FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997 .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
Commission file number 0-13089
Hancock Holding Company
Mississippi 64-0693170
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Hancock Plaza, Gulfport, Mississippi 39501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (228) 868-4715
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $3.33 PAR VALUE
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Continued
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 2, 1998, was approximately $539,171,000. For purposes
of this calculation only, shares held by non-affiliates are deemed to consist of
(a) shares held by all shareholders other than directors and executive officers
of the registrant plus (b) shares held by directors and officers as to which
beneficial ownership has been disclaimed.
On December 31, 1997, the registrant had outstanding 10,916,770 shares
of common stock for financial statement purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997 are incorporated by reference into Part II of this
report.
Portions of the definitive Proxy Statement used in connection with the
Registrant's Annual Meeting of Shareholders held on February 19, 1998, filed by
the Registrant on January 20, 1998, are incorporated by reference into Part III
of this report.
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CONTENTS
PART I
Item 1. Business 4
Item 2. Properties 38
Item 3. Legal Proceedings 39
Item 4. Submission of Matters to a Vote of Security
Holders 39
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 39
Item 6. Selected Financial Data 39
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 39
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 40
Item 8. Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 43
PART III
Item 10. Directors and Executive Officers of the
Registrant 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial
Owners and Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 44
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PART I
Item 1 - Business
BACKGROUND AND CURRENT OPERATIONS
Background
General:
Hancock Holding Company (the "Company"), organized in 1984 as a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended, is headquartered in Gulfport, Mississippi. The Company operates 82
banking offices and over 100 automated teller machines ("ATM's") in the states
of Mississippi and Louisiana through two wholly-owned bank subsidiaries, Hancock
Bank, Gulfport, Mississippi ("Hancock Bank MS") and Hancock Bank of Louisiana,
Baton Rouge, Louisiana ("Hancock Bank LA"). Hancock Bank MS and Hancock Bank LA
are referred to collectively as the "Banks."
The Banks are community oriented and focus primarily on offering
commercial, consumer and mortgage loans and deposit services to individuals and
small to middle market businesses in their respective market areas. The
Company's operating strategy is to provide its customers with the financial
sophistication and breadth of products of a regional bank, while successfully
retaining the local appeal and level of service of a community bank. At December
31, 1997, the Company had total assets of $2.5 billion and employed on a
full-time basis 834 persons in Mississippi and 434 persons in Louisiana.
Hancock Bank MS was originally chartered as Hancock County Bank in 1899.
Since its organization, the strategy of Hancock Bank MS has been to achieve a
dominant market share on the Mississippi Gulf Coast. Prior to a series of
acquisitions begun in 1985, growth was primarily internal and was accomplished
by concentrating branch expansions in areas of population growth where no
dominant financial institution previously served the market area. Economic
expansion on the Mississippi Gulf Coast has resulted primarily from growth of
military and government-related facilities, tourism, port facility activities,
industrial complexes and the gaming industry. Hancock Bank MS currently has the
largest market share in each of the four counties in which it operates:
Harrison, Hancock, Jackson and Pearl River. With assets of $1.6 billion at
December 31, 1997, Hancock Bank MS currently ranks as the fourth largest bank in
Mississippi.
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In August 1990, the Company formed Hancock Bank LA to assume the deposit
liabilities and acquire the consumer loan portfolio, corporate credit card
portfolio and non-adversely classified securities portfolio of American Bank and
Trust, Baton Rouge, Louisiana, ("AmBank"), from the Federal Deposit Insurance
Corporation ("FDIC"). Economic expansion in East Baton Rouge Parish has resulted
from growth in state government and related service industries, educational and
medical complexes, petrochemical industries, port facility activities and
transportation and related industries. With assets of $.9 billion at December
31, 1997, Hancock Bank LA is the largest bank headquartered in East Baton Rouge
Parish.
In November 1996, the Company expanded the Baton Rouge market area into
the Hammond area, where many of the people who work in Baton Rouge live, with
the acquisition of Community Bancshares, Inc. Community Bancshares, Inc.,
Independence, Louisiana, owned 100% of the stock of Community State Bank
("Community").
Beginning with the 1985 acquisition of the Pascagoula-Moss Point Bank
("PMP") in Pascagoula, Mississippi, the Company has acquired approximately
$1,045 million in assets and approximately $938 million in deposit liabilities
through selected acquisitions or purchase and assumption transactions.
Recent Acquisition Activity:
In August 1991, Hancock Bank MS acquired certain assets and deposit
liabilities of Peoples Federal Savings Association, Bay St. Louis, Mississippi,
from the RTC. As a result of this transaction, the Bank acquired assets of
approximately $39.0 million and deposit liabilities of approximately $38.5
million.
The Company borrowed $18,750,000 from Whitney National Bank, New Orleans,
Louisiana ("Whitney"), to partially fund the acquisition of Metropolitan
National Bank and AmBank in 1990. On November 28, 1991, the Company sold
1,785,375 shares of its common stock at $14.78 per share (adjusted for a 15%
stock dividend in 1996). This followed a two-for-one stock split in the form of
a 100% stock dividend on October 15, 1991, and an increase in authorized shares
to 20,000,000. The net proceeds of this sale, after underwriting discount and
expenses, of approximately $24,700,000, were
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used to pay the principal and interest on $18,500,000 of principal debt on the
Whitney loan and increase Hancock Bank LA's capital by $5,000,000.
In April 1994, the Company merged Hancock Bank LA with First State Bank
and Trust Company of East Baton Rouge Parish, Baker, Louisiana ("Baker"). The
merger was consummated by the exchange of all outstanding common stock of Baker
in return for approximately 606,000 shares (adjusted for a 15% stock dividend in
1996) of common stock of the Company. The merger was accounted for using the
pooling-of-interests method; therefore, all prior years' financial information
has been restated.
On January 13, 1995, the Company acquired First Denham Bancshares, Inc.
("Bancshares") which owned 100% of the stock of First National Bank of Denham
Springs ("Denham"), Denham Springs, Louisiana. The acquisition was in return for
approximately $4,000,000 cash and 890,000 shares (adjusted for a 15% stock
dividend in 1996) of common stock of the Company. The acquisition was accounted
for using the purchase method. Bancshares had total assets of approximately
$111,000,000 and stockholders' equity of approximately $11,300,000 as of
December 31, 1994 and net earnings of approximately $2,600,000 for the year then
ended. On August 15, 1996, Denham was merged into Hancock Bank LA.
On February 1, 1995, the Company merged Hancock Bank LA with Washington
Bank & Trust Company, Franklinton, Louisiana ("Washington"). The merger was
consummated by the exchange of all outstanding common stock of Washington in
return for approximately 624,000 shares (adjusted for a 15% stock dividend in
1996) of common stock of the Company. The merger was accounted for using the
pooling-of-interests method; therefore, all prior years' financial information
has been restated. Washington had total assets of approximately $86,100,000 and
stockholders' equity of approximately $12,400,000 as of December 31, 1994, and
net earnings of approximately $1,300,000 for the year then ended.
In November 1996, the Company acquired Community Bancshares, Inc.,
Independence, Louisiana, ("Community") which owned 100% of the stock of
Community State Bank. The acquisition was in return for approximately $5,000,000
cash and 513,000 shares (adjusted for a 15% stock dividend in 1996) of common
stock of the Company. The acquisition was accounted for using the purchase
method. Community had total assets of approximately
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$91,000,000 and stockholders' equity of approximately $11,000,000 as of December
31, 1995 and net earnings of approximately $900,000 for the year then ended.
On January 17, 1997, the Company acquired Southeast National Bank,
Hammond, Louisiana ("Southeast"). The acquisition was in return for
approximately $3,700,000 cash and 121,000 shares of common stock of the Company.
The acquisition was accounted for using the purchase method. Southeast had total
assets of approximately $40,000,000 and stockholders' equity of approximately
$4,000,000 as of December 31, 1996 and net earnings of approximately $500,000
for the year then ended.
On July 15, 1997, the Company acquired Commerce Corporation, Inc., 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 of the Company and the assumption of Commerce debt owed to certain
individuals in the aggregate principal amount of $1,250,000. The transaction was
accounted for using the purchase method. Commerce had total assets of
approximately $29,000,000 and stockholders' equity of approximately $800,000 as
of December 31, 1996 and net earnings of approximately $260,000 for the year
then ended.
Current Operations
Loan Production and Credit Review:
The Banks' primary lending focus is to provide commercial, consumer,
leasing and real estate loans to consumers and to small and middle market
businesses in their respective market areas. The Banks have no concentrations of
loans to particular borrowers or loans to any foreign entities. Each loan
officer has Board approved loan limits on the principal amount of secured and
unsecured loans he or she can approve for a single borrower without prior
approval of a loan committee. All loans, however, must meet the credit
underwriting standards and loan policies of the Banks.
For Hancock Bank MS, all loans over an individual loan officer's Board
approved lending authority and below a regional approved limit must be approved
by his or her region's loan committee or by another loan officer with greater
lending authority. Both the regional loan committee and the
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Bank's senior loan committee must review and approve any loan for a borrower
whose total indebtedness exceeds the region's approved limit. Each loan file is
reviewed by the Bank's loan operations quality assurance function, a component
of its loan review system, to ensure proper documentation and asset quality.
For Hancock Bank LA, all loans over an individual loan officer's Board
approved lending authority must be approved by the Bank's, his or her
region's loan committee or by another loan officer with greater lending
authority. Both the regional loan committee and the Bank's senior loan
committee must review and approve any loan for a borrower whose total
indebtedness exceeds $500,000. Each loan file is reviewed by the Bank's loan
operations quality assurance function, a component of its loan review system,
to ensure proper documentation and asset quality.
Loan Review and Asset Quality:
Each Bank's portfolio of loan relationships aggregating $250,000 or more
is annually reviewed by the respective Bank to identify any deficiencies and to
take corrective actions as necessary. Periodically, selected loan relationships
aggregating less than $250,000 are reviewed. As a result of such reviews, each
Bank places on its Watchlist loans requiring close or frequent review. All loans
classified by a regulator are also placed on the Watchlist. All Watchlist and
past due loans are reviewed monthly by the Banks' senior lending officers and by
the Banks' Board of Directors.
In addition, all loans to a particular borrower are reviewed, regardless
of classification, each time such borrower requests a renewal or extension of
any loan or requests a new loan. All lines of credit are reviewed annually
before renewal. The Banks currently have mechanisms in place that allow for at
least an annual review of the financial statements and the financial condition
of all borrowers, except borrowers with secured installment and residential
mortgage loans.
Consumer loans which become 60 days delinquent are reviewed regularly by
management. Generally, a consumer loan which is delinquent 120 days is
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in process of collection through repossession and liquidation of collateral or
has been deemed currently uncollectible. Loans deemed currently uncollectible
are charged-off against the allowance account. As a matter of policy, loans are
placed on a nonaccrual status when the loan is 1) maintained on a cash basis due
to the deterioration in the financial condition of the borrower, 2) payments, in
full, of principal or interest are not expected or 3) the principal or interest
has been in default for a period of 90 days, unless the loan is well secured and
in the process of collection.
The Banks follow the standard FDIC loan classification system. This
system provides management with (1) a general view of the quality of the overall
loan portfolio (each branch's loan portfolio and each commercial loan officer's
loan portfolio) and (2) information on specific loans that may need individual
attention.
The Banks hold nonperforming assets, consisting of real property,
vehicles and other items held for resale, which were acquired generally through
the process of foreclosure. At December 31, 1997, the book value of
nonperforming assets held for resale was approximately $2.4 million.
Securities Portfolio:
The Banks maintain portfolios of securities consisting primarily of U.S.
Treasury securities, U.S. government agency issues, mortgage-backed securities,
CMOs and tax-exempt obligations of states and political subdivisions. The
portfolios are designed to enhance liquidity while providing acceptable rates of
return. Therefore, the Banks invest only in high grade investment quality
securities with acceptable yields and generally with durations of less than 7
years.
The Banks' policies limit investments to securities having a rating of
no less than "Baa" by Moody's Investors' Service, Inc., except for certain
obligations of Mississippi or Louisiana counties and municipalities.
Deposits:
The Banks have several programs designed to attract depository accounts
offered to consumers and to small and middle market businesses at interest
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rates generally consistent with market conditions. Additionally, the Banks offer
over 100 ATMs: over 65 ATMs at the 80 banking offices and over 40 free-standing
ATMs at other locations. As members of regional and international ATM networks
such as "PULSE", "PLUS" and "CIRRUS," the Banks offer customers access to their
depository accounts from regional, national and international ATM facilities.
Deposit flows are controlled by the Banks primarily through pricing, and to a
certain extent, through promotional activities. Management believes that the
rates it offers, which are posted weekly on deposit accounts, are generally
competitive with or, in some cases, slightly below other financial institutions
in the Banks' respective market areas.
Trust Services:
The Banks', through their respective Trust Departments, offer a full range
of trust services on a fee basis. The Banks act as executor, administrator or
guardian in administering estates. Also provided are investment custodial
services for individuals, businesses and charitable and religious organizations.
In their trust capacities, the Banks provide investment management services on
an agency basis and act as trustee for pension plans, profit sharing plans,
corporate and municipal bond issues, living trusts, life insurance trusts and
various other types of trusts created by or for individuals, businesses and
charitable and religious organizations. As of December 31, 1997, the Trust
Departments of the Banks had approximately $1.5 billion of assets under
management, of which $0.7 billion were corporate accounts and $0.8 billion were
personal, employee benefit, estate and other trust accounts.
Operating Efficiency Strategy:
The primary focus of the Company's operating strategy is to increase
operating income and to reduce operating expense. Beginning in January of 1988,
management has taken steps to improve operating efficiencies. As a result,
employees at Hancock Bank MS have been reduced from .78 per $1 million in assets
in February 1988 to .51 as of December 31, 1997. Since its acquisition in August
1990, Hancock Bank LA employees have been reduced from .97 per $1 million of
assets to .46 as of December 31, 1997. Management annually establishes an
employee to asset goal for each Bank. The Banks also have set an internal long
range goal of at least covering
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total salary and benefit costs by fee income. The ratio of fee income to total
salary and benefit costs is $.54 to $1.00 at Hancock Bank MS. Hancock Bank LA
has a higher level of fee income and through December 31, 1997, has achieved a
ratio of $.90 to $1.00.
Other Activities:
Hancock Bank MS has seven subsidiaries through which it engages in the
following activities: providing consumer financing services; mortgage lending;
owning, managing and maintaining certain real property; providing general
insurance agency services; holding investment securities; marketing credit life
insurance; and providing discount investment brokerage services. The income of
these subsidiaries generally accounts for less than 10% of the Company's total
annual income.
During 1994, the Company began offering alternative investments through
a third party vendor. The Investment Center is now located in several branch
locations in Mississippi and Louisiana to accommodate the investment needs of
customers whose needs fall outside the traditional commercial bank product line.
Hancock Bank MS also owns approximately 3,700 acres of timberland in
Hancock County, Mississippi, most of which was acquired through foreclosure in
the 1930's. Timber sales and oil and gas leases on this acreage generate less
than 1% of the Company's annual income.
Competition:
The deregulation of the financial services industry, the elimination of
many previous distinctions between commercial banks and other financial
institutions and legislation enacted in Mississippi, Louisiana and other states
allowing state-wide branching, multi-bank holding companies and regional
interstate banking has created a highly competitive environment for commercial
banking in the Company's market area. The principal competitive factors in the
markets for deposits and loans are interest rates paid and charged. The Company
also competes through the efficiency, quality, range of services and products it
provides, convenience of office and ATM locations and office hours.
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In attracting deposits and in its lending activities, the Company
competes generally with other commercial banks, savings associations, credit
unions, mortgage banking firms, consumer finance companies, securities brokerage
firms, mutual funds, insurance companies and other financial institutions. Many
of these institutions have greater available resources than the Company.
SUPERVISION AND REGULATION
Bank Holding Company Regulation
General:
The Company is subject to extensive regulation by the Board of Governors
of the Federal Reserve System (the "Federal Reserve") pursuant to the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). The
Company also is required to file certain reports with, and otherwise comply with
the rules and regulations of, the Securities and Exchange Commission (the
"Commission") under federal securities laws.
Federal Regulation:
The Bank Holding Company Act generally prohibits the Company from engaging
in activities other than banking, managing or controlling banks or other
permissible subsidiaries. Acquiring or obtaining control of any company engaged
in activities other than those activities determined by the Federal Reserve to
be so closely related to banking, managing or controlling banks as to be proper
incident thereto is also prohibited. In determining whether a particular
activity is permissible, the Federal Reserve considers whether the performance
of the activity can reasonably be expected to produce benefits to the public
that outweigh possible adverse effects. For example: making, acquiring or
servicing loans; leasing personal property; providing certain investment or
financial advice; performing certain data processing services; acting as agent
or broker in selling credit life insurance, and performing certain insurance
underwriting activities have all been determined by regulations of the Federal
Reserve to be permissible activities. The Bank Holding Company Act does not
place territorial limitations on permissible bank-related activities of bank
holding
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companies. Despite prior approval, however, the Federal Reserve has the power to
order a holding company or its subsidiaries to terminate any activity or its
control of any subsidiary when it has reasonable cause to believe that
continuation of such activity or control of such subsidiary constitutes a
serious risk to the financial safety, soundness or stability of any bank
subsidiary of that holding company.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve: (1) before it may acquire ownership
or control of any voting shares of any bank if, after such acquisition, such
bank holding company will own or control more than 5% of the voting shares of
such bank, (2) before it or any of its subsidiaries other than a bank may
acquire all of the assets of a bank, or (3) before it may merge with any other
bank holding company. In reviewing a proposed acquisition, the Federal Reserve
considers financial, managerial and competitive aspects. The future prospects of
the companies and banks concerned and the convenience and needs of the community
to be served must also be considered. The Federal Reserve also reviews the
indebtedness to be incurred by a bank holding company in connection with the
proposed acquisition to ensure that the holding company can service such
indebtedness without adversely affecting the capital requirements of the holding
company or its subsidiaries. The Bank Holding Company Act further requires that
consummation of approved acquisitions or mergers must be delayed at least 30
days following the date of approval. During such 30-day period, complaining
parties may obtain a review of the Federal Reserve's order granting its approval
by filing a petition in the appropriate United States Court of Appeals
petitioning that the order be set aside.
The Federal Reserve has adopted capital adequacy guidelines for use in its
examination and regulation of bank holding companies. The regulatory capital of
a bank holding company under applicable federal capital adequacy guidelines is
particularly important in the Federal Reserve's evaluation of a bank holding
company and any applications by the bank holding company to the Federal Reserve.
If regulatory capital falls below minimum guideline levels, a bank holding
company or bank may be denied approval to acquire or establish additional banks
or non-bank businesses or to open additional facilities. In addition, a
financial institution's failure to meet minimum regulatory capital standards can
lead to other penalties, including termination of deposit insurance or
appointment of a conservator or receiver
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for the financial institution. There are two measures of regulatory capital
presently applicable to bank holding companies, (1) risk-based capital and (2)
leverage capital ratios.
The Federal Reserve rates bank holding companies by a component and
composite 1-5 rating system. This system is designed to help identify
institutions which require special attention. Financial institutions are
assigned ratings based on evaluation and rating of their financial condition and
operations. Components reviewed include capital adequacy, asset quality,
management capability, the quality and level of earnings, and the adequacy of
liquidity. Effective January 1, 1997, a sixth component was added to the rating
system - Sensitivity to market risk. This component addresses primarily the
issue of a bank's sensitivity to interest rate fluctuations.
The leverage ratios adopted by the Federal Reserve require all but the
most highly rated bank holding companies to maintain Tier 1 Capital at 4% to 5%
of total assets. Certain bank holding companies having a composite 1 rating and
not experiencing or anticipating significant growth may satisfy the Federal
Reserve guidelines by maintaining Tier 1 Capital of at least 3% of total assets.
Tier 1 Capital for bank holding companies includes: stockholders' equity,
minority interest in equity accounts of consolidated subsidiaries and qualifying
perpetual preferred stock. In addition, Tier 1 Capital excludes goodwill and
other disallowed intangibles. The Company's leverage capital ratio at December
31, 1997, was 10.24%.
The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under the risk- based capital
guidelines, assets are assigned to one of four risk categories; 0%, 20% 50% and
100%. As an example, U.S. Treasury securities are assigned to the 0% risk
category while most categories of loans are assigned to the 100% risk category.
A two-step process determines the risk weight of off-balance sheet items such as
standby letters of credit. First, the amount of the off-balance sheet item is
multiplied by a credit conversion factor of either 0%, 20%, 50% or 100%. The
result is then assigned to one of the four risk categories. At December 31,
1997, the Company's off-balance sheet items aggregated $262 million; however,
after
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the credit conversion these items represented $32 million of balance sheet
equivalents.
The primary component of risk-based capital is Tier 1 Capital, which is
essentially equal to common stockholders' equity, plus a certain portion of
perpetual preferred stock. Tier 2 Capital, which consists primarily of the
excess of any perpetual preferred stock, mandatory convertible securities,
subordinated debt and general allowances for loan losses, is a secondary
component of risk-based capital. The risk-weighted asset base is equal to the
sum of the aggregate dollar values of assets and off-balance sheet items in each
risk category, multiplied by the weight assigned to that category. A ratio of
Tier 1 Capital to risk-weighted assets of at least 4% and a ratio of Total
Capital (Tier 1 and Tier 2) to risk-weighted assets of at least 8% must be
maintained by bank holding companies. At December 31, 1997, the Company's Tier 1
and Total Capital ratios were 18.22% and 19.18%, respectively.
The prior approval of the Federal Reserve must be obtained before the
Company may acquire substantially all the assets of any bank, or ownership or
control of any voting shares of any bank, if, after such acquisition, it would
own or control, directly or indirectly, more than 5% of the voting shares of
such bank. In no case, however, may the Federal Reserve approve an acquisition
of any bank located outside Mississippi unless such acquisition is specifically
authorized by the laws of the state in which the bank to be acquired is located.
The banking laws of Mississippi presently permit out-of-state banking
organizations to acquire Mississippi banking organizations, provided the
out-of-state banking organization's home state grants similar privileges to
banking organizations in Mississippi. This reciprocity privilege is restricted
to banking organizations in specified geographic regions that encompass the
states of Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi,
Missouri, North Carolina, South Carolina, Tennessee, Texas, Virginia and West
Virginia. In addition, Mississippi banking organizations are permitted to
acquire certain out-of-state financial institutions. A bank holding company is
additionally prohibited from engaging in non-banking activities, or acquiring
direct or indirect control of more than 5% of the voting shares of any company
engaged in non-banking activities.
With the passage of The Interstate Banking and Branching Efficiency Act
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of 1994, adequately capitalized and managed bank holding companies are permitted
to acquire control of banks in any state, subject to federal regulatory
approval, without regard to whether such a transaction is prohibited by the laws
of any state. Beginning June 1, 1997, federal banking regulators may approve
merger transactions involving banks located in different states, without regard
to laws of any state prohibiting such transactions; except that, mergers may not
be approved with respect to banks located in states that, before June 1, 1997,
enacted legislation prohibiting mergers by banks located in such state with
out-of-state institutions. Federal banking regulators may permit an out-of-state
bank to open new branches in another state if such state has enacted legislation
permitting interstate branching. The legislation further provides that a bank
holding company may not, following an interstate acquisition, control more than
10% of nationwide insured deposits or 30% of deposits in the relevant state.
States have the right to adopt legislation to lower the 30% limit. Additional
provisions require that interstate activities conform to the Community
Reinvestment Act.
The Company is required to give the Federal Reserve prior written notice
of any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the Company's consolidated net worth. The
Federal Reserve may disapprove such a transaction if it determines that the
proposal constitutes an unsafe or unsound practice, would violate any law,
regulation, Federal Reserve order or directive or any condition imposed by, or
written agreement with, the Federal Reserve.
In November 1985, the Federal Reserve adopted its Policy Statement on
Cash Dividends Not Fully Covered by Earnings (the "Policy Statement"). The
Policy Statement sets forth various guidelines that the Federal Reserve believes
that a bank holding company should follow in establishing its dividend policy.
In general, the Federal Reserve stated that bank holding companies should pay
dividends only out of current earnings. It also stated that dividends should not
be paid unless the prospective rate of earnings retention by the holding company
appears consistent with its capital needs, asset quality and overall financial
condition.
The activities of the Company are also restricted by the provisions of
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the Glass-Steagall Act of 1933 (the "Act"). The Act prohibits the Company from
owning subsidiaries engaged principally in the issue, floatation, underwriting,
public sale or distribution of securities. Regulators and legislators are
currently reviewing the interpretation, scope and application of the provisions
of the Act. The outcome of the current examination and the effect of the outcome
on the ability of bank holding companies to engage in securities related
activities cannot be predicted.
The Company is a legal entity separate and distinct from the Banks. There
are various restrictions that limit the ability of the Banks to finance, pay
dividends or otherwise supply funds to the Company or other affiliates. In
addition, subsidiary banks of holding companies are subject to certain
restrictions on any extension of credit to the bank holding company or any of
its subsidiaries, on investments in the stock or other securities thereof and on
the taking of such stock or securities as collateral for loans to any borrower.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with extensions of credit,
or leases or sales of property or furnishing of services.
Bank Regulation:
The operations of the Banks are subject to state and federal statutes
applicable to state banks and national banks, respectively, and the regulations
of the Federal Reserve, the FDIC and the Office of the Comptroller of the
Currency ("OCC"). Such statutes and regulations relate to, among other things,
required reserves, investments, loans, mergers and consolidations, issuance of
securities, payment of dividends, establishment of branches and other aspects of
the Banks' operations.
Hancock Bank MS is subject to regulation and periodic examinations by
the FDIC and the State of Mississippi Department of Banking and Consumer
Finance. Hancock Bank LA is subject to regulation and periodic examinations by
the FDIC and the Office of Financial Institutions, State of Louisiana. These
regulatory authorities examine such areas as reserves, loan and investment
quality, management policies, procedures and practices and other aspects of
operations. These examinations are designed for the protection of the Banks'
depositors, rather than their stockholders. In addition to these regular
examinations, the Company and the Banks must furnish periodic
Page 17 of 50
reports to their respective regulatory authorities containing a full and
accurate statement of their affairs.
As a result of the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), a financial institution
insured by the FDIC can be held liable for any losses incurred by, or reasonably
expected to be incurred by, the FDIC in connection with (1) the default of a
commonly controlled FDIC-insured financial institution or (2) any assistance
provided by the FDIC to a commonly controlled financial institution in danger of
default.
The Banks are members of the FDIC, and their deposits are insured as
provided by law by the Bank Insurance Fund ("BIF"). On December 19, 1991, the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was
enacted. The Federal Deposit Insurance Act, as amended by Section 302 of FDICIA,
calls for risk-related deposit insurance assessment rates. The risk
classification of an institution will determine its deposit insurance premium.
Assignment to one of three capital groups, coupled with assignment to one of
three supervisory sub-groups, determines which of the nine risk classifications
is appropriate for an institution.
Effective in the first quarter of 1996, the FDIC lowered banks' deposit
insurance premiums from 4 to 31 cents per hundred dollars in insured deposits to
a rate of 0 to 27 cents. The Banks have received a risk classification of 1A for
assessment purposes. Total assessments paid to the FDIC amounted to $236
thousand in 1997. The Banks paid BIF premiums of 1.26 cents per hundred dollars
of insured deposits during 1997. Premiums for the first and second quarters of
1998 have decreased to 1.256 cents per hundred dollars of insured deposits.
Premiums on OAKAR deposits from the 1991 acquisition of Peoples Federal Savings
Association totalled $20 thousand.
In general, FDICIA subjects banks and bank holding companies to
significantly increased regulation and supervision. FDICIA increased the
borrowing authority of the FDIC in order to recapitalize the Bank Insurance
Fund, and the future borrowings are to be repaid by increased assessments on
FDIC member banks. Other significant provisions of FDICIA require a new
regulatory emphasis linking supervision to bank capital levels. Also, federal
banking regulators are required to take prompt regulatory action
Page 18 of 50
with respect to depository institutions that fall below specified capital levels
and to draft non-capital regulatory measures to assure bank safety.
FDICIA contains a "prompt corrective action" section intended to resolve
problem institutions at the least possible long-term cost to the deposit
insurance funds. Pursuant to this section, the federal banking agencies are
required to prescribe a leverage limit and a risk-based capital requirement
indicating levels at which institutions will be deemed to be "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." In the case of a depository institution that
is "critically undercapitalized" (a term defined to include institutions which
still have positive net worth), the federal banking regulators are generally
required to appoint a conservator or receiver.
FDICIA further requires regulators to perform annual on-site bank
examinations, places limits on real estate lending and tightens audit
requirements. The new legislation eliminated the "too big to fail" doctrine,
which protects uninsured deposits of large banks, and restricts the ability of
undercapitalized banks to obtain extended loans from the Federal Reserve Board
discount window. FDICIA also imposes new disclosure requirements relating to
fees charged and interest paid on checking and deposit accounts. Most of the
significant changes brought about by FDICIA required new regulations.
In addition to regulating capital, the FDIC and the OCC have broad
authority to prevent the development or continuance of unsafe or unsound banking
practices. Pursuant to this authority, the FDIC and OCC have adopted regulations
that restrict preferential loans and loan amounts to "affiliates" and "insiders"
of banks, require banks to keep information on loans to major stockholders and
executive officers and bar certain director and officer interlocks between
financial institutions. The FDIC is also authorized to approve mergers,
consolidations and assumption of deposit liability transactions between insured
banks and between insured banks and uninsured banks or institutions to prevent
capital or surplus diminution in such transactions where the resulting,
continuing or assumed bank is an insured nonmember state bank, like Hancock Bank
MS and Hancock Bank LA.
Although the Hancock Bank MS and Hancock Bank LA are not members of the
Page 19 of 50
Federal Reserve System, they are subject to Federal Reserve regulations that
require the Banks to maintain reserves against transaction accounts (primarily
checking accounts). Because reserves generally must be maintained in cash or in
noninterest-bearing accounts, the effect of the reserve requirements is to
increase the cost of funds for the Banks. The Federal Reserve regulations
currently require that reserves be maintained against net transaction accounts
in the amount of 3% of the aggregate of such accounts up to $43.1 million, or,
if the aggregate of such accounts exceeds $43.1 million, $1.293 million plus 10%
of the total in excess of $43.1 million. This regulation is subject to an
exemption from reserve requirements on a limited amount of an institution's
transaction accounts.
The foregoing is a brief summary of certain statutes, rules and
regulations affecting the Company and the Banks. It is not intended to be an
exhaustive discussion of all the statutes and regulations having an impact on
the operations of such entities.
Effect of Governmental Policies:
The difference between the interest rate paid on deposits and other
borrowings and the interest rate received on loans and securities will comprise
most of a bank's earnings. Due to recent deregulation of the industry, however,
the banking business is becoming increasingly dependent on the generation of fee
and service charge revenue.
The earnings and growth of a bank will be affected by both general
economic conditions and the monetary and fiscal policy of the United States
Government and its agencies, particularly the Federal Reserve. The Federal
Reserve sets national monetary policy such as seeking to curb inflation and
combat recession. This is accomplished by its open-market operations in United
States Government securities, adjustments in the amount of reserves that
financial institutions are required to maintain and adjustments to the discount
rates on borrowings and target rates for federal funds transactions. The actions
of the Federal Reserve in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates on loans and deposits.
The nature and timing of any future changes in monetary policies and their
potential impact on the Company cannot be predicted.
Page 20 of 50
STATISTICAL INFORMATION
The following tables and other material present certain statistical
information regarding the Company. This information is not audited and should be
read in conjunction with the Company's consolidated financial statements and the
accompanying notes.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY
AND INTEREST RATES AND DIFFERENTIALS
Net interest income, the difference between interest income and interest
expense, is the most significant component of the Banks earnings. For internal
analytical purposes, management adjusts net interest income to a "taxable
equivalent" basis using a 35% federal tax rate on tax exempt items (primarily
interest on municipal securities and loans).
Another significant statistic in the analysis of net interest income is
the effective interest differential, which is the difference between the average
rate of interest earned on earning assets and the effective rate paid for all
funds, noninterest-bearing as well as interest-bearing. Since a portion of the
Bank's deposits do not bear interest, such as demand deposits, the rate paid for
all funds is lower than the rate on interest-bearing liabilities alone. The rate
differential for the years 1997 and 1996 was 5.09% and 5.10%, respectively.
Recognizing the importance of interest differential to total earnings,
management places great emphasis on managing interest rate spreads. Although
interest differential is affected by national, regional, and area economic
conditions, including the level of loan demand and interest rates, there are
significant opportunities to influence interest differential through appropriate
loan and investment policies. These policies are designed to maximize interest
differential while maintaining sufficient liquidity and availability of funds
for purposes of meeting existing commitments and for investment in loans and
other investment opportunities that may arise.
Page 21 of 50
The following table shows interest income on interest-earning assets and
related average yields earned and interest expense on interest-bearing
liabilities and related average rates paid for the periods indicated:
Comparative Average Balances - Yields and Rates
Years Ended December 31,
1997 1996 1995
---------------------------------- --------------------------------- ---------------------------
Interest Average Interest Average Interest Average
Average Income or Yield or Average Income or Yield or Average Income or Yield or
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------- --------- ------ ---------- ---------- ------- ---------- ---------- ---------
(Amounts in thousands)
ASSETS
Interest-earning assets:
Investment securities:
U.S. Treasury $ 240,539 $ 14,734 6.13% $ 221,120 $ 13,567 6.14% $ 257,228 $ 14,568 5.66%
U.S. government obligations 552,154 34,699 6.28% 449,687 34,886 7.76% 493,315 33,726 6.84%
Municipal obligations 74,838 6,385 8.53% 60,690 5,451 8.98% 57,001 5,426 9.52%
Other securities 116,672 10,041 8.61% 171,889 6,780 3.94% 87,606 6,231 7.11%
Federal funds sold & securities
purchased under agreements
to resell 50,256 2,733 5.44% 106,316 5,580 5.25% 99,559 5,820 5.85%
Interest-bearing time deposits
with other banks 996 64 6.43% 1,543 87 5.64% 500 31 6.20%
Net loans (2)(3) 1,201,381 117,474 9.78% 1,083,165 107,079 9.89% 1,000,907 98,029 9.79%
---------- -------- ----- --------- ------- ----- ---------- ------- -----
Total interest-earning
assets/interest income (1) 2,236,836 186,130 8.32% 2,094,410 173,430 8.28% 1,996,116 163,831 8.21%
Less: Allowance for loan losses (20,410) -- -- (17,670) -- -- (16,532) -- --
Noninterest-earning assets:
Cash and due from banks 119,271 -- -- 121,157 -- -- 104,854 -- --
Property and equipment 40,149 -- -- 37,185 -- -- 37,786 -- --
Other assets 67,107 -- -- 50,795 -- -- 93,302 -- --
----------- ----- ----------- --------- ----------- ------- ----------------
Total assets $ 2,442,953 $ 186,130 7.62% $2,285,877 173,430 7.59% $2,215,526 163,831 7.39%
=========== =========== ===== ========== ======== ===== =========== ======== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings, NOW and money
market $ 746,665 $ 20,714 2.77%$ 694,017 19,001 2.74%$ 739,091 20,515 2.78%
Time 834,147 45,436 5.45% 778,602 41,624 5.35% 717,064 37,097 5.17%
Federal funds purchased 2,304 107 4.64% 11,425 549 4.80% 15,284 863 5.65%
Securities sold under
agreements to repurchase 118,855 5,277 4.44% 79,411 3,465 4.36% 53,924 2,219 4.12%
Long-term bonds 1,369 164 4.60% 1,795 158 8.80% 2,799 203 7.25%
Capital notes -- -- -- -- 7 -- -- 265 0.00%
----------- ---------- ----- --------- -------- ----- --------- ------- -----
Total interest-bearing
liabilities/interest expense 1,703,340 71,698 4.21% 1,565,250 64,804 4.14% 1,528,162 61,162 4.00%
Noninterest-bearing liabilities:
Demand deposits 453,218 -- -- 472,909 -- -- 439,495 -- --
Other liabilities 15,092 -- -- 17,667 -- -- 32,135 -- --
Stockholders' equity 271,303 -- -- 230,051 -- -- 215,734 -- --
----------- ----------- ----- ---------- --------- ----- ----------- ------ ------
Total liabilities &
stockholders' equity $ 2,442,953 $ 71,698 2.93% $2,285,877 64,804 2.83% $ 2,215,526 61,162 2.76%
========== =========== ===== ========== ========= ===== =========== ====== =====
Interest-earning assets $ 2,236,836 $ 2,094,410 $ 1,996,116
Interest-bearing liabilities 1,703,340 1,565,250 1,528,162
Interest income 186,130 173,430 163,831
Interest expense 71,698 64,804 61,162
----------- --------- --------
Interest income/interest-
earning assets 8.32% 8.28% 8.21%
Interest expense/interest-
bearing liabilities 4.21% 4.14% 4.00%
Interest spread 4.11% 4.14% 4.21%
Net interest income $ 114,432 $ 108,626 $102,669
=========== ========= ========
Net interest margin 5.12% 5.19% 5.14%
(1) Includes tax equivalent adjustments to interest income of $2.7 million,
$1.9 million and $2.3 million in 1997, 1996 and 1995, respectively, using
an effective tax rate of 35% .
(2) Interest income includes fees on loans of $6.2 million, $5.7 million and
$4.1 million in 1997, 1996 and 1995, respectively.
(3) Includes nonaccrual loans. See "Nonperforming Assets."
Page 23 of 50
The following table sets forth, for the periods indicated, a summary of
the changes in interest income on interest-earning assets and interest expense
on interest-bearing liabilities relating to rate and volume variances.
Nonaccrual loans are included in average amounts of loans and do not bear
interest for purposes of the presentation. Changes that are not solely due to
volume or rate are allocated to volume.
Analysis of Changes in Net Interest Income
Years Ended December 31,
1997 1996 1995
--------------------------- --- -------------------------------- ----------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
-------- ----------- ------ ----------- --------- ------- ---------- ------ --------
(Amounts in thousands)
INTEREST INCOME Investment securities:
U.S. Treasury $ 1,192 $ ( 25) $1,167 $ (2,044) $ 1,043 $(1,001) $( $3,327) 727 $( 2,600)
U.S. government obligations 7,985 (8,172) ( 187) (2,984) 4,144 1,160 4,761 4,193 8,954
Municipal obligations (1) 1,270 ( 336) 934 351 ( 326) 25 837 ( 323) 514
Other securities (2,188) 5,449 3,261 5,992 (5,443) 549 827 691 1,518
Federal funds sold & securities
purchased under agreements
to resell (2,943) 96 (2,847) 395 ( 6 ( 240) 594 1,394 1,988
Interest bearing time deposits
with other banks ( 31) 8 ( 23) 65 ( 9) 56 ( 14) 7 ( 7)
Net Loans 11,692 (1,297) 10,395 8,053 997 9,050 9,261 5,801 15,062
-------- --------- -------- -------- -------- ------ -------- ------- --------
Total 16,977 (4,277) 12,700 9,828 ( 229) 9,599 12,939 12,490 25,429
-------- --------- -------- -------- -------- ------ -------- ------- --------
INTEREST EXPENSE
Deposits:
Savings, NOW and money
market 1,489 224 1,713 (1,253) ( 261) (1,514) ( 490) 302 ( 188)
Time 2,972 840 3,812 3,181 1,346 4,527 3,097 6,510 9,607
Federal funds purchased ( 438) ( 4) ( 442) ( 218) ( 96) ( 314) ( 189) 298 109
Securities sold under
agreements to repurchase 1,720 92 1,812 1,050 196 1,246 1,202 299 1,501
Long-term bonds ( 39) 38 ( 1) ( 73) 28 ( 45) ( 62) 9 ( 53)
Capital notes 0 0 0 ( 258) -- ( 258) 265 ( 76) 189
-------- -------- -------- -------- -------- ------- -------- ------- --------
Total 5,704 1,190 6,894 2,429 1,213 3,642 3,823 7,342 11,165
-------- -------- -------- -------- -------- -------- -------- ------- --------
Increase (decrease) in
net interest income $ 11,273 $ (5,467) $ 5,806 $ 7,399 $ (1,442) $ 5,957 $ 9,116 $ 5,148 $ 14,264
======== ========= ======== ======== ========= ======== ======== ======== =========
(1) Yields on tax-exempt investments have been adjusted to a tax equivalent
basis utilizing a 35% effective tax rate.
(2) Interest earned includes fees on loans of $6.2 million, $5.7 million and
$4.1 million in 1997, 1996 and 1995, respectively.
Page 24 of 50
Rate Sensitivity:
To control interest rate risk, management regularly monitors the volume
of interest sensitive assets compared with interest sensitive liabilities over
specific time intervals. The Company's interest rate management policy is
designed to produce a stable net interest margin in periods of interest rate
fluctuations. Interest sensitive assets and liabilities are those that are
subject to maturity or repricing within a given time period. Interest rate risk
is monitored, quantified and managed to produce a 5% or less impact on
short-term earnings.
The interest sensitivity gap is the difference between total interest
sensitive assets and liabilities in a given time period. At December 31, 1997,
the Company's cumulative interest sensitivity gap in the one year interval was
(22.91%) as compared to a cumulative interest sensitivity gap in the one year
interval of (21.75%) at December 31, 1996. The percentage reflects a higher
level of interest sensitive liabilities than assets repricing within one year.
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.
The following tables set forth the Company's interest rate sensitivity
gap at December 31, 1997 and December 31, 1996:
Page 25 of 50
Analysis of Interest Sensitivity at December 31, 1997
After Three
Within Through One After Five
Three Twelve Through Years and
Months Months Five Years Insensitive Total
--------- --------- ---------- ---------- ----------
(Amounts in thousands)
Net loans $ 252,135 $ 1165388 $ 623,655 $ 228,301 $1,220,629
Securities and time deposits 112,815 103,824 411,090 454,334 1,082,063
Federal funds 35,500 -- -- -- 35,500
--------- --------- ---------- --------- ----------
Total earning assets $ 400,450 $ 220,362 $1,034,745 $ 682,635 $2,338,192
========= ========= ========== ========= ==========
17.13% 9.42% 44.25% 29.20% 100.00%
Interest bearing deposits, excluding
CDs greater than $100,000 $ 645,178 $ 272,983 $ 392,167 $ 29,311 $1,339,639
CDs greater than $100,000 100,267 91,361 68,650 -- 221,698
Short-term borrowings 44,867 -- -- 125,667 170,534
Other borrowings 500 1,279 -- -- 1,779
--------- --------- ---------- --------- ----------
Total interest-bearing funds 790,812 365,623 460,817 154,978 1,772,230
Interest-free funds -- -- -- 565,962 565,962
--------- --------- ---------- --------- ----------
Funds supporting earning assets $ 790,812 $ 365,623 $ 460,817 $ 720,940 $2,338,192
========= ========= ========== ========= ==========
33.82% 15.64% 19.71% 30.84% 100.00%
Interest sensitivity gap $(390,362) $(145,261) $ 573,928 $( 38,305) --
Cumulative gap $(390,362) $(535,623) $ 38,305 -- --
Percent of total earning assets (16.70%) (22.91%) 1.64% -- --
Analysis of Interest Sensitivity at December 31, 1996
After Three
Within Through One After Five
Three Twelve Through Years and
Months Months Five Years Insensitive Total
(Amounts in thousands)
Net loans $ 302,553 $ 107,128 $ 531,015 $ 233,271 $1,173,967
Securities and time deposits 119,629 94,242 225,752 464,914 904,537
Federal funds 12,000 -- -- -- 12,000
--------- --------- --------- --------- ----------
Total earning assets $ 434,182 $ 201,370 $ 756,767 $ 698,185 $2,090,504
========= ========= ========= ========= ==========
20.77% 9.64% 36.20% 33.39% 100.00%
Interest bearing deposits, excluding
CDs greater than $100,000 $ 542,277 $ 285,565 $ 440,733 $ 3,339 $1,271,914
CDs greater than $100,000 97,686 75,521 48,491 -- 221,698
Short-term borrowings 87,609 -- -- -- 87,609
Other borrowings 500 1,050 -- -- 1,550
--------- --------- --------- --------- ----------
Total interest-bearing funds 728,072 362,136 489,224 3,339 1,582,771
Interest-free funds -- -- -- 507,733 507,733
--------- --------- --------- --------- ----------
Funds supporting earning assets $ 728,072 $ 362,136 $ 489,224 $ 511,072 $2,090,504
========= ========= ========= ========= ==========
34.82% 17.33% 23.40% 24.45% 100.00%
Interest sensitivity gap $(293,890) $(160,766) $ 267,543 $ 187,113 --
Cumulative gap $(293,890) $(454,656) $(187,113) -- --
Percent of total earning assets (14.06%) (21.75%) (8.95%) -- --
Page 26 of 50
Income Taxes:
The Company had income tax expense of $17.4 million and $15.2 million for
the years ended December 31, 1997 and 1996, respectively. This represents
effective tax rates of 36.2% and 32.4% for the years ended December 31, 1997 and
1996, respectively. The 15.2% increase in income tax expense is due to, among
other things, increased taxable income, state income taxes, and higher levels of
non-deductible goodwill amortization expense in conjunction with the most recent
three mergers.
Performance and Equity Ratios:
The following table sets forth, for the periods indicated, the percentage
of net income to average assets and average stockholders' equity, the percentage
of common stock dividends to net income and the percentage of average
stockholders' equity to average assets.
Years Ended December 31,
------------------------
1997 1996 1995
----- ----- -----
Return on average assets (%) 1.25 1.38 1.22
Return on average stockholders' equity (%) 11.29 13.74 12.50
Dividend payout ratio (%) 36.05 28.90 31.45
Average stockholders' equity to average assets (%) 11.11 10.06 9.74
Securities Portfolio:
The Company generally purchases securities to be held to maturity, with a
maturity schedule that provides ample liquidity. Securities classified as
held-to-maturity are carried at amortized cost. Certain securities have been
classified as available-for-sale based on management's internal assessment of
the portfolio considering future liquidity, earning requirements and capital
position. The Company increased its available-for-sale portfolio during 1997.
Generally, securities with a market risk have been placed in this category. The
December 31, 1997 amortized cost of the held-to-maturity portfolio was $916
million and the market value was $925 million. The available-for-sale portfolio
balance was $164 million at December 31, 1997.
Page 27 of 50
The amortized cost of securities classified as available-for-sale as of
December 31, 1997, 1996 and 1995, were as follows (in thousands):
December 31
1997 1996 1995
-------- -------- ------
U.S. Treasury securities $ 54,637 $ 499 $ 1,493
Other U.S. gov. obligations 46,039 53,802 61,470
Municipal obligations 1,496 923 962
Other securities 6,305 --- 544
Mortgage-backed securities 27,538 5,373 5,140
CMOs 21,427 33,038 34,695
Equity securities 6,089 4,932 4,993
-------- -------- --------
$163,531 $ 98,567 $109,297
======== ======== ========
The amortized cost, yield and market value of debt securities classified
as available-for-sale as of December 31, 1997, by estimated maturity, were as
follows (in thousands):
Amortized
Cost Yield (%) Market Value
--------- --------- ------------
Due in one year or less $ 29,820 5.90 $ 29,774
Due after one year through five years 68,343 5.90 68,373
Due after five years through ten years 25,856 6.72 25,825
Due after ten years 33,423 6.21 33,572
-------- ---- --------
$157,442 6.10 $157,544
======== ==== ========
The amortized cost of securities classified as held-to-maturity as of
December 31, 1997, 1996 and 1995 were as follows (in thousands):
December 31
1997 1996 1995
-------- -------- ------
U.S. Treasury securities $210,525 $175,171 $239,892
Other U.S. gov. obligations 267,437 338,796 317,140
Municipal obligations 88,062 66,367 56,961
Other securities 25,874 --- 11,027
Mortgage-backed securities 133,925 87,991 50,427
CMOs 190,539 135,673 63,082
-------- -------- --------
$916,362 $803,998 $738,529
======== ======== ========
Page 28 of 50
The amortized cost, yield and market value of securities classified as
held-to-maturity as of December 31, 1997, by contractual maturity, were as
follows (in thousands):
Amortized
Cost Yield (%) Market Value
--------- --------- ------------
Due in one year or less $194,406 6.30 $194,626
Due after one year through five years 305,508 6.36 307,880
Due after five years through ten years 177,870 6.49 179,584
Due after ten years 238,578 6.67 242,868
-------- ---- --------
$916,362 6.32 $924,958
======== ==== ========
Loan Portfolio:
The Banks' primary lending focus is to provide commercial, consumer and
real estate loans to consumers and to small and middle market businesses in
their respective market areas. Diversification in the loan portfolio is a means
of reducing the risks associated with economic fluctuations. The Banks have no
concentrations of loans to particular borrowers or loans to any foreign
entities.
Loan underwriting standards and loan loss allowance maintenance further
reduce the impact of credit risk to the Company. Loans are underwritten on the
basis of cash flow capacity and collateral market value. Generally, real estate
mortgage loans are made when the borrower produces sufficient cash flow capacity
and equity in the property to offset historical market devaluations. The loan
loss allowance adequacy is tested monthly based on historical losses through
different economic cycles and projected future losses specifically identified.
Page 29 of 50
The following table sets forth, for the periods indicated, the
composition of the loan portfolio of the Company:
Loan Portfolio
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts in thousands)
Real estate:
Residential mortgages 1-4 family $ 260,432 $ 260,945 $ 224,646 $ 214,247 $ 213,216
Residential mortgages multifamily 10,881 7,642 9,674 7,302 7,124
Home equity lines 10,814 10,169 11,825 11,740 13,147
Construction and development 55,454 55,585 41,602 35,719 24,234
Nonresidential 139,332 131,578 127,027 112,957 119,094
Commercial, industrial and other 177,379 169,061 176,942 119,997 160,385
Consumer 513,362 494,456 409,608 397,879 366,401
Lease financing and depository
institutions 16,889 15,881 13,811 10,074 6,673
Political subdivisions 16,327 12,142 14,394 12,806 11,668
Credit card 44,785 41,311 32,104 30,794 27,466
---------- ---------- ---------- ---------- ----------
1,245,355 1,198,770 1,061,633 953,515 949,408
Less, unearned income 24,726 24,803 26,656 27,850 26,396
---------- ---------- ---------- ---------- ----------
Net loans $1,220,629 $1,173,967 $1,034,977 $ 925,665 $ 923,012
========== ========== ========== ========== ==========
The following table sets forth, for the periods indicated, the
approximate maturity by type of the loan portfolio of the Company:
Loan Maturity Schedule
December 31, 1997 December 31, 1996
----------------------------------------- -----------------------------------------
Maturity Range Maturity Range
----------------------------------------- -----------------------------------------
After One After One
Within Through After Five Within Through After Five
One Year Five Years Years Total One Year Five Years Years Total
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(Amounts in thousands)
Commercial, industrial and
other $ 65,974 $ 82,407 $ 20,680 $ 169,061 $ 68,436 $ 77,960 $ 23,418 $ 169,814
Real estate - construction 32,966 18,957 3,611 55,585 44,714 18,994 7,349 71,057
All other loans 157,382 578,526 284,802 1,020,709 148,232 557,936 251,731 957,899
-------- -------- -------- ---------- -------- -------- -------- ----------
Total loans $256,322 $679,890 $309,143 $1,245,355 $261,382 $654,890 $282,498 $1,198,770
======== ======== ======== ========== ======== ======== ======== ==========
Page 30 of 50
The sensitivity to interest rate changes of that portion of the
Company's loan portfolio that matures after one year is shown below:
Loan Sensitivity to Changes in Interest Rates
December 31, December 31,
1997 1996
------------ ------------
(Amounts in thousands)
Commercial, industrial, and real estate
construction maturing after one year:
Fixed rate $ 94,517 $ 89,399
Floating rate 31,187 38,323
Other loans maturing after one year:
Fixed rate 831,716 784,875
Floating rate 31,610 24,791
-------- --------
Total $989,033 $937,388
======== ========
Nonperforming Assets:
The following table sets forth nonperforming assets by type for the
periods indicated, consisting of nonaccrual loans, restructured loans, real
estate owned and loans past due 90 days or more and still accruing:
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts in thousands)
Nonaccrual loans:
Real estate $ 331 $ 753 $ 2,406 $ 1,914 $ 1,888
Commercial, industrial and other 319 169 1,144 525 1,424
Consumer 378 1,298 1,176 1,287 1,322
Lease financing 1 --- --- --- ---
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
Restructured loans 2,869 685 611 614 482
------- ------- ------- ------- -------
Total nonperforming loans 3,898 2,905 5,337 4,340 5,116
Acquired real estate owned 435 147 140 --- ---
Real estate owned 1,923 1,728 946 1,001 1,029
------- ------- ------- ------- -------
Total nonperforming assets $ 6,256 $ 4,780 $ 6,423 $ 5,341 $ 6,145
======= ======= ======= ======= =======
Loans 90+ days past due and still
accruing $ 5,423 $ 8,361 $ 4,089 $ 2,692 $ 4,338
======= ======= ======= ======= =======
Ratios (%):
Nonperforming loans to net loans 0.32 0.25 0.52 0.47 0.55
Nonperforming assets to net loans and
real estate owned 0.51 0.41 0.62 0.58 0.67
Nonperforming loans to average net loans 0.32 0.27 0.53 0.48 0.60
Allowance for loan losses to
nonperformingloans 538.74 681.58 325.86 354.19 299.18
Page 31 of 50
The following table sets forth, for the periods indicated, the amount of
interest that would have been recorded on nonaccrual loans had the loans not
been classified as "nonaccrual" as well as the interest that would have been
recorded under the original terms of restructured loans:
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts in thousands)
Nonaccrual $ 101 $ 220 $ 463 $ 340 $ 441
Restructured 281 68 60 56 45
-------- -------- ------- ------- -------
Total $ 382 $ 288 $ 523 $ 396 $ 486
======== ======= ======= ======= =======
Interest actually received on nonaccrual loans was insignificant. The
amount of interest recorded on restructured loans did not differ significantly
from the amount shown in the table above.
Page 32 of 50
Analysis of Allowance for Loan Losses:
The following table sets forth, for the periods indicated, average net
loans outstanding, allowance for loan losses, amounts charged-off and recoveries
of loans previously charged-off:
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts in thousands)
Net loans outstanding at end of
period $1,220,629 $1,173,967 $1,034,978 $ 925,665 $ 923,012
========== ========== ========== ========== ==========
Average net loans outstanding $1,201,381 $1,083,165 $1,000,907 $ 904,342 $ 847,526
========== ========== ========== ========== ==========
Balance of allowance for loan losses
at beginning of period 19,800 $ 17,391 $ 15,372 $ 15,306 $ 14,682
Loans charged-off:
Real estate 22 73 210 106 318
Commercial 997 975 636 637 2,218
Consumer 7,145 5,417 4,524 2,706 3,087
Lease financing 49 1 13 --- 53
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
---------- ---------- ---------- ---------- ----------
Total charge-offs 8,213 6,466 5,383 3,449 5,676
---------- ---------- ---------- ---------- ----------
Recoveries of loans previously
charged-off:
Real estate 5 186 15 53 102
Commercial 646 937 971 570 695
Consumer 1,529 945 839 886 869
Lease financing 1 0 5 8 2
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
---------- ---------- ---------- ---------- ----------
Total recoveries 2,181 2,068 1,830 1,517 1,668
---------- ---------- ---------- --------- ----------
Net charge-offs 6,032 4,398 3,553 1,932 4,008
Provision for loan losses 6,399 6,153 4,425 1,998 4,632
Balance acquired through acquisition 833 654 1,147 --- ---
---------- ---------- ---------- ---------- ----------
Balance of allowance for loan losses
at end of period $ 21,000 $ 19,800 $ 17,391 $ 15,372 $ 15,306
========== ========== ========== ========== ==========
The following table sets forth, for the periods indicated, certain
ratios related to the Company's charge-offs, allowance for loan losses and
outstanding loans:
Years Ended December 31,
1997 1996 1995 1994 1993
----- ---- ----- ----- -----
Ratios (%):
Net charge-offs to average net loans 0.50 0.41 0.35 0.21 0.47
Net charge-offs to period-end net loans 0.49 0.37 0.34 0.21 0.43
Allowance for loan losses to average net loans 1.75 1.83 1.74 1.70 1.81
Allowance for loan losses to period-end net loans 1.72 1.69 1.68 1.66 1.66
Net charge-offs to loan loss allowance 28.72 22.21 20.43 12.57 26.19
Net charge-offs to loan loss provision 94.26 71.47 80.29 96.70 86.53
Page 33 of 50
An allocation of the loan loss allowance by major loan category is set
forth in the following table. The allocation is not necessarily indicative of
the category of future losses, and the full allowance at December 31, 1997, is
available to absorb losses occurring in any category of loans.
December 31,
1997 1996 1995 1994 1993
---------------- ---------------- ----------------- ------------------ --------------------
Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of
for Loans for Loans for Loans for Loans for Loans
Loan to Total Loan to Total Loan to Total Loan to Total Loan to Total
Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans
---------------- ---------------- ----------------- ------------------ --------------------
(Amounts in thousands)
Real estate $ 2,500 38.05 $ 3,000 49.94 $ 2,000 39.08 $ 1,250 40.06 $ 1,250 39.69
Commercial, industrial
and other $ 5,900 16.25 5,750 16.52 5,250 19.32 5,000 14.98 5,000 18.82
Consumer $ 9,300 42.03 8,250 31.11 7,500 38.58 6,500 41.73 6,500 38.60
Credit card $ 1,200 3.67 800 2.43 500 3.02 500 3.23 500 2.89
Unallocated 2,100 --- 2,000 --- 2,141 --- 2,122 --- 2,056 ---
------- ------ ----- ------ ----- ------ ----- ------ ----- ------
$21,000 100.00 $19,800 100.00 17,391 100.00 $15,372 100.00 $15,306 100.00
======= ====== ======= ====== ====== ====== ======= ====== ======= ======
Deposits and Other Debt Instruments:
The following table sets forth the distribution of the average deposit
accounts for the periods indicated and the weighted average interest rates on
each category of deposits:
1997 1996 1995
------------------------------- --------------------------------- -------------------------
Percent Percent Percent
of of of
Amount Deposits Rate (%) Amount Deposits Rate (%) Amount Deposits Rate (%)
(Amounts in thousands)
Non-interest bearing
accounts $ 453,218 22.28 --- $ 472,909 24.30 -- $ 439,495 23.18 ---
NOW accounts 306,120 15.05 2.52 268,391 13.80 2.68 288,947 15.24 2.64
Money market and other
savings accounts 440,545 21.66 2.95 425,626 21.88 2.78 450,144 23.75 2.86
Time deposits 834,147 41.01 5.45 778,602 40.02 5.34 717,064 37.83 5.17
---------- ------ ---------- ------ ---------- -------
$2,034,030 100.00 $1,945,528 100.00 $1,895,650 100.00
========== ====== ========== ====== ========== ======
The Banks traditionally price their deposits to position themselves in
the middle of the local market. The Banks' policy is not to accept brokered
deposits.
Page 34 of 50
Time certificates of deposit of $100,000 and over at December 31, 1997
had maturities as follows:
December 31, 1997
(Amounts in thousands)
Three months or less $100,267
Over three through six months 51,402
Over six through twelve months 39,959
Over twelve months 68,650
--------
Total $260,278
========
Short-Term Borrowings:
The following table sets forth certain information concerning the
Company's short-term borrowings, which consist of federal funds purchased and
securities sold under agreements to repurchase.
Years ended December 31,
1997 1996 1995
--------- --------- -----------
(Amounts in thousands)
Federal funds purchased:
Amount outstanding at period-end $ 0 $ 0 $ 11,300
Weighted average interest at period-end 0.00% 0.00% 3.12%
Maximum amount at any month-end during period $ 5,875 $ 19,725 $ 16,325
Average amount outstanding during period $ 2,304 $ 11,425 $ 15,284
Weighted average interest rate during period 4.64% 4.80% 5.65%
Securities sold under agreements to repurchase:
Amount outstanding at period-end $170,534 $ 87,609 $ 55,285
Weighted average interest at period-end 4.61% 4.25% 2.50%
Maximum amount at any month end during-period $172,827 $156,595 $ 88,070
Average amount outstanding during period $118,855 $ 79,411 $ 53,924
Weighted average interest rate during period 4.44% 4.36% 4.12%
Liquidity:
Liquidity represents an institution's ability to provide funds to
satisfy demands from depositors, borrowers and other commitments by either
converting assets into cash or accessing new or existing sources of incremental
funds. The principal sources of funds that provide liquidity are customer
deposits, payments of interest and principal on loans, maturities in and sales
of investment securities, earnings and borrowings. At December 31, 1997, cash
and due from banks, securities available-for-sale, federal funds sold and
repurchase agreements were in excess of 15% of total deposits.
The Company depends upon the dividends paid to it from the Banks as a
Page 35 of 50
principal source of funds for its debt service and dividend requirements. As of
December 31, 1997, there was approximately $100 million available to be
dividended to the Company from the Banks.
Capital Resources:
Risk-based and leverage capital ratios for the Company and the Banks for
the periods indicated are shown in the following table:
Risk-Based Capital Ratios Tier 1 Leverage
----------------------------------------------------- --------------------------
Total Tier 1 Ratio
-------------------------- ------------------------- ---------------------------
December 31, December 31, December 31, December 31, December 31, December 31,
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
Hancock Bank MS 18.45% 18.62% 17.65% 17.79% 9.75% 10.10%
Hancock Bank LA 20.58 19.63 19.33 18.38 10.94 10.54
Company 19.18 19.02 18.22 18.03 10.24 10.37
Risk-based capital requirements are intended to make regulatory capital
more sensitive to risk elements of the Company. Currently, the Company is
required to maintain a minimum risk-based capital ratio of 8.0%, with not less
than 4.0% in Tier 1 capital. In addition, the Company must maintain a minimum
Tier 1 Leverage ratio (Tier 1 capital to total assets) of at least 3.0% based
upon the regulator's latest composite rating of the institution.
New Accounting Standards:
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") "Reporting Comprehensive Income"
which requires that an enterprise report by major components and as a single
total, the change in net assets during the period from non-owner sources and
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" which establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas and major customers. Adoption of these statements
will not impact the Company's consolidated financial position, results of
operations or cash flows, and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997. The Company is in the process of reviewing its
operating segments.
Page 36 of 50
Impact of Inflation:
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Banks are primarily monetary in nature.
Interest rates, therefore, have a more significant effect on the Banks'
performance than the effect of general levels of inflation on the price of goods
and services. Interest rates earned and paid by the Banks are affected to a
degree by the rate of inflation, and noninterest income and expenses can be
affected by increasing rates of inflation; however, the Company believes that
the effects of inflation are generally manageable through asset/liability
management.
Page 37 of 50
ITEM 2 - PROPERTIES
The Company's main offices are located at One Hancock Plaza, Gulfport,
Mississippi. The building has fourteen stories, of which seven are utilized by
the Company. The remaining seven stories are presently leased to outside
parties.
The building has been leased from the City of Gulfport in connection
with a urban development revenue bond issue. The bonds matured and were paid in
full during 1997. Hancock Bank MS, however, effectively has had ownership of the
building since title to the facility reverts when all outstanding bonds have
been paid. For this reason, the Company has carried the building as an asset and
the bonds as a long term payable on its balance sheet. Pending the filing of
certain documents, ownership will legally transfer to the Company.
The following banking offices in Mississippi and Louisiana are held in
fee (number of locations shown in parenthesis):
Albany, LA (1) Hammond, LA (2)
Angie, LA (1) Independence, LA (1)
Baker, LA (1) Long Beach, MS (2)
Baton Rouge, LA (13) Loranger, LA (1)
Bay St. Louis, MS (2) Lyman, MS (1)
Biloxi, MS (3) Moss Point, MS (1)
Bogalusa, LA (1) Mt. Hermon, LA (1)
Denham Springs, LA (4) Ocean Springs, MS (2)
D'Iberville, MS (1) Pascagoula, MS (4)
Escatawpa, MS (1) Pass Christian, MS (1)
Franklinton, LA (1) Picayune, MS (2)
French Settlement, LA (1) Ponchatoula, LA (1)
Gautier, MS (1) Poplarville, MS (1)
Gulfport, MS (7) Walker, LA (1)
Waveland, MS (1)
The following banking offices in Mississippi and Louisiana are leased
under agreements with unexpired terms of from one to thirty-four years including
renewal options (number of locations shown in parenthesis):
Baton Rouge, LA (5) Hammond, LA (1)
Bay St. Louis, MS (3) Pascagoula, MS (1)
Biloxi, MS (1) Picayune, MS (2)
Diamondhead, MS (1) St. Francisville, LA (1)
Gulfport, MS (4) Springfield, LA (1)
Vancleave, MS (1)
Page 38 of 50
In addition to the above, Hancock Bank MS owns land and other properties
acquired through foreclosures of loans. The major item is approximately 3,700
acres of timber land in Hancock County, Mississippi, which Hancock Bank MS
acquired by foreclosure in the 1930's.
ITEM 3 - LEGAL PROCEEDINGS
The Company is party to various legal proceedings arising in the
ordinary course of business. In the opinion of management, after consultation
with outside legal counsel, all such matters are adequately covered by insurance
or, if not so covered, are not expected to have a material adverse effect on the
financial condition of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1997.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The information under the caption "Market Information" on page 6 of the
Company's 1997 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information under the caption "Consolidated Summary of Selected
Financial Information" on Page 7 of the Company's 1997 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on Pages 35 and 36 of the
Company's 1997 Annual Report to Stockholders is incorporated herein by
reference.
Page 39 of 50
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's net income is dependent on its net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net income.
In an attempt to manage its exposure to changes in interest rates,
management monitors the Company's interest rate risk. The Company's interest
rate management policy is designed to produce a stable net interest margin in
periods of interest rate fluctuations. Interest sensitive assets and liabilities
are those that are subject to maturity or repricing within a given time period.
Management also reviews the Company's securities portfolio, formulates
investment strategies and oversees the timing and implementation of transactions
to assure attainment of the Board's objectives in the most effective manner.
Notwithstanding the Company's interest rate risk management activities, the
potential for changing interest rates is an uncertainty that can have an adverse
effect on net income.
In adjusting the Company's asset/liability position, the Board and
management attempt to manage the Company's interest rate risk while enhancing
net interest margins. At times, depending on the level of general interest
rates, the relationship between long and short-term interest rates, market
conditions and competitive factors, the Board and management may determine to
increase the Company's interest rate risk position somewhat in order to increase
its net interest margin. The Company's results of operations and net portfolio
values remain vulnerable to increases in interest rates and to fluctuations in
the difference between long and short-term interest rates.
The Company also controls interest rate risk reductions by emphasizing
non-certificate depositor accounts. The Board and management believe that such
accounts carry a lower cost than certificate accounts, and that a material
portion of such accounts may be more resistant to changes in interest rates than
are certificate accounts. At December 31, 1997 the Company had
Page 40 of 50
$273 million of regular savings and club accounts and $470 million of money
market and NOW accounts, representing 46.4% of total interest-bearing depositor
accounts.
One approach used to quantify interest rate risk is the net portfolio
value ("NPV") analysis. NPV includes shareholder equity of the Company as
reported in the financial statements, adjusted for changes in the carrying
value of investments, loans and certificates of deposit, when considering
changes in market values on a pre-tax basis. In essence, this analysis
calculates the difference between the present value of liabilities and the
present value of expected cash flows from assets and off-balance sheet
contracts. The following table sets forth, at December 31 1997, an analysis
of the Company's interest rate risk as measured by the estimated changes in
NPV resulting from an instantaneous and sustained parallel shift in the
yield curve (+ or - 400 basis points, measured in 100 basis point increments).
Change in Estimated Increase
Interest Estimated (Decrease) in NPV
Rates NPV Amount Amount Percent
- ----------- ----------- ---------------------
(Basis Points) (Dollars in thousands)
+400 $ 125,143 $( 159,398) (56)
+300 167,841 ( 116,700) (41)
+200 205,447 ( 79,094) (29)
+100 244,874 ( 39,667) (14)
---- 284,541 ---- ----
-100 315,631 31,090 11
-200 346,406 61,865 22
-300 378,736 94,195 33
-400 411,955 127,414 45
Certain assumptions in assessing the interest rate risk were employed in
preparing data for the Company included in the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay rates
and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Company's assets and liabilities would perform as
set forth above. In addition, a change in U. S. Treasury rates in the designated
amounts accompanied by a change in the shape of the U. S. Treasury yield curve
would cause significantly different changes to the NPV than indicated above.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the methods of analysis presented above. For example, although
certain assets and liabilities may have similar maturities or period
Page 41 of 50
to repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable rate loans, have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Finally,
the ability of many borrowers to service their debt may decrease in the event of
an interest rate increase. The Company considers all of these factors in
monitoring its exposure to interest rate risk.
The Company does not currently engage in trading activities or use
derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of the Board of Directors, the
Company does not intend to engage in such activities in the immediate future.
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk, do not arise in the normal course of the Company's
business activities.
Forward Looking Information - Congress passed the Private Securities
Litigation Reform Act 0f 1995 in an effort to encourage corporations to provide
information about a company's anticipated future financial performance. This
act provides a safe harbor for such disclosure which protects companies from
unwarranted litigation if actual results are different from management
expectations. This report contains forward-looking statements and reflects
management's current views and estimates of future economic circumstances,
industry conditions, company performance and financial results. These
forward-looking statements are subject to a number of factors and uncertainties
which could cause the Company's actual results and experience to differ from the
anticipated results and expectations expressed in such forward-looking
statements.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the
Company and subsidiaries, and the independent auditors'
report, appearing on Pages 18 through 34 of the Company's 1997 Annual
Report to Stockholders is incorporated herein by reference:
Consolidated Balance Sheets on Page 18
Consolidated Statements of Earnings on Page 19
Consolidated Statements of Stockholders' Equity on Page 20
Consolidated Statements of Cash Flows on Page 21
Notes to Consolidated Financial Statements on Pages 22 through 33
Independent Auditors' Report on Page 34
Page 42 of 50
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent
accountants and auditors on any matter of accounting principles or practices or
financial statement disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Election of Directors" (Pages
3-7) and "Executive Compensation" (Pages 8-13) in the Proxy Statement for the
Annual Meeting of Shareholders held February 19, 1998, which was filed by the
Registrant in definitive form with the Commission on January 20, 1998 and is
incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
For information concerning this item see "Executive Compensation" (Pages
8-13) in the Proxy Statement for the Annual Meeting of Shareholders held
February 19, 1998, which was filed by the Registrant in definitive form with the
Commission on January 20, 1998 and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this item see "Security Ownership of Certain
Beneficial Owners" (Page 4) and "Election of Directors" (Pages 3-7) in the Proxy
Statement for the Annual Meeting of Shareholders held February 19, 1998, which
was filed by the Registrant in definitive form with the Commission on January
20, 1998 and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item see "Certain Transactions and
Relationships" (Page 14) in the Proxy Statement for the Annual Meeting of
Page 43 of 50
Shareholders held February 19, 1998, which was filed by the Registrant in
definitive form with the Commission on January 20, 1998 and is incorporated
herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Hancock Holding Company and Consolidated Subsidiaries
(a) 1. and 2. Consolidated Financial Statements:
The following have been incorporated herein from the Company's 1997
Annual Report to Stockholders and are incorporated herein by reference:
- Independent Auditors' Report
- Consolidated Balance Sheets as of December 31, 1997 and 1996 -
Consolidated Statements of Earnings for the three years ended
December 31, 1997
- Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1997
- Consolidated Statements of Cash Flows for the three years ended
December 31, 1997
- Notes to Consolidated Financial Statements for the three years ended
December 31, 1997
All other financial statements and schedules are omitted as the required
information is inapplicable or the required information is presented in the
consolidated financial statements or related notes.
(a) 3. Exhibits:
(2.1) Agreement and Plan of Merger dated May 30, 1985 among Hancock
Holding Company, Hancock Bank and Pascagoula-Moss Point Bank (filed
as Exhibit 2 to the Registrant's Form 8-K dated June 6, 1985 and
incorporated herein by reference).
(2.2) Amendment dated July 9, 1985 to Agreement and Plan of Merger dated
May 30, 1985 among Hancock Holding Company, Hancock Bank and
Pascagoula-Moss Point Bank (filed as Exhibit 19 to Registrant's Form
Page 44 of 50
10-Q for the quarter ended June 30, 1985 and incorporated herein by
reference).
(2.3) Stock Purchase Agreement dated February 12, 1990 among Hancock
Holding Company, Metropolitan Corporation and Metropolitan National
Bank (filed as Exhibit 2.3 to Registrant's Form 10-K for the year
ended December 31, 1989 and incorporated herein by reference).
(2.4) Modified Purchase and Assumption Agreement dated August 2, 1990,
among Hancock Bank of Louisiana and the Federal Deposit Insurance
Corporation, receiver of American Bank and Trust Company of Baton
Rouge, Louisiana (filed as Exhibit 2.1 to the Registrant's Form 10-Q
for the quarter ended June 30, 1990 and incorporated herein by
reference).
(2.5) Agreement and Plan of Reorganization dated November 30, 1993 among
Hancock Holding Company, Hancock Bank of Louisiana and First State
Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana
(filed as Exhibit 2.5 to the Registrant's Form 10-K dated December
31, 1993).
(2.6) Agreement and Plan of Reorganization dated July 6, 1994 among
Hancock Holding Company and Washington Bancorp, Franklinton,
Louisiana (filed as Exhibit 2 to the Registrant's Form S-4,
Registration Number 33-56505, dated November 16, 1994).
(2.7) Agreement and Plan of Reorganization dated August 20, 1994 among
Hancock Holding Company and First Denham Bancshares, Inc., Denham
Springs, Louisiana (filed as Exhibit 2 to the Registrant's Form S-4,
Registration Number 33-56285, dated November 2, 1994).
(2.8) Agreement and Plan of Reorganization dated November 15, 1996 among
Hancock Holding Company, Hancock Bank of Louisiana, Community
Bancshares, Inc. and Community State Bank, Hammond Louisiana (filed
as Exhibit 2 to the Registrant's Form S-4, Registration Number 333-
11873, dated September 12, 1996).
(2.9) Agreement and Plan of Reorganization dated January 17, 1997 among
Hancock Holding Company, Hancock Bank of Louisiana and Southeast
Page 45 of 50
National Bank, Hammond, Louisiana (filed as Exhibit 2 to the
Registrant's Form S-4, Registration Number 333-14223, dated October
16, 1996).
(2.10) Agreement and Plan of Reorganization dated July 16, 1997 among
Hancock Holding Company, Hancock Bank of Louisiana and Commerce
Corporation, St. Francisville, Louisiana (filed as Exhibit 2 to the
Registrant's Form S-4, Registration Number 323-26577, dated May 6,
1997).
(3.1) Amended and Restated Articles of Incorporation dated November 8,
1990 (filed as Exhibit 3.1 to the Registrant's Form 10-K for the
year ended December 31, 1990 and incorporated herein by reference).
(3.2) Amended and Restated Bylaws dated November 8, 1990 (filed as Exhibit
3.2 to the Registrant's Form 10-K for the year ended December 31,
1990 and incorporated herein by reference).
(3.3) Articles of Amendment to the Articles of Incorporation of Hancock
Holding Company, dated October 16, 1991 (filed as Exhibit 4.1 to the
Registrant's Form 10-Q for the quarter ended September 30, 1991).
(3.4) Articles of Correction, filed with Mississippi Secretary of State on
November 15, 1991 (filed as Exhibit 4.2 to the Registrant's Form 10-
Q for the quarter ended September 30, 1991).
(3.5) Articles of Amendment to the Articles of Incorporation of Hancock
Holding Company, adopted February 13, 1992 (filed as Exhibit 3.5 to
the Registrant's Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference).
(3.6) Articles of Correction, filed with Mississippi Secretary of State on
March 2, 1992 (filed as Exhibit 3.6 to the Registrant's Form 10-K
for the year ended December 31, 1992 and incorporated herein by
reference).
(3.7) Articles of Amendment to the Articles of Incorporation adopted
February 20, 1997 (filed as Exhibit 3.7 to the Registrant's Form 10-
K for the year ended December 31, 1996 and incorporated herein by
Page 46 of 50
reference).
(4.1) Specimen stock certificate (reflecting change in par value from
$10.00 to $3.33, effective March 6, 1989) (filed as Exhibit 4.1 to
the Registrant's Form 10-Q for the quarter ended March 31, 1989 and
incorporated herein by reference).
(4.2) By executing this Form 10-K, the Registrant hereby agrees to deliver
to the Commission upon request copies of instruments defining the
rights of holders of long-term debt of the Registrant or its
consolidated subsidiaries or its unconsolidated subsidiaries for
which financial statements are required to be filed, where the total
amount of such securities authorized thereunder does not exceed 10
percent of the total assets of the Registrant and its subsidiaries
on a consolidated basis.
(10.1) 1996 Long Term Incentive Plan (filed as Exhibit 10.1 to the
Registrant's Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference).
(10.2) Description of Hancock Bank Executive Supplemental Reimbursement
Plan, as amended (filed as Exhibit 10.2 to the Registrant's Form 10-
K for the year ended December 31, 1996, and incorporated herein by
reference).
(10.3) Description of Hancock Bank Automobile Plan (filed as Exhibit 10.3
to the Registrant's Form 10-K for the year ended December 31, 1996,
and incorporated herein by reference).
(10.4) Description of Deferred Compensation Arrangement for Directors
(filed as Exhibit 10.4 to the Registrant's Form 10-K for the year
ended December 31, 1996, and incorporated herein by reference).
(10.5) Site Lease Agreement between Hancock Bank and City of Gulfport,
Mississippi dated as of March 1, 1989 (filed as Exhibit 10.4 to the
Registrant's Form 10-K for the year ended December 31, 1989 and
incorporated herein by reference).
(10.6) Project Lease Agreement between Hancock Bank and City of Gulfport,
Page 47 of 50
Mississippi dated as of March 1, 1989 (filed as
Exhibit 10.5 to the Registrant's Form 10-K for the
year ended December 31, 1989 and incorporated herein
by reference).
(10.7) Deed of Trust dated as of March 1, 1989 from Hancock Bank to Deposit
Guaranty National Bank as trustee (filed as Exhibit 10.6 to the
Registrant's Form 10-K for the year ended December 31, 1989 and
incorporated herein by reference).
(10.8) Trust Indenture between City of Gulfport, Mississippi and Deposit
Guaranty National Bank dated as of March 1, 1989 (filed as Exhibit
10.7 to the Registrant's Form 10-K for the year ended December 31,
1989 and incorporated herein by reference).
(10.9) Guaranty Agreement dated as of March 1, 1989 from Hancock Bank to
Deposit Guaranty National Bank as trustee (filed as Exhibit 10.8 to
the Registrant's Form 10-K for the year ended December 31, 1989 and
incorporated herein by reference).
(10.10) Bond Purchase Agreement dated as of February 23, 1989 among Hancock
Bank, J. C. Bradford & Co. and City of Gulfport, Mississippi (filed
as Exhibit 10.9 to the Registrant's Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference).
(13) Annual Report to Stockholders for year ending December 31, 1997
(furnished for the information of the Commission only and not deemed
"filed" except for those portions which are specifically
incorporated herein by reference).
(21) Proxy Statement for the Registrant's Annual Meeting of Shareholders
on February 19, 1998 (deemed "filed" for the purposes of this Form
10-K only for those portions which are specifically incorporated
herein by reference).
Page 48 of 50
(22) Subsidiaries of the Registrant.
Jurisdiction Holder of
Name Of Incorporation Outstanding Stock (1)
- ------------ ---------------- ------------------------
Hancock Bank Mississippi Hancock Holding Company
Hancock Bank of Louisiana Louisiana Hancock Holding Company
Hancock Bank Securities
Corporation Mississippi Hancock Bank
Hancock Insurance Agency Mississippi Hancock Bank
Hancock Investment Services
Inc. Mississippi Hancock Bank
Town Properties, Inc. Mississippi Hancock Bank
The Gulfport Building, Inc.
of Mississippi Mississippi Hancock Bank
Harrison Finance Company Mississippi Hancock Bank
Hancock Mortgage Corporation Mississippi Hancock Bank and
Hancock Bank Securities
Corporation
Harrison Life Insurance Mississippi 79% owned by Hancock
Company Bank
(1) All are 100% owned except as indicated.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
(c):
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d):
Not applicable.
Page 49 of 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
HANCOCK HOLDING COMPANY
DATE March 25, 1998 /s/ Leo W. Seal, Jr.
----------------------- ---------------------
By Leo W. Seal, Jr., President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Leo W. Seal, Jr. President and Director March 25, 1998
- ------------------------------
Leo W. Seal, Jr. (Chief Executive Officer)
/s/ Joseph F. Boardman, Jr. Director, March 25, 1998
- ------------------------------
Joseph F. Boardman, Jr. Chairman of the Board
/s/ Thomas W. Milner, Jr. Director March 25, 1998
- ------------------------------
Thomas W. Milner, Jr.
/s/ George A. Schloegel Director, March 25, 1998
- ------------------------------
George A. Schloegel Vice-Chairman of the Board
Chief Financial Officer
(Principal Accounting
and Financial Officer)
/s/ Dr. Homer C. Moody, Jr. Director March 25, 1998
- ------------------------------
Dr. Homer C. Moody, Jr.
/s/ James B. Estabrook, Jr. Director March 25, 1998
- ------------------------------
James B. Estabrook, Jr.
/s/ Charles H. Johnson Director March 25, 1998
- ------------------------------
Charles H. Johnson
/s/ L. A. Koenenn, Jr. Director March 25, 1998
- ------------------------------
L. A. Koenenn, Jr.
/s/ Victor Mavar Director March 25, 1998
- ------------------------------
Victor Mavar
EXHIBIT INDEX
13 Only Pages 5,6,7 and 18-36 of the Registrant's Annual Report to
Shareholders expressly incorporated by reference herein are included in
this exhibit and, therefore, are filed as a part of this report of Form 10-K.
23 Independent Auditor's Consent.
27 Financial Data Schedule.