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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(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, 1998 .
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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
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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, Gulfport, Mississippi 39501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (228) 868-4727
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $3.33 PAR VALUE
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(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.
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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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Continued
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1999, was approximately $404,674,339 (based on an
average market price of $45.875). 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, 1998, the registrant had outstanding 10,508,161 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, 1998 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 25, 1999, filed by
the Registrant on January 25, 1999, are incorporated by reference into Part III
of this report.
CONTENTS
PART I
Item 1. Business 4
Item 2. Properties 37
Item 3. Legal Proceedings 38
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 39
Item 8. Financial Statements and Supplementary Data 39
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 40
PART III
Item 10. Directors and Executive Officers of the
Registrant 40
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial
Owners and Management 40
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 41
PART I
ITEM 1 - BUSINESS
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BACKGROUND AND CURRENT OPERATIONS
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BACKGROUND
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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. At December 31, 1998 the Company
operated 81 banking offices and over 125 automated teller machines (ATMs) 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, 1998, the Company had total assets of $2.8 billion and employed on a
full-time equivalent basis 1,049 persons in Mississippi and 528 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. Based on the most current
available published data, Hancock Bank MS has the largest deposit market share
in each of the four counties in which it operates: Harrison, Hancock, Jackson
and Pearl River. With assets of $1.8 billion at December 31, 1998, Hancock Bank
MS currently ranks as the fifth largest bank in Mississippi.
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 $1.0 billion at December
31, 1998, Hancock Bank LA is one of the largest banks headquartered in East
Baton Rouge Parish.
Beginning with the 1985 acquisition of the Pascagoula-Moss Point Bank in
Pascagoula, Mississippi, the Company has acquired approximately $1.0 billion in
assets and approximately $938 million in deposit liabilities through selected
acquisitions or purchase and assumption transactions.
RECENT ACQUISITION ACTIVITY:
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 $4.0 million 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
$111.0 million and stockholders' equity of approximately $11.3 million as of
December 31, 1994 and net earnings of approximately $2.6 million 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 $86.1 million
and stockholders' equity of approximately $12.4 million as of December 31, 1994,
and net earnings of approximately $1.3 million 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 $5.0 million 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 $91.0 million and stockholders'
equity of approximately $11.0 million 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 $3.7
million 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 $40.0 million and stockholders' equity of approximately $4.0
million 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 $29.0 million and stockholders' equity of approximately $800,000
as of December 31, 1996 and net earnings of approximately $260,000 for the year
then ended.
SUBSEQUENT ACQUISITION:
On January 15, 1999, Hancock Holding Company acquired American Security
Bancshares of Ville Platte, Inc. (ASB), Ville Platte, Louisiana, the holding
company of American Security Bank. The acquisition, accounted for using the
purchase method, called for the exchange of ASB stock in return for
approximately $15.2 million cash and 644,000 shares of common stock of the
Company. ASB had total assets of approximately $230.0 million and stockholders'
equity of approximately $23.0 million at December 31, 1998 and net earnings of
approximately $3.0 million for the year then ended. The results of operations of
ASB will be included in the 1999 consolidated statements of earnings from the
date of acquisition. The acquisition resulted in the recognition of goodwill
amounting to approximately $21.0 million, which will be amortized over 15 years.
CURRENT OPERATIONS
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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 significant 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 that can be approved 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.
All loans over an individual loan officer's Board approved lending authority
must be approved by the Bank's loan committee, the 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 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.
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 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, 1998, the book value of nonperforming
assets held for resale was approximately $3.4 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 rates
generally consistent with market conditions. Additionally, the Banks offer over
125 ATMs: over 80 ATMs at the 81 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 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, 1998, the Trust
Departments of the Banks had approximately $1.5 billion of assets under
management, of which $827 million were corporate accounts and $702 million 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,
employee to asset ratios at Hancock Bank MS have been reduced from .78 per $1
million in assets in February 1988 to .54 as of December 31, 1998. Since its
acquisition in August 1990, Hancock Bank LA employee to asset ratios have been
reduced from .97 per $1 million of assets to .51 as of December 31, 1998.
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 total
salary and benefit costs by fee income. The ratio of fee income to total salary
and benefit costs is $.61 to $1.00 at Hancock Bank MS. Hancock Bank LA has a
higher level of fee income and through December 31, 1998, has achieved a ratio
of $.81 to $1.00.
OTHER ACTIVITIES:
Hancock Bank MS has 7 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 centers are now located in several branch
locations in Mississippi and Louisiana to accommodate the investment needs of
customers whose financial portfolio requirements 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.
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 and insurance companies and other financial institutions. Many of
these institutions have greater available resources than the Company.
SUPERVISION AND REGULATION
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BANK HOLDING COMPANY REGULATION
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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 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 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, 1998 was 9.69%.
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,
1998, the Company's off-balance sheet items aggregated $257.6 million; however,
after the credit conversion these items represented $32.3 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 less goodwill and certain other intangibles. 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, 1998, the Company's Tier 1 and Total Capital ratios
were 16.88% and 17.41%, 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 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 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 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. In 1997 an assessment for the Financing Corporation's debt
service was added to the FDIC quarterly premium payment. That assessment was
1.22 cents per hundred dollars of insured deposits during 1998 and for the first
and second quarters of 1999. Total assessments paid to the FDIC amounted to $276
thousand in 1998. For the year ended December 31, 1998, premiums on OAKAR
deposits from the 1991 acquisition of Peoples Federal Savings Association
totalled $23,000.
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 BIF, 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 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 Hancock Bank MS and Hancock Bank LA are not members of the 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 $41.6 million, or,
if the aggregate of such accounts exceeds $41.6 million, $1.248 million plus 10%
of the total in excess of $41.6 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 comprise most
of a bank's earnings. In order to mitigate the interest rate risk inherent in
the industry, 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.
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
deposits and borrowed funds, noninterest-bearing as well as interest-bearing.
Since a portion of the Bank's deposits do not bear interest, such as demand
accounts, the rate paid for all funds is lower than the rate on interest-bearing
liabilities alone. The rate differential for the years 1998 and 1997 was 4.54%
and 4.91%, 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
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.
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,
--------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------- ----------------------------- ------------------------------
Interest FTE Interest FTE Interest FTE
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------- ---------- ------ ------------ --------- ------ ---------- --------- --------
(amounts in thousands)
ASSETS
Interest-earning assets:
Investment securities:
U.S. Treasury $ 243,224 $ 14,469 5.95% $ 240,539 $ 14,734 6.13% $ 221,120 $ 13,567 6.14%
U.S. government obligations 477,045 29,963 6.28% 552,154 34,699 6.28% 449,687 34,886 7.76%
Municipal obligations(1) 137,584 10,562 7.68% 74,838 6,385 8.53% 60,690 5,451 8.98%
Other securities 326,845 20,736 6.34% 116,672 10,041 8.61% 171,889 6,780 3.94%
Federal funds sold & securities
purchased under agreements
to resell 56,958 3,089 5.42% 50,256 2,733 5.44% 106,316 5,580 5.25%
Interest-bearing time deposits
with other banks 413 33 7.99% 996 64 6.43% 1,543 87 5.64%
Net loans (1)(2)(3) 1,243,617 119,015 9.57% 1,201,381 115,468 9.61% 1,083,165 105,361 9.73%
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
Total interest-earning
assets/interest income (1) 2,485,686 197,867 7.96% 2,236,836 184,124 8.23% 2,094,410 171,712 8.20%
Noninterest-earning assets:
Less: Allowance for loan losses (21,040) --- --- (20,410) --- --- (17,670) --- ---
Cash and due from banks 114,935 --- --- 119,271 --- --- 121,157 --- ---
Property and equipment 45,457 --- --- 40,149 --- --- 37,185 --- ---
Other assets 71,069 --- --- 67,107 --- --- 50,795 --- ---
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
Total assets $2,696,107 $ 197,867 7.34% $2,442,953 $ 184,124 7.54% $2,285,877 $ 171,712 7.51%
=========== ========== ===== =========== ========== ===== =========== ========== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings, NOW and money
market $ 849,297 $ 26,586 3.13% $ 746,665 $ 20,714 2.77% $ 694,017 $ 19,001 2.74%
Time 891,322 47,879 5.37% 834,147 45,436 5.45% 778,602 41,624 5.35%
Federal funds purchased 3,773 179 4.74% 2,304 107 4.64% 11,425 549 4.81%
Securities sold under
agreements to repurchase 152,426 7,037 4.62% 118,855 5,277 4.44% 79,411 3,465 4.36%
Long-term bonds 586 61 10.41% 1,369 164 11.98% 1,795 158 8.80%
Capital notes 500 --- --- --- --- --- --- 7 ---
----------- ---------- ------ ----------- ---------- ------ ----------- --------- -----
Total interest-bearing
liabilities/interest expense 1,897,904 81,742 4.31% 1,703,340 71,698 4.21% 1,565,250 64,804 4.14%
Noninterest-bearing liabilities:
Demand deposits 493,218 --- --- 453,218 --- --- 472,909 --- ---
Other liabilities 15,107 --- --- 15,092 --- --- 17,667 --- ---
Stockholders' equity 289,878 --- --- 271,303 --- --- 230,051 --- ---
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
Total liabilities &
stockholders' equity $2,696,107 $ 81,742 3.03% $2,442,953 $ 71,698 2.93% $2,285,877 $ 64,804 2.83%
=========== ========== ===== =========== ========== ===== =========== ========== =====
Interest-earning assets $2,485,686 $2,236,836 $2,094,410
Interest-bearing liabilities 1,897,904 1,703,340 1,565,250
Interest income (1) $ 197,867 $ 184,124 $ 171,712
Interest expense 81,742 71,698 64,804
---------- ---------- ----------
Interest income/interest-
earning assets (1) 7.96% 8.23% 8.20%
Interest expense/interest-
bearing liabilities 4.31% 4.21% 4.14%
Interest spread 3.65% 4.02% 4.06%
Net interest income (1) $ 116,125 $ 112,426 $ 106,908
========== ========== ==========
Net interest margin (1) 4.67% 5.03% 5.10%
(1) Includes tax equivalent adjustments to interest income of $4.2 million, $2.7
million and $2.3 million in 1998, 1997 and 1996, respectively, using an
effective Federal income tax rate of 35% .
(2) Interest income includes fees on loans of $3.0 million, $4.0 million and
$4.0 million in 1998, 1997 and 1996, respectively.
(3) Includes nonaccrual loans. See "Nonperforming Assets."
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. 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,
--------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- ------------------------------ ----------------------------------
Changes Due to Total Changes Due to Total Changes Due to Total
------------------- Increase -------------------- Increase ------------------ Increase
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
--------- -------- ---------- --------- ------- ---------- ------- ------- ----------
(in thousands)
INTEREST INCOME
Investment securities:
U.S. Treasury $ 167 $( 432) $( 265) $ 1,192 $( 25) $ 1,167 $ (2,044) $ 1,043 $ (1,001)
U.S. government obligations ( 4,736) --- ( 4,736) 7,985 (8,172) ( 187) (2,984) 4,144 1,160
Municipal obligations (1) 4,811 ( 634) 4,177 1,270 ( 336) 934 351 ( 326) 25
Other securities 13,343 ( 2,648) 10,695 (2,188) 5,449 3,261 5,992 (5,443) 549
Federal funds sold & securities
purchased under agreements
to resell 365 ( 9) 356 (2,943) 96 ( 2,847) 395 ( 635) ( 240)
Interest-bearing time deposits
with other banks ( 37) 6 ( 31) ( 31) 8 ( 23) 65 ( 9) 56
Net loans (1) 4,028 ( 481) 3,547 11,692 (1,585) 10,107 7,824 1,923 9,747
---------- --------- --------- --------- -------- --------- -------- ------- --------
Total (1) 17,941 ( 4,198) 13,743 16,977 (4,565) 12,412 9,599 697 10,296
---------- --------- --------- --------- -------- --------- -------- ------- --------
INTEREST EXPENSE
Deposits:
Savings, NOW and money
market 2,889 2,983 5,872 1,489 224 1,713 (1,253) ( 261) ( 1,514)
Time 3,116 ( 673) 2,443 2,972 840 3,812 3,181 1,346 4,527
Federal funds purchased 69 3 72 ( 438) ( 4) ( 442) ( 218) ( 96) ( 314)
Securities sold under
agreements to repurchase 1,490 270 1,760 1,720 92 1,812 1,050 196 1,246
Long-term bonds ( 94) ( 9) ( 103) ( 39) 38 ( 1) ( 73) 28 ( 45)
Capital notes --- --- --- --- --- --- ( 258) --- ( 258)
---------- --------- --------- --------- -------- --------- --------- -------- ---------
Total 7,470 2,574 10,044 5,704 1,190 6,894 2,429 1,213 3,642
---------- --------- --------- --------- -------- --------- --------- -------- ---------
Increase (decrease) in
net interest income (1) $ 10,471 $( 6,772) $ 3,699 $ 11,273 $(5,755) $ 5,518 $ 7,170 $( 516) $ 6,654
========== ========= ========= ========= ======== ========= ========= ======== =========
(1) Yields on tax-exempt loans and investments have been adjusted to a tax
equivalent basis utilizing a 35% effective Federal income tax rate.
INTEREST 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 reduce the exposure to changes in its net interest margin in periods
of interest rate fluctuations. Interest rate risk is monitored, quantified and
managed to produce an acceptable 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, 1998,
the Company's cumulative interest sensitivity gap in the one year interval was
(5.38%) as compared to a cumulative interest sensitivity gap in the one year
interval of (22.91%) at December 31, 1997. 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 scheduled repricing or maturity of the
Company's assets and liabilities at December 31, 1998 and December 31, 1997. The
assumed prepayment of investments and loans were based on the Company's
assessment of current market conditions on such dates. Estimates have been made
for the repricing of savings, NOW and money market accounts. Actual prepayments
and deposit withdrawals will differ from the following analysis due to variable
economic circumstances and consumer behavior. Although assets and liabilities
may have similar maturities or repricing periods, reactions will vary as to
timing and degree of interest rate change.
Analysis of Interest Sensitivity at December 31, 1998
-----------------------------------------------------
After Three
Within Through One After Five
Three Twelve Through Years and
Months Months Five Years Insensitive Total
--------- --------- ---------- ----------- ----------
(amounts in thousands)
Net loans $ 398,047 $ 286,996 $ 603,758 $ 16,754 $1,305,555
Securities and time
deposits 309,531 290,544 474,271 170,119 1,244,465
Federal funds -- -- -- -- --
--------- --------- ---------- --------- ----------
Total earning assets $ 707,578 $ 577,540 $1,078,029 $ 186,873 $2,550,020
========= ========= ========== ========= ==========
27.75% 22.65% 42.27% 7.33% 100.00%
Interest bearing
deposits, excluding
time deposits
$100,000 and greater $ 486,125 $ 580,990 $ 481,870 $ 563 $1,549,548
Time deposits $100,000
and greater 122,930 92,138 63,290 -- 278,358
Short-term borrowings 140,207 -- -- -- 140,207
Other borrowings -- -- -- -- --
--------- --------- ---------- --------- -----------
Total interest-bearing
funds 749,262 673,128 545,160 563 1,968,113
Non-interest bearing
funds -- -- -- 581,907 581,907
--------- --------- ---------- --------- -----------
Funds supporting
earning assets $ 749,262 $ 673,128 $ 545,160 $ 582,470 $2,550,020
========= ========= ========== ========= ===========
29.38% 26.40% 21.38% 22.84% 100.00%
Interest sensitivity
gap $( 41,684) $( 95,588) $ 532,869 $(395,597) --
Cumulative gap $( 41,684) $(137,272) $ 395,597 -- --
Percent of total
earning assets ( 1.63)% ( 5.38)% 15.51% -- --
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 $ 116,538 $ 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
time deposits
$100,000 and greater $ 645,178 $ 272,983 $ 392,167 $ 29,311 $1,339,639
Time deposits $100,000
and greater 100,267 91,361 68,650 -- 260,278
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
Non-interest bearing
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% 30.83% 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% -- --
INCOME TAXES:
The Company had income tax expense on earnings before cumulative effect of
a change in accounting principle of $14.4 million and $17.4 million for the
years ended December 31, 1998 and 1997, respectively. This represents effective
income tax rates of 32.6% and 36.2% for the years ended December 31, 1998 and
1997, respectively. The 16.9% decrease in 1998 income tax expense is due to
decreased taxable income.
PERFORMANCE AND EQUITY RATIOS:
The following table sets forth, for the periods indicated, the percentage
of net earnings to average assets and average stockholders' equity, the
percentage of common stock dividends declared per share to net earnings per
share and the percentage of average stockholders' equity to average assets.
Years Ended December 31,
-------------------------
1998 1997 1996
---- ---- ----
%
Return on average assets, excluding cumulative
effect of change in accounting principle 1.11 1.25 1.38
Return on average assets 1.15 1.25 1.38
Return on avg. stockholders' equity, excluding
cumulative effect of change in accounting
principle 10.28 11.29 13.74
Return on average stockholders' equity 10.68 11.29 13.74
Dividend payout ratio, excluding cumulative effect
of change in accounting principle 35.84 35.46 28.57
Dividend payout ratio 34.48 35.46 28.57
Average stockholders' equity to average assets 10.75 11.11 10.06
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 1998.
Generally, securities with a market risk have been placed in this category. The
December 31, 1998 amortized cost of the held-to-maturity portfolio was $781
million and the fair value was $790 million. The available-for-sale portfolio
balance was $463 million at December 31, 1998.
The amortized cost of securities classified as available-for-sale at
December 31, 1998, 1997 and 1996, were as follows (in thousands):
December 31,
------------------------------------
1998 1997 1996
--------- --------- ---------
U.S. Treasury $101,493 $ 54,637 $ 499
U.S. government agencies 272,564 46,039 53,802
Municipal obligations 5,851 1,496 923
Mortgage-backed securities 31,652 27,538 5,373
CMOs 45,347 21,427 33,038
Other debt securities --- 6,305 ---
Equity securities 5,969 6,089 4,932
--------- --------- ---------
$462,876 $163,531 $ 98,567
========= ========= =========
The amortized cost, yield and fair value of debt securities classified as
available-for-sale at December 31, 1998, by contractual maturity, were as
follows (amounts in thousands):
Over One Over Five
One Year Year Years Over
or Through Through Ten
Less Five Years Ten Years Years Total
--------- ----------- ---------- --------- ---------
U.S. Treasury $ 45,071 $ 56,422 $ --- $ --- $101,493
U.S. government agencies 87,989 136,299 36,580 11,696 272,564
Municipal obligations 110 880 1,360 3,501 5,851
Mortgage-backed securities 1,267 131 9,621 20,633 31,652
CMOs --- --- 26,353 18,994 45,347
Other debt securities --- --- --- --- ---
--------- --------- --------- --------- ---------
$134,437 $193,732 $ 73,914 $ 54,824 $456,907
========= ========= ========= ========= =========
Weighted Average Yield 5.84% 5.62% 6.18% 6.12% 5.84%
The amortized cost of securities classified as held-to-maturity at
December 31, 1998, 1997 and 1996 were as follows (in thousands):
December 31,
-------------------------------------
1998 1997 1996
--------- --------- ----------
U.S. Treasury $114,506 $210,525 $175,171
U.S. government agencies 200,149 267,437 338,796
Municipal obligations 167,997 88,062 66,367
Mortgage-backed securities 114,747 133,925 87,991
CMOs 177,796 190,539 135,673
Other debt securities 6,054 25,874 ---
--------- --------- ---------
$781,249 $916,362 $803,998
========= ========= =========
The amortized cost, yield and fair value of securities classified as
held-to- maturity at December 31, 1998, by contractual maturity, were as follows
(amounts in thousands):
Over One Over Five
One Year Year Years Over
or Through Through Ten
Less Five Years Ten Years Years Total
--------- ----------- ---------- --------- ---------
U.S. Treasury $ 90,242 $ 23,975 $ 289 $ --- $114,506
U.S. government agencies 95,089 66,879 36,476 1,705 200,149
Municipal obligations 6,179 34,707 49,608 77,503 167,997
Mortgage-backed securities 2,355 3,629 48,623 60,140 114,747
CMOs 1,250 5,015 63,151 108,380 177,796
Other debt securities --- 5,827 --- 227 6,054
--------- --------- --------- --------- ---------
$195,115 $140,032 $198,147 $247,955 $781,249
========= ========= ========= ========= =========
Weighted Average Yield 6.12% 6.14% 5.88% 6.13% 6.07%
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
significant 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.
The following table sets forth, for the periods indicated, the composition
of the loan portfolio of the Company:
Loan Portfolio
--------------
December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
Real estate:
Residential mortgages 1-4 family $ 244,150 $ 260,132 $ 260,945 $ 224,646 $ 214,247
Residential mortgages multifamily 12,220 10,881 7,642 9,674 7,302
Home equity lines/loans 8,815 10,814 10,169 11,825 11,740
Construction and development 73,789 55,454 55,585 41,602 35,719
Nonresidential 143,445 139,332 131,578 127,027 112,957
Commercial, industrial and other 224,686 177,379 169,061 176,942 119,997
Consumer 544,137 513,362 494,456 409,608 397,879
Lease financing and depository
institutions 17,324 16,327 15,881 13,811 10,074
Political subdivisions 21,069 16,889 12,142 14,394 12,806
Credit cards and other revolving credit 40,649 44,785 41,311 32,104 30,794
---------- ----------- ----------- ----------- -----------
1,330,284 1,245,355 1,198,770 1,061,633 953,515
Less, unearned income 24,729 24,726 24,803 26,656 27,850
---------- ---------- ---------- ---------- -----------
Net loans $1,305,555 $1,220,629 $1,173,967 $1,034,977 $ 925,665
=========== =========== =========== =========== ===========
The following table sets forth, for the periods indicated, the
approximate contractual maturity by type of the loan portfolio of the Company:
Loan Maturity Schedule
----------------------
December 31, 1998 December 31, 1997
---------------------------------------- ---------------------------------------------
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
-------- ---------- --------- ---------- --------- ---------- --------- -----------
(in thousands)
Commercial, industrial and
other $111,743 $ 97,029 $ 15,914 $ 224,686 $ 69,220 $ 86,461 $ 21,698 $ 177,379
Real estate - construction 52,515 16,786 4,488 73,789 32,889 18,912 3,653 55,454
All other loans 351,366 457,742 222,701 1,031,809 156,119 573,886 282,517 1,012,522
--------- --------- --------- ----------- --------- --------- --------- -----------
Total loans $515,624 $571,557 $243,103 $1,330,284 $258,228 $679,259 $307,868 $1,245,355
========= ========= ========= =========== ========= ========= ========= ===========
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,
---------------------
1998 1997
--------- ---------
(in thousands)
Commercial, industrial, and real estate
construction maturing after one year:
Fixed rate $113,023 $ 94,517
Floating rate 21,194 31,190
Other loans maturing after one year:
Fixed rate 648,566 831,716
Floating rate 31,877 31,610
--------- ---------
Total $814,660 $989,033
========= =========
NONPERFORMING ASSETS:
The following table sets forth nonperforming assets by type for the periods
indicated, consisting of nonaccrual loans, restructured loans and real estate
owned. Loans past due 90 days or more and still accruing are also disclosed.
December 31,
-------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Amounts in thousands)
Nonaccrual loans:
Real estate $ 2,459 $ 2,869 $ 753 $ 2,406 $ 1,914
Commercial, industrial and other 1,023 650 169 1,144 525
Consumer, credit card and other
revolving credit 1,120 378 1,298 1,176 1,287
Lease financing --- 1 --- --- ---
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
Restructured loans 1,380 1,134 685 611 614
-------- -------- -------- -------- -------
Total nonperforming loans 5,982 5,032 2,905 5,337 4,340
Acquired real estate owned --- 435 147 140 ---
Real estate owned 2,246 1,923 1,728 946 1,001
-------- -------- -------- -------- -------
Total nonperforming assets $ 8,228 $ 7,390 $ 4,780 $ 6,423 $ 5,341
======== ======== ======== ======== =======
Loans 90+ days past due and still
accruing $ 2,907 $ 5,423 $ 8,361 $ 4,089 $ 2,692
======== ======== ======== ======== =======
Ratios (%):
Nonperforming loans to net loans 0.46 0.41 0.25 0.52 0.47
Nonperforming assets to net loans
and real estate owned 0.63 0.61 0.41 0.62 0.58
Nonperforming loans to average net
loans 0.48 0.42 0.27 0.53 0.48
Allowance for loan losses to
nonperforming loans 364.43 417.33 681.58 325.86 354.19
The amount of interest that would have been recorded on nonaccrual loans had
the loans not been classified as "nonaccrual" was $462,000, $424,000, $220,000,
$463,000 and $340,000 for the years ended December 31, 1998, 1997, 1996, 1995
and 1994, respectively.
Interest actually received on nonaccrual loans was insignificant. The amount
of interest recorded on restructured loans did not differ significantly from the
interest that would have been recorded under the original terms of those loans.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is a valuation account available to absorb
losses on loans. All losses are charged to the allowance for loan losses when
the loss actually occurs or when a determination is made that a loss is likely
to occur; recoveries are credited to the allowance for loan losses at the time
of receipt. Periodically during the year management estimates the probable level
of future losses to determine whether the allowance is adequate to absorb
reasonably foreseeable anticipated losses in the existing portfolio based on the
Company's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' ability to repay and the
estimated value of any underlying collateral and current economic conditions.
All commercial loans in lending relationships with an aggregate balance of
$250,000 or more are risk rated and evaluated on an individual basis, as well
as, all consumer and mortgage real estate loans with a balance of $100,000 or
more. All consumer and mortgage real estate loans under $100,000 are risk rated
as pools of homogeneous loans and classified according to past due status.
Commercial loans are reviewed for impairment at the time a loans is no longer
current or at the time management is made aware of a degradation in a borrower's
financial status or a deficiency in collateral. Loss factors recommended by the
Banks' regulators are applied to loans graded by standard loan classifications
in determining a general allowance. Unclassified loans are categorized and
reserved for at the greater of a five-year average net charge-off ratio or a
minimum threshold stated as a percentage of loans outstanding. The allowance for
loan loss stated as a percentage of period end loans, used in conjunction with
the evaluation of current and anticipated economic conditions, composition of
the Company's present loans portfolio, and trends in both delinquencies and
nonaccruals, is a measurement standard utilized by management in determining the
adequacy of the allowance. The unallocated portion of the allowance for loan
losses is available to compensate for the uncertainties in estimating the
potential losses including possible adverse effects to borrowers' ability to
repay resulting from Year 2000 compliance issues.
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:
At and For The Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
Net loans outstanding at end of period $1,305,555 $1,220,629 $1,173,96 $1,034,977 $ 925,665
========== ========== ========= ========== ===========
Average net loans outstanding $1,243,617 $1,201,381 $1,083,165 $1,000,907 $ 904,342
========== ========== ========== ========== ===========
Balance of allowance for loan losses
at beginning of period $ 21,000 $ 19,800 $ 17,391 $ 15,372 $ 15,306
Loans charged-off:
Real estate 26 22 73 210 106
Commercial 1,076 997 975 636 637
Consumer, credit cards and other
revolving credit 6,008 7,145 5,417 4,524 2,706
Lease financing 20 49 1 13 ---
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
---------- ---------- ---------- ---------- -----------
Total charge-offs 7,130 8,213 6,466 5,383 3,449
---------- ---------- ---------- ---------- -----------
Recoveries of loans previously
charged-off:
Real estate 5 5 186 15 53
Commercial 540 646 937 971 570
Consumer, credit cards and other
revolving credit 1,156 1,529 945 839 886
Lease financing --- 1 --- 5 8
Depository institutions --- --- --- --- ---
Political subdivisions --- --- --- --- ---
---------- ---------- ---------- ---------- -----------
Total recoveries 1,701 2,181 2,068 1,830 1,517
---------- ---------- ---------- ---------- -----------
Net charge-offs 5,429 6,032 4,398 3,553 1,932
Provision for loan losses 6,229 6,399 6,153 4,425 1,998
Balance acquired through acquisition --- 833 654 1,147 ---
---------- ---------- ---------- ---------- -----------
Balance of allowance for loan losses
at end of period $ 21,800 $ 21,000 $ 19,800 $ 17,391 $ 15,372
========== ========== ========== ========== ===========
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:
At and For The Years Ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Ratios (%):
Net charge-offs to average net loans 0.44 0.50 0.41 0.35 0.21
Net charge-offs to period-end net loans 0.42 0.49 0.37 0.34 0.21
Allowance for loan losses to average net loans 1.75 1.75 1.83 1.74 1.70
Allowance for loan losses to period-end net loans 1.67 1.72 1.69 1.68 1.66
Net charge-offs to loan loss allowance 24.90 28.72 22.21 20.43 12.57
Net charge-offs to loan loss provision 87.16 94.26 71.47 80.29 96.70
An allocation of the loan loss allowance by major loan category is set forth
in the following table. Except for an increase in the outstanding loan portfolio
balance, there were no relevant variations in loan concentrations, quality or
terms. The allocation is not necessarily indicative of the category of future
losses, and the full allowance at December 31, 1998 is available to absorb
losses occurring in any category of loans.
December 31,
-------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ------------------ ------------------- ------------------- ------------------
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 36.26 $ 2,500 38.30 $ 3,000 38.87 $ 2,000 39.08 $ 1,250 40.06
Commercial, industrial
and other 7,000 19.78 5,900 16.91 5,750 16.44 5,250 19.32 5,000 14.98
Consumer 9,200 40.90 9,300 41.22 8,250 41.25 7,500 38.58 6,500 41.73
Credit card/revolving 1,000 3.06 1,200 3.57 800 3.44 500 3.02 500 3.23
Unallocated 2,100 --- 2,100 --- 2,000 --- 2,141 --- 2,122 ---
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
$21,800 100.00 $21,000 100.00 $19,800 100.00 17,391 100.00 $15,372 100.00
======== ======= ======== ======= ======== ======= ======== ======= ======== ======
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 rate paid
on each category of deposits:
1998 1997 1996
------------------------------- ---------------------------------- ---------------------------------
Percent Percent Percent
Average of Average of Average of
Balance Deposits Rate (%) Balance Deposits Rate (%) Balance Deposits Rate (%)
------- -------- -------- ------- -------- -------- ------- -------- --------
(amounts in thousands)
Non-interest bearing accounts $ 493,218 22.08 --- $ 453,218 22.28 --- $ 472,909 24.30 ---
NOW accounts 323,017 14.46 3.09 306,120 15.05 2.52 268,391 13.80 2.68
Money market and other
savings accounts 526,280 23.56 3.16 440,545 21.66 2.95 425,626 21.88 2.78
Time deposits 891,322 39.90 5.37 834,147 41.01 5.45 778,602 40.02 5.35
--------- ----- --------- ----- --------- -----
$2,233,837 100.00 $2,034,030 100.00 $1,945,528 100.00
========== ====== ========== ====== ========== ======
The Banks traditionally price their deposits to position themselves
competitively with the local market. The Banks' policy is not to accept brokered
deposits.
Time certificates of deposit of $100,000 and greater at December 31, 1998
had maturities as follows:
December 31, 1998
-----------------
(in thousands)
Three months or less $122,930
Over three through six months 35,785
Over six months through one year 56,353
Over one year 63,290
--------
Total $278,358
========
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,
-------------------------------
1998 1997 1996
---- ---- ----
(amounts in thousands)
Federal funds purchased:
Amount outstanding at period-end $ --- $ --- $ ---
Weighted average interest at period-end ---% ---% ---%
Maximum amount at any month-end during period $ 53,850 $ 5,875 $ 19,725
Average amount outstanding during period $ 3,773 $ 2,304 $ 11,425
Weighted average interest rate during period 4.74% 4.64% 4.81%
Securities sold under agreements to repurchase:
Amount outstanding at period-end $140,207 $170,534 $ 87,609
Weighted average interest at period-end 3.80% 4.61% 4.25%
Maximum amount at any month end during-period $182,062 $172,827 $156,595
Average amount outstanding during period $152,426 $118,855 $ 79,411
Weighted average interest rate during period 4.62% 4.44% 4.36%
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, 1998, cash and
due from banks and securities available-for-sale were in excess of 26.3% of
total deposits.
The Company depends upon the dividends paid to it from the Banks as a
principal source of funds for its debt service and dividend requirements. At
December 31, 1998, the Banks had approximately $100 million available for
dividends to the Company.
CAPITAL RESOURCES:
Risk-based and leverage capital ratios for the Company and the Banks for the
periods indicated are shown in the following table:
December 31,
------------------------------------------------------------
Risk-Based Capital Ratios
-------------------------------------- Tier 1 Leverage
Total Tier 1 Ratio
------------------ ------------------- -----------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ----- -----
Hancock Bank MS 17.44% 19.71% 16.19% 18.46% 8.83% 9.79%
Hancock Bank LA 19.46 20.42 18.21 19.16 10.46 11.63
Company 17.41 20.33 16.88 19.08 9.69 10.41
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.
IMPACT OF INFLATION:
The Company's non-interest income and expenses can be affected by increasing
rates of inflation; however, 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 impact on the
Banks' performance than the effect of general levels of inflation on the price
of goods and services.
FORWARD LOOKING STATEMENTS
--------------------------
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
disclosure which protects the companies from unwarranted litigation if actual
results are different from management expectations. In addition to historical
information, this report contains forward-looking statements and information
which are based on management's beliefs, plans, expectations and assumptions and
on information currently available to management. Forward-looking statements
and information presented reflects management's views and estimates of future
economic circumstances, industry conditions, Company performance and financial
results. The words "may", "should", "expect", "anticipate", "intend", "plan",
"continue", "believe", "seek", "estimate" and similar expressions used in this
report that do not relate to historical facts are intended to identify
forward-looking statements. These statements appear in a number of places in
this report, including, but not limited to, statements found in Item 1
"Business" and in Item 7 "Management's Discussion and Analysis". All phases of
the Company's operations are subject to a number of risks and uncertainties.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements. Among the factors that could cause actual results to differ
materially are the risks and uncertainties discussed in the report, including,
without limitation, the portions referenced above, and the uncertainties set
forth from time to time in the Company's other public reports and filings and
public statements, many of which are beyond the control of the Company, and any
of which, or a combination of which, could materially affect the results of the
Company's operations and whether forward-looking statements made by the Company
ultimately prove accurate.
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 an
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, under the terms of the bond documents, title to the facility
reverts to Hancock Bank MS when all outstanding bonds have been paid. For this
reason, the Company has historically 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 Hancock Bank MS.
Title to the following banking offices in Mississippi and Louisiana is owned
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 (3) 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) Poplarville, MS (1)
Gautier, MS (2) St. Francisville, LA (1)
Gulfport, MS (5) Walker, LA (1)
Vancleave (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) Pascagoula, MS (1)
Bay St. Louis, MS (3) Picayune, MS (2)
Biloxi, MS (1) Ponchatoula, LA (1)
Diamondhead, MS (1) Slidell, LA (1)
Gulfport, MS (4) Springfield, LA (1)
Hammond, LA (1) Mandeville, LA (1)
In addition to the above, Hancock Bank MS owns land and other properties
acquired through foreclosures of loan collateral. 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 statements 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, 1998.
PART II
-------
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
The information under the caption "Market Information" on page 7 of the
Company's 1998 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 5 of the Company's 1998 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------------------------------------------------
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 37 and 38 of the
Company's 1998 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------
The information under the caption "Quantitative and Qualitative Disclosures
About Market Risk" on Pages 38 and 39 of the Company's 1998 Annual Report to
stockholders is incorporated herein by reference.
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 36 of the Company's 1998 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 Comprehensive Earnings on Page 20
Consolidated Statements of Cash Flows on Page 21
Notes to Consolidated Financial Statements on Pages 22 through 35
Independent Auditors' Report on Page 36
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------------------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
There has been no change in the two most recent fiscal years nor has there
been any 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 9-14) in the Proxy Statement for the
Annual Meeting of Shareholders held February 25, 1999, which was filed by the
Registrant in definitive form with the Commission on January 25, 1999 and is
incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
--------------------------------
For information concerning this item see "Executive Compensation" (Pages
8-14) in the Proxy Statement for the Annual Meeting of Shareholders held
February 25, 1999, which was filed by the Registrant in definitive form with the
Commission on January 25, 1999 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 5) and "Security Ownership of Management" (Page 7) in
the Proxy Statement for the Annual Meeting of Shareholders held February 25,
1999, which was filed by the Registrant in definitive form with the Commission
on January 25, 1999 and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
For information concerning this item see "Certain Transactions and
Relationships" (Pages 14-15) in the Proxy Statement for the Annual Meeting of
Shareholders held February 25, 1999, which was filed by the Registrant in
definitive form with the Commission on January 25, 1999 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 1998 Annual
Report to Stockholders and are incorporated herein by reference:
- Independent Auditors' Report
- Consolidated Balance Sheets as of December 31, 1998 and 1997
- Consolidated Statements of Earnings for the three years ended December
31, 1998
- Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1998
- Consolidated Statements of Comprehensive Earnings for the three years
ended December 31, 1998
- Consolidated Statements of Cash Flows for the three years ended
December 31, 1998
- Notes to Consolidated Financial Statements for the three years ended
December 31, 1998
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 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 June 19, 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 July 31, 1997 among Hancock
Holding Company, Hancock Bank of Louisiana and Southeast 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 February 28, 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).
(2.11) Amended and Restated Agreement and Plan of Reorganization dated October
15, 1998 among Hancock Holding Company, Hancock Bank of Louisiana and
American Security Bancsharesof Ville Platte, Inc., Ville Platte,
Louisiana (filed as Exhibit 2 to the Registrant's Form S-4,
Registration Number 333-67181, dated November 12, 1998).
(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 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,
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, 1998
(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 25, 1999 (deemed "filed" for the purposes of this Form 10-K
only for those portions which are specifically incorporated herein by
reference).
(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) Independent Auditors' Consent
(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.
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 29, 1999 /s/ Leo W. Seal, Jr.
-------------------- ----------------------------------
By Leo W. Seal, Jr., President and
Chief Executive Officer
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, Chief Executive March 29, 1999
- ------------------------------ Officer (Principal Executive
Leo W. Seal, Jr. Officer) and Director
/s/ Joseph F. Boardman, Jr. Director, March 29, 1999
- ------------------------------ Chairman of the Board
Joseph F. Boardman, Jr.
/s/ George A. Schloegel Director, March 29, 1999
- ------------------------------ Vice Chairman of the Board
George A. Schloegel
Director March 29, 1999
- ------------------------------
Thomas W. Milner, Jr.
/s/ Dr. Homer C. Moody, Jr. Director March 29, 1999
- ------------------------------
Dr. Homer C. Moody, Jr.
Director March 29, 1999
- ------------------------------
James B. Estabrook, Jr.
/s/ Charles H. Johnson Director March 29, 1999
- ------------------------------
Charles H. Johnson
/s/ L. A. Koenenn, Jr. Director March 29, 1999
- ------------------------------
L. A. Koenenn, Jr.
/s/ Victor Mavar Director March 29, 1999
- ------------------------------
Victor Mavar
/s/ Carl J. Chaney Assistant Secretary and March 29, 1999
- ------------------------------ Chief Fiancial Officer
Carl J. Chaney (Principal Financial and
Accounting Officer)