UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
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Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934
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For Quarter Ending March 31, 2005
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Commission File Number 0-13089
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HANCOCK HOLDING COMPANY
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(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0693170
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
ONE HANCOCK PLAZA, P.O. BOX 4019, GULFPORT, MISSISSIPPI 39502
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(Address of principal executive offices) (Zip Code)
(228) 868-4872
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, address and fiscal year, if changed since last report)
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
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Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable
date.
32,391,579 common shares were outstanding as of April 30, 2004 for financial statement purposes.
HANCOCK HOLDING COMPANY
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INDEX
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PART I. FINANCIAL INFORMATION PAGE NUMBER
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ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) --
March 31, 2005 and December 31, 2004 3
Condensed Consolidated Statements of Earnings (Unaudited) --
Three Months Ended March 31, 2005 and 2004 4
Condensed Consolidated Statements of Common Stockholders' Equity
Equity (Unaudited) -- Three Months Ended March 31, 2005 and
2004 5
Condensed Consolidated Statements of Cash Flows (Unaudited) --
Three Months Ended March 31, 2005 and 2004 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 27
ITEM 4. Controls and Procedures 30
PART II. OTHER INFORMATION
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ITEM 1. Legal Proceedings 31
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
ITEM 3. Defaults upon Senior Securities 32
ITEM 4. Submission of Matters to a Vote of Security Holders 32
ITEM 5. Other Information 32
ITEM 6. Exhibits 32
SIGNATURES 34
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(Unaudited)
March 31, December 31,
2005 2004 *
-------------------- -------------------
ASSETS:
Cash and due from banks (non-interest bearing) $ 152,778 $ 155,797
Interest-bearing time deposits with other banks 8,148 8,126
Federal funds sold 86,782 142,135
Securities available for sale, at fair value
(amortized cost of $1,254,359 and $1,118,622) 1,227,866 1,114,468
Securities held to maturity, at amortized cost
(fair value of $191,046 and $193,578) 186,171 187,901
Loans 2,803,237 2,760,266
Less: Allowance for loan losses (41,182) (40,682)
Unearned income (11,409) (11,706)
-------------------- -------------------
Loans, net 2,750,646 2,707,878
Property and equipment, net of accumulated
depreciation of $78,632 and $77,766 80,988 79,848
Other real estate, net 3,423 3,007
Accrued interest receivable 22,214 23,783
Goodwill, net 55,409 55,409
Other intangible assets, net 14,798 14,783
Life insurance contracts 80,479 79,630
Reinsurance receivables 55,689 59,190
Other assets 43,625 32,771
-------------------- -------------------
TOTAL ASSETS $ 4,769,016 $ 4,664,726
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 724,338 $ 697,353
Interest-bearing savings, NOW, money market
and time 3,162,870 3,100,592
-------------------- -------------------
Total deposits 3,887,208 3,797,945
Federal funds purchased 2,175 800
Securities sold under agreements to repurchase 209,580 195,478
Long-term notes 50,272 50,273
Policy reserves and liabilities 113,923 111,107
Other liabilities 46,307 44,541
-------------------- -------------------
TOTAL LIABILITIES 4,309,465 4,200,144
COMMON STOCKHOLDERS' EQUITY:
Common Stock-$3.33 par value per share; 75,000,000
shares authorized, 32,462,519 and 32,439,702 issued,
respectively 108,100 108,024
Capital surplus 135,104 134,905
Retained earnings 244,477 234,423
Accumulated other comprehensive loss, net (25,218) (11,121)
Unearned compensation (2,912) (1,649)
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TOTAL COMMON STOCKHOLDERS' EQUITY 459,551 464,582
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TOTAL LIABILITIES AND
COMMON STOCKHOLDERS' EQUITY $ 4,769,016 $ 4,664,726
==================== ===================
* The balance sheet at December 31, 2004 has been derived from the audited balance sheet at that date.
See notes to unaudited condensed consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(amounts in thousands except per share data)
Three Months Ended March 31,
----------------------------
2005 2004
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INTEREST INCOME:
Loans, including fees $ 45,580 $ 40,348
Securities - taxable 11,695 11,116
Securities - tax exempt 1,790 1,837
Federal funds sold 711 153
Other investments 755 388
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Total interest income 60,531 53,842
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INTEREST EXPENSE:
Deposits 15,032 12,440
Federal funds purchased and securities sold
under agreements to repurchase 674 342
Long-term notes and other interest expense 583 688
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Total interest expense 16,289 13,470
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NET INTEREST INCOME 44,242 40,372
Provision for loan losses 2,760 3,536
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 41,482 36,836
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NON-INTEREST INCOME
Service charges on deposit accounts 9,490 10,230
Other service charges, commissions and fees 10,012 7,151
Securities gains, net 7 149
Gain on sale of branches - 2,258
Other income 2,925 2,850
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Total non-interest income 22,434 22,638
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NON-INTEREST EXPENSE
Salaries and employee benefits 22,379 22,896
Net occupancy expense of premises 2,495 2,413
Equipment rentals, depreciation and maintenance 2,357 2,326
Amortization of intangibles 584 325
Other expense 13,827 11,302
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Total non-interest expense 41,642 39,262
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EARNINGS BEFORE INCOME TAXES 22,274 20,212
Income tax expense 6,836 6,068
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NET EARNINGS $ 15,438 $ 14,144
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BASIC EARNINGS PER SHARE $ 0.48 $ 0.44
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DILUTED EARNINGS PER SHARE $ 0.47 $ 0.43
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DIVIDENDS PAID PER SHARE $ 0.165 $ 0.125
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WEIGHTED AVG. SHARES OUTSTANDING-BASIC 32,463 32,048
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WEIGHTED AVG. SHARES OUTSTANDING-DILUTED 33,019 33,018
============ =============
See notes to unaudited condensed consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
UNAUDITED
(amounts in thousands, except per share data)
Accumulated
Other
Comprehensive
Common Stock Capital Retained Income Unearned
Shares Amount Surplus Earnings (Loss), net Compensation
---------- -------------- -------------- ------------- -------------- ------------
Balance, January 1, 2004 30,455,358 $101,416 $111,963 $191,696 $(6,304) $ (957)
Net earnings 14,144
Cash dividends -
$0.125 per common share (3,942)
Preferred stock conversion 2,200,976 7,329 29,886
Change in fair value of securities
available for sale, net 5,072
Transactions relating to restricted
stock, net (47,762) (159) 1,495 (1,193)
Repurchase/retirement of common stock (131,123) (437) (3,374)
Transactions relating options
exercised, net 85,461 285 1,711
Other stock transactions, net (4,562) (15) (1,083)
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Balance, March 31, 2004 32,558,348 $108,419 $ 140,598 $ 201,898 $ (1,232) $(2,150)
========== ============== ============== ============= ============== ============
Balance, January 1, 2005 32,439,702 $ 108,024 $ 134,905 $ 234,423 $(11,121) $(1,649)
Net earnings 15,438
Cash dividends -
$0.165 per common share (5,384)
Change in fair value of securities available
for sale, net (14,097)
Transactions relating to restricted
stock, net (10,285) (34) 1,571 (1,263)
Repurchase/retirement of common stock (44,413) (148) (1,264)
Transactions relating options
exercised, net 21,709 72 (60)
Other stock transactions, net 55,806 186 (48)
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Balance, March 31, 2005 32,462,519 $108,100 $135,104 $ 244,477 $(25,218) $(2,912)
========== ============== =========== =========== ============ =============
See notes to unaudited condensed consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(amounts in thousands)
Three Months Ended March 31,
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2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 15,438 $ 14,144
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,236 2,325
Provision for loan losses 2,760 3,536
Provision for losses on other real estate owned 35 95
Increase in cash surrender value of life insurance contracts (849) (800)
Gain on sales of securities available for sale, net (7) (149)
Gain on sale of branches - (2,258)
Amortization of securities premium/discount 780 1,714
Amortization of intangible assets 584 325
Amortization of compensation element of restricted stock 196 165
(Increase) decrease in deferred tax asset (366) 3,685
Decrease in interest receivable 1,569 2,014
Increase in accrued expenses 133 5,998
Increase in other liabilities 1,835 909
Decrease in interest payable (202) (708)
Increase in policy reserves and liabilities 2,816 13,778
Decrease (increase) in reinsurance receivables 3,501 (707)
(Increase) decrease in other assets, net (2,210) 10,181
Other, net (1,812) (2,447)
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Net cash provided by operating activities 26,437 51,800
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest-bearing time deposits (22) (696)
Proceeds from maturities, calls or prepayments of
securities held to maturity 6,559 15,880
Proceeds from sales and maturities of securities
available for sale 130,745 207,736
Purchases of securities held to maturity (4,819) -
Purchases of securities available for sale (267,265) (287,136)
Net decrease (increase) in federal funds sold 55,353 (52,702)
Net increase in loans (46,620) (58,389)
Purchases of property, equipment and software, net (2,633) (2,061)
Proceeds from sales of other real estate 641 1,052
Premiums paid on bank owned life insurance contracts - (25,000)
Net cash paid in connection with sale of branches - (22,999)
Net cash received in connection purchase transaction - 85
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Net cash used in investing activities (128,061) (224,230)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 89,263 160,516
Net increase in federal funds purchased and
securities sold under agreements to repurchase 15,477 14,038
Repayment of short-term note - (9,400)
Reductions of long-term notes (1) (72)
Dividends paid (5,384) (3,942)
Conversion of preferred stock to cash - (147)
Proceeds from exercise of stock options 360 1,121
Repurchase/retirement of common stock (1,412) (3,811)
Other stock transactions, net 302 (106)
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Net cash provided by financing activities 98,605 158,197
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NET DECREASE IN CASH AND DUE FROM BANKS (3,019) (14,233)
CASH AND DUE FROM BANKS, BEGINNING 155,797 178,082
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CASH AND DUE FROM BANKS, ENDING $ 152,778 $ 163,849
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SUPPLEMENTAL INFORMATION:
Income taxes paid $ 5,462 $ 2,687
Interest paid 16,491 14,063
SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Transfers from loans to other real estate $ 1,092 $ 1,403
Financed sale of foreclosed property 222 557
See notes to unaudited condensed consolidated financial statements.
Hancock Holding Company (the Company) is a financial holding company headquartered in Gulfport, Mississippi operating in the states of Mississippi, Louisiana, Alabama and Florida through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi, Hancock Bank of Louisiana, Baton Rouge, Louisiana and Hancock Bank of Florida, Tallahassee, Florida (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.
The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America and general practices within the banking industry. The consolidated financial statements of the Company include the accounts of the Company, the Banks, Hancock Investment Services, Inc., Hancock Insurance Agency, Inc., Harrison Finance Company, Magna Insurance Company and subsidiary, as well as three real estate corporations owning land and buildings that house bank branches and other facilities. Significant intercompany transactions and balances have been eliminated in consolidation.
In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. The determination of the allowance for loan losses is a material estimate that is particularly subject to significant change. Certain prior year amounts have been reclassified to conform to the 2005 presentation.
For further information, refer to the consolidated financial statements and notes thereto of Hancock Holding Company’s 2004 Annual Report to Shareholders.
COMPREHENSIVE EARNINGSFollowing is a summary of the Company’s comprehensive earnings for the three months ended March 31, 2005 and 2004.
(Amounts in thousands)
Three Months Ended March 31,
-----------------------------------
2005 2004
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Net earnings $ 15,438 $ 14,144
Other comprehensive income (loss)
(net of income tax):
Change in fair value of securities
available for sale, net of tax
$7,588 and $2,783, respectively (14,092) 5,169
Reclassification adjustments for gains
included in net earnings, net of tax
of $3 and $52, respectively (5) (97)
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Total Comprehensive Earnings $ 1,341 $ 19,216
=============== ================
The Company applies Accounting Principles Board (APB) Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized. The Company has adopted the disclosure-only option under Statement of Financial Accounting Standards (SFAS) No. 123. Had compensation costs for the Company’s stock options and restricted stock awards been determined based on the fair value at the grant date, consistent with the method under SFAS No. 123, the Company’s net earnings and earnings per share would have been as indicated below:
Three Months Ended March 31,
----------------------------------
2005 2004
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Net earnings available to common
stockholders:
As reported $ 15,438 $ 14,144
Deduct total stock based compensation
determined under the fair value method for all awards,
net of tax (618) (145)
-------------- ---------------
Pro forma net earnings available to
common stockholders $ 14,820 $ 13,999
============== ===============
Basic earnings per share:
As reported $ 0.48 $ 0.44
Pro forma $ 0.46 $ 0.44
Diluted earnings per share:
As reported $ 0.47 $ 0.43
Pro forma $ 0.45 $ 0.42
ACQUISITIONS
During March 2004, the Company acquired the majority of loans, securities and deposits of the former Guaranty National Bank of Tallahassee, Florida. The Office of the Comptroller of Currency closed all locations of Guaranty National on March 12, 2004. With the transaction, the Company acquired five locations with approximately $40.0 million in performing loans and approximately $69.1 million in deposits from the Federal Deposit Insurance Corporation (FDIC) for a premium of $13.6 million, or 20% of acquired deposits. The Company paid $5.0 million in consideration for the acquisition of assets, net of related deposit liabilities. In accounting for the transaction, management considered it to be an “acquisition of business” and, accordingly, accounted for it under the purchase method of accounting pursuant to SFAS No. 141. Final allocations of asset and liability fair values have been recorded based on an analysis performed by an independent third party.
During the fourth quarter of 2004, the Company acquired Ross-King-Walker, Inc. (RKW), a well-known Hattiesburg, MS based property and casualty insurance agency, as a division of Hancock Insurance Agency in an all cash transaction. The post-purchase entity will retain the RKW name and become an affiliate of Hancock Insurance Agency.
SALE OF BRANCHESOn March 8, 2004, the Company completed the sale of four Louisiana branches to Sabine State Bank, resulting in a $2.3 million pre-tax gain. The branches that were sold were acquired in the 1999 American Security Bank purchase. The Company made a cash payment of approximately $23 million, whereby approximately $19.7 million in loans were transferred and $42.9 million in deposits liabilities assumed by Sabine State Bank in this transaction.
On February 4, 2004, the Company completed the redemption/conversion of substantially all $37.1 million of its 8% Cumulative Convertible Preferred Stock which had been originally issued in partial payment for the acquisition of Lamar Capital Corporation in July, 2001. The conversion factor was .6666 shares of Hancock Holding Company common stock for each share of the preferred stock. A total of 7,304 shares of the preferred stock was redeemed for cash at the contract price of $20.00 per share plus pro rated dividends of $0.1511 per share.
STOCK SPLITOn February 26, 2004 the Company’s Board of Directors declared a two-for-one stock split in the form of a 100% common stock dividend. The additional shares were payable March 18, 2004 to shareholders of record at the close of business on March 8, 2004.
All information, including earnings per share, dividends per share, and number of shares outstanding has been adjusted to give retroactive effect to this split.
SEGMENT REPORTINGThe Company’s primary segments are geographically divided into the Mississippi (MS), Louisiana (LA) and Florida (FL) markets. Each segment offers the same products and services but is managed separately due to different pricing, product demand, and consumer markets. Each segment offers commercial, consumer and mortgage loans and deposit services. In the following tables, the column “Other” includes additional consolidated subsidiaries of the Company: Hancock Investment Services, Inc., Hancock Insurance Agency, Inc., Harrison Finance Company, Magna Insurance Company and three real estate corporations owning land and buildings that house bank branches and other facilities. Following is selected information for the Company’s segments (amounts in thousands):
Three Months Ended,
March 31, 2005
MS LA FL Other Eliminations Consolidated
------------- ------------- ------------ ------------ ------------- ---------------
Interest income $ 31,973 $ 25,170 $ 1,191 $ 3,945 $ (1,750) $ 60,529
Interest expense 10,122 6,708 326 802 (1,671) 16,287
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Net interest income 21,851 18,462 865 3,143 (79) 44,242
Provision for loan losses 736 1,544 99 381 - 2,760
Non-interest income 9,451 7,620 98 5,343 (79) 22,433
Depreciation and amortization 1,364 601 142 129 - 2,236
Other non-interest expense 18,242 13,232 1,192 6,691 48 39,405
------------- ------------- ------------ ------------ ------------- ---------------
Earnings (loss) before
income taxes 10,960 10,705 (470) 1,285 (206) 22,274
Income tax expense 3,351 3,248 (180) 452 (35) 6,836
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Net earnings (loss) $ 7,609 $ 7,457 $ (290) $ 833 $ (171) $ 15,438
============= ============= ============ ============ ============= ===============
Three Months Ended,
March 31, 2004
MS LA FL Other Eliminations Consolidated
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Interest income $ 28,915 $ 21,843 $ 177 $ 3,808 $ (901) $ 53,842
Interest expense 9,146 4,485 74 541 (776) 13,470
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Net interest income 19,769 17,358 103 3,267 (125) 40,372
Provision for loan losses 1,336 1,051 400 749 - 3,536
Non-interest income 9,638 8,919 31 4,690 (640) 22,638
Depreciation and amortization 1,494 691 - 137 3 2,325
Other non-interest expense 18,248 12,781 95 5,619 194 36,937
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Earnings (loss) before
income taxes 8,329 11,754 (361) 1,452 (962) 20,212
Income tax expense 2,294 3,613 (140) 497 (196) 6,068
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Net earnings (loss) $ 6,035 $ 8,141 $ (221) $ 955 $ (766) $ 14,144
============= ============= ============ ============ ============= ===============
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents costs in excess of the fair value of net assets acquired in connection with purchase business combinations. In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangibles”, the Company tests its goodwill for impairment annually. No impairment charges were recognized as of March 31, 2005. The carrying amount of goodwill as of March 31, 2005 and December 31, 2004 was $55.4 million.
The following tables present information regarding the components of the Company’s identifiable intangible assets, and related amortization for the dates indicated (amounts in thousands):
As of As of
March 31, 2005 December 31, 2004
------------------------------------- --------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
----------------- ----------------- ----------------- -----------------
Amortizable Intangible Assets:
Core deposit intangibles $ 14,140 $ 4,692 $ 14,148 $ 4,281
Value of insurance
businesses acquired 3,405 344 2,575 179
Mortgage servicing rights 4,763 2,474 4,835 2,315
----------------- ----------------- ----------------- -----------------
Total $ 22,308 $ 7,510 $ 21,558 $ 6,775
================= ================= ================= =================
Three months ended March 31,
--------------------------------------
2005 2004
----------------- -----------------
Aggregate amortization expense for:
Core deposit intangibles $ 419 $ 292
Value of insurance businesses acquired 165 33
Mortgage servicing rights 226 284
----------------- -----------------
Total $ 810 $ 609
================= =================
Amortization of the core deposit intangibles is estimated to be approximately $1.7 million in 2005, $1.4 million in 2006, $1.2 million in 2007, $1.1 million in 2008, $1.1 million in 2009 and the remainder of $3.4 million thereafter. The amortization of the value of business acquired is expected to approximate $660,000 in 2005, $491,000 in 2006, $355,000 in 2007, $258,000 in 2008, $244,000 in 2009 and the remainder of $1.2 million thereafter. Amortization of servicing rights is estimated to be approximately $827,000 in 2005, $630,000 in 2006, $440,000 in 2007, $287,000 in 2008, $196,000 in 2009 and the remainder of $140,000 thereafter. The weighted-average amortization period used for intangibles is 10 years.
Net periodic benefits cost includes the following components for the three months ended March 31, 2005 and 2004 (amounts in thousands):
Three months ended March 31,
Pension Benefits Other Post-retirement Benefits
---------------------------------- ---------------------------------
2005 2004 2005 2004
--------------- --------------- --------------- ---------------
Service Cost $ 538,285 $ 514,357 $ 77,500 $ 69,472
Interest Cost 848,769 787,772 97,000 92,714
Expected return on plan assets (852,597) (760,753) - -
Amortization of prior service cost 6,531 20,713 (13,250) (13,259)
Amortization of net loss 249,765 234,478 22,000 20,589
Amortization of transition obligation - - 1,250 1,288
--------------- --------------- --------------- ---------------
Net periodic benefit cost $ 790,753 $ 796,567 $ 184,500 $ 170,804
=============== =============== =============== ===============
The Company anticipates that it will contribute $3.2 million to its pension plan and approximately $344,000 for post-retirement benefits in 2005. During the first quarter of 2005, the Company contributed $683,000 to its pension plan and approximately $133,000 for post-retirement benefits.
LOANS AND ALLOWANCE FOR LOAN LOSSESThe 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 (amounts in thousands):
Three Months Ended March 31,
------------------------------------
2005 2004
---------------- ----------------
Balance of allowance for loan losses
at beginning of period $ 40,682 $ 36,750
Provision for loan losses 2,760 3,536
Loans charged-off:
Commercial, Real Estate & Mortgage 1,099 2,407
Direct & Indirect Consumer 1,647 1,611
Finance Company 519 664
Demand Deposit Accounts 761 1,013
---------------- ----------------
Total charge-offs 4,026 5,695
---------------- ----------------
Recoveries of loans previously
charged-off:
Commercial, Real Estate & Mortgage 261 1,249
Direct & Indirect Consumer 549 503
Finance Company 138 115
Demand Deposit Accounts 818 1,042
---------------- ----------------
Total recoveries 1,766 2,909
---------------- ----------------
Net charge-offs 2,260 2,786
---------------- ----------------
Balance of allowance for loan losses
at end of period $ 41,182 $ 37,500
================ ================
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:
Three Months Ended March 31,
------------------------------------
2005 2004
---------------- ----------------
Ratios :
Net charge-offs to average net loans (annualized) 0.33% 0.45%
Net charge-offs to period-end net loans (annualized) 0.32% 0.44%
Allowance for loan losses to average net loans 1.48% 1.51%
Allowance for loan losses to period-end net loans 1.48% 1.49%
Net charge-offs to loan loss allowance 5.49% 7.43%
Provision for loan losses to net charge-offs 122.13% 126.92%
Following is a summary of the information used in the computation of earnings per common share (in thousands).
Three Months Ended March 31,
--------------------------------
2005 2004
-------------- --------------
Net earnings - used in computation of diluted
earnings per share $ 15,438 $ 14,144
============== ==============
Weighted average number of shares
outstanding - used in computation of
basic earnings per share 32,463 32,048
Effect of dilutive securities
Stock options and restricted stock awards 556 970
-------------- --------------
Weighted average number of shares
outstanding plus effect of dilutive
securities - used in computation of
diluted earnings per share 33,019 33,018
============== ==============
There were no anti-dilutive shares outstanding for the three months ended March 31, 2005 and 2004.
The following tables present selected comparative financial data. All share and per share data have been restated to reflect the 100% stock dividend made March 18, 2004.
(amounts in thousands, except per share data)
Three Months Ended
-----------------------------
3/31/2005 3/31/2004
------------- -------------
Per Common Share Data
Earnings per share:
Basic $0.48 $0.44
Diluted $0.47 $0.43
Cash dividends per share $0.165 $0.125
Book value per share (period end) $14.16 $13.75
Weighted average number of shares:
Basic 32,463 32,048
Diluted (1) 33,019 33,018
Period end number of shares 32,463 32,558
Market data:
High closing price $34.20 $32.00
Low closing price $30.25 $27.08
Period end closing price $32.50 $30.96
Trading volume 3,284 2,745
(1) There were no anti-dilutive shares outstanding for the three months ended
March 31, 2005 and 2004.
(amounts in thousands, except per share data)
Three Months Ended
--------------------------------
3/31/2005 3/31/2004
-------------- ---------------
Performance Ratios
Return on average assets 1.32% 1.33%
Return on average common equity 13.32% 13.01%
Earning asset yield (Tax Equivalent ("TE")) 5.90% 5.82%
Total cost of funds 1.55% 1.41%
Net interest margin (TE) 4.35% 4.41%
Average common equity as a percent of average total assets 9.94% 10.24%
Leverage ratio (period end) 8.75% 8.73%
FTE Headcount 1,766 1,717
Asset Quality Information
Non-accrual loans $6,335 $9,670
Foreclosed assets $3,591 $5,212
Total non-performing assets $9,926 $14,882
Non-performing assets as a percent of loans and foreclosed assets 0.36% 0.59%
Accruing loans 90 days past due $2,798 $5,011
Accruing loans 90 days past due as a percent of loans 0.10% 0.20%
Non-performing assets + accruing loans 90 days past due
to loans and foreclosed assets 0.46% 0.79%
Net charge-offs $2,260 $2,786
Net charge-offs as a percent of average loans 0.33% 0.45%
Allowance for loan losses $41,182 $37,500
Allowance for loan losses as a percent of period end loans 1.48% 1.49%
Allowance for loan losses to NPAs + accruing loans 90 days past due 323.66% 188.51%
Provision for loan losses $2,760 $3,536
Provision for loan losses to net charge-offs 122.13% 126.92%
Average Balance Sheet
Total loans $2,776,229 $2,477,971
Securities 1,350,505 1,287,487
Short-term investments 132,582 75,311
Earning assets 4,259,316 3,840,769
Allowance for loan losses (40,688) (36,927)
Other assets 512,166 467,781
Total assets $4,730,794 $4,271,623
Non-interest bearing deposits $701,144 $622,271
Interest bearing transaction deposits 1,332,152 1,348,113
Interest bearing public fund deposits 711,789 595,311
Time deposits 1,089,367 966,215
Total interest bearing deposits 3,133,308 2,909,639
Total deposits 3,834,452 3,531,911
Other borrowed funds 271,473 231,609
Other liabilities 154,801 61,823
Preferred stock - 9,009
Common stockholders' equity 470,068 437,272
Total liabilities & common stockholders' equity $4,730,794 $4,271,623
(amounts in thousands, except per share data)
Three Months Ended
-------------------------------
3/31/2005 3/31/2004
-------------- --------------
Period end Balance Sheet
Commercial/real estate loans $1,488,523 $1,319,388
Mortgage loans 414,346 388,447
Direct consumer loans 510,116 483,019
Indirect consumer loans 318,164 275,810
Finance company loans 60,679 56,216
Total loans 2,791,829 2,522,878
Securities 1,414,037 1,349,504
Short-term investments 94,930 78,185
Earning assets 4,300,796 3,950,567
Allowance for loan losses (41,182) (37,500)
Other assets 509,402 452,600
Total assets $4,769,016 $4,365,666
Non-interest bearing deposits $724,338 $650,867
Interest bearing transaction deposits 1,332,269 1,353,639
Interest bearing public funds deposits 724,362 614,746
Time deposits 1,106,238 1,011,421
Total interest bearing deposits 3,162,870 2,979,806
Total deposits 3,887,208 3,630,673
Other borrowed funds 266,528 218,568
Other liabilities 155,729 68,856
Preferred stock - 36
Common stockholders' equity 459,551 447,533
Total liabilities & common stockholders' equity $4,769,016 $4,365,666
Net Charge-Off Information
Net charge-offs:
Commercial/real estate loans $770 $1,159
Mortgage loans 68 (1)
Direct consumer loans 501 637
Indirect consumer loans 540 442
Finance company loans 381 549
-------------- --------------
Total net charge-offs $2,260 $2,786
============== ==============
Net charge-offs to average loans:
Commercial/real estate loans 0.21% 0.36%
Mortgage loans 0.07% 0.00%
Direct consumer loans 0.40% 0.53%
Indirect consumer loans 0.70% 0.66%
Finance company loans 2.54% 3.98%
Total net charge-offs to average net loans 0.33% 0.45%
(amounts in thousands, except per share amounts)
Three Months Ended
-------------------------------
3/31/2005 3/31/2004
-------------- --------------
Average Balance Sheet Composition
Percentage of earning assets/funding sources:
Loans 65.18% 64.52%
Securities 31.71% 33.52%
Short-term investments 3.11% 1.96%
Earning assets 100.00% 100.00%
Non-interest bearing deposits 16.46% 16.20%
Interest bearing transaction deposits 31.28% 35.10%
Interest bearing public funds deposits 16.71% 15.50%
Time deposits 25.58% 25.16%
Total deposits 90.03% 91.96%
Other borrowed funds 6.37% 6.03%
Other net interest-free funding sources 3.60% 2.01%
Total funding sources 100.00% 100.00%
Loan mix:
Commercial/real estate loans 53.71% 52.44%
Mortgage loans 14.67% 14.82%
Direct consumer loans 18.14% 19.67%
Indirect consumer loans 11.29% 10.83%
Finance company loans 2.19% 2.24%
Total loans 100.00% 100.00%
Average dollars (in thousands)
Loans $2,776,229 $2,477,971
Securities 1,350,505 1,287,487
Short-term investments 132,582 75,311
-------------- --------------
Earning assets $4,259,316 $3,840,769
============== ==============
Non-interest bearing deposits $701,144 $622,271
Interest bearing transaction deposits 1,332,152 1,348,113
Interest bearing public funds deposits 711,789 595,311
Time deposits 1,089,367 966,215
-------------- --------------
Total deposits 3,834,452 3,531,911
Other borrowed funds 271,473 231,609
Other net interest-free funding sources 153,391 77,250
-------------- --------------
Total funding sources $4,259,316 $3,840,769
============== ==============
Loans:
Commercial/real estate loans $1,491,008 $1,299,399
Mortgage loans 407,258 367,320
Direct consumer loans 503,700 487,452
Indirect consumer loans 313,542 268,311
Finance company loans 60,720 55,488
-------------- --------------
Total average loans $2,776,229 $2,477,971
============== ==============
The following discussion provides management’s analysis of certain factors that have affected the Company’s consolidated financial condition and operating results during the periods included in the accompanying unaudited condensed consolidated financial statements. 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. At March 31, 2005, the Company operated more than 100 banking offices and more than 140 automated teller machines (ATMs) in the states of Mississippi, Louisiana and Florida through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi (Hancock Bank MS), Hancock Bank of Louisiana, Baton Rouge, Louisiana (Hancock Bank LA) and Hancock Bank of Florida, Tallahassee, Florida (Hancock Bank FL). Hancock Bank MS also operates a loan production office in the State of Alabama. Hancock Bank MS, Hancock Bank LA, and Hancock Bank FL 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 March 31, 2005, the Company had total assets of $4.8 billion and employed on a full-time equivalent basis 1,246 persons in Mississippi, 484 persons in Louisiana and 36 persons in Florida.
CRITICAL ACCOUNTING POLICIESCertain critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The Company’s single most critical accounting policy relates to its allowance for loan losses, which reflects the estimated losses resulting from the inability of its borrowers to make loan payments. If the financial condition of its borrowers were to deteriorate, resulting in an impairment of their ability to make payments, its estimates would be updated, and additional provisions for loan losses may be required.
CHANGES IN FINANCIAL CONDITIONThe Company manages liquidity through traditional funding sources of core deposits, federal funds, and maturities of loans and securities held to maturity and sales and maturities of securities available for sale.
The following liquidity ratios at March 31, 2005 and December 31, 2004 compare certain assets and liabilities to total deposits or total assets:
March 31, December 31,
2005 2004
------------------ -----------------
Total securities to total deposits 36.38% 34.29%
Total loans (net of unearned
income) to total deposits 71.82% 72.37%
Interest-earning assets
to total assets 90.18% 90.06%
Interest-bearing deposits
to total deposits 81.37% 81.64%
The Company continues to maintain an adequate capital position. The ratios as of March 31, 2005 and December 31, 2004 are as follows:
March 31, December 31,
2005 2004
----------------- -----------------
Average equity to average assets 9.94% 10.11%
Regulatory ratios:
Average equity to average assets (1) 10.02% 10.17%
Total capital to risk-weighted assets (2) 13.49% 13.58%
Tier 1 capital to risk-weighted
assets (3) 12.30% 12.39%
Leverage capital to average total assets (4) 8.75% 8.97%
(1) Equity capital, for regulatory purposes, consists of stockholders' equity (excluding unrealized
gains/(losses)).
(2) Total capital consists of equity capital less intangible assets plus a limited amount of allowance for
loan losses. Risk-weighted assets represent the assigned risk portion of all on and off-balance-sheet
assets. Based on Federal Reserve Board guidelines, assets are assigned a risk factor percentage from 0%
to 100%. A minimum ratio of total capital to risk-weighted assets of 8% is required.
(3) Tier 1 capital consists of equity capital less intangible assets. A minimum ratio of tier 1 capital to
risk-weighted assets of 4% is required.
(4) Leverage capital consists of equity capital less goodwill and core deposit intangibles. Regulations
require a minimum 3% leverage capital ratio for an entity to be considered adequately capitalized.
Net earnings for the first quarter of 2005 totaled $15.4 million, compared to $14.1 million reported for the first quarter of 2004, an increase of $1.3 million, or 9%. Following is selected information for quarterly and year-to-date comparison:
Three Months Ended March 31,
--------------------------------
2005 2004
-------------- --------------
Results of Operations:
Return on average assets 1.32 % 1.33 %
Return on average equity 13.32 % 13.01 %
Net Interest Income:
Yield on average interest-earning assets (TE) 5.90 % 5.82 %
Cost of average interest-bearing funds 1.94 % 1.72 %
-------------- --------------
Net interest spread (TE) 3.96 % 4.10 %
============== ==============
Net interest margin (TE)
(net interest income on a tax-equivalent basis
divided by average interest-earning assets) 4.35 % 4.41 %
============== ==============
Net Interest Income
Net interest income (te) for the first quarter of 2005 increased $3.79 million, or 9%, from the first quarter of 2004, but was $24,000, or less than 1%, lower than the fourth quarter of 2004. The Company’s net interest margin (te) was 4.35% in the first quarter of 2005, 6 basis points narrower than the same quarter a year ago, and 18 basis points narrower than the previous quarter.
Compared to the same quarter a year ago, the primary driver of the $3.79 million increase in net interest income (te) was a $419 million, or 11%, increase in average earning assets, mainly from average loan growth of $298 million, or 12%. In addition, the securities portfolio increased $63 million, or 5%, while short-term investments increased $58 million, or 76%. The Company’s overall increase in earnings assets was primarily funded by average deposit growth of $303 million, or 9%. As previously mentioned, deposit growth was reflected in nearly every deposit category with the majority of the $303 million increase reflected in public fund deposits (up $116 million) and time deposits (up $123 million). This improvement in the earning asset mix enabled the Company to improve its loan to deposit ratio from 70% in the first quarter of 2004 to 72% in the current quarter. The net interest margin (te) narrowed slightly (by 6 basis points) as the cost of funds increased more rapidly (14 basis points) than the overall yield on loans, securities and short-term investments (8 basis points). Most of the increase in funding costs was reflected in the rate paid on public fund deposits (up 66 basis points).
The slightly lower level of net interest income (te) (down $24,000, or less than 1%) and the lower net interest margin (down 18 basis points) as compared to the previous quarter was primarily due to an unfavorable earning asset mix as loan growth slowed to $62 million and deposits increased by $225 million. The yield on average earning assets decreased 10 basis points while the cost of funds increased 8 basis points.
The following tables detail the components of the Company’s net interest spread and net interest margin.
Three Months Ended March 31, Three Months Ended March 31,
------------------------------------ -------------------------------------
2005 2004
------------------------------------ -------------------------------------
(dollars in thousands) Interest Volume Rate Interest Volume Rate
------------------------------------ -------------------------------------
Average Earning Assets
Commercial & real estate loans (TE) $22,303 $1,491,008 6.06% $17,925 $1,299,399 5.55%
Mortgage loans 5,697 407,258 5.60% 5,196 367,320 5.66%
Consumer loans 16,409 877,963 7.58% 15,816 811,252 7.84%
Loan fees & late charges 1,978 - 0.00% 2,163 - 0.00%
------------------------------------ -------------------------------------
Total loans (TE) 46,387 2,776,229 6.76% 41,100 2,477,971 6.66%
US treasury securities 60 11,058 2.20% 48 10,118 1.93%
US agency securities 4,285 430,408 3.98% 3,783 371,647 4.07%
CMOs 2,686 267,037 4.02% 3,038 319,916 3.80%
Mortgage backed securities 4,547 412,573 4.41% 3,900 367,585 4.24%
Municipals (TE) 2,871 163,543 7.02% 3,286 183,969 7.14%
Other securities 672 65,886 4.08% 367 34,252 4.29%
------------------------------------ -------------------------------------
Total securities (TE) 15,122 1,350,505 4.48% 14,422 1,287,487 4.48%
Fed funds sold 711 118,503 2.43% 153 64,192 0.96%
Cds with banks 49 8,361 2.37% 8 5,626 0.54%
Other short-term investments 32 5,718 2.26% 13 5,493 0.97%
------------------------------------ -------------------------------------
Total short-term investments 792 132,582 2.42% 174 75,311 0.93%
Average earning assets yield (TE) $62,302 $4,259,316 5.90% $55,696 $3,840,769 5.82%
Interest-Bearing Liabilities
Interest-bearing transaction deposits $1,921 $1,332,152 0.58% $2,074 $1,348,113 0.62%
Time deposits 9,360 1,089,367 3.48% 8,168 966,215 3.40%
Public Funds 3,751 711,789 2.14% 2,198 595,311 1.48%
------------------------------------ -------------------------------------
Total interest bearing deposits 15,032 3,133,308 1.95% 12,440 2,909,639 1.72%
Customer repos 664 214,878 1.25% 338 169,830 0.80%
Other borrowings 593 56,595 4.25% 692 61,779 4.51%
------------------------------------ -------------------------------------
Total borrowings 1,256 271,473 1.88% 1,030 231,609 1.79%
Total interest bearing liability cost $16,289 $3,404,781 1.94% $13,470 $3,141,248 1.72%
Noninterest-bearing deposits 701,144 622,271
Other net interest-free funding sources 153,391 77,250
Total Cost of Funds $16,289 $4,259,316 1.55% $13,470 $3,840,769 1.41%
Net Interest Spread (TE) $46,013 3.96% $42,226 4.10%
Net Interest Margin (TE) $46,013 $4,259,316 4.35% $42,226 $3,840,769 4.41%
------------------------------------ -------------------------------------
Provision for Loan Losses
The amount of the allowance for loan losses equals the cumulative total of the provisions for loan losses, reduced by actual loan charge-offs, and increased by allowances acquired in acquisitions and recoveries of loans previously charged-off. Provisions are made to the allowance to reflect the currently perceived risks of loss associated with the bank’s loan portfolio. A specific loan is charged-off when management believes, after considering, among other things, the borrower’s financial condition and the value of any collateral, that collection of the loan is unlikely.
The following information is useful in determining the adequacy of the loan loss allowance and loan loss provision. The ratios are calculated using average loan balances. (Amounts shown are in thousands.)
At and for the
----------------------------------
Three Months Ended March 31,
----------------------------------
2005 2004
--------------- ---------------
Annualized net charge-offs to average loans 0.33% 0.45%
Annualized provision for loan losses to average
loans 0.40% 0.57%
Average allowance for loan losses to average loans 1.48% 1.49%
Gross charge-offs $ 4,026 $ 5,695
Gross recoveries $ 1,766 $ 2,909
Non-accrual loans $ 6,335 $ 9,670
Accruing loans 90 days or more past due $ 2,798 $ 5,011
Non-Interest Income
Non-interest income (excluding gains from the sale of branches of $2.3 million and security transactions of $149,000 recognized in the first quarter of 2004) for the first quarter of 2005 was up $2.20 million, or 11%, compared to the same quarter a year ago and was up $390,000, or 2%, compared to the fourth quarter of 2004. Impacting the change from the same quarter a year ago were higher levels of income from insurance operations (up $1.40 million, or 56%) in Magna Insurance Company and Hancock Insurance Agency. In addition, increases were reflected in trust fees (up $556,000, or 28%) and investment and annuity fees (up $495,000, or 71%). Service charges on deposit accounts were down $740,000, or 7%, from the first quarter of 2004. The increase in non-interest income from the prior quarter was concentrated in income from insurance operations (up $2.06 million, or 113%), again, due primarily to Magna Insurance Company. This was offset by decreases in service charges on deposit accounts and secondary mortgage market operations (down $1.57 million and $990,000, respectively). Secondary mortgage market operations income was lower due to the reversal (due to changes in the interest rate environment) of a previously established $850,000 valuation allowance related to the mortgage servicing rights intangible during the fourth quarter of 2004, which was not repeated during the first quarter of 2005.
The components of non-interest income for the three months ended March 31, 2005 and 2004 are presented in the following table (amounts in thousands):
Three Months Ended March 31,
-----------------------------------
2005 2004
---------------- ---------------
Service charges on deposit accounts $ 9,490 $ 10,230
Trust fees 2,541 1,985
Credit card merchant discount fees 1,030 861
Income from insurance operations 3,881 2,484
Investment & annuity fees 1,188 693
ATM fees 1,372 1,128
Secondary mortgage market operations 499 385
Other income 2,426 2,465
---------------- ---------------
Total other non-interest income 22,427 20,231
Gain on sale of assets - 2,258
Securities transactions gains 7 149
---------------- ---------------
Total non-interest income $ 22,434 $ 22,638
================ ===============
Non-interest expenses for the first quarter of 2005 were $2.38 million, or 6%, higher compared to the same quarter a year ago, and were $3.70 million, or 10%, higher than the previous quarter. The increase from the first quarter of 2004 was primarily due to higher expenses levels related to Magna Insurance Company ($1.70 million) and a higher expense base related to the Company’s Florida operation ($1.24 million). A significant factor driving the $3.70 million increase in operating expenses from the previous quarter was the presence of two specific items in the fourth quarter of 2004, as well as a higher expense base related to Magna Insurance Company (up $1.64 million) in 2005. The two fourth quarter 2004 items that were not repeated during the first quarter of 2005 included an $800,000 reversal of previously accrued expense related to favorable claims experience in the Company’s medical plan and a recovery of $1.15 million in previously paid franchise taxes to the State of Mississippi.
The following table presents the components of non-interest expense for the three months ended March 31, 2005 and 2004.
Three Months Ended March 31,
-----------------------------------
(dollars in thousands) 2005 2004
---------------- ----------------
Employee compensation $ 17,894 $ 16,940
Employee benefits 4,485 5,956
---------------- ----------------
Total personnel expense 22,379 22,896
---------------- ----------------
Equipment and data processing expense 4,295 4,322
Net occupancy expense 2,495 2,413
Postage and communications 1,706 2,081
Ad valorem and franchise taxes 753 813
Legal and professional services 3,292 1,385
Stationery and supplies 469 484
Amortization of intangible assets 584 325
Advertising 1,100 1,087
Deposit insurance and regulatory fees 249 211
Training expenses 157 128
Other real estate owned expense 206 231
Other expense 3,957 2,886
---------------- ----------------
Total non-interest expense $ 41,642 $ 39,262
================ ================
Income Taxes
The effective federal income tax rate of the Company continues to be less than the statutory rate of 35%, due primarily to tax-exempt interest income. For the three months ended March 31, 2005 and 2004, the effective federal income tax rate was approximately 31% and 30%, respectively. The amount of tax-exempt income earned during the first three months of 2005 was $3.1 million compared to $3.3 million for the comparable period in 2004.
Off Balance Sheet TransactionsIn the normal course of business, the Company enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded and involve, to varying degrees, elements of credit risk not reflected in the consolidated balance sheets. The contract amounts of these instruments reflect the Company’s exposure to credit loss in the event of non-performance by the other party on whose behalf the instrument has been issued. The Company undertakes the same credit evaluation in making commitments and conditional obligations as it does for on-balance-sheet instruments and may require collateral or other credit support for off-balance-sheet financial instruments.
At March 31, 2005, the Company had $618.2 million in unused loan commitments outstanding, of which approximately $380.0 million were at variable rates, with the remainder at fixed rates. A commitment to extend credit is an agreement to lend to a customer as long as the conditions established in the agreement have been satisfied. A commitment to extend credit generally has a fixed expiration date or other termination clauses and may require payment of a fee by the borrower. Since commitments often expire without being fully drawn, the total commitment amounts do not necessarily represent future cash requirements of the Company. The Company continually evaluates each customer’s credit worthiness on a case-by-case basis. Occasionally, a credit evaluation of a customer requesting a commitment to extend credit results in the Company obtaining collateral to support the obligation.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing a letter of credit is essentially the same as that involved in extending a loan. At March 31, 2005, the Company had $46.5 million in letters of credit issued and outstanding.
The following table shows the commitments to extend credit and letters of credit at March 31, 2005 according to expiration date.
Expiration Date
(dollars in thousands) Less than 1-3 3-5 More than
Total 1 year years years 5 years
--------------- --------------- ------------- ------------- ---------------
Commitments to extend credit $ 618,157 $ 338,876 $ 29,164 $ 48,220 $ 201,897
Letters of credit 46,529 16,412 16,512 13,605 -
--------------- --------------- ------------- ------------- ---------------
Total $ 664,686 $ 355,288 $ 45,676 $ 61,825 $ 201,897
=============== =============== ============= ============= ===============
In January 2003, the Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The liability associated with letters of credit is not material to the Company’s financial statements.
Tabular Disclosure of Contractual ObligationsThe following table shows all significant contractual obligations of the Company at March 31, 2005 according to payments due by period.
Payment due by period
--------------------------------------------
(dollars in thousands) Less than 1-3 3-5 More than
Total 1 year years years 5 years
--------------- ------------- ------------- ------------- -------------
Certificates of Deposit $1,210,897 $493,260 $482,857 $234,780 $ -
Short-Term Debt Obligations 211,755 211,755 - - -
Long-Term Debt Obligations 50,272 8 21 50,036 207
Operating Lease Obligations 16,732 3,076 4,072 1,849 7,735
--------------- ------------- ------------- ------------- -------------
Total $1,489,656 $708,099 $486,950 $286,665 $7,942
=============== ============= ============= ============= =============
In October 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Accounting Position (SOP) 03-3, which addresses accounting for differences between contractual cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations. This SOP would apply to loans originated by the Company and would limit the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. This SOP prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet. Subsequent increases in cash flows expected to be collected generally would be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected would be recognized as impairment. This SOP prohibits “carrying over” or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The Company adopted this SOP and its effect on the consolidated financial statements was not material.
Statement of Financial Accounting Standards ("SFAS") No.123(R), "Share-Based Payment"On December 16, 2004, the FASB published SFAS No. 123(R), “Share-Based Payment”. This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related implementation guidance. It will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This Statement is the result of a two-year effort to respond to requests from investors and many others that the FASB improve the accounting for share-based payment arrangements with employees. Public entities (other than those filing as small business issuers) will be required to apply SFAS No. 123(R) as of the first annual reporting period that begins after June 15, 2005. SFAS No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. In addition to the accounting standard that sets forth the financial reporting objectives and related accounting principles, SFAS No. 123(R) includes an appendix of implementation guidance that provides expanded guidance on measuring the fair value of share-based payment awards. SFAS No. 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Although those disclosures helped to mitigate the problems associated with accounting under Opinion 25, many investors and other users of financial statements said that the failure to include employee compensation costs in the income statement impaired the transparency, comparability, and credibility of financial statements. The Company will adopt SFAS No.123(R) as prescribed. The effect of this statement on the consolidated financial statements is not expected to be material.
Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This Act provides a safe harbor for such disclosures that protects the companies from unwarranted litigation if the actual results are different from management expectations. This report contains forward-looking statements and reflects management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties that could cause the Company’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe Company’s net earnings are dependent, in part, on its net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.
In an attempt to manage its exposure to changes in interest rates, management monitors the Company’s interest rate risk. The Company’s interest rate management policy is designed to produce a relatively stable net interest margin in periods of interest rate fluctuations. Interest sensitive assets and liabilities are those that are subject to maturity or repricing within a given time period. Management also reviews the Company’s securities portfolio, formulates investment strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner.
Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income and the fair value of the Company’s investment securities. As of quarter close, the effective duration of the securities portfolio was 3.00. A rate increase of 100 basis points would move the effective duration to 3.63, while a 200 basis point rise would result in an effective duration of 3.89.
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 are well positioned for a rising interest rate environment. The cumulative gap at 12 months is +1%; indicating the balance sheet is slightly asset sensitive. Exposure to interest rate risk is presented in the following table.
Net Interest Income (te) at Risk
---------------------------------
Change in interest Estimated increase (decrease)
rates (basis points) in net interest income
----------------------------- -----------------------------
- 100 - 5.81%
Stable 0.00%
+ 100 +2.72%
+ 200 +4.92%
+ 300 +6.79%
The Company also controls interest rate risk by emphasizing the core relationship aspects of non-certificate depositor accounts and selected maturity targets for certificate of deposit accounts. As of March 31, 2005, regular savings and club accounts represented $288.3 million and money market accounts and now accounts totaled $1.0 billion. Excluding public fund accounts, this represents 54.6% of total interest bearing deposit accounts.
During the past year, the Company has controlled the interest rate sensitivity of its depositor accounts through tight control of funding costs. Excluding public funds, interest-bearing transaction rates have been flat, while time deposits have gone up only 4 basis points, March 2005 versus March 2004. Average interest-bearing deposit balances were down 2.32%, but most of these dollars disinter mediated into time deposits, which grew 12.73%. During this period, the Federal Reserve increased rates by 175 basis points. At the same time, the Company’s loan-to-deposit ratio has risen from 69.93% to 72.09%, and the average earning asset yield has grown by 14 basis points. This growth was driven primarily by continued emphasis on variable rate loans that adjusted with the rising rate environment. The impact of the strategies can be seen in the Company’s static gap report as of March 31, 2005.
Analysis of Interest Sensitivity at March 31, 2005
Within 6 months 1 to 3 > 3 Non-Sensitive
Overnight 6 months to 1 year years years Balance Total
---------- -------------- ----------- ------------ ------------ ---------- -----------
(amounts in thousands)
Assets
Securities $ - $ 105,257 $ 115,525 $ 480,226 $ 713,029 $ - $ 1,414,037
Federal funds sold & Short-term
investments 94,399 - 531 - - - 94,930
Loans 42,004 1,329,214 223,524 607,022 548,882 - 2,750,646
Other assets - - - - - 509,403 509,403
---------- -------------- ----------- ------------ ------------ ---------- ------------
Total Assets $136,403 $ 1,434,471 $ 339,580 $ 1,087,248 $ 1,261,911 $ 509,403 $ 4,769,016
========== ============== =========== ============ ============ ========== ============
Liabilities
Interest bearing transaction deposits $ - $ 849,453 $ 255,005 $ 721,877 $ 69,207 $ - $ 1,895,542
Time deposits - 392,857 125,324 560,210 188,937 - 1,267,328
Non-interest bearing deposits - - - - 724,338 - 724,338
Federal funds purchased 2,175 - - - - - 2,175
Borrowings 209,580 4 4 21 54,744 - 264,353
Other liabilities - - - - - 155,729 155,729
Shareholders' Equity - - - - - 459,551 459,551
---------- -------------- ----------- ------------ ------------ ---------- ------------
Total Liabilities & Equity $ 211,755 $ 1,242,314 $ 380,333 $ 1,282,108 $ 1,037,226 $ 615,280 $ 4,769,016
========== ============== =========== ============ ============ ========== ============
Interest sensitivity gap $ (75,352) $ 192,157 $ (40,753) $ (194,860) $ 224,685 $(105,877)
Cumulative interest rate sensitivity gap $ (75,352) $ 116,805 $ 76,052 $ (118,808) $ 105,877 $ -
Cumulative interest rate
sensitivity gap as a percentage of
total earning assets (2.0)% 3.0 % 2.0 % (3.0)% 2.0 %
Analysis of Interest Sensitivity at December 31, 2004
Within 6 months 1 to 3 > 3 Non-Sensitive
Overnight 6 months to 1 year years years Balance Total
---------- -------------- ----------- ------------ ------------ ---------- ------------
(amounts in thousands)
Assets
Securities $ - $ 216,564 $ 130,944 $ 371,665 $ 583,196 $ - $ 1,302,369
Federal funds sold & Short-term
investments 142,135 - 8,126 - - - 150,261
Loans 39,370 1,327,083 214,990 583,394 543,041 - 2,707,878
Other assets - - - - - 504,218 504,218
---------- -------------- ----------- ------------ ------------ ---------- ------------
Total Assets $ 181,505 $ 1,543,647 $354,060 $ 955,059 $ 1,126,237 $ 504,218 $ 4,664,726
========== ============== =========== ============ ============ ========== ============
Liabilities
Interest bearing transaction
deposits $ - $ 867,682 $249,596 $ 703,988 $ 68,429 $ - $ 1,889,695
Time deposits - 418,642 116,162 436,094 239,999 - 1,210,897
Non-interest bearing deposits - - - - 697,353 - 697,353
Federal funds purchased 800 - - - - - 800
Borrowings 200,036 3 3 17 50,250 - 250,309
Other liabilities - - - - - 151,090 151,090
Shareholders' Equity - - - - - 464,582 464,582
---------- -------------- ----------- ------------ ------------ ---------- ------------
Total Liabilities & Equity $ 200,836 $ 1,286,327 $ 365,761 $ 1,140,099 $ 1,056,031 $ 615,672 $ 4,664,726
========== ============== =========== ============ ============ ========== ============
Interest sensitivity gap $ (19,331) $ 257,320 $ (11,701) $ (185,040) $ 70,206 $(111,454)
Cumulative interest rate sensitivity gap $ (19,331) $ 237,989 $ 226,288 $ 41,248 $ 111,454 $ -
Cumulative interest rate
sensitivity gap as a percentage of
total earning assets 0.0 % 6.0 % 5.0 % 1.0 % 3.0 %
Certain assumptions in assessing interest rate risk were employed in preparing data for the Company included in the preceding tables portraying the Company’s interest rate risk sensitivity. These assumptions relate to interest rates, loan and deposit growth, pricing, loan prepayment speeds, deposit decay rates, securities portfolio strategy and market value of certain assets under the various interest rate scenarios. Even if interest rates change in the designated amounts, there can be no assurance that the Company’s assets and liabilities would perform as anticipated. 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 net interest income than indicated above.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented. For example, although certain assets and liabilities may have similar maturities or periods 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. 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.
Even though permissible under the Asset Liability Management Policy approved by the Board of Directors, the Company is not currently engaged in the use of derivatives to control interest rate risk. Management and the Board of Directors review the need for such activities on a regular basis as part of its monthly interest rate risk analysis.
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.
The foregoing disclosures related to the market risk of the Company should be read in conjunction with the Company’s audited consolidated financial statements, related notes and management’s discussion and analysis for the year ended December 31, 2004 included in the Company’s 2004 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURESThe Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2005, (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.
During the Company’s last fiscal quarter ended March 31, 2005, there have not been any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
On February 4, 2004 the Company completed the redemption/conversion of substantially all $37.1 million of the 8% Cumulative Convertible Preferred Stock issued in partial payment for the acquisition of Lamar Capital Corporation in July, 2001. The conversion factor was .6666 shares of Hancock Holding Company common stock for each share of the preferred stock. A total of 7,304 shares of the preferred stock was redeemed for cash at the contract price of $20.00 per share plus pro rated dividends of $0.1511 per share.
In July 2000, the Company announced the execution of a stock buyback program that provides for the repurchase of up to 10 % of the Company’s issued common stock. The program authorizes the repurchase of approximately 3,320,000 shares of the Company’s issued common stock.
On February 26, 2004 the Company’s Board of Directors declared a two-for-one stock split in the form of a 100% common stock dividend. The additional shares were payable March 18, 2004 to shareholders of record at the close of business on March 8, 2004.
All information concerning earnings per share, dividends per share, and number of shares outstanding has been adjusted to give effect to this split.
Issuer Purchases of Equity SecuritiesThe following table provides information with respect to purchases made by the issuer or any affiliated purchaser of the issuer’s equity securities.
(a) (b) (c) (d)
Total number of Maximum number
shares purchased of shares
Total number as a part of publicly that may yet be
of shares or Average Price announced plans purchased under
units purchased Paid per Share or programs (1) Plans or Programs
------------------- ------------------ --------------------- ---------------------
Jan. 1, 2005 - Jan. 31, 2005 993 (2) $ 31.4890 - 721,310
Feb. 1, 2005 - Feb. 28, 2005 16,608 (3) 31.3067 16,200 705,110
Mar. 1, 2005 - Mar. 31, 2005 26,812 (4) 32.0913 23,809 681,301
------------------- ------------------ ---------------------
Total as of Mar. 31, 2005 44,413 31.6290 40,009
=================== ================== =====================
(1) The Company publicly announced its stock buy-back program on July 18, 2000.
(2) 993 shares were purchased on the open market during January in order to satisfy obligations
pursuant to the Company's long term incentive plan that was established in 1996.
(3) 408 shares were purchased on the open market during February in order to satisfy obligations
pursuant to the Company's long term incentive plan that was established in 1996.
(4) 3,003 shares were purchased on the open market during March in order to satisfy obligations
pursuant to the Company's long term incentive plan that was established in 1996.
A. The Company's Annual Meeting was held on March 31, 2005.
B. The Directors elected at the Annual Meeting held on March 31, 2005 were:
Votes Cast
----------
For Withheld
--- --------
1. Alton G. Bankston 27,405,691 899,757
2. Frank E. Bertucci 26,964,929 1,340,519
3. Joseph F. Boardman, Jr. 26,945,572 1,359,870
4. Don P. Descant 27,407,712 897,736
5. Charles H. Johnson, Sr. 26,961,085 1,344,363
6. John H. Pace 27,386,957 918,491
Continuing Directors:
7. James B. Estabrook, Jr.
8. James H. Horne
9. Robert W. Roseberry
10. George A. Schloegel
11. Leo W. Seal, Jr.
12. Christine L. Smilek
C. KPMG was approved as the independent public accountants of the Company.
For Against Abstained
---------- ---------- -----------
28,208,377 47,391 50,154
D. The 2005 Long Term Incentive Plan was approved.
For Against Abstained
---------- ---------- -----------
18,205,333 5,928,587 187,872
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibits:
1. Exhibit 31 - Rule 13a-14(a) / 15d-14(a) Certifications
2. Exhibit 32 - Section 1350 Certifications
3. Exhibit 99.1 - Form 8-K filed on January 5, 2005.
4. Exhibit 99.2 - Form 8-K filed on January 18, 2005.
5. Exhibit 99.3 - Form 8-K filed on February 23, 2005.
6. Exhibit 99.4 - Form 8-K filed on March 17, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
HANCOCK HOLDING COMPANY
-------------------------------------------------
Registrant
May 9, 2005 By: /s/ George A. Schloegel
- ----------------- -------------------------------------------
Date George A. Schloegel
Vice-Chairman of the Board &
Chief Executive Officer
May 9, 2005 By: /s/ Carl J. Chaney
- ----------------- -------------------------------------------
Date Carl J. Chaney
Executive Vice President &
Chief Financial Officer