCL").
The following is a brief summary of the principal differences between the rights
of shareholders of Hancock and the shareholders of American. This summary is
qualified in its entirety by reference to the Hancock Articles and Bylaws,
American Articles and Bylaws, the LBCL and the Mississippi Business Corporation
Act ("MBCA").
AUTHORIZED CAPITAL
American has 90,000 shares of authorized common stock. Hancock has
75,000,000 shares of authorized common stock.
BOARD OF DIRECTORS
American Board is composed of such number of persons up to 30 elected by the
shareholders annually. American Board currently consists of 7 members.
Directors are elected for one year terms of office each year or until their
successors are chosen and qualified.
The Hancock Board may consist of not less than nine persons, as set from time
to time by the Hancock Board, and currently consists of nine members. The
Hancock Board is divided into three classes, as nearly equal in number as
possible, with members of each class to serve for three years and with one class
being elected each year. See "INFORMATION ABOUT HANCOCK - Changes In Control."
REMOVAL OF DIRECTORS
Under the LBCL, at any meeting of shareholders called expressly for that
purpose any director or the entire American Board may be removed, with or
without cause, by a vote of the holders a majority of the shares then entitled
to vote in the election of directors. A director of Hancock may be removed from
office only for cause, by the affirmative vote of a majority of directors
present.
AMENDMENT OF THE ARTICLES OF INCORPORATION
American Articles may be amended by holders of a majority of its outstanding
stock. The affirmative vote of the holders of a majority of votes entitled to
be cast at a shareholders meeting is required to amend any provision of the
Hancock Articles unless the amendment would amend provisions relating to certain
changes in control, in which case 80% or more of the votes entitled to be cast
is required, or unless the amendment would amend the Hancock
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Articles relating to size, composition and removal of the Hancock Board, in
which case the approval of the holders of not less than two-thirds of the
outstanding Hancock common stock is required.
AMENDMENT OF BYLAWS
The Bylaws of American and the LBCL provide that the bylaws may be amended by
a two-thirds vote of the directors present at a regular meeting of directors,
subject to the right of the shareholders to repeal any bylaws so made.
Although certain provisions of Hancock's Bylaws relating to changes in
control and the size, composition and removal of the Hancock Board require a
vote of 80% of the total voting power and a vote of two-thirds of the
outstanding common stock, respectively, the remaining provisions of Hancock's
Bylaws may be amended or repealed by the Hancock Board, if a quorum is present,
by the affirmative vote of a majority of directors present or by the
shareholders if a quorum exists and the votes cast favoring the action exceed
the votes cast opposing the action.
MEETINGS OF SHAREHOLDERS
Under American's Bylaws and the LBCL, a special meeting of the shareholders
may be called at any time by the President, the Board of Directors, or the
holders of not less than 20% of the outstanding stock.
Under Hancock's Bylaws, a special meeting of the shareholders may be called,
for any purpose or purposes, unless otherwise prescribed by statute, by the
President or by the Board of Directors, and shall be called by the President at
the request of the holders of not less than one-tenth of all the votes entitled
to be cast on any issue proposed to be considered at the meeting. A request for
a special meeting must be signed and dated by the shareholder(s) requesting the
special meeting and must state the purpose of the meeting, and be delivered to
the corporation's Secretary. Business transacted at a special meeting of the
shareholders is confined to the purpose(s) stated in the notice.
REPORTS TO SHAREHOLDERS
The Hancock stock is registered under the Exchange Act, and, therefore,
Hancock is required to provide annual reports containing audited financial
statements to shareholders and to file such other reports with the SEC and
solicit proxies in accordance with the rules of the SEC. Hancock also provides
reports to its shareholders on an interim basis containing unaudited financial
information. American stock is not registered under the Exchange Act, and
American does not provide its shareholders with annual reports containing
audited financial statements of American.
DIVIDENDS
The sources of funds for payments of dividends by American and Hancock are
their subsidiaries. Because the primary subsidiaries of American and Hancock
are financial institutions, payments made by such subsidiaries of American and
Hancock to their shareholders are limited by law and regulations of the bank
regulatory authorities.
The LBCL provides that a board of directors may declare dividends in cash,
property or shares out of surplus (except earned surplus reserved by the board)
except: (1) when the corporation is insolvent or would thereby become insolvent,
or (2) when such would be contrary to restrictions in the corporation's Articles
of Incorporation. If no surplus is available, dividends may be paid out of net
profits for current or preceding fiscal years, under certain restrictions. The
MBCA provides that no distribution, including dividend distributions, may be
made if, after giving it effect the corporation would not be able to pay its
debts as they become due in the usual course of business, or the corporation's
total assets would be less than the sum of its total liabilities plus the amount
that would be needed if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders who have superior preferential rights upon dissolution.
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REDEMPTION AND RETIREMENT OF SHARES
A Louisiana corporation cannot purchase or redeem its shares when it is
insolvent, or at a price, in the case of shares subject to redemption, exceeding
the redemption price thereof, or when its net assets are less than, or such
purchase would reduce its net assets below, the aggregate amount payable on
liquidation upon any issued shares having a preferential right to participate in
the assets in the event of liquidation which remain after the purchase or
redemption and cancellation of any shares in connection with the purchase or
redemption. Without submitting such purchase to a vote of the shareholders of
the corporation, the corporation is authorized to purchase, directly or
indirectly, its own shares to the extent of the aggregate of the unrestricted
surplus available therefor, and to the extent of stated capital as will not
reduce stated capital below the aggregate allocated value of the issued shares
remaining after the purchase of its shares.
Under Mississippi law, a corporation is permitted to purchase or redeem
shares of its own stock except where upon doing so, the corporation would not be
able to pay its debts as they become due in the usual course of business. This
prohibition also applies to where the corporation's total assets would be less
than the sum of the corporation's total liabilities, plus, unless the articles
permit otherwise, the amount that would be needed to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those whose shares are purchased or redeemed, if the corporation were to be
dissolved at the time of such purchase or redemption. Mississippi law permits a
Board of Directors to base its determination as to whether such purchase or
redemption is prohibited either on financial statements prepared on the basis of
accounting practices and principles that are reasonable in the circumstances or
on a fair valuation or other method that is reasonable under the circumstances.
REVERSION OF UNCLAIMED DIVIDENDS
American's Articles provide that any and all cash, property or share
dividends, shares issuable to shareholders in connection with a reclassification
of stock, and the redemption price of redeemed shares, which are not claimed by
the shareholders entitled thereto within a reasonable time (not less than one
year in any event) after the dividend or redemption price became payable or the
shares became issuable, despite reasonable efforts by the corporation to pay the
dividend or redemption price or deliver the certificates for the shares to such
shareholders within such time, shall, at the expiration of such time, revert in
full ownership to the corporation, and the corporation's obligation to pay such
dividend or redemption price or issue such shares, as the case may be, shall
thereupon cease; provided that the Board of Directors may, at any time, for any
reason satisfactory to it, but need not, authorize (a) payment of the amount of
any cash or property dividend or redemption price or (b) issuance of any shares,
ownership of which has reverted to the corporation pursuant to the provision of
this Article, to the entity who or which would be entitled thereto had such
reversion not occurred. The Hancock Articles and Bylaws have no provisions
regarding reversion.
SHAREHOLDERS INSPECTION RIGHTS
Under the LBCL and the Louisiana Banking Law, upon at least five days'
written notice, any shareholder, except a business competitor, who is and has
been the holder of record of at least two percent of the outstanding shares of
any class of a corporation for at least six months has the right to examine, in
person or by agent or attorney, at any reasonable time, for any proper and
reasonable purpose, any and all of the records and accounts of the corporation
and to make extracts therefrom. Louisiana law allows two or more shareholders,
each of whom has been a holder of record for six months, whose aggregate
holdings equal five percent to inspect the records. Under the MBCA, any
shareholder may inspect the shareholders' list if the demand is made in good
faith and for a proper purpose. Such shareholder must describe his purpose and
establish that the list is directly connected to his purpose. Moreover, the
shareholders' list must be available for inspection by any shareholder beginning
two days after notice of a shareholder's meeting is given and continuing until
the meeting takes place.
LIMITATION OF LIABILITY OF DIRECTORS
American's Articles provide that directors shall not be personally liable to
American for monetary damages except for (1) breach of the director's duty of
loyalty to the corporation or its shareholders, (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (3) any unlawful dividend
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or any other unlawful distribution, payment or return of assets made to
shareholders, or (4) any transactions from which the director derived an
improper personal benefit. In the event that Louisiana law hereafter authorizes
state banks to further limit or eliminate the personal liability of directors,
then the liability of each director shall be limited or eliminated to the full
extent permitted by Louisiana law as amended.
The Hancock Articles provide that a director shall not be liable to Hancock
or its shareholders for money damages for any action taken, or any failure to
take any action, as a director, except liability for: (i) the amount of
financial benefit received by a director to which he is not entitled; (ii) an
intentional infliction of harm on Hancock or its shareholders; (iii) a violation
of Mississippi Code Annotated Section 79-4-8.33 (1972), as amended; or (iv) an
intentional violation of criminal law.
INDEMNIFICATION
American's Articles permit it to indemnify directors, officers and employees
it or any person serving as a director, officer or employee of another
corporation at American's request and may maintain liability insurance for such
persons as, and to the extent, permitted by the LBCL.
The LBCL permits American to indemnify any person who is or was a party or is
threatened to be made a party to any action, suit, proceeding, whether civil,
criminal, administrative, or investigative. This includes any action by or in
the right of the corporation (a "derivative action"), by reason of fact that he
is or was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee,
or agent, against expenses (including attorney's fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit, or proceeding if the director acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation. With respect to any criminal action or proceeding, the
director must show that he or she had no reasonable cause to believe his or her
conduct was unlawful.
In the case of derivative actions, LBCL limits the indemnity to expenses
(including attorney's fees) and amounts paid in settlement not exceeding, in the
judgment of the Board of Directors, the estimated expense of litigating the
action to conclusion, actually and reasonably incurred in connection with the
defense or settlement of such action.
The MBCA provides that a director, officer or agent of a corporation may be
indemnified for such service if he conducted himself in good faith, and he
reasonably believed in the case of conduct in his official capacity with the
corporation, that his conduct was in the corporation's best interests; and in
all other cases that his conduct was at least not opposed to the corporation's
best interests. In the case of a criminal proceeding, a director must show that
he had no reasonable cause to believe his conduct was unlawful. Indemnification
permitted under this section in connection with a derivative action is limited
to reasonable expenses incurred in connection with the proceeding. The MBCA
further authorizes a corporation to make further indemnity for certain actions
that do not constitute gross negligence or willful misconduct if authorized by
the corporation's Articles.
The Hancock Articles provide for indemnification to the fullest extent
permitted by the MBCA and specifically provide for the further indemnity
authorized by the MBCA. The Hancock Articles provide that Hancock shall
indemnify any person who was or is a party to, or is threatened to be made a
party to, any threatened pending or completed action, suit or proceeding,
whether civil, criminal, administrative, investigative or otherwise, formal or
informal (a "Proceeding"), by reason of the fact that such person is or was a
director, officer, employee or agent of Hancock against any obligation to pay a
judgment, settlement, penalty, fine or reasonable expenses (including legal
fees) incurred with respect to the Proceeding: (A) to the fullest extent
permitted by the MBCA and (B) despite the fact that such person has failed to
meet the standard of conduct set forth in the MBCA, or would be disqualified for
indemnification under the Act for any reason, if a determination is made by (i)
the Hancock Board or a committee duly designated by it, consisting of two or
more directors not at the time parties to the Proceeding, (ii) by special legal
counsel, (iii) by the shareholders or (iv) by a court, that the acts or
omissions of the director, officer, employee or agent did not constitute gross
negligence or willful misconduct. However, Hancock may not indemnify a person
for: (i) an intentional infliction of harm on Hancock or its shareholders; (ii)
a violation of
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Mississippi Code Annotated Section 79-4-8.33 (1972), as amended; or for (iii) an
intentional violation of criminal law, nor may it indemnify a person for receipt
of a financial benefit to which he is not entitled unless ordered by a court
under Mississippi Code Annotated, Section 79-4-8.54(9)(3). The Hancock Articles
further provide that Hancock shall indemnify a person in connection with a
proceeding by or in the right of Hancock for reasonable expenses incurred in
connection with the Proceeding if such acts or omissions do not constitute gross
negligence or willful misconduct, and shall make further indemnification in
connection with the Proceeding if so ordered by a court under Mississippi Code
Annotated, Section 79-4-8.54(9)(3).
Hancock, upon request, shall pay or reimburse such person for his reasonable
expenses (including legal fees) in advance of final disposition of the
Proceeding as long as: (i) such person furnishes Hancock a written undertaking,
executed personally or on his behalf, to repay the advance if he is not entitled
to mandatory indemnification under Mississippi Code Annotated, Section 79-4-8.52
and it is ultimately determined by a judgment or other final adjudication that
his acts or omissions did constitute gross negligence or willful misconduct,
which undertaking must be an unlimited general obligation of such person, and
which shall be accepted by Hancock without reference to the financial ability of
the person to make repayment or to collateral; (ii) such person furnishes a
written affirmation of his good faith that his acts or omissions did not
constitute gross negligence or willful misconduct; and (iii) a determination is
made by any of the determining bodies that the facts then known to those making
the determination would not preclude indemnification under the Hancock Articles.
Under the LBCL, a corporation may pay, prior to final disposition, the
expenses (including attorneys' fees) incurred by a director or officer in
defending a proceeding. Under Louisiana law, expenses incurred by an officer or
director in defending any action may be advanced prior to final disposition upon
receipt of an undertaking by the director or officer of the corporation to repay
such advances if it is ultimately determined that he is not entitled to
indemnification. Louisiana law does not require the undertaking to be secured
and the undertaking may be accepted without reference to financial ability to
make the repayment.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Hancock
pursuant to the foregoing provisions, Hancock has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
SUPERMAJORITY VOTING REQUIREMENTS; BUSINESS COMBINATIONS
American's Articles and Bylaws do not have supermajority voting requirements
for business combinations or other matters. Hancock's Articles contain
provisions regarding the vote required to approve certain business combinations
or other significant corporate transactions involving Hancock and a substantial
shareholder, as described under "INFORMATION ABOUT HANCOCK -- Changes in
Control."
The LBCL places restrictions on "business combinations" (generally including
mergers, consolidations, share exchanges, sales and leases of assets, issuances
of securities, and similar transactions) by Louisiana corporations with an
"interested shareholder" (generally the beneficial owner of 10% or more of the
voting power of the then outstanding voting stock). The restrictions generally
apply to business combinations of Louisiana corporations having greater than 100
beneficial owners of its stock or which did not have an interested shareholder
on January 1, 1985, unless the articles of incorporation expressly provide
otherwise. They generally do not apply if specified conditions are met,
including a combination that the shareholders receive in the business
combination consideration for their shares of stock in the corporation that is
no less than the highest of several different standards, one of which is that
the consideration to be paid must be no less than the highest price as the
interested shareholder paid for shares of stock in the corporation acquired by
such interested shareholder within two years of such business combination, or if
the business combination is recommended by the Board and approved by the
affirmative vote of at least each of the following: (i) 80% of the votes
entitled to be cast by outstanding shares of voting stock voting together as a
single voting group and (ii) two-thirds of the votes entitled to be cast by
holders of voting stock, other than voting stock held by the interested
shareholder who is a party to the business combination, voting together as a
single voting group.
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Under other provisions of the LBCL (the "Control Share Law"), a person who
acquires shares in certain Louisiana corporations (including American) and as a
result increases such person's voting power in the corporation to or above any
of three threshold levels (i.e., 20%, 33 1/3%, and 50%), acquires the voting
rights with respect to such shares only to the extent granted by a majority in
voting interest of the pre-existing, disinterested shareholders of the
corporation. Certain acquisitions of shares are exempted from the provisions of
the Control Share Law, including acquisitions pursuant to a merger,
consolidation, or share exchange agreement to which the corporation is a party.
DISSENTERS' APPRAISAL RIGHTS
The LBCL provides appraisal rights to shareholders in connection with mergers
and consolidations and the sale, lease or exchange of all of the corporation's
assets, if such are approved by less than 80% of its total voting power.
Appraisal rights are not available under the LBCL in the case of: (1) a sale
pursuant to a court order; (2) a sale for cash requiring distribution of all or
substantially all of the net proceeds to shareholders in accordance with their
respective interests within one year of the date of the sale; and (3)
shareholders holding shares of any class of stock which, at the record date
fixed to determine shareholders entitled to receive notice of and to vote at the
meeting of shareholders at which a merger or consolidation was acted on, were
listed on a national securities exchange unless the shares of such shareholders
were not converted by the merger or consolidation solely into shares of the
surviving or new corporation. The MBCA provides appraisal rights to
shareholders in any of the following corporate actions: (1) a merger if
shareholder approval is required or if the corporation is a subsidiary that
merges with its parent; (2) a plan of share exchange if the corporation is being
acquired and the shareholder is entitled to vote; and (3) a sale or exchange of
all or substantially all of the property of the corporation that is not in the
usual and regular course of business, but not including a court ordered sale or
sale pursuant to a plan where the shareholders will receive the proceeds within
one year after the date of sale.
SHAREHOLDER RIGHTS PLAN
Shareholders Rights attached to each share of Hancock stock held by a
registered holder entitles the registered holder, subject to the terms of a
rights agreement, to purchase from Hancock one share of Hancock stock in the
event of a change in control. See "INFORMATION ABOUT HANCOCK -- Changes in
Control." American does not have a shareholder rights plan.
ADDITIONAL INFORMATION
LEGAL MATTERS
Certain legal matters in connection with the Hancock common stock being
offered hereby will be passed upon by Watkins Ludlam Winter & Stennis, P.A.,
counsel for Hancock.
EXPERTS
The consolidated financial statements of American as of and for the years
ended December 31, 1997 and 1996 contained in this Proxy Statement-Prospectus
have been audited by Broussard, Poche, Lewis & Breaux, LLP, Certified Public
Accountants, independent auditors, as set forth in their report with respect
thereon appearing elsewhere herein, and have been included in reliance upon the
authority of such firm as experts in accounting and auditing. The consolidated
financial statements of Hancock as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 incorporated in this Proxy
Statement-Prospectus by reference from the 1997 Hancock Annual Report on Form
10-K have been audited by Deloitte & Touche, LLP, independent auditors, as
stated in their report, which is incorporated herein by reference and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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OTHER MATTERS
At the time of the preparation of this Proxy Statement-Prospectus, American
has not been informed of any matters to be presented by or on behalf of American
or its management for action at the Meeting other than those listed in the
Notice of Meeting of Shareholders and referred to herein. If any other matters
come before the meeting or any adjournment thereof, the persons named in the
enclosed proxy will vote on such matters according to their best judgment.
Shareholders are urged to sign the enclosed proxy, which is solicited on behalf
of American Board and return it at once in the enclosed envelope.
WHERE YOU CAN FIND MORE INFORMATION
Hancock has filed with the Commission a Registration Statement under the
Securities Act that registers the distribution to American Shareholders of the
shares of Hancock common stock to be issued in connection with the Merger (the
"Registration Statement"). The Registration Statement including the attached
exhibits and schedules, contain additional relevant information about Hancock
and the Hancock common stock. The rules and regulations of the Commission allow
us to omit certain information included in the Registration Statement from this
Proxy Statement-Prospectus.
In addition, Hancock files reports, proxy statements and other information
with the Commission under the Exchange Act. You may read and copy this
information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
The Commission also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issues, like Hancock, who
file electronically with the Commission. The address of that site is
http://www.sec.gov. You can view and download a copy of the Registration
Statement (including exhibits) at this web site.
You can also inspect reports, proxy statements and other information about
Hancock at the offices of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
The Commission allows Hancock to "incorporate by reference" information
into this Proxy Statement-Prospectus. This means that Hancock can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be a part of this Proxy Statement-Prospectus, except for any
information that is superseded by other information that is set forth directly
in this document.
This Proxy Statement-Prospectus incorporates by reference the documents set
forth below that Hancock has previously filed with the Commission. They contain
important information about Hancock and its financial condition.
Hancock SEC Filings Period
- ------------------- ------
Proxy Statement for its annual meeting
of shareholders held on February 19, 1998
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Periods ended:
. March 31, 1998
. June 30, 1998
. September 30, 1998
53
Current Reports on Form 8-K August 21, 1998
The description of the rights set forth in Item 1
of Hancock's Registration Statement on Form 8-A
(SEC File No. 000-13089), dated February 27,
1997, and any amendment or report filed to
update such description
Hancock incorporates by reference additional documents that it may have
filed with the Commission between the date of this Proxy Statement-Prospectus
and the date of the Meeting. These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
Hancock has supplied all information contained or incorporated by reference
in the Proxy Statement-Prospectus relating to Hancock, as well as all pro forma
financial information, and American has supplied all such information relating
to American.
You can obtain any of the documents incorporated by reference in this
document through Hancock, or from the Commission through the Commission's
Internet world wide web site at the address described above. Documents
incorporated by reference are available from the companies without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit in this Proxy Statement-Prospectus. You
can obtain documents incorporated by reference in this Proxy Statement-
Prospectus by requesting them in writing or by telephone from:
George A. Schloegel, Vice Chairman
Hancock Holding Company
Post Office Box 4019
Gulfport, MS 39502-4019
(228) 868-4706
If you would like to request documents from Hancock, please do so by
December 15, 1998 to receive them before the Meeting. If you request any
incorporated documents from us, Hancock will mail them to you by first class
mail, or another equally prompt means, within one business day after we receive
your request.
You should rely only on the information contained in or incorporated by
reference in this Proxy Statement-Prospectus in considering how to vote your
shares at the Meeting. Neither Hancock nor American has authorized anyone to
provide you with information that is different from the information in this
document. This Proxy Statement-Prospectus is dated November 24, 1998. You
should not assume that the information contained in this document is accurate as
of any date other than that date. Neither the mailing of the Proxy Statement-
Prospectus nor the issuance of Hancock common stock in the Merger shall create
any implication to the contrary.
54
INDEX TO AMERICAN FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS - DECEMBER 1997 AND 1996
Consolidated balance sheets F-3 and F-4
Consolidated statements of income F-5
Consolidated statements of changes in shareholders' equity F-6
Consolidated statements of cash flows F-7 and F-8
Notes to consolidated financial statements F-9 - F-26
FINANCIAL STATEMENTS - SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
Condensed consolidated balance sheets F-27 and F-28
Condensed consolidated statements of income F-29
Condensed consolidated statements of cash flows F-30 and F-31
Notes to condensed consolidated financial statements F-32
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American Security Bancshares
of Ville Platte, Inc.
Ville Platte, Louisiana
We have audited the accompanying consolidated balance sheets of American
Security Bancshares of Ville Platte, Inc. and subsidiary as of December 31, 1997
and 1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Corporation'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 audits 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Security
Bancshares of Ville Platte, Inc. and subsidiary as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
years then ended, in conformity with generally accepted accounting principles.
Broussard, Poche, Lewis & Breaux, LLP
Lafayette, Louisiana
May 29, 1998
F-2
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS 1997 1996
------------ ------------
Cash and due from banks $ 28,505,392 $ 24,512,518
Interest-bearing deposits in banks 69,529 92,290
Federal funds sold 1,800,000 -
Investment securities:
Available for sale 74,017,217 75,283,364
Held to maturity (estimated market values
$5,670,283 and $5,091,999, respectively) 5,514,365 4,909,135
Loans, less allowance for loan losses
($1,670,905 and $1,540,288, respectively) 108,941,320 111,858,095
Bank premises and equipment, net of
accumulated depreciation ($3,670,277 and
$3,153,025, respectively) 4,762,916 4,963,109
Accrued interest receivable 1,510,576 1,750,015
Other real estate, net of allowances of
$199,798 and $290,356, respectively 1,993,146 2,219,697
Other assets 1,091,874 3,391,324
------------ ------------
Total assets $228,206,335 $228,979,547
============ ============
(continued)
See Notes to Consolidated Financial Statements.
F-3
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------ ------------
LIABILITIES
Deposits:
Demand $ 39,320,917 $ 37,692,364
Interest-bearing demand 33,650,101 27,150,514
Savings 32,333,732 31,819,853
Time, $100,000 and over 22,286,878 26,668,487
Other time 74,972,692 76,487,267
------------ ------------
202,564,320 199,818,485
Accrued interest payable 892,334 939,460
Other borrowed funds 3,396,271 7,916,893
Other liabilities 423,666 326,303
------------ ------------
Total liabilities 207,276,591 209,001,141
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $10 par value; 90,000
shares authorized; 48,467 shares
issued and outstanding 484,670 484,670
Additional paid in capital 342,720 342,720
Surplus 8,000,000 8,000,000
Retained earnings 11,687,313 10,952,771
Net unrealized appreciation on securities
available for sale, net of tax of
$213,809 and $102,126, respectively 415,041 198,245
------------ ------------
20,929,744 19,978,406
------------ ------------
Total shareholders' equity
Total liabilities and shareholders' equity $228,206,335 $228,979,547
============ ============
F-4
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997 and 1996
1997 1996
----------- ------------
Interest income:
Interest on loans $11,249,554 $11,308,726
Interest on investment securities -
U.S. Treasury 724,312 798,750
U.S. Government agencies 3,888,914 4,169,258
State and political subdivisions 583,506 586,838
Interest on federal funds sold 185,794 77,535
Interest on bank time deposits 1,708 67,168
----------- -----------
16,633,788 17,008,275
----------- -----------
Interest expense:
Interest on deposits -
Interest bearing demand 828,120 844,436
Savings 730,441 734,982
Time, $100,000 and over 1,431,891 1,352,457
Other time 4,052,355 3,876,244
Interest on borrowed funds 268,088 505,912
----------- -----------
7,310,895 7,314,031
----------- -----------
Net interest income 9,322,893 9,694,244
----------- -----------
Provision for possible loan losses 1,490,000 1,220,000
----------- -----------
Net interest income after provision
for possible loan losses 7,832,893 8,474,244
----------- -----------
Non-interest income:
Other fee income 656,064 755,919
Service charges 2,417,052 2,197,284
Income from electronic banking 1,794,298 602,977
Net realized gain on sale of
available for sale securities 161,695 166,493
Other 820,843 779,126
----------- -----------
5,849,952 4,501,799
----------- -----------
Non-interest expense:
Salaries 4,458,780 3,672,881
Officer and employee benefits 1,007,730 1,019,143
Net occupancy expense 1,496,795 1,393,090
Loss on funding of ATM's 1,253,014 -
Other operating expenses 2,823,765 2,431,512
----------- -----------
11,040,084 8,516,626
----------- -----------
Income before income taxes 2,642,761 4,459,417
Income tax provision 696,544 1,373,070
----------- -----------
Net income $ 1,946,217 $ 3,086,347
=========== ===========
Basic and diluted earnings per share $40.16 $63.68
=========== ===========
See Notes to Consolidated Financial Statements.
F-5
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
Net
Unrealized
Appreciation
Additional on Securities
Common Paid in Retained Available
Stock Capital Surplus Earnings for Sale Total
--------- ---------- ---------- ------------ -------------- ------------
Balance, December 31, 1995 $484,670 $342,720 $8,000,000 $ 8,641,896 $1,063,620 $18,532,906
Net income for 1996 - - - 3,086,347 - 3,086,347
Cash dividend for 1996 - - - (775,472) - (775,472)
Net changes in unrealized
appreciation on available
for sale securities - - - - (865,375) (865,375)
--------- ---------- ---------- ----------- ---------- -----------
Balance, December 31, 1996 484,670 342,720 8,000,000 10,952,771 198,245 19,978,406
Net income for 1997 - - - 1,946,217 - 1,946,217
Cash dividend for 1997 - - - (1,211,675) - (1,211,675)
Net changes in unrealized
appreciation on available
for sale securities - - - - 216,796 216,796
--------- ---------- ---------- ----------- ---------- -----------
Balance, December 31, 1997 $484,670 $342,720 $8,000,000 $11,687,313 $ 415,041 $20,929,744
========= ========== ========== =========== ========== ===========
See Notes to Consolidated Financial Statements.
F-6
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997 and 1996
1997 1996
------------- -------------
OPERATING ACTIVITIES
Net income $ 1,946,217 $ 3,086,347
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of investment security premiums 80,719 82,160
Accretion of investment security discounts (70,468) (69,292)
Decrease in interest receivable 239,439 217,975
(Increase) decrease in other assets 2,299,450 (2,778,123)
Provision for loan losses 1,490,000 1,220,000
Provision for depreciation 545,173 460,556
Write down of other real estate 37,131 15,616
Increase (decrease) in interest payable (47,126) 183,034
Increase (decrease) in other liabilities 97,363 (478,787)
------------ ------------
Net cash provided by operating activities 6,617,898 1,939,486
------------ ------------
INVESTING ACTIVITIES
Proceeds from sales and maturities of investment
securities 23,357,449 34,072,167
Purchases of investment securities (22,489,988) (27,781,475)
Net (increase) decrease in short-term investments (1,777,239) 2,033,916
Net (increase) decrease in loans 1,426,775 (11,812,780)
Purchases of premises and equipment (344,980) (630,000)
Net (increase) decrease in other real estate owned 189,421 (159,857)
------------ ------------
Net cash provided by (used in)
investing activities 361,438 (4,278,029)
------------ ------------
FINANCING ACTIVITIES
Net increase in demand deposits,
transaction accounts, and savings accounts 8,642,019 11,682,160
Net increase (decrease) in certificates of deposit (5,896,184) 6,519,836
Increase (decrease) in other borrowed funds (4,520,622) 2,702,764
(Decrease) in federal funds purchased - (3,275,000)
Cash dividends paid (1,211,675) (775,472)
------------ ------------
Net cash provided by (used in)
financing activities (2,986,462) 16,854,288
------------ ------------
Increase in cash and cash equivalents 3,992,874 14,515,745
------------ ------------
(continued)
F-7
1997 1996
------------ ------------
Increase in cash and cash equivalents
(brought forward) $ 3,992,874 $14,515,745
Cash and cash equivalents at beginning of year 24,512,518 9,996,773
----------- -----------
Cash and cash equivalents at end of year $28,505,392 $24,512,518
=========== ===========
Cash interest received $16,873,227 $17,226,250
=========== ===========
Cash interest paid $ 7,358,021 $ 6,950,997
=========== ===========
Cash federal income taxes paid $ 405,998 $ 1,595,937
=========== ===========
See Notes to Consolidated Financial Statements.
F-8
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
The accounting and reporting policies followed by American Security
Bancshares of Ville Platte, Inc. (the "Corporation") and subsidiary,
American Security Bank (the "Bank"), conform to generally accepted
accounting principles consistently applied and generally practiced within
the banking industry. The following is a summary of the more significant
policies:
Consolidation:
The consolidated financial statements include the accounts of the
respective parent Corporation and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could
differ from those estimates.
Investment securities:
At January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115 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 Bank 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.
Trading account securities are carried at market value. Gains and
losses, both realized and unrealized, are reflected in earnings. Held
to maturity securities are stated at amortized cost. Available for sale
securities are stated at fair value, with unrealized gains and losses,
net of tax, reported in a separate component of shareholders' equity.
F-9
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. The cost
of securities sold is determined on the specific identification method.
Loans:
Commercial and mortgage loans are stated at principal amounts
outstanding at the balance sheet date. Interest on these loans is
accrued daily based on the principal balances outstanding. Unearned
discount on installment loans is amortized and included in interest
income using the sum-of-the-month digits method over the terms of the
applicable loans which does not differ materially from the interest
method.
Commercial loans are placed on nonaccrual status when, in management's
opinion, there is doubt concerning full collectibility of both
principal and interest. All commercial nonaccrual loans are considered
to be impaired in accordance with SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." Consumer loans are generally
charged off when any payment of principal or interest is more than 120
days delinquent. Interest payments received on nonaccrual loans are
applied to principal if there is doubt as to the collectibility of the
principal; otherwise, these receipts are recorded as interest income. A
loan remains in nonaccrual status until it is current as to principal
and interest, and the borrower demonstrates the ability to fulfill the
contractual obligation.
Loan origination fees and certain direct origination costs are deferred
and recognized as an adjustment to the yield on the related loan.
Allowance for possible loan losses:
The allowance for possible loan losses is maintained to provide for
possible losses inherent in the loan portfolio. On January 1, 1995, the
Company adopted SFAS No. 114, as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." In accordance with SFAS No. 114, the allowance for
possible loan losses related to loans that are identified as impaired
is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain
collateral dependent loans.
F-10
The allowance is based on management's estimate of future losses;
actual losses may vary from the current estimate. The estimate is
reviewed periodically, taking into consideration the risk
characteristics of the loan portfolio, past loss experience, general
economic conditions and other factors which deserve current
recognition. As adjustments to the estimate of future losses become
necessary, they are reflected as a provision (positive or negative) for
possible loan losses in current-period earnings. However, because
factors such as loan growth, the future collectibility of loans and the
amounts and timing of future cash flows expected to be received on
impaired loans are uncertain, the level of future provisions (positive
or negative), if any, generally cannot be predicted. Actual loan losses
are deducted from and subsequent recoveries are added to the allowance.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily by the straight line
method. Useful lives utilized for purposes of computing depreciation
are as follows: buildings - 10 to 40 years; furniture and equipment - 5
to 20 years. Maintenance and repair costs are expensed as incurred.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", as of
January 1, 1996. The impact on the Corporation's financial position and
results of operations for the year ended December 31, 1997 was not
material.
Other real estate:
Other real estate owned includes real estate and other collateral
acquired upon the default of loans. Other real estate is recorded at
the fair value of the assets acquired less estimated selling costs.
Losses arising from the initial reduction of the outstanding loan
amount to fair value are deducted from the allowance for possible loan
losses. After foreclosure, these assets are carried at the lower of
their new cost basis or fair value less cost to sell. Valuations are
periodically performed by management, and any subsequent write-downs
are recorded as a charge to operations, if necessary, to reduce the
carrying value of a property to the lower of its cost or fair value
less cost to sell. Income and expenses associated with other real
estate prior to sale are included in current earnings.
Federal income taxes:
The Corporation files a consolidated federal income tax return with the
subsidiary Bank. The Corporation accounts for income taxes using the
asset and liability method. Under this method, deferred tax assets and
liabilities are based on the temporary differences between the
financial reporting basis and tax basis of the Corporation's assets and
liabilities at enacted tax rates expected to be in effect when such
amounts are realized or settled. The principal timing differences are
depreciation expense, write down of other real estate, bad debt expense
and certain expenses related to electronic banking operations.
F-11
Cash and cash equivalents:
The statements of cash flows classify changes in cash and cash
equivalents according to operating, investing or financing activities.
Cash and due from banks are regarded as cash equivalents for purposes
of the statements of cash flows.
Net income per share of common stock:
Net income per share of common stock is computed by dividing net income
by the weighted average number of shares of common stock outstanding
during the period.
Recent pronouncements:
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" and SFAS No. 129, "Disclosure of Information About
Capital Structure" which are effective for quarters ending after
December 15, 1997, and fiscal years ending after December 15, 1997,
respectively. The implementation of these statements did not have a
material effect on its results of operations or financial statement
disclosures.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income in the financial
statements. Comprehensive income is the total of net income and all
other non-owner changes in equity. SFAS No. 131 requires that companies
disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. SFAS
Nos. 130 and 131 are effective for 1998. The implementation of these
statements did not have a material effect on its results of operations
or financial statement disclosures.
Reclassifications:
Certain items included in the consolidated financial statements for
1996 have been reclassified to conform with the 1997 presentation.
Note 2. Restrictions on Cash
The Bank is required to maintain average reserve balances as required by
the Federal Reserve Bank. The average amount of these reserves was
$3,790,000 and $2,303,000 for the years ended December 31, 1997 and 1996,
respectively.
The Bank was required to maintain a balance of $20,000 for the years
ended December 31, 1997 and 1996 at First National Bankers Bank (FNBB) in
conjunction with bank card servicing performed at FNBB for the Bank.
The Bank has entered into contractual obligations to provide funding for
ATM's owned by individual operators located throughout the United States.
The cash in these ATM's was $17,713,315 and $12,459,848 at December 31,
1997 and 1996, respectively.
F-12
Note 3. Investment Securities
The carrying amounts of investment securities as shown in the
consolidated balance sheets of the Bank and their approximate market
values at December 31 were as follows:
1997 1996
----------- -----------
Carrying Carrying
Value Value
----------- -----------
Available for sale securities $74,017,217 $75,283,364
Held to maturity securities 5,514,365 4,909,135
----------- -----------
$79,531,582 $80,192,499
=========== ===========
December 31, 1997
-----------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
Securities available
for sale:
U.S. Government
agencies $67,307,089 $508,699 $81,327 $67,734,461
State and
municipal
securities 4,371,017 201,478 - 4,572,495
Corporate stocks 1,710,261 - - 1,710,261
----------- -------- ------- -----------
$73,388,367 $710,177 $81,327 $74,017,217
=========== ======== ======= ===========
Securities held to
maturity:
State and municipal
securities $ 5,514,365 $156,514 $ 596 $ 5,670,283
=========== ======== ======= ===========
F-13
December 31, 1996
---------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
Securities available
for sale:
U.S. Government
agencies $68,808,644 $ 93,802 $ - $68,902,446
State and municipal
securities 4,464,087 206,570 - 4,670,657
Corporate stocks 1,710,261 - - 1,710,261
----------- -------- ---- -----------
$74,982,992 $300,372 $-0- $75,283,364
=========== ======== ==== ===========
Securities held to
maturity:
State and municipal
securities $ 4,909,135 $182,864 $-0- $ 5,091,999
=========== ======== ==== ===========
Securities with book values of $43,840,295 and $41,678,178 were pledged
to secure public deposits and other transactions at December 31, 1997 and
1996, respectively.
Gross-realized gains and gross-realized losses on sales of securities
available for sale were:
1997 1996
--------- ---------
Gross-realized gains:
U.S. Government agencies securities $170,220 $290,453
Gross-realized losses:
U.S. Government agencies securities 8,525 123,960
-------- --------
Net realized gains $161,695 $166,493
======== ========
The maturities of investment securities at December 31, 1997 were as
follows:
Amortized Fair
Cost Value
----------- -----------
Securities available for sale:
Due in one year or less $ 9,468,188 $ 9,483,860
Due from one to five years 29,504,725 29,998,229
Due from five to ten years 26,558,975 26,619,974
Due after ten years 7,856,479 7,915,154
----------- -----------
$73,388,367 $74,017,217
=========== ===========
F-14
Amortized Fair
Cost Value
----------- -----------
Securities held to maturity:
Due in one year or less $ 1,243,068 $ 1,247,020
Due from one to five years 2,704,132 2,793,069
Due from five to ten years 1,567,165 1,630,194
Due after ten years - -
----------- -----------
$ 5,514,365 $ 5,670,283
=========== ===========
Note 4. Loans
Major classifications of the subsidiary Bank's loan portfolio at
December 31 are as follows:
1997 1996
------------- -------------
Commercial loans $ 55,875,300 $ 54,674,357
Installment loans 28,821,138 28,084,665
Mortgage loans 19,244,121 22,052,437
Other 6,671,666 8,586,924
------------ ------------
110,612,225 113,398,383
Allowance for loan losses (1,670,905) (1,540,288)
------------ ------------
Loans, net $108,941,320 $111,858,095
============ ============
Loans on which the accrual of interest has been discontinued amounted to
$1,854,489 and $1,919,970 as of December 31, 1997 and 1996, respectively.
As discussed in Note 1, the Company adopted SFAS No. 114 effective
January 1, 1995. The adoption of SFAS No. 114 did not have a material
impact on the financial condition or operating results of the Bank. At
December 31, 1997, the recorded investment in loans that were considered
to be impaired under SFAS No. 114 was $1,854,489. The related allowance
for loan losses on the impaired loans was $356,788. The average recorded
investment in impaired loans during the year ended December 31, 1997 was
approximately $2,145,593. Interest payments received on impaired loans
are applied to principal if there is doubt as to the collectibility of
the principal; otherwise, these receipts are recorded as interest income.
For the year ended December 31, 1997, the Bank recognized interest income
on impaired loans of $224,055. Interest income in the amount of $206,163
for 1997 and $359,624 for 1996 would have been recorded on nonperforming
loans if they had been classified as performing.
As it relates to in-substance foreclosures, SFAS No. 114 requires that a
creditor continue to follow loan classification on the balance sheet
unless the creditor receives physical possession of the collateral. The
Bank has had no in-substance foreclosures for any period presented.
F-15
Note 5. Allowance for Possible Loan Losses
The provision for possible loan losses charged against earnings is based
upon management's judgment of the adequacy of the loan loss provisions
and allowances for possible loan losses. The provision for possible loan
losses has been made on the basis of internal loan review procedures and
in view of economic conditions at the time.
The following is an analysis of the allowance for possible loan losses as
of December 31:
1997 1996
------------- ------------
Balance, beginning $ 1,540,288 $ 1,177,702
Recoveries on loans 98,501 104,407
Loans charged off (1,457,884) (961,821)
Provision for possible loan losses 1,490,000 1,220,000
----------- -----------
Balance, ending $ 1,670,905 $ 1,540,288
=========== ===========
Note 6. Bank Premises and Equipment
Bank premises and equipment consisted of the following as of December 31:
1997 1996
----------- -----------
Land $ 929,583 $ 952,583
Buildings 2,785,380 2,771,535
Furniture and equipment 4,657,242 4,085,141
Construction work in process 60,988 306,875
----------- -----------
8,433,193 8,116,134
Less accumulated depreciation (3,670,277) (3,153,025)
----------- -----------
Total $ 4,762,916 $ 4,963,109
=========== ===========
Depreciation charged to net occupancy expense was $545,173 in 1997 and
$460,556 in 1996.
Note 7. Other Real Estate
Activity in the allowance for losses on other real estate is as follows:
Balance, January 1, 1995 $ 332,761
Provision charged to income 15,616
Charge offs, net of recoveries (58,021)
-----------
Balance, December 31, 1996 290,356
Provision charged to income 37,131
Charge offs, net of recoveries (127,689)
-----------
Balance, December 31, 1997 $ 199,798
===========
F-16
Other income includes net revenue of $125,087 in 1997 and $65,300 in 1996
from operation of other real estate.
Note 8. Deposits
At December 31, 1997, the scheduled maturities of certificates of
deposits are as follows:
Year Ended
December 31
-----------
1998 $87,343,429
1999 5,879,632
2000 2,558,190
2001 1,478,319
-----------
$97,259,570
===========
Note 9. Federal Home Loan Bank Borrowings
The Bank is a member of the Federal Home Loan Bank in order to facilitate
the Bank's fixed-rate medium to long-term mortgage lending program. The
Bank has a maximum line of $25,174,499 as of December 31, 1997, secured
by its portfolio of 1-4 family residential mortgages. The balance of
$3,396,271 as of December 31, 1997 is included in other borrowed funds on
the consolidated balance sheets. The balance is to be repaid in monthly
installments over ten years. The annual requirements to retire the
balance at December 31, 1997 are as follows:
Total
Principal Interest Payments
---------- --------- ----------
1998 $ 473,354 $195,869 $ 669,223
1999 502,861 166,361 669,222
2000 534,260 135,021 669,281
2001 567,677 101,515 669,192
2002 603,244 65,975 669,219
2003 - 2004 714,875 31,227 746,102
---------- -------- ----------
$3,396,271 $695,968 $4,092,239
========== ======== ==========
Note 10. Income Taxes
The applicable income taxes for December 31 were as follows:
1997 1996
------------ -----------
Current $1,137,474 $1,315,070
Deferred (442,930) 58,000
---------- ----------
$ 694,544 $1,373,070
========== ==========
F-17
Income tax expense includes amounts currently payable and amounts
deferred to or from other years as a result of differences in the timing
of recognition of income and expense for financial reporting and federal
tax purposes. The following table is a reconciliation of taxes recorded
on income before provisions for income taxes to amounts which would have
been provided:
1997 Rate 1996 Rate
---------- ----- ----------- -----
Amount of tax expense at
Federal statutory tax rates $ 898,539 34.0% $1,516,202 34.0%
Increases (decreases) in taxes
resulting from:
Tax exempt interest income (189,272) (7.2) (189,977) (4.3)
Charitable contributions - - (123,831) (2.8)
Other, net (14,723) (.5) 170,676 3.9
--------- ---- ---------- ----
$ 694,544 26.3% $1,373,070 30.8%
========= ==== ========== ====
Deferred income tax assets of $539,898 and $151,000 at December 31, 1997
and 1996, are included in other assets on the balance sheet.
A requirement of SFAS Statement No. 109 is that deferred tax liabilities
or assets at the end of each period will be determined using the tax rate
expected to be in effect when taxes are actually paid or recovered.
Accordingly, income tax expense will increase or decrease in the same
period in which a change in tax rates is enacted. Previously, deferred
taxes were provided using rates in effect when the tax asset or liability
was first recorded, without subsequent adjustment for tax-rate changes.
Temporary differences are principally the provision for possible loan
losses, write-downs of other real estate subsequent to capitalization,
depreciation of fixed assets, charitable contributions, and certain
expenses related to electronic banking operations.
Note 11. Basic and Diluted Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share."
This Statement simplifies the standards for computing earnings per share
previously required under APB Opinion No. 15, "Earnings Per Share." Basic
earnings per share (EPS) excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number
of common shares outstanding of 48,467 for the year ended December 31,
1997 and 1996. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Diluted EPS
is computed similarly to fully diluted EPS pursuant to APB Opinion No.
15. SFAS No. 128 is effective for 1997. Basic and diluted earnings per
share as currently presented are the same amounts as primary earnings per
share as previously reported.
Note 12. Employee Stock Ownership Plan
American Security Bancshares, Inc. established an Employee Stock
Ownership Plan in 1986. The purpose of the Plan is to enable full-time
employees who are at least eighteen years of age and have been employed
for at least one thousand hours to acquire stock ownership in the
Corporation. For the years ended December 31, 1997 and 1996, the Bank
made cash contributions of $120,000 each year to the Plan. These
contributions are included in compensation expense.
F-18
In the event a terminated Plan participant desires to sell his or her
shares of the Corporation's stock, or for certain employees who elect to
diversify their account balances, the Corporation may be required to
purchase the shares at their fair market value from the participant.
During the year ended December 31, 1997 and 1996, distributions to
terminated and retired Plan participants totaled $184,148 and $281,385,
respectively.
Note 13. Employee Benefit Plan
Effective January 1, 1995, the Bank established a 401(k) profit sharing
plan to provide retirement benefits for employees. Employees may
participate in the Plan by deferring up to 10% of their annual
compensation within certain IRS imposed limitations for maximum
contributions in a given year. Compensation deferred by employees in this
Plan is not taxable to the employee until received as retirement
benefits. Employees of the Bank are eligible for participation when they
reach eighteen years of age. Employee "elective deferrals" are fully
vested. The Bank makes a discretionary matching contribution equal to a
percentage of each participant's deferred compensation, which is to be
determined each year by the employer. Mr. Michael J. Rhodes, President,
is the trustee of the Plan established by the Bank for its employees.
Total contributions to the Plan by the Bank were $70,042 for 1997 and
$60,004 for 1996.
Note 14. Lease Commitments
Net occupancy expense for 1997 and 1996 of $135,965 and $103,650,
respectively, was paid on noncancellable operating lease agreements on
office space. The future minimum rental commitment as of December 31,
1997 is as follows:
Year Ended
December 31
-----------
1998 $112,800
1999 78,600
2000 3,600
2001 3,600
2002 3,600
--------
$202,200
========
Note 15. Financial Instruments
Generally accepted accounting principles require disclosure of fair value
information about financial instruments for which it is practicable to
estimate fair value, whether or not the financial instruments are
recognized in the financial statements. When quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The derived fair value estimates cannot be
substantiated through comparison to independent markets and, in many
cases, could not be realized in immediate settlement of the instrument.
Certain financial instruments and all non-financial instruments are
excluded from these disclosure requirements.
F-19
Further, the disclosures do not include estimated fair values for items
which are not financial instruments but which represent significant value
to the Bank, among them, core deposit intangibles, loan servicing rights
and other fee-generating businesses. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Bank.
The carrying amount of cash and short-term investments, federal funds
sold and demand deposits approximates the estimated fair value of these
financial instruments. The estimated fair value of securities is based on
quoted market prices, dealer quotes and prices obtained from independent
pricing services. The estimated fair value of loans and interest-bearing
deposits is based on present values using applicable risk-adjusted
spreads to the appropriate yield curve to approximate current interest
rates applicable to each category of these financial instruments.
Interest rates were not adjusted for changes in credit risk of performing
commercial loans for which there are no known credit concerns. Management
segregates loans into appropriate risk categories and believes the risk
factor embedded in the interest rates results in a fair valuation of
these loans on an entry-value basis.
Variances between the carrying amount and the estimated fair value of
loans reflect both credit risk and interest rate risk. The Bank is
protected against changes in credit risk and interest rate risk by the
allowance for possible loan losses of $1,670,905 and $1,540,288 at
December 31, 1997 and 1996, respectively.
The fair value estimates presented are based on information available to
management as of December 31, 1997 and 1996. Although management is not
aware of any factors that would significantly affect the estimated fair
value amounts, these amounts have not been revalued for purposes of these
financial statements since those dates. Therefore, current estimates of
the fair value may differ significantly from the amounts presented. None
of the assets or liabilities included in the table below are held for
trading purposes.
The Bank issues financial instruments in the normal course of business to
meet the financing needs of its customers and to reduce exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit and letters of credit and involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amount recognized on the balance sheet.
F-20
1997
---------------------------
Carrying Fair
ASSETS Amount Value
------------ ------------
Cash $ 28,505,392 $ 28,505,392
Interest-bearing deposits in banks 69,529 69,529
Federal funds sold 1,800,000 1,800,000
Securities available for sale 74,017,217 74,017,217
Securities held to maturity 5,514,365 5,670,283
Commercial loans 56,709,143 56,100,590
Consumer loans 52,232,177 52,026,138
LIABILITIES
Demand deposits 39,320,917 39,320,917
Interest-bearing demand deposits 33,650,101 33,650,101
Savings 32,333,732 32,333,732
Time deposits 97,259,570 97,488,387
Other borrowed funds 3,396,271 3,396,271
1996
---------------------------
Carrying Fair
ASSETS Amount Value
------------ ------------
Cash $ 24,512,518 $ 24,512,518
Interest-bearing deposits in banks 92,290 92,290
Securities available for sale 75,283,364 75,283,364
Securities held to maturity 4,909,135 5,091,999
Commercial loans 60,043,084 59,515,351
Consumer loans 51,815,011 52,480,819
LIABILITIES
Demand deposits 37,692,364 37,692,364
Interest-bearing demand deposits 27,150,514 27,150,514
Savings 31,819,853 31,819,853
Time deposits 103,155,754 103,989,414
Other borrowed funds 7,916,893 7,916,893
Note 16. Related Parties
The Bank has entered into transactions with its employees, directors
and their affiliates. The aggregate amount of loans to such related
parties at December 31, 1997 was $2,062,511. During 1997, new loans to
such related parties amounted to $725,269 and repayments amounted to
$764,288.
F-21
Note 17. Concentrations of Credit Risk
All of the Bank's loans, commitments and standby letters of credit
have been granted to customers in the Bank's market area of South
Louisiana. Investments in state and municipal securities also involve
governmental entities within the Bank's market area. The
concentrations of credit by type of loan are set forth in Note 4. The
distribution of commitments to extend credit approximates the
distribution of loans outstanding. Standby letters of credit were
granted primarily to commercial borrowers. The Bank, as a matter of
policy, does not extend credit to any single borrower or group of
related borrowers in excess of $4,200,000.
Note 18. Regulatory Matters
A bank is subject to dividend restrictions set forth by the Louisiana
Commissioner of Financial Institutions. Under such restrictions, a
bank may not, without the prior approval of the Commissioner of
Financial Institutions, declare dividends in excess of the sum of the
current year and the prior year earnings less dividends paid during
these periods. The dividends as of December 31, 1997 and 1996, that
the Bank could declare, without the approval of the Commissioner of
Financial Institutions, amounted to $2,822,959 and $4,791,995,
respectively. The Bank is also required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the banking
regulators. At December 31, 1997 and 1996, the Bank is required to
have minimum Tier 1 and Total capital ratios of 4% and 8%,
respectively. The Bank's actual ratios at those dates were 15.65% and
16.97% and 14.63% and 15.79%, respectively. The Bank's leverage ratio
was 9.29% and 9.28%, respectively.
Note 19. Contingent Liabilities and Commitments
The Bank's consolidated financial statements do not reflect various
commitments and contingent liabilities that arise in the normal course
of business that involve elements of credit risk, interest rate risk
and liquidity risk. These commitments and contingent liabilities are
commitments to extend credit, and standby letters of credit. A summary
of the Bank's commitments and contingent liabilities at December 31,
is as follows:
1997 1996
------------------------ ------------------------
Notional Fair Notional Fair
Amount Value Amount Value
----------- ---------- ----------- ----------
Commitments to extend
credit $13,418,544 $(88,000) $14,349,645 $(135,000)
Credit card arrangements $ 2,766,810 $(26,000) $ 2,874,168 $ (28,000)
Standby letters of
credit $ 720,450 $ (4,000) $ 266,100 $ (5,000)
Commitments to extend credit, credit card arrangements, and standby
letters of credit all include exposure to some credit loss in the
event of nonperformance of the customer. The Bank's credit policies
and procedures for credit commitments and financial guarantees are the
same as those for extension of credit that are recorded on the balance
sheets. Because standby letters of credit have fixed maturity dates,
and because many of them expire without being drawn upon, they do not
generally present any significant liquidity risk to the Bank. The
Bank's experience has been that most loan commitments are drawn upon
by customers. The Bank has not been required to perform on any
financial guarantees during the past two years. The Bank has not
incurred any losses on its commitments in either 1997 or 1996.
F-22
The Bank is involved in litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and
claims will not be material to the financial position.
Note 20. American Security Bancshares of Ville Platte, Inc. (Parent Company
Only)
The following financial statements of American Security Bancshares of
Ville Platte, Inc. (Parent Company Only) include the Bank under the
equity method of accounting.
BALANCE SHEETS
December 31,
--------------------------
1997 1996
----------- -----------
ASSETS
Cash on deposit with subsidiary $ 317,310 $ 384,699
Due from subsidiary - 8,000
Investment in subsidiary 20,612,434 19,542,307
Other assets - 43,400
----------- -----------
Total assets $20,929,744 $19,978,406
=========== ===========
SHAREHOLDERS' EQUITY
Common stock: $10 par value, 90,000
shares authorized; 48,467 shares
issued and outstanding $ 484,670 $ 484,670
Additional paid in capital 342,720 342,720
Surplus 8,000,000 8,000,000
Retained earnings 11,687,313 10,952,771
Net unrealized appreciation on securities
available for sale, net of tax
($213,809 and $102,126, respectively) 415,041 198,245
----------- -----------
Total equity $20,929,744 $19,978,406
=========== ===========
F-23
American Security Bancshares of Ville Platte, Inc. (Parent Company Only)
STATEMENTS OF INCOME
December 31,
-------------------------
1997 1996
---------- ----------
Income:
Dividends from bank subsidiary $1,121,425 $1,121,425
---------- ----------
Expenses:
Director's fees 21,580 25,850
Consulting fees 25,000 -
Administrative fees 1,509 175
---------- ----------
48,089 26,025
---------- ----------
Earnings before income taxes
and equity in undistributed
earnings of subsidiary 1,073,336 1,095,400
Benefit from income taxes 19,550 13,320
---------- ----------
Earnings before equity in
undistributed earnings of
subsidiary 1,092,886 1,108,720
Equity in undistributed
earnings of subsidiary 853,331 1,977,627
---------- ----------
Net income $1,946,217 $3,086,347
========== ==========
F-24
American Security Bancshares of Ville Platte, Inc. (Parent Company Only)
STATEMENTS OF CASH FLOWS
December 31,
---------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES
Net income $ 1,946,217 $ 3,086,347
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of subsidiary (853,331) (1,977,627)
Decrease in due from subsidiary 8,000 -
----------- -----------
Net cash provided by
operating activities 1,100,886 1,108,720
----------- -----------
INVESTING ACTIVITIES
Sale (purchase) of other assets 43,400 (43,400)
----------- -----------
FINANCING ACTIVITIES
Dividends paid to shareholders (1,211,675) (775,472)
----------- -----------
Increase (decrease) in cash
and cash equivalents (67,389) 289,848
Cash and cash equivalents at
beginning of year 384,699 94,851
----------- -----------
Cash and cash equivalents at
end of year $ 317,310 $ 384,699
=========== ===========
Note 21. Year 2000
The Bank is aware of the issues associated with the programming code
in existing computer systems as the millennium (year "2000")
approaches. The "year 2000" problem is pervasive and complex, as
virtually every computer operation will be affected in some way by the
rollover of the two-digit year value to zero. The issue is whether
computer systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly recognize
such information could generate erroneous data or cause a system to
fail.
The Bank is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the "year
2000" compliance. It is anticipated that all reprogramming efforts
will be complete by December 31, 1998, allowing adequate time for
testing. To date, confirmations have been received from the Bank's
primary processing vendors that plans are being developed to address
processing of transactions in the "year 2000." Management has not yet
assessed the "year 2000" compliance expense and related potential
effect on the Bank's earnings but it is not expected to be
significant.
F-25
Note 22. Sale of Branch Locations
The Bank entered into negotiations in August 1997 with another
financial institution for the sale of two branch locations in Allen
Parish. The book value of the fixed assets at December 31, 1997 was
$99,490. On February 19, 1998, the fixed assets, as well as loans of
$4,878,073 and deposits of $16,249,048, were sold at a gain of
$2,500,510.
Note 23. Pending Merger
The Corporation entered into an agreement and plan of merger (the
"Agreement") dated April 14, 1998. The Agreement is with Hancock
Holding Company ("HHC") of Gulfport, Mississippi. The Agreement is
expected to be finalized in 1998.
F-26
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
(UNAUDITED)
ASSETS 1998 1997
------------ ------------
Cash and due from banks $ 41,430,788 $ 21,416,907
Interest-earning deposits in banks 91,116 86,379
Federal funds sold 4,500,000 2,325,000
Investment securities:
Available for sale 67,166,588 78,954,751
Held to maturity (estimated market values
$5,113,628 and $6,017,095, respectively) 4,916,298 5,851,641
Loans, less allowance for loan losses
($2,854,518 and $1,685,944, respectively) 101,513,753 112,346,042
Bank premises and equipment, net of
accumulated depreciation ($3,963,176 and
$3,554,076, respectively) 5,994,582 4,807,801
Accrued interest receivable 1,408,160 1,699,136
Other real estate, net of allowances of
$255,287 and $207,281, respectively 1,047,575 1,717,974
Other assets 1,232,831 2,385,141
------------ ------------
$229,301,691 $231,590,772
============ ============
See Notes to Condensed Consolidated Financial Statements.
F-27
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
------------ ------------
LIABILITIES
Deposits:
Demand $ 47,144,233 $ 40,353,004
Interest-bearing demand 21,265,405 29,723,435
Savings 21,164,457 23,807,791
Money market 9,431,185 10,053,445
Time, $100,000 and over 22,536,967 24,835,913
Other time 74,212,546 75,186,281
------------ ------------
195,754,793 203,959,869
Accrued interest payable 866,049 997,027
Other borrowed funds 4,691,623 3,510,209
Other liabilities 3,097,749 993,361
------------ ------------
204,410,214 209,460,466
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $10 par value; 90,000
shares authorized; 48,467 shares
issued and outstanding 484,670 484,670
Additional paid in capital 342,720 342,720
Surplus 8,000,000 8,000,000
Retained earnings 15,385,623 12,774,565
Net unrealized gain on securities
available for sale, net of tax of
$349,512 and $272,181, respectively 678,464 528,351
------------ ------------
24,891,477 22,130,306
------------ ------------
$229,301,691 $231,590,772
============ ============
F-28
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30, 1998 and 1997
(UNAUDITED)
1998 1997
----------- -----------
Interest income:
Interest on loans $ 7,542,503 $ 8,393,248
Interest on investment securities -
U. S. Treasury 419,246 566,619
U. S. Government agencies 2,620,039 2,978,897
State and political subdivisions 412,524 434,547
Interest on federal funds sold 135,266 67,268
Interest on deposits in other institutions 1,757 1,156
----------- -----------
11,131,335 12,441,735
----------- -----------
Interest expense:
Interest on deposits -
Interest-bearing demand 434,416 418,422
Savings 501,134 545,109
Money markets 180,081 195,269
Time, $100,000 and over 903,693 1,105,726
Other time 2,843,820 3,037,626
Interest on borrowed funds 207,319 214,638
----------- -----------
5,070,463 5,516,790
----------- -----------
Net interest income 6,060,872 6,924,945
Provision for possible loan losses 1,340,000 1,430,000
----------- -----------
Net interest income after provision
for possible loan losses 4,720,872 5,494,945
Non-interest income:
Other fee income 609,314 659,634
Service charges 1,595,349 1,785,291
Income from electronic banking 2,136,991 1,367,982
Income from sale of branches 2,500,510 0
Other 1,049,942 575,425
----------- -----------
7,892,106 4,388,332
----------- -----------
Non-interest expense:
Salaries 2,827,206 3,201,534
Officer and employee benefits 654,963 832,757
Net occupancy expense 1,165,894 1,189,972
Other operating expenses 2,272,928 2,092,363
----------- -----------
6,920,991 7,316,626
----------- -----------
Income before income taxes 5,691,987 2,566,651
Income tax provision 1,993,679 752,858
----------- -----------
Net income $ 3,698,308 $ 1,813,793
=========== ===========
Basic and diluted earnings per share $ 76.31 $ 37.42
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
F-29
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 1998 and 1997
(UNAUDITED)
1998 1997
------------- -------------
OPERATING ACTIVITIES
Net income $ 3,698,308 $ 1,813,793
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of investment security premiums 72,588 60,539
Accretion of investment security discounts (33,719) (25,289)
Decrease in interest receivable 102,416 50,879
Decrease in other assets 1,340,000 1,430,000
Provision for loan losses 412,440 407,516
Provision for depreciation 43,888 37,131
(Increase) decrease in other assets (140,957) 1,014,183
Increase (decrease) in interest payable (26,285) 57,567
Increase in other liabilities 2,674,083 667,058
------------ ------------
Net cash provided by operating activities 8,142,762 5,513,377
------------ ------------
INVESTING ACTIVITIES
Proceeds from sales and maturities of investment
securities 20,513,961 15,998,088
Purchases of investment securities (12,840,708) (20,317,124)
Net (increase) decrease in short-term investments (2,721,587) (2,319,089)
Net (increase) decrease in loan portfolio 6,087,567 (1,917,947)
Net disposals (purchases) of premises and equipment (1,644,107) (252,208)
Net increase in other real estate owned 901,683 464,592
------------ ------------
Net cash provided by (used in)
investing activities 10,296,809 (8,343,688)
------------ ------------
FINANCING ACTIVITIES
Net decrease in demand deposits, money markets,
and savings accounts (6,299,469) 7,274,944
Net increase (decrease) in certificates of deposit (510,058) (3,133,560)
Increase in other borrowed funds 1,295,352 (4,406,684)
------------ ------------
Net cash used in financing activities (5,514,175) (265,300)
------------ ------------
Increase (decrease) in cash and cash equivalents 12,925,396 (3,095,611)
------------ ------------
(continued)
F-30
1998 1997
------------ -------------
Increase (decrease) in cash and cash equivalents
(brought forward) $12,925,396 $(3,095,611)
Cash and cash equivalents at beginning of period 28,505,392 24,512,518
----------- -----------
Cash and cash equivalents at end of period $41,430,788 $21,416,907
=========== ===========
Cash interest received $11,233,751 $12,492,614
=========== ===========
Cash interest paid $ 5,096,748 $ 5,459,223
=========== ===========
Cash federal income taxes paid $ 2,609,088 $ 502,372
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
F-31
AMERICAN SECURITY BANCSHARES OF VILLE PLATTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The accompanying Unaudited Condensed Consolidated Financial Statements
include the accounts of American Security Bancshares, Inc. of Ville
Platte (ASB) and its wholly owned bank, American Security Bank of
Ville Platte. 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. 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 ASB's 1997 audited financial
statements.
Note 2. Sale of Branch Locations
ASB sold two branch locations in Allen Parish along with all of the
fixed assets, loans and deposits associated with the locations.
The book value of the fixed assets at sale date was $99,490. On
February 19, 1998 the fixed assets, as well as loans of $4,878,073 and
deposits of $16,249,048, were sold at a gain of $2,500,510.
This transaction caused a decrease in loans and deposits between the
two periods presented on these statements.
Note 3. Year 2000
In 1997 ASB began addressing all the systems requiring modifications
to accommodate the turn of the century. Since there is concern that
computer systems will not properly recognize dates or date sensitive
information when the digit year value rolls over to "00," virtually
every computer operation and every system that has an embedded
microchip is potentially at risk for failure or improper performance.
Many software programs assume the "19" in storing the year and only
utilized the last two digits of the year for calculations and data
storage. The year "2000" may be recognized by some systems as "1900"
which could adversely affect a significant portion of a company's
daily operations, especially those of financial institutions.
Identification of ASB's major Year 2000 issues is substantially
complete and a plan, including replacement of certain systems, has
been implemented to resolve the issues of which management is aware.
Written assurances of expected Year 2000 readiness have been requested
from all material third party vendors, including, but not limited to,
correspondent banks, software providers and utility companies. If any
of the companies providing services, software or equipment to ASB fail
to adequately address the Year 2000 at a reasonable cost, the result
could be a significant adverse effect on ASB's business and
operational results. The readiness of all third parties, including
customers and suppliers, is inherently uncertain and cannot be
assured.
ASB recognizes the importance of its customers' need to address Year
2000 issues. Relationships considered material to ASB's financial
position have been identified and appropriate documentation from
borrowers received. A committee, specifically established for this
project, is in process of reviewing the information obtained and
assessing the risk of repayment impairment.
Testing of information systems and review of property equipment
functions, except those slated for replacement or vendor upgrade, is
near completion. It is anticipated that fully integrated system
testing of current and newly-acquired systems will be completed by the
second quarter of 1999.
Note 4. Pending Merger
ASB has entered into an agreement (the "Agreement") and plan of merger
dated October 15, 1998. The Agreement is with Hancock Holding Company
("HHC") of Gulfport, Mississippi. The transaction is expected to be
finalized in the fourth quarter of 1998 and will be structured as a
purchase. The stockholders of ASB will receive 13.8651 shares of HHC
and $285.22 for each share owned. Holders of 25 or fewer shares of ASB
stock will not receive any HHC shares. Instead they will receive
$950.75 for each ASB share owned. The total estimated consideration of
$46,080,000 is based on the market price of HHC common stock of $48.
Note 5. Comprehensive Income
As of January 1, 1998, ASB adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of SFAS No. 130 had no impact on ASB's net
income or shareholders' equity. SFAS No. 130 requires unrealized gains
or losses on ASB's available for sale securities to be included in
other comprehensive income. Prior to the adoption of SFAS No. 130,
these unrealized gains and losses were reported separately only in
shareholders' equity.
Comprehensive income totaled $2,567,946 and $1,113,265 for the six
months ended June 30, 1998 and 1997, respectively, and $4,376,772 and
$2,342,144 for the nine months ended September 30, 1998 and 1997,
respectively.
F-32
Contingency plans for the most reasonably likely worst-case scenarios
are in process and should be completed by the end of the year. Plans
will be subject to update as testing and implementation continue.
Issues regarding material equipment and application failure will be
addressed. Contingency plans for liquidity needs due to potentially
significant deposit withdrawals during the fourth quarter of 1999 are
substantially complete.
Management believes it has dedicated adequate resources to address the
issues associated with the turn of the century. The total amount of
expenditures for Year 2000 compliance, including those incurred since
1997 and those anticipated during the next two years, is not expected
to be significant but cannot be predicted with certainty at this time.
F-33
APPENDIX A
FAIRNESS OPINION OF BROWN, BURKE CAPITAL PARTNERS, LLP
BROWN, BURKE CAPITAL PARTNERS, INC.
ATLANTA, GEORGIA
, 1998
--------------
Board of Directors
American Security Bancshares of Ville Platte, Inc.
126 East Main
Ville Platte, LA 70586
Dear Members of the Board:
You have asked us to advise you with respect to the fairness to the shareholders
of American Security Bancshares of Ville Platte, Inc. (the Company), from a
financial point of view, of the per share purchase price and terms (the "Per
Share Purchase Price and Terms") provided for in the Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") dated October 15, 1998
between the Company and Hancock Holding Company ("Hancock"). The Merger
Agreement provides for a merger (the "Merger") of the Company and Hancock
pursuant to which the common shareholders of the Company who hold greater than
25 shares will receive (i) 13.8651 shares of Hancock common stock and (ii)
$285.22 in cash for every share of the Company currently held and those who hold
25 or fewer shares will receive $950.75 in cash for every share of American
stock they own.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to Hancock and the Company. We have also
reviewed certain other information, including financial forecasts and budgets,
provided to us by Hancock and the Company, and have discussed with the Company's
management the business and prospects of the Company.
We have also considered certain financial and stock market data of Hancock and
the Company and we have compared that data with similar data for other publicly
held bank holding companies and we have considered the financial terms of
certain other comparable transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant. In connection with our review, we have not independently verified any
of the foregoing information and have relied on its being complete and accurate
in all material respects. With respect to the financial forecasts and budgets,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of Hancock's and the Company's
managements as to the future financial performance of Hancock and the Company.
In addition, we have not made an independent evaluation or appraisal of the
assets of Hancock or the Company and we have assumed that the aggregate
allowances for loan losses for Hancock and the Company are adequate to cover
such losses. We have solicited third party indications of interest in acquiring
the Company and have considered the results of that solicitation in arriving at
our opinion.
It should be noted that this opinion is based on market conditions and other
circumstances existing on the date hereof and this opinion does not represent
our view as to what the value of the Hancock common stock necessarily will be
when the Hancock common stock is issued to the shareholders of the Company upon
consummation of the Merger.
We have acted as financial advisor to the Company in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger.
We agree to the inclusion of this opinion letter in the Proxy Statement-
Prospectus relating to the Merger. The opinion may not, however, be summarized,
excerpted from or otherwise publicly referred to without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion that as of the date
hereof, the Per Share Purchase Price and Terms of the Merger are fair to the
common shareholders of the Company from a financial point of view.
Very truly yours,
BROWN, BURKE CAPITAL PARTNERS, INC.
A-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS/JOINT PROXY STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide for indemnification to
the fullest extent allowed by law. The Articles of the Registrant provide in
Article Six certain provisions regarding the extent to which the Registrant will
provide indemnification and advancement of expenses to its directors, officers,
employees and agents as well as persons serving at the request of the Registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise (collectively
referred as "Eligible Persons").
The Mississippi Business Corporation Act (the "MBCA") provides that a
director, officer or agent of a corporation may be indemnified for such service
if he conducted himself in good faith, and he reasonably believed in the case of
conduct in his official capacity with the corporation, that his conduct was in
the corporation's best interests; and in all other cases that his conduct was at
least not opposed to the corporation's best interests. In the case of a criminal
proceeding, a director must show that he had no reasonable cause to believe his
conduct was unlawful. Indemnification permitted under this section in connection
with a derivative action is limited to reasonable expenses incurred in
connection with the proceeding.
The MBCA further authorizes a corporation to make further indemnity for
certain actions that do not constitute gross negligence or willful misconduct if
authorized by the corporation's Articles of Incorporation. The Hancock Articles
provide for indemnification to the fullest extent permitted by the MBCA and
specifically provide for the further indemnity authorized by the MBCA.
The Hancock Articles provide that Hancock shall indemnify any person who
was or is a party to, or is threatened to be made a party to, any threatened
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise, formal or informal (a "Proceeding"),
by reason of the fact that such person is or was a director, officer, employee
or agent of Hancock against any obligation to pay a judgment, settlement,
penalty, fine or reasonable expenses (including legal fees) incurred with
respect to the Proceeding: (A) to the fullest extent permitted by the
Mississippi Business Corporation Act in effect from time to time (the "Act") and
(B) despite the fact that such person has failed to meet the standard of conduct
set forth in the Act, or would be disqualified for indemnification under the Act
for any reason, if a determination is made by (i) the board of directors a
committee duly designated
II-1
by the board of directors, consisting of two or more directors not at the time
parties to the Proceeding, (ii) by special legal counsel, (iii) by the
shareholders or (iv) by a court, that the acts or omissions of the director,
officer, employee or agent did not constitute gross negligence or willful
misconduct. However, Hancock shall not indemnify a person for: (i) an
intentional infliction of harm on the Corporation or its shareholders; (ii) a
violation of Mississippi Code Annotated Section 79-4-8.33 (1972), as amended; or
for (iii) an intentional violation of criminal law, and Hancock shall not
indemnify a person for receipt of a financial benefit to which he is not
entitled unless ordered by a court under Mississippi Code Annotated,
Section 79-4-8.54(9)(3). The Hancock Articles further provide that Hancock shall
indemnify a person in connection with a proceeding by or in the right of Hancock
for reasonable expenses incurred in connection with the Proceeding if such acts
or omissions do not constitute gross negligence or willful misconduct, and shall
make further indemnification in connection with the Proceeding if so ordered by
a court under Mississippi Code Annotated, Section 79-4-8.54(9)(3). Hancock, upon
request, shall pay or reimburse such person for his reasonable expenses
(including legal fees) in advance of final disposition of the Proceeding as long
as: (i) such person furnishes Hancock a written undertaking, executed personally
or on his behalf, to repay the advance if he is not entitled to mandatory
indemnification under Mississippi Code Annotated, Section 79-4-8.52 and it is
ultimately determined by a judgment or other final adjudication that his acts or
omissions did constitute gross negligence or willful misconduct, which
undertaking must be an unlimited general obligation of such person, and which
shall be accepted by Hancock without reference to the financial ability of the
person to make repayment or to collateral; (ii) such person furnishes a written
affirmation of his good faith that his acts or omissions did not constitute
gross negligence or willful misconduct; and (iii) a determination is made by any
of the determining bodies that the facts then known to those making the
determination would not preclude indemnification under the Hancock Articles.
Article Six of the Articles further provides that no amendment or repeal of
its provisions may be applied retroactively with respect to any event that
occurred prior to such amendment or appeal. The effect of such provision is that
the protection of Article Six may not be taken away or diminished by an
amendment in the event of a change in control of the Registrant.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the successful
defense of any such action, suit or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question
II-2
whether such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
ITEM 21. EXHIBITS
2* Amended and Restated Agreement and Plan of Merger.
3.1* Amended and Restated Articles of Incorporation dated November 8, 1990
(filed as Exhibit 3.1 to the Registrant's Registration Statement on
Form S-8 (No. 333-11831), and incorporated herein by reference).
3.2* Bylaws of Hancock Holding Company restated through November 8, 1990
(filed as Exhibit 3.2 to the Registrant's Registration Statement on
Form S-8 (No. 333-11831), 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, and
incorporated herein by reference).
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, and incorporated herein by
reference).
3.5* Articles of Amendment to the Articles of Incorporation of Hancock
Holding Company, adopted February 13, 1992 (filed as Exhibit 3.5 to the
Registrant's Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference).
3.6* Articles of Correction, filed with the 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).
3.7* Articles of Amendment to the Articles of Incorporation adopted
February 20, 1997.
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 Registration Statement on Form S-8 (No. 333-11831), and
incorporated herein by reference).
4.2* Description of common Stock Purchase Rights (set forth in Item 1 of the
Registrants Registration Statement on Form 8-A (Commission file
No. 000-13089)) and incorporated herein by reference.
5 Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding legality of
shares.
8 Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding certain tax
matters.
13* Form 10-K and Annual Report for year ending December 31, 1997 (furnished
for the information of the Commission only and not deemed "filed" except
for those portions which are specifically incorporated herein by
reference).
23.1* Consent of Deloitte & Touche LLP.
II-3
23.2* Consent of Broussard Poche Lewis and Breaux, L.L.P. and Company.
23.3 Consent of Watkins Ludlam Winter & Stennis, P.A. (included in Exhibits 5
and 8).
23.4* Consent of Brown, Burke Capital Partners, Inc.
24* Power of Attorney (included on the signature page of the Registration
Statement).
99 Form of Proxy of American Security Bancshares, Inc.
* Previously filed.
II-4
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan
or distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, when applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the
II-5
securities registered hereunder through use of a prospectus which is a
part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act
and is used in connection with an offering of securities subject
to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment
is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally
II-6
prompt means. This includes information contained in documents filed subsequent
to the effective date of the Registration Statement through the date of
responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment Number One to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Gulfport, State of Mississippi, this 20th day of November, 1998.
HANCOCK HOLDING COMPANY
(Registrant)
By: /s/ Leo W. Seal, Jr.,
---------------------------------
Leo W. Seal, Jr.,
President and Chief Executive
Officer
By: /s/ Carl J. Chaney
---------------------------------
Carl J. Chaney
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
Number One to Registration Statement has been signed on November 20, 1998 by the
following persons in the capacities indicated.
Signatures Title
- ---------- -----
By: /s/ * Chairman of the
Joseph F. Boardman, Jr. Board and Director
II-8
By: /s/ * Director
Dr. Homer C. Moody, Jr.
By: /s/ * Director
James B. Estabrook, Jr.
By: /s/ * Director
Victor Mavar
By: /s/ * Director
Charles H. Johnson
By: /s/ * Director
L. A. Koenenn, Jr.
By:/s/ Leo W. Seal, Jr. President, Chief Executive
Leo W. Seal, Jr. Officer and Director
By: /s/ George A. Schloegel Vice Chairman of the
George A. Schloegel Board and Director
*By: /s/ George A. Schloegel
----------------------------
George A. Schloegel
Attorney-in-Fact
II-9
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
2* Amended and Restated Agreement and Plan of Merger.
3.1* Amended and Restated Articles of Incorporation dated November 8, 1990
(filed as Exhibit 3.1 to the Registrant's Registration Statement on
Form S-8 (No. 333-11831), and incorporated herein by reference).
3.2* Bylaws of Hancock Holding Company restated through November 8, 1990
(filed as Exhibit 3.2 to the Registrant's Registration Statement on
Form S-8 (No. 333-11831), 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, and
incorporated herein by reference).
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, and incorporated herein by
reference).
3.5* Articles of Amendment to the Articles of Incorporation of Hancock
Holding Company, adopted February 13, 1992 (filed as Exhibit 3.5 to
the Registrant's Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference).
3.6* Articles of Correction, filed with the 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).
3.7* Articles of Amendment to the Articles of Incorporation adopted
February 20, 1997.
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 Registration Statement on Form S-8 (No. 333-11831), and
incorporated herein by reference).
4.2* Description of common Stock Purchase Rights (set forth in Item 1 of
the Registrants Registration Statement on Form 8-A (Commission file
No. 000-13089)) and incorporated herein by reference.
5 Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding legality
of shares.
8 Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding certain tax
matters.
13* Form 10-K and Annual Report for year ending December 31, 1997
(furnished for the information of the Commission only and not deemed
"filed" except for those portions which are specifically incorporated
herein by reference).
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Broussard Poche Lewis and Breaux, L.L.P. and Company.
23.3 Consent of Watkins Ludlam Winter & Stennis, P.A. (included in
Exhibits 5 and 8).
23.4* Consent of Brown, Burke Capital Partners, Inc.
24* Power of Attorney (included on the signature page of the Registration
Statement).
99 Form of Proxy of American Security Bancshares, Inc.
* Previously filed.