-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, By5NoNc7TCNZ5Hz8V2CYNJ1AjkB+K627+B7SHTowminCBQofZxHIoyJMkKmvy1wX ZUuS6PnHol4fw+nmuTAETQ== 0001030798-97-000025.txt : 19970329 0001030798-97-000025.hdr.sgml : 19970329 ACCESSION NUMBER: 0001030798-97-000025 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK HOLDING CO CENTRAL INDEX KEY: 0000750577 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 640693170 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-13089 FILM NUMBER: 97567547 BUSINESS ADDRESS: STREET 1: ONE HANCOCK PLZ STREET 2: P.O. BOX 4019 CITY: GULFPORT STATE: MS ZIP: 39502 BUSINESS PHONE: 6018684605 MAIL ADDRESS: STREET 1: ONE HANCOCK PLZ STREET 2: P O BOX 4019 CITY: GULFPORT STATE: MS ZIP: 39502 10-K405 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1996 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, 1996. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _____________ to ____________ . Commission file number 0-13089 HANCOCK HOLDING COMPANY (Exact name of registrant as specified in its charter) MISSISSIPPI 64-0693170 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ONE HANCOCK PLAZA, GULFPORT, MISSISSIPPI 39501 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (601) 868-4715 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $3.33 PAR VALUE (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No 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 The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 2, 1997, was approximately $367,105,000. For purposes of this calculation only, shares held by non-affiliates are deemed to consist of (a) shares held by all shareholders other than directors and executive officers of the registrant plus (b) shares held by directors and officers as to which beneficial ownership has been disclaimed. On December 31, 1996, the registrant had outstanding 10,725,102 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, 1996 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 20, 1997, filed by the Registrant on January 21, 1997, are incorporated by reference into Part III of this report. CONTENTS PART I Item 1. Business 4 Item 2. Properties 38 Item 3. Legal Proceedings 39 Item 4. Submission of Matters to a Vote of Security Holders 39 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 40 Item 6. Selected Financial Data 40 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 40 Item 8. Financial Statements and Supplementary Data 40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 41 PART III Item 10. Directors and Executive Officers of the Registrant 41 Item 11. Executive Compensation 41 Item 12. Security Ownership of Certain Beneficial Owners and Management 41 Item 13. Certain Relationships and Related Transactions 41 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 42 PART I ITEM 1 - BUSINESS BACKGROUND AND CURRENT OPERATIONS BACKGROUND GENERAL: Hancock Holding Company (the "Company"), organized in 1984 as a bank holding company registered under the Bank Holding Company Act of 1956, as amended, is headquartered in Gulfport, Mississippi. The Company operates 80 banking offices and over 100 automated teller machines ("ATM's") in the states of Mississippi and Louisiana through two wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi ("Hancock Bank MS") and Hancock Bank of Louisiana, Baton Rouge, Louisiana ("Hancock Bank LA"). Hancock Bank MS and Hancock Bank LA are referred to collectively as the "Banks." The Banks are community oriented and focus primarily on offering commercial, consumer and mortgage loans and deposit services to individuals and small to middle market businesses in their respective market areas. The Company's operating strategy is to provide its customers with the financial sophistication and breadth of products of a regional bank, while successfully retaining the local appeal and level of service of a community bank. At December 31, 1996, the Company had total assets of $2.3 billion and employed on a full-time basis 845 persons in Mississippi and 436 persons in Louisiana. Hancock Bank MS was originally chartered as Hancock County Bank in 1899. Since its organization, the strategy of Hancock Bank MS has been to achieve a dominant market share on the Mississippi Gulf Coast. Prior to a series of acquisitions begun in 1985, growth was primarily internal and was accomplished by concentrating branch expansions in areas of population growth where no dominant financial institution previously served the market area. Economic expansion on the Mississippi Gulf Coast has resulted primarily from growth of military and government- related facilities, tourism, port facility activities, industrial complexes and the gaming industry. Hancock Bank MS currently has the largest market share in each of the four counties in which it operates: Harrison, Hancock, Jackson and Pearl River. With assets of $1.4 billion at December 31, 1996, Hancock Bank MS currently ranks as the fourth 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 $868 million at December 31, 1996, Hancock Bank LA is the largest bank in East Baton Rouge Parish. In November 1996, the Company acquired Community Bancshares, Inc., Independence, Louisiana which owned 100% of the stock of Community State Bank (Community). This acquisition expanded the Baton Rouge market area into the Hammond area where many of the people who work in Baton Rouge live. Beginning with the 1985 acquisition of the Pascagoula-Moss Point Bank ("PMP") in Pascagoula, Mississippi, the Company has acquired approximately $976.2 million in assets and approximately $876.5 million in deposit liabilities through selected acquisitions or purchase and assumption transactions. RECENT ACQUISITION ACTIVITY: In August 1991, Hancock Bank MS acquired certain assets and deposit liabilities of Peoples Federal Savings Association, Bay St. Louis, Mississippi, from the RTC. As a result of this transaction, the Bank acquired assets of approximately $39.0 million and deposit liabilities of approximately $38.5 million. The Company borrowed $18,750,000 from Whitney National Bank, New Orleans, Louisiana ("Whitney"), to partially fund the acquisition of Metropolitan National Bank and AmBank in 1990. On November 28, 1991, the Company sold 1,552,500 shares of its common stock at $17 per share. This followed a two-for-one stock split in the form of a 100% stock dividend on October 15, 1991, and an increase in authorized shares to 20,000,000. The net proceeds of this sale, after underwriting discount and expenses, of approximately $24,700,000, were used to pay the principal and interest on $18,500,000 of principal debt on the Whitney loans and increase Hancock Bank LA's capital by $5,000,000. In April 1994, the Company merged Hancock Bank LA with First State Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana ("Baker"). The merger was consummated by the exchange of all outstanding common stock of Baker in return for 527,235 shares of common stock of the Company. The merger was accounted for using the pooling-of-interests method; therefore, all prior years' financial information has been restated. On January 13, 1995, the Company acquired First Denham Bancshares, Inc. ("Bancshares") which owned 100% of the stock of First National Bank of Denham Springs ("Denham"), Denham Springs, Louisiana. The acquisition was in return for approximately $4,000,000 cash and 774,098 shares of common stock of the Company. The acquisition was accounted for using the purchase method. Bancshares had total assets of approximately $111,000,000 and stockholders' equity of approximately $11,300,000 as of December 31, 1994 and net earnings of approximately $2,600,000 for the year then ended. On August 15, 1996, Denham was merged into Hancock Bank LA. On February 1, 1995, the Company merged Hancock Bank LA with Washington Bank & Trust Company, Franklinton, Louisiana ("Washington"). The merger was consummated by the exchange of all outstanding common stock of Washington in return for 542,650 shares of common stock of the Company. The merger was accounted for using the pooling-of-interests method; therefore, all prior years' financial information has been restated. Washington had total assets of approximately $86,100,000 and stockholders' equity of approximately $12,400,000 as of December 31, 1994, and net earnings of approximately $1,300,000 for the year then ended. In November 1996, the Company acquired Community Bancshares, Inc., which owned 100% of the stock of Community State Bank ("Community"). This acquisition expanded the Company's market to the Hammond, Louisiana area, where many of the people who are employed in East Baton Rouge Parish reside. On January 17, 1997, the Company acquired Southeast National Bank, Hammond, Louisiana (Southeast). The acquisition was in return for approximately $3,700,000 cash and 105,000 shares of common stock of the Company. The acquisition was accounted for using the purchase method. Southeast had total assets of approximately $40,000,000 and stockholders' equity of approximately $4,000,000 as of December 31, 1996 and net earnings of approximately $500,000 for the year then ended. CURRENT OPERATIONS LOAN PRODUCTION AND CREDIT REVIEW: The Banks' primary lending focus is to provide commercial, consumer, leasing and real estate loans to consumers and to small and middle market businesses in their respective market areas. The Banks have no concentrations of loans to particular borrowers or loans to any foreign entities. Each loan officer has Board approved loan limits on the principal amount of secured and unsecured loans he or she can approve for a single borrower without prior approval of a loan committee. All loans, however, must meet the credit underwriting standards and loan policies of the Banks. For Hancock Bank MS, all loans over an individual loan officer's Board approved lending authority and below a regional approved limit must be approved by his or her region's loan committee or by another loan officer with greater lending authority. Both the regional loan committee and the Bank's senior loan committee must review and approve any loan for a borrower whose total indebtedness exceeds the region's approved limit. Each loan file is reviewed by the Bank's loan operations quality assurance function, a component of its loan review system, to ensure proper documentation and asset quality. For Hancock Bank LA, all loans over an individual loan officer's Board approved lending authority must be approved by the Bank's, his or h region's loan committee or by another loan officer with greater lending authority. Both the regional loan committee and the Bank's senior loan committee must review and approve any loan for a borrower whose total indebtedness exceeds $500,000. Each loan file is reviewed by the Bank's loan operations quality assurance function, a component of its loan review system, to ensure proper documentation and asset quality. LOAN REVIEW AND ASSET QUALITY: Each Bank's portfolio of loan relationships aggregating $250,000 or more is annually reviewed by the respective Bank to identify any deficiencies and to take corrective actions as necessary. Periodically, selected loan relationships aggregating less than $250,000 are reviewed. As a result of such reviews, each Bank places on its Watchlist loans requiring close or frequent review. All loans classified by a regulator are also placed on the Watchlist. All Watchlist and past due loans are reviewed monthly by the Banks' senior lending officers and by the Banks' Board of Directors. In addition, all loans to a particular borrower are reviewed, regardless of classification, each time such borrower requests a renewal or extension of any loan or requests a new loan. All lines of credit are reviewed annually before renewal. The Banks currently have mechanisms in place that allow for at least an annual review of the financial statements and the financial condition of all borrowers, except borrowers with secured installment and residential mortgage loans. Consumer loans which become 60 days delinquent are reviewed regularly by management. Generally, a consumer loan which is delinquent 120 days is 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 reserve 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 bee 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, 1996, the book value of nonperforming assets held for resale was approximately $1.9 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 100 ATMs: over 65 ATMs at the 80 banking offices and over 40 free-standing ATMs at other locations. As members of regional and international ATM networks such as "PULSE", "PLUS" and "CIRRUS," the Banks offer customers access to their depository accounts from regional, national and international ATM facilities. Deposit flows are controlled by the Banks primarily through pricing, and to a certain extent, through promotional activities. Management believes that the rates it offers, which are posted weekly on deposit accounts, are generally competitive with or, in some cases, slightly below other financial institutions in the Banks' respective market areas. TRUST SERVICES: The Banks', through their respective Trust Departments, offer a full range of trust services on a fee basis. The Banks act as executor, administrator or guardian in administering estates. Also provided are investment custodial services for individuals, businesses and charitable and religious organizations. In their trust capacities, the Banks provide investment management services on an agency basis and act as trustee for pension plans, profit sharing plans, corporate and municipal bond issues, living trusts, life insurance trusts and various other types of trusts created by or for individuals, businesses and charitable and religious organizations. As of December 31, 1996, the Trust Departments of the Banks had approximately $1.6 billion of assets under management, of which $1.0 billion were corporate accounts and $0.6 billion were personal, employee benefit, estate and other trust accounts. OPERATING EFFICIENCY STRATEGY: The primary focus of the Company's operating strategy is to increase operating income and to reduce operating expense. Beginning in January of 1988, management has taken steps to improve operating efficiencies. As a result, employees at Hancock Bank MS have been reduced from .78 per $1 million in assets in February 1988 to .59 as of December 31, 1996. Since its acquisition in August 1990, Hancock Bank LA employees have been reduced from .97 per $1 million of assets to .50 as of December 31, 1996. 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 $.56 to $1.00 at Hancock Bank MS. Hancock Bank LA has a higher level of fee income and through December 31, 1996, has achieved a ratio of $.86 to $1.00. OTHER ACTIVITIES: Hancock Bank MS has seven subsidiaries through which it engages in the following activities: providing consumer financing services; mortgage lending; owning, managing and maintaining certain real property; providing general insurance agency services; holding investment securities; marketing credit life insurance; and providing discount investment brokerage services. The income of these subsidiaries generally accounts for less than 10% of the Company's total annual income. During 1994, the Company began offering alternative investments through a third party vendor. The Investment Center is now located in several branch locations in Mississippi and Louisiana to accommodate the investment needs of customers whose needs fall outside the traditional commercial bank product line. Hancock Bank MS also owns approximately 3,700 acres of timberland in Hancock County, Mississippi, most of which was acquired through foreclosure in the 1930's. Timber sales and oil and gas leases on this acreage generate less than 1% of the Company's annual income. COMPETITION: The deregulation of the financial services industry, the elimination of many previous distinctions between commercial banks and other financial institutions and legislation enacted in Mississippi, Louisiana and other states allowing state-wide branching, multi-bank holding companies and regional interstate banking has created a highly competitive environment for commercial banking in the Company's market area. The principal competitive factors in the markets for deposits and loans are interest rates paid and charged. The Company also competes through the efficiency, quality, range of services and products it provides, convenience of office and ATM locations and office hours. In attracting deposits and in its lending activities, the Company competes generally with other commercial banks, savings associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, mutual funds, insurance companies and other financial institutions. Many of these institutions have greater available resources than the Company. SUPERVISION AND REGULATION BANK HOLDING COMPANY REGULATION GENERAL: The Company is subject to extensive regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve") pursuant to the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). The Company also is required to file certain reports with, and otherwise comply with the rules and regulations of, the Securities and Exchange Commission (the "Commission") under federal securities laws. FEDERAL REGULATION: The Bank Holding Company Act generally prohibits the Company from engaging in activities other than banking, managing or controlling banks or other permissible subsidiaries. Acquiring or obtaining control of any company engaged in activities other than those activities determined by the Federal Reserve to be so closely related to banking, managing or controlling banks as to be proper incident thereto is also prohibited. In determining whether a particular activity is permissible, the Federal Reserve considers whether the performance of the activity can reasonably be expected to produce benefits to the public that outweigh possible adverse effects. For example: making, acquiring or servicing loans; leasing personal property; providing certain investment or financial advice; performing certain data processing services; acting as agent or broker in selling credit life insurance, and performing certain insurance underwriting activities have all been determined by regulations of the Federal Reserve to be permissible activities. The Bank Holding Company Act does not place territorial limitations on permissible bank-related activities of bank holding 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, 1996, was 10.37%. 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, 1996, the Company's off-balance sheet items aggregated $253.2 million; however, after the credit conversion these items represented $19.1 million of balance sheet equivalents. The primary component of risk-based capital is Tier 1 Capital, which is essentially equal to common stockholders' equity, plus a certain portion of perpetual preferred stock. Tier 2 Capital, which consists primarily of the excess of any perpetual preferred stock, mandatory convertible securities, subordinated debt and general reserves 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, 1996, the Company's Tier 1 and Total Capital ratios were 18.03% and 19.02%, 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. Total assessments paid to the FDIC amounted to $285 thousand. The Banks paid BIF premiums of 0 cents per hundred dollars of insured deposits during 1996. The decrease in the 1996 rates resulted in $1.9 million FDIC premium reductions over the 1995 level of $2.2 million. Premiums for the first and second quarters of 1997 have remained 0 cents per hundred dollars of insured deposits. Premiums on OAKAR deposits from the 1991 acquisition of Peoples Federal Savings Association totalled $86 thousand. In addition to the normal premiums paid on OAKAR deposits, a one-time assessment of $191 thousand was paid. In general, FDICIA subjects banks and bank holding companies to significantly increased regulation and supervision. FDICIA increased the borrowing authority of the FDIC in order to recapitalize the Bank Insurance Fund, and the future borrowings are to be repaid by increased assessments on FDIC member banks. Other significant provisions of FDICIA require a new regulatory emphasis linking supervision to bank capital levels. Also, federal banking regulators are required to take prompt regulatory action with respect to depository institutions that fall below specified capital levels and to draft non-capital regulatory measures to assure bank safety. FDICIA contains a "prompt corrective action" section intended to resolve problem institutions at the least possible long-term cost to the deposit insurance funds. Pursuant to this section, the federal banking agencies are required to prescribe a leverage limit and a risk-based capital requirement indicating levels at which institutions will be deemed to be "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." In the case of a depository institution that is "critically undercapitalized" (a term defined to include institutions which still have positive net worth), the federal banking regulators are generally required to appoint a conservator or receiver. FDICIA further requires regulators to perform annual on-site bank examinations, places limits on real estate lending and tightens audit requirements. The new legislation eliminated the "too big to fail" doctrine, which protects uninsured deposits of large banks, and restricts the ability of undercapitalized banks to obtain extended loans from the Federal Reserve Board discount window. FDICIA also imposes new disclosure requirements relating to fees charged and interest paid on checking and deposit accounts. Most of the significant changes brought about by FDICIA required new regulations. In addition to regulating capital, the FDIC and the OCC have broad authority to prevent the development or continuance of unsafe or unsound banking practices. Pursuant to this authority, the FDIC and OCC have adopted regulations that restrict preferential loans and loan amounts to "affiliates" and "insiders" of banks, require banks to keep information on loans to major stockholders and executive officers and bar certain director and officer interlocks between financial institutions. The FDIC is also authorized to approve mergers, consolidations and assumption of deposit liability transactions between insured banks and between insured banks and uninsured banks or institutions to prevent capital or surplus diminution in such transactions where the resulting, continuing or assumed bank is an insured nonmember state bank, like Hancock Bank MS and Hancock Bank LA. Although the Hancock Bank MS and Hancock Bank LA are not members of the Federal Reserve System, they are subject to Federal Reserve regulations that require the Banks to maintain reserves against transaction accounts (primarily checking accounts), money market deposit accounts and nonpersonal time deposits. 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 $47,700 million, or, if the aggregate of such accounts exceeds $47,700 million, $1.302 million plus 10% of the total in excess of $47,700 million. This regulation is subject to an exemption from reserve requirements on a limited amount of an institution's transaction accounts. The foregoing is a brief summary of certain statutes, rules and regulations affecting the Company and the Banks. It is not intended to be an exhaustive discussion of all the statutes and regulations having an impact on the operations of such entities. EFFECT OF GOVERNMENTAL POLICIES: The difference between the interest rate paid on deposits and other borrowings and the interest rate received on loans and securities will comprise most of a bank's earnings. Due to recent deregulation of the industry, however, the banking business is becoming increasingly dependent on the generation of fee and service charge revenue. The earnings and growth of a bank will be affected by both general economic conditions and the monetary and fiscal policy of the United States Government and its agencies, particularly the Federal Reserve. The Federal Reserve sets national monetary policy such as seeking to curb inflation and combat recession. This is accomplished by its open-market operations in United States Government securities, adjustments in the amount of reserves that financial institutions are required to maintain and adjustments to the discount rates on borrowings and target rates for federal funds transactions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and also affect interest rates on loans and deposits. The nature and timing of any future changes in monetary policies and their potential impact on the Company cannot be predicted. STATISTICAL INFORMATION The following tables and other material present certain statistical information regarding the Company. This information is not audited and should be read in conjunction with the Company's consolidated financial statements and the accompanying notes. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY AND INTEREST RATES AND DIFFERENTIALS Net interest income, the difference between interest income and interest expense, is the most significant component of the Banks earnings. For internal analytical purposes, management adjusts net interest income to a "taxable equivalent" basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans). Another significant statistic in the analysis of net interest income is the effective interest differential, which is the difference between the average rate of interest earned on earning assets and the effective rate paid for all funds, noninterest-bearing as well as interest-bearing. Since a portion of the Bank's deposits do not bear interest, such as demand deposits, the rate paid for all funds is lower than the rate on interest-bearing liabilities alone. The rate differential for the years 1996 and 1995 was 5.10%. Recognizing the importance of interest differential to total earnings, management places great emphasis on managing interest rate spreads. Although interest differential is affected by national, regional, and area economic conditions, including the level of loan demand and interest rates, there are significant opportunities to influence interest differential through appropriate loan and investment policies. These policies are designed to maximize interest differential while maintaining sufficient liquidity and availability of funds for purposes of meeting existing commitments and for investment in loans and other investment opportunities that may arise. 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, -------------------------------------------------------------------------------------------------- 1996 1995 1994 --------------------------------- ------------------------------ -------------------------------- Interest Average Interest Average Interest Average Average Income or Yield or Average Income or Yield Average Income or Yield Balance Expense Rate Balance Expense or Rate Balance Expense or Rate (%) (%) (%) - ------------------------------------------------------------------------------------------------------------------- (Amounts in thousands) ASSETS Interest-earning assets: Investment securities: U.S. Treasury $221,120 $13,567 6.14% $257,228 $14,568 5.66% $316,232 $17,168 5.43% U.S. government obligations 449,687 34,886 7.76% 493,315 33,726 6.84% 423,555 24,772 5.85% Municipal obligations 60,690 5,451 8.98% 57,001 5,426 9.52% 48,194 4,912 10.19% Other securities 171,889 6,780 3.94% 87,606 6,231 7.11% 75,956 4,713 6.20% Federal funds sold & securities purchased Under agreements to resell 106,316 5,580 5.25% 99,559 5,820 5.85% 89,341 3,832 4.29% Interest-bearing time deposits with other banks 1,543 87 5.64% 500 31 6.20% 725 38 5.24% Net loans (2)(3) 1,083,165 107,079 9.89% 1,000,907 98,029 9.79% 906,342 82,967 9.15% Total interest- -------------------------------------------------------------------------------------------------- earning assets/ interest income (1) 2,094,410 173,430 8.28% 1,996,116 163,831 8.21% 1,860,345 138,402 7.44% Less: Reserve for loan losses (17,670) --- (16,532) --- (15,251) --- Noninterest- earning assets: Cash and due from banks 121,157 --- 104,854 --- 112,931 --- Property and equipment 37,185 --- 37,786 --- 34,815 --- Other assets 50,795 --- 93,302 --- 50,435 --- - ------------------------------------------------------------------------------------------------------ Total assets $2,285,877 $173,430 7.58% $2,215,526 $163,831 7.39% $2,043,275 $138,402 6.77% ===================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings, NOW and money market $ 694,017 19,001 2.74% $ 739,091 $ 20,515 2.78% $ 755,888 $ 20,703 2.74% Time 778,602 41,624 5.35% 717,064 37,097 5.17% 657,587 27,490 4.18% Federal funds purchased 11,425 549 4.80% 15,284 863 5.65% 18,622 754 4.05% Securities sold under agreements to repurchase 79,411 3,465 4.36% 53,924 2,219 4.12% 24,710 718 2.91% Long-term bonds 1,795 158 8.80% 2,799 203 7.25% 3,656 256 7.00% Capital notes 7 --- --- 265 0.00% 1,571 76 4.84% ----------------------------------------------------------------------------------------------------- Total interest- bearing liabilities/ interest expense 1,565,250 64,804 4.14% 1,528,162 61,162 4.00% 1,462,034 49,997 3.42% Noninterest- bearing liabilities: Demand deposits 472,909 --- --- 439,495 --- --- 393,120 --- --- Other liabilities 17,667 --- --- 32,135 --- --- 13,183 --- --- Stockholders' equity 230,051 --- --- 215,734 --- --- 174,938 --- --- ----------------------------------------------------------------------------------------------------- Total liabilities & stockholders' equity $2,285,877 $ 64,804 2.83% $2,215,526 $ 61,162 2.76% $2,043,275 $ 49,997 2.45% ====================================================================================================== Interest-earning assets $2,094,410 $1,996,116 $1,860,345 Interest-bearing liabilities 1,565,250 1,528,162 1,462,034 Interest income $173,430 $163,831 $138,402 Interest expense 64,804 61,162 49,997 -------- -------- -------- Interest income/ interest- earning assets 8.28% 8.21% 7.44% Interest expense/interest- bearing liabilities 4.14% 4.00% 3.42% Interest spread 4.14% 4.21% 4.02% Net interest income $108,626 $102,669 $ 88,405 ======== ======== ======== Net interest margin 5.19% 5.13% 4.75% - ----------
(1) Includes tax equivalent adjustments to interest income of $1.9 million, $2.3 million, and $2.1 million in 1996, 1995 and 1994, respectively, using an effective tax rate of 35%. (2) Interest income includes fees on loans of $4.5 million in 1996, $4.1 million in 1995 and $3.2 million in 1994. (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. Nonaccrual loans are included in average amounts of loans and do not bear interest for purposes of the presentation. Changes that are not solely due to volume or rate are allocated to volume.
ANALYSIS OF CHANGES IN NET INTEREST INCOME ------------------------------------------ YEARS ENDED DECEMBER 31, -------------------------------------------------- 1996 1995 1994 --------------------------- ------------------------------ ------------------------ VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL --------------------------- ------------------------------ ------------------------ (Amounts in thousands) INTEREST INCOME Investment securities: U.S. Treasury $(2,044) $ 1,043 $(1,001) $( 3,327) $ 727 $( 2,600) $ 1,301 $( 994)$ 307 U.S. government obligations (2,984) 4,144 1,160 4,761 4,193 8,954 1,528 (1,630) ( 102) Municipal obligations (1) 351 ( 326) 25 837 ( 323) 514 463 ( 751) ( 288) Other securities 5,992 (5,443) 549 827 691 1,518 ( 602) 540 ( 62) Federal funds sold & securities purchased under agreements to resell 395 ( 635) ( 240) 594 1,394 1,988 (1,536) 1,765 229 Interest bearing time deposits with other banks 65 ( 9) 56 ( 14) 7 ( 7) ( 19) 12 ( 7) Net Loans 8,053 997 9,050 9,261 5,801 15,062 5,459 (3,136) 2,323 ----------------------------------------------------------------------------------------- Total 9,828 ( 229) 9,599 12,939 12,490 25,429 6,594 (4,194) 2,400 ----------------------------------------------------------------------------------------- INTEREST EXPENSE Deposits: Savings, NOW and money market (1,253) ( 261) (1,514) ( 490) 302 ( 188) 978 359 1,337 Time 3,181 1,346 4,527 3,097 6,510 9,607 ( 212) 133 ( 79) Federal funds purchased ( 218) ( 96) ( 314) ( 189) 298 109 24 193 217 Securities sold under agreements to repurchase 1,050 196 1,246 1,202 299 1,501 63 171 234 Long-term bonds ( 73) 28 ( 45) ( 62) 9 ( 53) ( 69)( 25) ( 94) Capital notes ( 258) --- ( 258) 265 ( 76) 189 12 ( 26) ( 14) ----------------------------------------------------------------------------------------------- Total 2,429 1,213 3,642 3,823 7,342 11,165 796 805 1,601 --------------------------------------------------------------------------------------------- Increase (decrease) in net interest income $ 7,399 $(1,442) $ 5,957 $ 9,116 $ 5,148 $ 14,264 $ 5,798 $(4,999) $ 799 ============================================================================================= - ----------
(1) Yields on tax-exempt investments have been adjusted to a tax equivalent basis utilizing a 35% effective tax rate. (2) Interest earned includes fees on loans of $4.5 million in 1996, $4.1 million in 1995 and $3.2 million in 1994. RATE SENSITIVITY: To control interest rate risk, management regularly monitors the volume of interest sensitive assets compared with interest sensitive liabilities over specific time intervals. The Company's interest rate management policy is designed to produce a stable net interest margin in periods of interest rate fluctuations. Interest sensitive assets and liabilities are those that are subject to maturity or repricing within a given time period. Interest rate risk is monitored, quantified and managed to produce a 5% or less impact on short-term earnings. The interest sensitivity gap is the difference between total interest sensitive assets and liabilities in a given time period. At December 31, 1996, the Company's cumulative interest sensitivity gap in the one year interval was (21.75%) as compared to a cumulative interest sensitivity gap in the one year interval of (18.44%) at December 31, 1995. The percentage reflects a higher level of interest sensitive liabilities than assets repricing within one year. Generally, when rate sensitive liabilities exceed rate sensitive assets, the net interest margin is expected to be positively affected during periods of decreasing interest rates and negatively affected during periods of increasing rates. The following tables set forth the Company's interest rate sensitivity gap at December 31, 1996 and December 31, 1995:
ANALYSIS OF INTEREST SENSITIVITY AT DECEMBER 31, 1996 ----------------------------------------------------- AFTER THREE WITHIN THROUGH ONE AFTER FIVE THREE TWELVE THROUGH YEARS AND MONTHS MONTHS FIVE YEARS INSENSITIVE TOTAL -------------------------------------------------------------------------- (Amounts in thousands) Net loans $ 302,553 $ 107,128 $ 531,015 $ 233,271 $1,173,967 Securities and time deposits 119,629 94,242 225,752 464,914 904,537 Federal funds 12,000 -- -- -- 12,000 -------------------------------------------------------------------------- Total earning assets $ 434,182 $ 201,370 $ 756,767 $ 698,185 $2,090,504 =========================================================================== 20.77% 9.64% 36.20% 33.39% 100.00% Interest bearing deposits, excluding CDs greater than $100,000 $ 542,277 $ 285,565 $ 440,733 $ 3,339 $1,271,914 CDs greater than $100,000 97,686 75,521 48,491 -- 221,698 Short-term borrowings 87,609 -- -- -- 87,609 Other borrowings 500 1,050 -- -- 1,550 -------------------------------------------------------------------------- Total interest-bearing funds 728,072 362,136 489,224 3,339 1,582,771 Interest-free funds -- -- -- 507,733 507,733 -------------------------------------------------------------------------- Funds supporting earning assets $ 728,072 $ 362,136 $ 489,224 $ 511,072 $2,090,504 ========================================================================== 34.82% 17.33% 23.40% 24.45% 100.00% Interest sensitivity gap $(293,890) $(160,766) $ 267,543 $ 187,113 -- Cumulative gap $(293,890) $(454,656) $(187,113) -- -- Percent of total earning assets (14.06%) (21.75%) (8.95%) -- --
ANALYSIS OF INTEREST SENSITIVITY AT DECEMBER 31, 1995 ----------------------------------------------------- AFTER THREE WITHIN THROUGH ONE AFTER FIVE THREE TWELVE THROUGH YEARS AND MONTHS MONTHS FIVE YEARS INSENSITIVE TOTAL ------------------------------------------------------------------- (Amounts in thousands) Net loans $ 281,636 $ 103,346 $ 429,298 $ 220,697 $1,034,977 Securities and time deposits 181,199 137,057 219,763 311,837 849,856 Federal funds 153,725 -- -- -- 153,725 ------------------------------------------------------------------- Total earning assets $ 616,560 $ 240,403 $ 649,061 $ 532,534 $2,038,558 =================================================================== 30.25% 11.79% 31.84% 26.12% 100.00% Interest bearing deposits, excluding CDs greater than $100,000 $ 566,967 $ 443,939 $ 234,772 $ 15 $1,245,693 CDs greater than $100,000 73,320 79,031 61,191 -- 213,542 Short-term borrowings 66,585 -- -- -- 66,585 Other borrowings 1,045 1,970 2,100 -- 5,115 Total interest-bearing funds 707,917 524,940 298,063 15 1,530,935 ------------------------------------------------------------------- Interest-free funds -- -- -- 507,623 507,623 ------------------------------------------------------------------- Funds supporting earning assets $ 707,917 $ 524,940 $ 298,063 $ 507,638 $2,038,558 =================================================================== 34.73% 25.75% 14.62% 24.90% 100.00% Interest sensitivity gap $ (91,357) $(284,537) $ 350,998 $ 24,896 -- Cumulative gap $ (91,357) $(375,894) $ (24,896) -- -- Percent of total earning assets (4.48%) (18.44%) (1.22%) -- --
INCOME TAXES: The Company had income tax expense of $15.2 million and $13.1 million for the years ended December 31, 1996 and 1995, respectively. This represents effective tax rates of 32.4% and 32.6% for December 31, 1996 and 1995, respectively. PERFORMANCE AND EQUITY RATIOS: The following table sets forth, for the periods indicated, the percentage of net income to average assets and average stockholders' equity, the percentage of common stock dividends to net income and the percentage of average stockholders' equity to average assets. YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ------------------------- Return on average assets (%) 1.38 1.22 1.13 Return on average stockholders' equity (%) 13.74 12.50 13.22 Dividend payout ratio (%) 28.90 31.45 32.21 Average stockholders' equity to average assets (%) 10.06 9.74 8.56 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 1995. Generally, securities with a market risk have been placed in this category. The December 31, 1996 book value of the held-to-maturity portfolio was $804 million and the market value was $807 million. The available-for-sale portfolio balance was $98 million at December 31, 1996. The book values of securities classified as available-for-sale as of December 31, 1996, 1995 and 1994, were as follows (in thousands): DECEMBER 31 ------------------------------- 1996 1995 1994 ------------------------------- U.S. Treasury securities $ 499 $ 1,493 $ 2 Other U.S. gov. obligations 53,802 61,470 659 Municipal obligations 923 962 997 Other securities --- 544 --- Mortgage-backed securities 5,373 5,140 --- CMOs 33,038 34,695 19,385 Equity securities 4,932 4,993 --- -------------------------------- $ 98,567 $109,297 $ 20,382 ================================ The book value, book yield and market value of the debt securities classified as available-for-sale as of December 31, 1996, by estimated maturity, were as follows (in thousands): BOOK VALUE YIELD (%) MARKET VALUE ------------------------------------- Due in one year or less $ 4,029 6.40 $ 3,939 Due after one year through five years 17,403 6.56 17,149 Due after five years through ten years 15,908 6.60 15,753 Due after ten years 56,295 6.57 55,822 ------------------------------------- $ 93,635 6.57 $92,663 ===================================== The book value and market values of securities classified as held-to-maturity as of December 31, 1996, 1995 and 1994 were as follows (in thousands): DECEMBER 31 -------------------------------- 1996 1995 1994 -------------------------------- U.S. Treasury securities $175,171 $239,892 $280,578 Other U.S. gov. obligations 338,796 317,140 275,209 Municipal obligations 66,367 56,961 58,224 Other securities --- 11,027 15,747 Mortgage-backed securities 87,991 50,427 129,028 CMOs 135,673 63,082 88,807 -------------------------------- $809,998 $738,529 $847,593 ================================ The book value, book yield and market value of the securities classified as held-to-maturity as of December 31, 1996, by contractual maturity, were as follows (in thousands): BOOK VALUE YIELD (%) MARKET VALUE ----------------------------------- Due in one year or less $ 99,189 6.60 $ 99,328 Due after one year through five years 227,023 6.64 227,834 Due after five years through ten years 249,010 6.70 248,796 Due after ten years 228,776 6.64 230,752 ---------------------------------- $803,998 6.65 $806,710 ================================== LOAN PORTFOLIO: The Banks' primary lending focus is to provide commercial, consumer and real estate loans to consumers and to small and middle market businesses in their respective market areas. Diversification in the loan portfolio is a means of reducing the risks associated with economic fluctuations. The Banks have no concentrations of loans to particular borrowers or loans to any foreign entities. Loan underwriting standards and loan loss reserve 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 reserve 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, ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------------------------------------------------------------------- (Amounts in thousands) Real estate: Residential mortgages 1-4 family $ 333,581 $ 224,646 $ 214,247 $ 213,216 $ 211,931 Residential mortgages multifamily 12,769 9,674 7,302 7,124 7,804 Home equity lines 13,000 11,825 11,740 13,147 12,873 Construction and development 71,057 41,602 35,719 24,234 18,454 Nonresidential 168,203 127,027 112,957 119,094 111,504 Commercial, industrial and other 169,814 176,942 119,997 160,385 157,797 Consumer 372,951 409,608 397,879 366,401 297,401 Lease financing and depository institutions 16,095 13,811 10,074 6,673 6,079 Political subdivisions 12,142 14,394 12,806 11,668 12,791 Credit card 29,158 32,104 30,794 27,466 26,482 --------------------------------------------------------------- 1,198,770 1,061,633 953,515 949,408 863,116 Less, unearned income 24,806 26,656 27,850 26,396 22,393 --------------------------------------------------------------- Net loans $1,173,967 $1,034,977 $ 925,665 $ 923,012 $ 840,723 ===============================================================
Prior to July 1991, a correspondent bank of Hancock Bank MS issued credit cards under the Bank's name to customers of Hancock Bank MS and retained the outstanding receivables. In July 1991, Hancock Bank MS purchased, at par, from its correspondent bank, certain credit cards with outstanding balances of approximately $7.8 million and simultaneously transferred, at par, the cards and balances to Hancock Bank LA. The resulting combined consumer and corporate credit card portfolio aggregated approximately $11.5 million with approximately 17,700 cards outstanding. At December 31, 1996, the portfolio balance had increased to approximately $20.8 million with approximately 37,000 cards outstanding. The following table sets forth, for the periods indicated, the approximate maturity by type of the loan portfolio of the Company:
LOAN MATURITY SCHEDULE DECEMBER 31, 1996 DECEMBER 31, 1995 ---------------------------------------- ------------------------------------------ MATURITY RANGE MATURITY RANGE ---------------------------------------- ------------------------------------------ AFTER ONE AFTER ONE WITHIN THROUGH AFTER FIVE WITHIN THROUGH AFTER FIVE ONE YEAR FIVE YEARS YEARS TOTAL ONE YEAR FIVE YEARS YEARS TOTAL -------------------------------------------------------------------------------------- (Amounts in thousands) Commercial, industrial and other $ 68,436 $ 77,960 $ 23,418 $ 169,814 $ 70,958 $ 77,897 $ 28,087 $ 176,942 Real estate - construction 44,714 18,994 7,349 71,057 20,227 14,685 6,690 41,602 All other loans 148,232 557,936 251,731 957,899 154,587 454,385 234,117 843,089 --------------------------------------------------------------------------------------- Total loans $261,382 $654,891 $282,498 $1,198,770 $245,772 $546,967 $268,894 $1,061,633 =======================================================================================
The sensitivity to interest rate changes of that portion of the Company's loan portfolio that matures after one year is shown below:
LOAN SENSITIVITY TO CHANGES IN INTEREST RATES DECEMBER 31, DECEMBER 31, 1996 1995 ------------------------- (Amounts in thousands) Commercial, industrial, and real estate construction maturing after one year: Fixed rate $188,476 $150,111 Floating rate 80,793 80,298 Other loans maturing after one year: Fixed rate 594,593 559,592 Floating rate 18,781 25,860 ---------------------- Total $882,643 $815,861 =====================
NONPERFORMING ASSETS: The following table sets forth nonperforming assets by type for the periods indicated, consisting of nonaccrual loans, restructured loans, real estate owned and loans past due 90 days or more and still accruing: DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------- (Amounts in thousands) Nonaccrual loans: Real estate $ 753 $ 2,406 $ 1,914 $ 1,888 $ 4,050 Commercial, industrial and other 169 1,144 525 1,424 399 Consumer 1,298 1,176 1,287 1,322 1,735 Lease financing --- --- --- --- 22 Depository institutions --- --- --- --- --- Political subdivisions --- --- --- --- --- Restructured loans 685 611 614 482 194 ------------------------------------------------------------------------------------------- Total nonperforming loans 2,905 5,337 4,340 5,116 6,400 Acquired real estate owned 147 140 --- --- --- Real estate owned 1,728 946 1,001 1,029 1,673 ------------------------------------------------------------------------------------------- Total nonperforming assets $ 4,780 $ 6,423 $ 5,341 $ 6,145 $ 8,073 =========================================================================================== Loans 90+ days past due and still accruing $8,361 $ 4,089 $ 2,692 $ 4,338 $ 7,356 =========================================================================================== Ratios (%): Nonperforming loans to net loans 0.71 0.52 0.47 0.55 0.76 Nonperforming assets to net loans and real estate owned 0.41 0.62 0.58 0.67 0.96 Nonperforming loans to average net loans 0.77 0.53 0.48 0.60 0.80 Reserve for loan losses to nonperforming loans 681.58 325.86 354.19 299.18 229.41
The following table sets forth, for the periods indicated, the amount of interest that would have been recorded on nonaccrual loans had the loans not been classified as "nonaccrual" as well as the interest that would have been recorded under the original terms of restructured loans: DECEMBER 31, ------------------------------------------------------------------------------------------------ 1996 1995 1994 1993 1992 ------------------------------------------------------------------------------------------------ (Amounts in thousands) Nonaccrual $ 220 $ 463 $ 340 $ 441 $ 603 Restructured 68 60 56 45 17 ------------------------------------------------------------------------------------------------ Total $ 288 $ 523 $ 396 $ 486 $ 620 ===========================================================================================
Interest actually received on nonaccrual and restructured loans was insignificant. LOAN LOSS, CHARGE-OFF AND RECOVERY EXPENSES: The following table sets forth, for the periods indicated, average net loans outstanding, reserve for loan losses, amounts charged-off and recoveries of loans previously charged-off:
DECEMBER 31, ------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------------------------------------- (Amounts in thousands) Net loans outstanding at end of period $1,173,967 $1,034,978 $ 925,665 $ 923,012 $ 840,723 ================================================================================ Average net loans outstanding $1,083,165 $1,000,907 $ 904,342 $ 847,526 $ 796,018 ================================================================================ Balance of reserve for loan losses at beginning of period $ 17,391 $ 15,372 $ 15,306 $ 14,682 $ 12,805 Loans charged-off: Real estate 73 210 106 318 766 Commercial 975 636 637 2,218 2,516 Consumer 5,417 4,524 2,706 3,087 3,981 Lease financing 1 13 --- 53 2 Depository institutions --- --- --- --- --- Political subdivisions --- --- --- --- --- -------------------------------------------------------------------------------- Total charge-offs 6,466 5,383 3,449 5,676 7,265 -------------------------------------------------------------------------------- Recoveries of loans previously charged-off: Real estate 186 15 53 102 85 Commercial 937 971 570 695 430 Consumer 945 839 886 869 648 Lease financing 0 5 8 2 1 Depository institutions --- --- --- --- --- Political subdivisions --- --- --- --- --- ------------------------------------------------------------------------ Total recoveries 2,068 1,830 1,517 1,668 1,164 ------------------------------------------------------------------------ Net charge-offs 4,398 3,553 1,932 4,008 6,101 Provision for loan losses 6,153 4,425 1,998 4,632 7,978 Balance acquired through acquisition 654 1,147 --- --- --- ------------------------------------------------------------------------ Balance of reserve for loan losses at end of period $ 19,800 $ 17,391 $ 15,372 $ 15,306 $ 14,682 ========================================================================
The following table sets forth, for the periods indicated, certain ratios related to the Company's charge-offs, reserve for loan losses and outstanding loans: YEARS ENDED DECEMBER 31, ------------------------------------------------ 1996 1995 1994 1993 1992 ------------------------------------------------- Ratios (%): Net charge-offs to average net loans 0.41 0.35 0.21 0.47 0.77 Net charge-offs to period-end net loans 0.37 0.34 0.21 0.43 0.73 Reserve for loan losses to average net loans 1.83 1.74 1.70 1.81 1.84 Reserve for loan losses to period-end net loans 1.69 1.68 1.66 1.66 1.75 Net charge-offs to loan loss reserve 22.21 20.43 12.57 26.19 41.55 Net charge-offs to loan loss provision 71.47 80.29 96.70 86.53 76.47
An allocation of the loan loss reserve by major loan category is set forth in the following table. The allocation is not necessarily indicative of the category of future losses, and the full reserve at December 31, 1996, is available to absorb losses occurring in any category of loans. DECEMBER 31, --------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------------------------------------------------------------------------------------------------- RESERVE % OF RESERVE % OF RESERVE % OF RESERVE % OF RESERVE % 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 $3,000 49.94 $ 2,000 39.08 $1,250 46.06 $1,250 36.69 1,250 42.00 Commercial, industrial and other 5,750 16.52 5,250 19.32 5,000 14.98 5,000 18.82 4,750 20.47 Consumer 8,250 31.11 7,500 38.58 6,500 41.73 6,500 38.60 6,250 34.46 Credit card 800 2.43 500 3.02 500 3.23 500 2.89 500 3.07 Unallocated 2,000 --- 2,141 --- 2,122 --- 2,056 --- 1,932 --- ------------------------------------------------------------------------------------------------------ $19,800 100.00 17,391 100.00 $15,372 100.00 $15,306 100.00 $14,682 100.00 ======================================================================================================
DEPOSITS AND OTHER DEBT INSTRUMENTS: The following table sets forth the distribution of the average deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits: 1996 1995 1994 ------------------------------- ------------------------------- ------------------------- PERCENT PERCENT PERCENT OF OF OF RATE AMOUNT DEPOSITS RATE (%) AMOUNT DEPOSITS RATE (%) AMOUNT DEPOSITS (%) ------------------------------- ------------------------------- ------------------------- (Amounts in thousands) Non-interest bearing accounts $ 472,909 24.30 --- $ 439,495 23.18 --- $393,120 21.76 --- NOW accounts 268,391 13.8 2.68 288,947 15.24 2.64 293,347 16.24 2.58 Money market and other savings accounts 425,626 21.88 2.78 450,144 23.75 2.86 462,541 25.60 2.84 Time deposits 778,602 40.02 5.34 717,064 37.83 5.17 657,587 36.40 4.18 --------------------------------------------------------------------------------------------------- $1,945,528 100.00 $1,895,650 100.00 $1,806,595 100.00 ===================================================================================================
The Banks traditionally price their deposits to position themselves in the middle of the local market. The Banks' policy is not to accept brokered deposits. Time certificates of deposit of $100,000 and over at December 31, 1996 had maturities as follows: DECEMBER 31, 1996 ------------------- (Amounts in thousands) Three months or less $ 97,686 Over three through six months 29,453 Over six through twelve months 46,068 Over twelve months 48,491 --------- Total $221,698 ========= 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, -------------------------- 1996 1995 1994 -------------------------- (Amounts in thousands) Federal funds purchased: Amount outstanding at period-end $ 0 $11,300 $29,150 Weighted average interest at period-end 0.00% 3.12% 2.75% Maximum amount at any month-end during period $ 19,725 $16,325 $37,000 Average amount outstanding during period $ 11,425 $15,284 $18,622 Weighted average interest rate during period 5.33% 5.65% 4.05% Securities sold under agreements to repurchase: Amount outstanding at period-end $ 87,609 $55,285 $25,146 Weighted average interest at period-end 4.25% 2.50% 2.50% Maximum amount at any month end during-period $156,595 $88,070 $43,096 Average amount outstanding during period $ 79,411 $53,924 $24,710 Weighted average interest rate during period 4.26% 4.12% 2.91% 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, 1996, cash and due from banks, securities available-for-sale, federal funds sold and repurchase agreements were in excess of 10% of total deposits at December 31, 1996. 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. As of December 31, 1996, there was approximately $85 million available to be dividended to the Company from the Banks. CAPITAL RESOURCES: Risk-based and leverage capital ratios for the Company and the Banks for the periods indicated are shown in the following table: RISK-BASED CAPITAL RATIOS TIER 1 LEVERAGE --------------------------------------------------------------------------------------- TOTAL TIER 1 RATIO --------------------------------------------------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 1996 1995 --------------------------------------------------------------------------------------- Hancock Bank MS 18.62% 17.98% 17.79% 17.18% 10.10% 9.26% Hancock Bank LA 19.63 22.35 18.38 21.10 10.54 9.61 Company 19.02 18.64 18.03 17.69 10.37 9.28
Risk-based capital requirements are intended to make regulatory capital more sensitive to risk elements of the Company. Currently, the Company is required to maintain a minimum risk-based capital ratio of 8.0%, with not less than 4.0% in Tier 1 capital. In addition, the Company must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 3.0% based upon the regulator's latest composite rating of the institution. NEW ACCOUNTING STANDARDS: The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and servicing of Financial Assets and Extinguishments of Liabilities" which provides revised accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The Company does not anticipate that the adoption of this statement in 1997 will have a significant effect of its financial condition or results of operations. IMPACT OF INFLATION: Unlike most industrial companies, the assets and liabilities of financial institutions such as the Banks are primarily monetary in nature. Interest rates, therefore, have a more significant effect on the Banks' performance than the effect of general levels of inflation on the price of goods and services. Interest rates earned and paid by the Banks are affected to a degree by the rate of inflation, and noninterest income and expenses can be affected by increasing rates of inflation; however, the Company believes that the effects of inflation are generally manageable through asset/liability management. 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 is leased from the City of Gulfport in connection with a urban development revenue bond issue with a present balance of $1,050,000. The lease payments by Hancock Bank MS, which are equivalent in amount to the payments of principal and interest on the bonds, are used by the City to make payments on the bonds. Hancock Bank MS, however, effectively has ownership of the building since title will revert when all outstanding bonds have been paid. For this reason, the Company carries the building as an asset and the bonds as a long term payable on its balance sheet. The bonds mature at various dates through 1997. The following banking offices in Mississippi and Louisiana are held in fee (number of locations shown in parenthesis): Albany, LA (1) Hammond, LA (1) 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 (3) Bogalusa, LA (1) Mt. Hermon, LA (1) Denham Springs, LA (4) Ocean Springs, MS (2) D'Iberville, MS (1) Pascagoula, MS (4) Escatawpa, MS (1) Pass Christian, MS (1) Franklinton, LA (1) Picayune, MS (2) French Settlement, LA (1) Poplarville, MS (1) Gautier, MS (1) Walker, LA (1) Gulfport, MS (7) Waveland, MS (1) The following banking offices in Mississippi and Louisiana are leased under agreements with unexpired terms of from one to thirty-four years including renewal options (number of locations shown in parenthesis): Baton Rouge, LA (5) Hammond, LA (1) Bay St. Louis, MS (2) Pascagoula, MS (1) Biloxi, MS (1) Picayune, MS (2) Diamondhead, MS (1) Springfield, LA (1) Gulfport, MS (5) Vancleave, MS (1) In addition to the above, Hancock Bank MS owns land and other properties acquired through foreclosures of loans. The major item is approximately 3,700 acres of timber land in Hancock County, Mississippi, which Hancock Bank MS acquired by foreclosure in the 1930's. ITEM 3 - LEGAL PROCEEDINGS The Company is party to various legal proceedings arising in the ordinary course of business. In the opinion of management, after consultation with outside legal counsel, all such matters are adequately covered by insurance or, if not so covered, are not expected to have a material adverse effect on the financial condition of the Company. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended December 31, 1996. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information under the caption "Market Information" on page 6 of the Company's 1996 Annual Report to Stockholders is incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA The information under the caption "Consolidated Summary of Selected Financial Information" on Page 7 of the Company's 1996 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 34 and 35 of the Company's 1996 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 33 of the Company's 1996 Annual Report to Stockholders is incorporated herein by reference: Consolidated Balance Sheets on Page 18 Consolidated Statements of Earnings on Page 19 Consolidated Statements of Stockholders' Equity on Page 20 Consolidated Statements of Cash Flows on Page 21 Notes to Consolidated Financial Statements on Pages 22 through 32 Independent Auditors' Report on Page 33 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's independent accountants and auditors on any matter of accounting principles or practices or financial statement disclosure. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information concerning this item, see "Election of Directors" (Pages 3-7) and "Executive Compensation" (Pages 12-18) in the Proxy Statement for the Annual Meeting of Shareholders held February 20, 1997, which was filed by the Registrant in definitive form with the Commission on January 21, 1997 and is incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION For information concerning this item see "Executive Compensation" (Pages 12-18) in the Proxy Statement for the Annual Meeting of Shareholders held February 20, 1997, which was filed by the Registrant in definitive form with the Commission on January 21, 1997 and is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT For information concerning this item see "Principal Shareholders" (Page 10) and "Election of Directors" (Pages 3-7) in the Proxy Statement for the Annual Meeting of Shareholders held February 20, 1997, which was filed by the Registrant in definitive form with the Commission on January 21, 1997 and is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information concerning this item see "Certain Transactions and Relationships" (Page 18) in the Proxy Statement for the Annual Meeting of Shareholders held February 20, 1997, which was filed by the Registrant in definitive form with the Commission on January 21, 1997 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 1996 Annual Report to Stockholders and are incorporated herein by reference: - Independent Auditors' Report - Consolidated Balance Sheets as of December 31, 1996 and 1995 - Consolidated Statements of Earnings for the three years ended December 31, 1996 - Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1996 - Consolidated Statements of Cash Flows for the three years ended December 31, 1996 - Notes to Consolidated Financial Statements for the three years ended December 31, 1996 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 November 15, 1996 among Hancock Holding Company, Hancock Bank of Louisiana, Community Bancshares, Inc. and Community State Bank, Hammond Louisiana (filed as Exhibit 2 to the Registrant's Form S-4, Registration Number 333-11873, dated September 12, 1996). (2.9) Agreement and Plan of Reorganization dated January 17, 1997 among Hancock Holding Company, Hancock Bank of Louisiana and Southeast National Bank, Hammond, Louisiana (filed as Exhibit 2 to the Registrant's Form S-4, Registration Number 333-14223, dated October 16, 1996). (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 herewith). (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 (provided on page 17 of the Registrant's definitive proxy statement for its annual shareholders' meeting on February 20, 1997 filed with the Registrant's definitive proxy materials on January 21, 1997 and incorporated herein by reference). (10.3) Description of Hancock Bank Automobile Plan (provided on page 17 of the Registrant's definitive proxy statement for its annual shareholders' meeting on February 20, 1997 filed with the Registrant's definitive proxy materials on January 21, 1997 and incorporated herein by reference). (10.4) Description of Deferred Compensation Arrangement for Directors (provided on pages 12-18 of the Registrant's definitive proxy statement for its annual shareholders' meeting on February 20, 1997 filed with the Registrant's definitive proxy materials on January 21, 1997 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, 1996 (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 20, 1997 (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. (27) Selected Financial Data 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 Mississippi Hancock Bank Corporation Hancock Insurance Agency Mississippi Hancock Bank Hancock Investment Services, Inc. Mississippi Hancock Bank Town Properties, Inc. Mississippi Hancock Bank The Gulfport Building, Inc. Mississippi Hancock Bank of Mississippi Harrison Financial Services, Inc. Mississippi Hancock Bank Hancock Mortgage Corporation Mississippi Hancock Bank and Hancock Securities Corp. Harrison Life Insurance Company Mississippi 79% owned by Hancock Bank (1) All are 100% owned except as indicated. (23) Consent of Independent Accountants. (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. (27) Selected Financial Data SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HANCOCK HOLDING COMPANY DATE MARCH 25, 1997 /S/ LEO W. SEAL, JR. By Leo W. Seal, Jr., President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /S/ LEO W. SEAL, JR. President and Director March 25, 1997 Leo W. Seal, Jr. (Chief Executive Officer) /S/ JOSEPH F. BOARDMAN, JR. Director, March 25, 1997 Joseph F. Boardman, Jr. Chairman of the Board /S/ THOMAS W. MILNER, JR. Director March 25, 1997 Thomas W. Milner, Jr. /S/ GEORGE A. SCHLOEGEL Director, March 25, 1997 George A. Schloegel Vice-Chairman of the Board /S/ DR. HOMER C. MOODY, JR. Director March 25, 1997 Dr. Homer C. Moody, Jr. /S/ JAMES B. ESTABROOK, JR. Director March 25, 1997 James B. Estabrook, Jr. /S/ CHARLES H. JOHNSON Director March 25, 1997 Charles H. Johnson /S/ L. A. KOENENN, JR. Director March 25, 1997 L. A. Koenenn, Jr. /S/ VICTOR MAVAR Director March 25, 1997 Victor Mavar /S/ C. STANLEY BAILEY Chief Financial March 25, 1997 C. Stanley Bailey Officer EX-3 2 ARTICLES OF AMENDMENT OF HANCOCK HOLDING COMPANY EXHIBIT 3.7 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF HANCOCK HOLDING COMPANY GULFPORT, MISSISSIPPI Pursuant to the provisions of the Miss. Code Ann., Sections 79-4-10.01 through 79-4-10.09 (1996), the undersigned corporation hereby adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: The name of the corporation is Hancock Holding Company. SECOND: The following Amendments to the Amended and Restated Articles of Incorporation of Hancock Holding Company (the "Articles") were adopted by the Board of Directors on December 12, 1996 and by the Stockholders at the Annual Meeting held on February 20, 1997, in the manner prescribed by law: 1. An amendment to Article Two of the Articles to increase the number of shares of Common Stock, $3.33 par value, which the corporation has authority to issue to 75,000,000 to read in its entirety as follows: SECOND: The aggregate number of shares which the Corporation shall have authority to issue is seventy-five million (75,000,000) of the par value of three dollars and thirty-three cents ($3.33) each. 2. An amendment to Article Six of the Articles to conform Article Six to the Mississippi Business Corporations Act to read in its entirety as follows: SIXTH: A director shall not be liable to the Corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for: (i) the amount of financial benefit received by a director to which he is not entitled; (ii) an intentional infliction of harm on the Corporation or its shareholders; (iii) a violation of Mississippi Code Annotated Section 79-4-8.33(1972), as amended; or (iv) an intentional violation of criminal law. The Corporation shall indemnify any person (or the heirs, executors and administrators of any person) who was or is a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise, formal or informal (a "Proceeding"), by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan) or reasonable expenses (including legal fees) incurred with respect to the Proceeding: (A) to the fullest extent permitted by the Mississippi Business Corporation Act in effect from time to time (the "Act") and (B) despite the fact that such person has failed to meet the standard of conduct set forth in the Act, or would be disqualified for indemnification under the Act for any reason, if a determination is made by one of the following determining bodies (Collectively, the "Determining Bodies"): (i) the board of directors by majority vote of a quorum consisting of directors not at the time parties to the Proceeding, (ii) if a quorum cannot be obtained under (i), by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting of two or more directors not at the time parties to the Proceeding, (iii) by special legal counsel (a) selected by the board of directors or its committee in the manner prescribed in (i) or (ii) or (b) if a quorum of the board of directors cannot be obtained under (i) and a committee cannot be designated under (ii), selected by majority vote of the full board of directors (in which selection directors who are parties may participate, (iv) by the shareholders (but shares owned by or voted under the control of directors who are at the time parties to the Proceeding may not be voted on the determination) or (v) by a court, that the acts or omissions of the director, officer, employee or agent did not constitute gross negligence or willful misconduct. However the Corporation shall not indemnify a person for: (i) an intentional infliction of harm on the Corporation or its shareholders; (ii) a violation of Mississippi Code Annotated Section 79-4-8.33 (1972), as amended; or for (iii) an intentional violation of criminal law, and the Corporation shall not indemnify a person for receipt of a financial benefit to which he is not entitled unless ordered by a court under Mississippi Code Annotated, Section 79-4-8.54(9)(3). The Corporation shall indemnify a person in connection with a proceeding by or in the right of the Corporation for reasonable expenses incurred in connection with the Proceeding if such acts or omissions do not constitute gross negligence or willful misconduct, and shall make further indemnification in connection with the Proceeding if so ordered by a court under Mississippi Code Annotated, Section 79-4-8.54(9)(3). The Corporation upon request shall pay or reimburse such person for his reasonable expenses (including legal fees) in advance of final disposition of the Proceeding as long as: (i) such person furnishes the Corporation a written undertaking, executed personally or on his behalf, to repay the advance if he is not entitled to mandatory indemnification under Mississippi Code Annotated, Section 79-4-8.52 and it is ultimately determined by a judgment or other final adjudication that his acts or omissions did constitute gross negligence or willful misconduct, which undertaking must be an unlimited general obligation of such person, and which shall be accepted by the Corporation without reference to the financial ability of the person to make repayment or to collateral; (ii) such person furnishes a written affirmation of his good faith that his acts or omissions did not constitute gross negligence or willful misconduct; and (iii) a determination is made by any of the Determining Bodies that the facts then known to those making the determination would not preclude indemnification under this Article SIXTH. Neither the amendment nor repeal of this Article SIXTH, nor the adoption or amendment of any other provision of the Corporation's bylaws or these Amended and Restated Articles of Incorporation inconsistent with this Article SIXTH, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. THIRD: The designation, number of outstanding shares, number of votes entitled to be cast on the Amendments, and the number of votes indisputably are as follows: AS TO AMENDMENT 1: Number of Votes Number of Shares Number of Votes Entitled Indisputably Designation Outstanding To Be Cast Represented Common Stock 10,725,102 10,725,102 8,457,064.69 AS TO AMENDMENT 2: Number of Votes Number of Shares Number of Votes Entitled Indisputably Designation Outstanding To Be Cast Represented Common Stock 10,725,102 10,725,102 8,457,064.69 FOURTH: Of the 8,457,064.69 shares of common stock indisputably represented at the Annual Meeting of Stockholders, the following votes were cast FOR and AGAINST the Amendment as follows: AS TO AMENDMENT 1: Total Number Total Number Total Number Number of of Votes of Votes of Votes Votes Cast Cast FOR Cast AGAINST ABSTAINING 8,331,324.69 7,762,126.17 539,376.69 29,821.83 AS TO AMENDMENT 2: Total Number Total Number Total Number Number of of Votes of Votes of Votes Votes Cast Cast FOR Cast AGAINST ABSTAINING 8,317,056.69 8,294,723.33 4,614.53 17,718.83 FIFTH: The number of votes cast for the amendments to the Articles of Incorporation by each voting group was sufficient for approval by the voting group. NOW, THEREFORE, Hancock Holding Company, Gulfport, Mississippi, acting by and through its undersigned officer, hereby submits these Articles of Amendment, all in accordance with Miss. Code Ann., Section 79-4-10.06 (1996). DATED: Feb. 26, 1997. HANCOCK HOLDING COMPANY By: /s/ Leo W. Seal, Jr. Leo W. Seal, Jr. President STATE OF MISSISSIPPI COUNTY OF HARRISON Personally appeared before me, the undersigned authority in and for the jurisdiction aforesaid, the within named LEO W. SEAL, JR. who being by me personally sworn, declared that he is the President, of Hancock Holding Company, that he executed the foregoing document as President of the corporation on its behalf, he being so authorized to do; and that the statements contained therein are true. GIVEN UNDER MY HAND AND OFFICIAL SEAL on this the 26th day of February, 1997. /s/ Laurie Lynd Mohler NOTARY PUBLIC My Commission Expires: My Commission Expires May 12, 1999 EX-13 3 ANNUAL REPORT HANCOCK HOLDING COMPANY AND SUBSIDIARIES FINANCIAL HIGHLIGHTS Amounts in thousands (except per share data) 1996 1995 % CHANGE ------------------------------------- EARNINGS STATEMENT DATA: Net interest income $ 106,719 $ 100,367 6.33 Provision for loan losses 6,154 4,425 39.07 Earnings before income taxes 46,773 40,082 16.69 Net earnings 31,603 27,017 16.97 PER SHARE DATA: Net earnings* $ 3.08 $ 2.65 16.23 Cash dividends paid* 0.88 0.84 4.76 Book value (period end) 24.42 21.95 11.25 Weighted average shares outstanding 10,277 10,181 0.94 Shares outstanding 12/31 10,725 10,213 5.02 BALANCE SHEET DATA (PERIOD END): Securities $ 901,592 $ 848,306 6.31 Net loans 1,173,967 1,034,978 13.41 Reserve for loan losses 19,800 17,391 13.85 Total assets 2,289,582 2,234,286 2.47 Total deposits and deposit related liabilities 2,014,185 1,991,069 1.16 Long-term bonds 1,050 2,035 (48.40) Total stockholders' equity 261,938 224,179 16.84 BALANCE SHEET DATA (AVERAGE FOR THE YEAR): Securities $ 903,386 $ 895,150 0.92 Net loans 1,083,165 1,000,907 8.22 Reserve for loan losses 17,670 16,532 6.88 Total assets 2,285,877 2,215,526 3.18 Total deposits and deposit related liabilities 2,027,105 1,949,024 4.01 Long-term bonds 1,795 2,799 (35.87) Total stockholders' equity 230,051 215,734 6.64 PERFORMANCE RATIOS (%): Return on average assets 1.38 1.22 13.11 Return on average stockholders' equity 13.74 12.50 9.92 Reserve for loan losses to period end loans 1.69 1.68 0.60 Reserve for loan losses to non-performing loans 681.58 325.86 109.16 Net charge-offs to period-end loans 0.37 0.35 5.71 Net interest margin 5.20 5.13 1.36 REGULATORY CAPITAL RATIOS (%): REQUIREMENT Primary capital 11.11 10.03 -- Tier 1 leverage 10.37 9.28 3% Tier 1 risk-based 18.03 17.69 4% Total risk-based 19.02 18.64 8% * THE EARNINGS AND CASH DIVIDENDS PAID PER COMMON SHARE ARE BASED ON THE WEIGHTED AVERAGE NUMBER OF SHARES AFTER GIVING RETROACTIVE EFFECT FOR A 15% STOCK DIVIDEND IN DECEMBER 1996. ACTUAL CASH DIVIDENDS PAID IN 1996 AND 1995 WERE $1.00 AND $0.96, RESPECTIVELY. HANCOCK HOLDING COMPANY AND SUBSIDIARIES DESCRIPTION OF BUSINESS Hancock Holding Company (the "Company") is a bank holding company headquartered in Gulfport, Mississippi with total consolidated assets of approximately $2.3 billion at December 31, 1996. The Company operates a total of 79 banking offices and over 100 automated teller machines ("ATMs") in the states of Mississippi and Louisiana through two wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi and Hancock Bank of Louisiana, Baton Rouge, Louisiana (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. SUMMARY OF QUARTERLY OPERATING RESULTS 1996 1995 ----------------------------------------- ---------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH ----------------------------------------- ---------------------------------------- (Amounts in thousands, except per share data) Interest income $42,320 $42,432 $43,138 $43,633 $38,286 $40,403 $41,304 $41,537 Interest expense 16,152 16,104 15,979 16,569 14,181 15,256 15,897 15,829 ----------------------------------------------------------------------------------- Net interest income 26,168 26,328 27,159 27,064 24,105 25,147 25,407 25,708 Provision for loan losses 1,004 797 1,036 3,317 175 1,002 1,140 2,108 Earnings before income taxes 11,623 11,934 12,005 11,211 10,122 9,878 10,080 10,002 Net earnings 7,768 8,032 8,082 7,721 6,780 6,612 6,719 6,906 Earnings per share $ 0.76 $ 0.79 $ 0.79 $ 0.74 $ 0.66 $ 0.65 $ 0.66 $ 0.68
MARKET INFORMATION The Company's common stock trades on the NASDAQ National Market System under the symbol "HBHC" and is listed in the newspaper under NASDAQ market quotations under "HancHd." The following table sets forth the high and low sale prices of the Company's common stock as reported on the NASDAQ National Market System. These prices do not reflect retail mark-ups, mark-downs or commissions. RESTATED* ------------------------------ CASH ACTUAL CASH HIGH LOW DIVIDENDS DIVIDENDS SALE SALE PAID PAID -------------------------------------------- 1996 1st Quarter $32.83 $31.09 $0.22 $0.25 2nd Quarter $35.22 $31.09 $0.22 $0.25 3rd Quarter $35.00 $31.52 $0.22 $0.25 4th Quarter $42.50 $32.61 $0.22 $0.25 1995 1st Quarter $26.30 $25.00 $0.20 $0.23 2nd Quarter $27.50 $25.44 $0.20 $0.23 3rd Quarter $31.52 $26.74 $0.22 $0.25 4th Quarter $32.62 $30.88 $0.22 $0.25 * THE FIGURES PRESENTED HAVE BEEN RESTATED TO REFLECT THE RETROACTIVE EFFECT OF A 15% STOCK DIVIDEND PAID IN DECEMBER 1996. On January 2, 1997, the high and low sale prices of the Company's common stock as reported on the NASDAQ National Market System were $41.00 and $40.00, respectively. The principal source of funds to the Company to pay cash dividends are the earnings of the Bank subsidiaries. Consequently, dividends are dependent upon earnings, capital needs, regulatory policies and other policies affecting the Banks. For example, federal and state banking laws and regulations restrict the amount of dividends and loans a bank may make to its parent company. Dividends paid to the Company by Hancock Bank are subject to approval by the Commissioner of Banking and Consumer Finance of the State of Mississippi. The Company's management does not expect regulatory restrictions to affect its policy of paying cash dividends, although no assurance can be given that Hancock Holding Company will continue to declare and pay regular quarterly cash dividends on its common stock. The Company, however, has paid regular cash dividends since 1937.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED SUMMARY OF SELECTED FINANCIAL INFORMATION Amounts In Thousands (except for per share data) YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------ 1996 1995 1994 1993 1992 ------------------------------------------------------------------------ INTEREST INCOME: Interest and Fees on Loans $ 107,080 $ 97,626 $ 82,563 $ 80,176 $ 80,434 Income on Federal Funds Sold 5,580 5,820 3,832 3,603 4,196 Interest & Dividends on Investments 58,863 58,083 49,884 49,936 53,898 ------------------------------------------------------------------------ Total Interest Income 171,523 161,529 136,279 133,715 138,528 ------------------------------------------------------------------------ INTEREST EXPENSE: Interest on Deposits 60,625 57,612 48,193 46,935 54,649 Interest on Federal Funds Purchased and securities purchased under agreements to resell 4,013 3,082 1,472 1,021 1,408 Interest on Bonds, Notes and Other 166 468 332 440 652 ------------------------------------------------------------------------ Total Interest Expense 64,804 61,162 49,997 48,396 56,709 ------------------------------------------------------------------------ NET INTEREST INCOME 106,719 100,367 86,282 85,319 81,819 Provision for Loan Losses 6,154 4,425 1,998 4,632 7,978 ------------------------------------------------------------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 100,565 95,942 84,284 80,687 73,841 Other Income 26,460 23,956 20,557 22,153 21,225 Other Expenses 80,252 79,816 71,218 67,450 65,935 ------------------------------------------------------------------------ Earnings before Income Taxes 46,773 40,082 33,623 35,390 29,131 Income Taxes 15,170 13,065 10,493 10,528 7,721 ------------------------------------------------------------------------ NET EARNINGS $ 31,603 $ 27,017 $ 23,130 $ 24,862 $ 21,410 ======================================================================== PER COMMON SHARE: Net Earnings* $ 3.08 $ 2.65 $ 2.48 $ 2.67 $ 2.30 Cash Dividends Paid* 0.88 0.84 0.80 0.78 0.59 Weighted Average Number of Shares 10,277 10,181 9,314 9,307 9,307 RETURN ON AVERAGE ASSETS 1.38% 1.22% 1.13% 1.27% 1.17% DIVIDEND PAYOUT 28.90% 31.45% 32.21% 29.29% 25.70% BALANCE SHEET DATA DECEMBER 31: Total Assets $2,289,582 $2,234,286 $2,026,929 $1,988,125 $1,899,709 Total Deposits and Deposit Related Liabilities 2,014,185 1,991,069 1,800,810 1,790,338 1,712,864 Total Long-Term Debt & Capital Notes 1,050 2,035 2,955 4,300 5,727 Stockholders' Equity 261,938 224,179 182,277 166,712 148,822
* THE EARNINGS AND CASH DIVIDENDS PAID PER COMMON SHARE ARE BASED ON THE WEIGHTED AVERAGE NUMBER OF SHARES AFTER GIVING RETROACTIVE EFFECT FOR A 15% STOCK DIVIDEND IN DECEMBER 1996. ACTUAL CASH DIVIDENDS PAID IN 1996, 1995, 1994, 1993 AND 1992 WERE $1.00, $0.96, $0.92, $0.90 AND $0.68, RESPECTIVELY. On April 29, 1994, the Company merged Hancock Bank of Louisiana, a wholly-owned subsidiary of the Company, with First State Bank and Trust Company of East Baton Rouge Parish, Baker, Louisiana (Baker). On February 1, 1995, the Company merged Hancock Bank of Louisiana with Washington Bank and Trust Company, Franklinton, Louisiana (Washington). These mergers were accounted for using the pooling-of-interests method, and, therefore, all prior years' financial information has been restated. On January 13, 1995, the Company acquired First Denham Bancshares, Inc., Denham Springs, Louisiana, which owned 100% of the stock of First National Bank of Denham Springs (Denham). This acquisition was accounted for using the purchase method and the results of operations since the date of acquisition have been included in the consolidated statements of earnings. On November 15, 1996, the Company acquired Community Bancshares, Inc., Independence, Louisiana, which owned 100% of the stock of Community State Bank (Community). This acquisition was accounted for using the purchase method and results of operations since the date of acquisition have been included in the consolidated statements of earnings. HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, ------------------------- 1996 1995 ------------------------- ASSETS: Cash and due from banks (non-interest bearing) $ 119,483,272 $ 124,276,406 Interest bearing time deposits with other banks 2,945,001 1,550,001 Securities available-for-sale (amortized cost of $98,567,000 and $109,297,000) 97,594,689 109,776,725 Securities held-to-maturity (market value of $806,710,000 and $749,497,000) 803,997,535 738,528,901 Federal funds sold 12,000,000 153,725,000 Loans 1,198,769,903 1,061,633,083 Less: Reserve for loan losses (19,800,000) (17,390,847) Unearned income (24,803,151) (26,655,590) ------------------------------- Loans, net 1,154,166,752 1,017,586,646 Property and equipment 40,412,254 38,746,085 Other real estate 1,875,683 1,085,569 Accrued interest receivable 20,188,062 19,360,385 Other assets 36,918,982 29,650,269 ------------------------------- TOTAL ASSETS $2,289,582,230 $2,234,285,987 =============================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 432,963,782 $ 468,445,574 Interest bearing savings, NOW, money market and other time 1,493,612,581 1,459,235,318 ------------------------------- Total Deposits 1,926,576,363 1,927,680,892 Securities sold under agreements to repurchase 87,609,038 63,387,783 Federal funds purchased -- 3,197,530 Other liabilities 12,408,884 13,806,265 Long-term bonds 1,050,000 2,035,000 ------------------------------- TOTAL LIABILITIES 2,027,644,285 2,010,107,470 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY: Common stock - $3.33 par value per share; 20,000,000 shares authorized, 10,887,302 and 10,375,241 shares issued and outstanding 36,254,716 30,043,090 Capital surplus 194,499,422 130,000,000 Undivided profits 31,816,568 63,823,349 Unrealized gain (loss) on securities available-for-sale, net of deferred taxes (632,761) 312,078 ------------------------------- TOTAL STOCKHOLDERS' EQUITY $ 261,937,945 $ 224,178,517 ------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,289,582,230 $2,234,285,987 =============================== See notes to consolidated financial statements. HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 ------------------------------------- INTEREST INCOME: Interest and fees on loans $107,079,501 $ 97,626,040 $ 82,562,712 Interest on: U.S. Treasury securities 13,567,085 14,567,927 17,168,143 Obligations of other U.S. government agencies 34,885,873 33,726,484 24,771,874 Obligations of states and political subdivisions 3,543,436 3,526,973 3,193,334 Interest on federal funds sold 5,580,275 5,820,225 3,831,582 Interest on time deposits and other 6,866,644 6,261,921 4,752,102 -------------------------------------------- Total Interest Income 171,522,814 161,529,570 136,279,747 -------------------------------------------- INTEREST EXPENSE: Interest on deposits 60,624,862 57,612,465 48,192,868 Interest on securities sold under agreements to repurchase and federal funds purchased 4,013,259 3,081,896 1,471,992 Interest on bonds and notes 165,840 468,029 332,051 -------------------------------------------- Total interest expense 64,803,961 61,162,390 49,996,911 -------------------------------------------- NET INTEREST INCOME 106,718,853 100,367,180 86,282,836 Provision for loan losses 6,153,753 4,424,701 1,998,367 -------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 100,565,100 95,942,479 84,284,469 -------------------------------------------- NON-INTEREST INCOME: Service charges on deposit accounts 16,877,678 15,040,119 12,389,600 Other service charges, commissions and fees 4,412,938 4,693,062 5,565,439 Securities gains (losses) 30,531 (49,121) -- Other 5,139,145 4,271,598 2,602,392 -------------------------------------------- Total non-interest income 26,460,292 23,955,658 20,557,431 -------------------------------------------- NON-INTEREST EXPENSE: Salaries and employee benefits 42,384,113 41,319,402 36,550,246 Net occupancy expense of premises 4,263,421 3,751,201 3,541,259 Equipment rentals, depreciation and maintenance 10,510,300 9,968,619 9,710,148 Other 23,094,554 24,777,018 21,416,772 -------------------------------------------- Total non-interest expense 80,252,388 79,816,240 71,218,425 -------------------------------------------- EARNINGS BEFORE INCOME TAXES 46,773,004 40,081,897 33,623,475 INCOME TAXES 15,170,000 13,065,000 10,493,058 -------------------------------------------- NET EARNINGS $31,603,004 $27,016,897 $23,130,417 ============================================ NET EARNINGS PER COMMON SHARE $3.08 $2.65 $2.48 ============================================ See notes to consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 COMMON STOCK ---------------------- UNREALIZED GAIN (LOSS) SHARES CAPITAL UNDIVIDED ON SECURITIES ISSUED AMOUNT SURPLUS PROFITS AVAILABLE-FOR SALE -------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1994 8,247,851 $27,465,344 $98,168,834 $41,077,931 $ -- Unrealized gain on securities available-for-sale 384,800 Net earnings 23,130,417 Cash dividends - $.80 per share (6,967,488) Cash dividends paid by Baker (86,625) Cash dividends paid by Washington (323,376) Transfer from undivided profits 5,774,248 (5,774,248) Change in unrealized gain (loss) on securities available-for-sale (799,870) Sale of common stock by subsidiary 226,918 -------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 8,247,851 27,465,344 104,170,000 51,056,611 (415,070) Net earnings 27,016,897 Cash dividends - $.84 per share (8,661,027) Change in unrealized gain (loss) on securities available-for-sale 727,148 Acquisition of Denham accounted for as a purchase 774,098 2,577,746 20,240,868 Transfer from undivided profits 5,589,132 (5,589,132) -------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 9,021,949 30,043,090 130,000,000 63,823,349 312,078 Net Earnings 31,603,004 Cash dividends - $.88 per share (9,134,130) Change in unrealized gain (loss) on securities available-for-sale (944,839) 15% Stock dividend 1,351,960 4,502,027 49,914,363 (54,475,655) Acquisition of Community accounted for as a purchase 513,393 1,709,599 14,585,059 ------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 10,887,302 $36,254,716 $194,499,422 $31,816,568 $ (632,761) ===============================================================================
See notes to consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1996 1995 1994 ---------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings $ 31,603,004 $ 27,016,897 $ 23,130,417 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 4,818,532 4,343,507 4,440,327 Provision for loan losses 6,153,753 4,424,701 1,998,367 Deferred income taxes (credit) (754,000) (790,000) (519,611) Losses (gains) on sales of securities (30,531) 49,121 -- Increase in interest receivable (117,042) (1,130,794) (2,385,935) Amortization of intangible assets 2,230,082 2,450,553 1,473,756 (Decrease) increase in interest payable (215,863) 1,869,527 759,623 Other - net (734,320) 860,087 (470,406) ----------------------------------------------------------- Net cash provided by Operating Activities 42,953,615 39,093,599 28,426,538 ----------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (decrease) increase in interest bearing time deposits (10,455,862) (100,000) 624,000 Proceeds from maturities of securities held-to-maturity 372,251,124 394,491,517 279,469,817 Purchases of securities held-to-maturity (375,169,554) (363,531,311) (359,108,402) Proceeds from sales and maturities of securities available-for-sale 25,122,385 10,164,925 1,035,000 Purchase of securities available-for-sale (34,102,782) (1,831,268) -- Net decrease (increase) in federal funds sold and securities purchased under agreements to resell 147,175,000 (96,725,000) 63,290,000 Net increase in loans (109,554,135) (39,410,863) (6,321,335) Purchase of property and equipment, net (5,029,439) (3,460,209) (3,900,479) Proceeds from sales of other real estate 1,169,568 628,300 1,660,589 Net cash received in connection with purchase transactions 201,830 7,872,000 -- ---------------------------------------------------------- Net cash provided by (used in) Investing Activities 11,608,135 (91,901,909) (23,250,810) ---------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposits (70,200,214) 54,419,827 16,474,901 Dividends paid (9,193,395) (8,661,027) (7,377,489) Repayments of long-term bonds and notes (985,000) (920,000) (1,345,000) Net increase in federal funds purchased, securities sold under agreements to repurchase and other temporary funds 21,023,725 11,713,955 8,497,427 ---------------------------------------------------------- Net cash (used in) provided by Financing Activities (59,354,884) 56,552,755 16,249,839 ---------------------------------------------------------- NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (4,793,134) 3,744,445 21,425,567 CASH AND DUE FROM BANKS, BEGINNING 124,276,406 120,531,961 99,106,394 --------------------------------------------------------- CASH AND DUE FROM BANKS, ENDING $119,483,272 $124,276,406 $120,531,961 ========================================================= SUPPLEMENTAL INFORMATION Income Taxes Paid $ 17,185,000 $ 13,600,000 $ 10,951,000 Interest Paid 65,019,824 60,910,863 49,260,288
See notes to consolidated financial statements. HANCOCK HOLDING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS-- Hancock Holding Company (the "Company") is a bank holding company headquartered in Gulfport, Mississippi operating in the states of Mississippi and Louisiana through two wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi and Hancock Bank of Louisiana, Baton Rouge, Louisiana (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. CONSOLIDATION-- The consolidated financial statements of the Company include the accounts of the Company, the Banks, and other subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SECURITIES-- Securities have been classified into one of three categories: Trading, Available-for-Sale, or Held-to-Maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically. Trading account securities are held for resale in anticipation of short-term market movements. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities not classified as held-to-maturity or trading are classified as available-for-sale. The Company had no trading account securities during the three years ended December 31, 1996. Held-to-maturity securities are stated at amortized cost. Available-for-sale securities are stated at market value, with unrealized gains and losses, net of income taxes, reported as a separate component of stockholders' equity until realized. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Amortization, accretion and accrued interest are included in interest income on securities. Realized gains and losses, and declines in value judged to be other than temporary, are included in net securities gains. Gains and losses on the sale of securities available-for-sale are determined using the specific-identification method. RESERVE FOR LOAN LOSSES-- The reserve for loan losses is a valuation account available to absorb probable losses on loans. All losses are charged to the reserve 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 reserve for loan losses at the time of recovery. Periodically during the year management estimates the likely level of future losses to determine whether the reserve is adequate to absorb reasonable 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 borrower's ability to repay, the estimated value of any underlying collateral and current economic conditions. Based on these estimates, the reserve for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). PROPERTY AND EQUIPMENT-- Property and equipment are recorded at amortized cost. Depreciation is computed principally by the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the term of the lease or the asset's useful life. INTANGIBLE ASSETS-- Intangible assets, which amounted to $24,582,000 and $16,865,000 at December 31, 1996 and 1995, respectively, include the values assigned to the core deposits of acquired banks which are being amortized over lives ranging from six to seven years using accelerated methods, and goodwill which is being amortized over fifteen years. OTHER REAL ESTATE-- Other real estate acquired through foreclosure and bank acquisitions is stated at the lower of cost or fair market value, net of the costs of disposal. When a reduction to fair market value is required, it is charged to the reserve for loan losses at the time of foreclosure and any subsequent adjustments are charged to expense. LOANS-- Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. Interest on commercial and real estate mortgage loans is recorded as income based upon the principal amount outstanding. Unearned income on installment loans is credited to operations based on a method which approximates the interest method. Where doubt exists as to collectability of a loan, the accrual of interest is discontinued and payments received are applied first to principal. Upon such discontinuances, all unpaid accrued interest is reversed. Interest income is recorded after principal has been satisfied and as payments are received. The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company's impaired loans include troubled debt restructurings, and performing and non-performing major loans in which full payment of principal or interest is not expected. Non-major homogenous loans, which are evaluated on an overall basis, generally include all loans under $500,000. The Company calculates a reserve required for impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of its collateral. Generally, loans of all types which become 90 days delinquent are in the process of collection through repossession, foreclosure or have been deemed currently uncollectible. Loans deemed currently uncollectible are charged-off against the reserve account. As a matter of policy, loans are placed on a non-accrual status where doubt exists as to collectability. TRUST FEES-- Trust fees are recorded when received, which is the general practice within the banking industry. INCOME TAXES-- Provisions for income taxes are based on taxes payable or refundable for the current year (after exclusion of non-taxable income such as interest on state and municipal securities) and deferred taxes on temporary differences between the amount of taxable income and pre-tax financial income and between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred taxes on temporary differences are calculated at the currently enacted tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. STOCK OPTIONS-- The Company applies APB Opinion No. 25 and related interpretations in accounting for it's stock options. Accordingly, no compensation cost has been recognized. NET EARNINGS PER COMMON SHARE-- Net earnings per share of common stock is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period, after giving retroactive effect to stock dividends and shares issued in acquisitions accounted for as pooling-of-interests. CASH-- For the purpose of presentation in the Statements of Cash Flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and Due from Banks". NOTE 2-- ACQUISITIONS POOLINGS On April 29, 1994, the Company merged Hancock Bank of Louisiana, a wholly-owned subsidiary of the Company, 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. Net interest income and net earnings of Baker were $992,000 and $248,000 for the period from January 1, 1994 through April 29, 1994, respectively. On February 1, 1995, the Company merged Hancock Bank of Louisiana, a wholly-owned subsidiary of the Company, with Washington Bank and 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. Net interest income and net earnings of Washington were $372,000 and $114,000 for the period from January 1, 1995 to January 31, 1995, respectively, and $4,232,000 and $1,335,000 for the year ended December 31, 1994, respectively. PURCHASES On January 13, 1995, the Company acquired First Denham Bancshares, Inc. for approximately $4,000,000 cash and 890,000 shares (adjusted for a 15% stock dividend in 1996) of common stock of the Company. First Denham Bancshares, Inc. owned 100% of the stock of First National Bank of Denham Springs (Denham). The acquisition was accounted for using the purchase method and the results of operations since January 13, 1995 are included in the consolidated statements of earnings. The excess of the purchase price over the value of the net tangible assets acquired was assigned to goodwill and is being amortized over 15 years. On November 15, 1996, the Company acquired Community Bancshares, Inc., Independence, Louisiana which owned 100% of the stock of Community State Bank (Community) for approximately $5,000,000 cash and 513,000 shares (adjusted for a 15% stock dividend in 1996) of common stock of the Company. The acquisition was accounted for using the purchase method and the results of operations since November 15, 1996 are included in the consolidated statements of earnings. The excess of the purchase price over the value of the net tangible assets acquired was assigned to goodwill and is being amortized over 15 years. The following unaudited proforma consolidated results of operations give effect to the acquisitions of Denham and Community as though they had occurred on January 1, 1994 (amounts in thousands, except for per share amounts): YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 ----------------------------------- Interest income $177,428 $167,275 $150,786 Interest Expense (67,297) (63,772) (54,039) Provision for loan losses (6,154) (4,425) (2,211) ----------------------------------- Net interest income after provision for loan losses 103,977 99,078 94,536 Net earnings $ 32,196 $ 27,977 $ 25,667 Net earnings per common share $3.00 $2.65 $2.41 The unaudited proforma information is not necessarily indicative either of results of operations that would have occurred had the purchases been made as of January 1, 1994 or of future results of operations of the combined companies. In connection with the 1996 and 1995 acquisitions, liabilities were assumed as follows (in thousands): 1996 1995 --------------------- Fair value of tangible and intangible assets, excluding cash $ 96,623 $120,407 Cash acquired, net of amount paid 202 7,872 Market value of common stock issued (16,295) (22,819) --------------------- Liabilities assumed $ 80,530 $105,460 ===================== SUBSEQUENT ACQUISITION On January 17, 1997, the Hancock Bank of Louisiana will acquire Southeast National Bank, Hammond, Louisiana (Southeast). The acquisition will be in return for approximately $3,700,000 cash and 105,000 shares of common stock of the Company. The acquisition will be accounted for using the purchase method. Southeast had total assets of approximately $40,000,000 (unaudited) and stockholders' equity of approximately $4,000,000 (unaudited) as of December 31, 1996 and net earnings of approximately $500,000 (unaudited) for the year then ended.The results of operations of Southeast will be included in the 1997 consolidated statements of earnings from the date of acquisition. Following is certain selected unaudited proforma combined financial information as of December 31, 1996, and for the year then ended, assuming that the acquisitions referred to in this and the preceding note had been effective January 1, 1996 (in thousands except per share data): Total Assets $2,330,000 Stockholders' Equity 266,000 Net Interest Income 108,300 Net Earnings 31,900 Net Earnings Per Share $3.08 NOTE 3--SECURITIES The book and market values of securities classified as available-for-sale as of December 31, 1996 and 1995 were as follows (in thousands): DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------------------------------------- --------------------------------------------- GROSS GROSS GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE ----------------------------------------------- --------------------------------------------- U.S. Treasury securities $ 499 $ 3 $ -- $ 502 $ 1,493 $ 2 $ 3 $ 1,492 Other U.S. gov. obligations 53,802 120 501 53,421 61,470 659 353 61,776 Municipal obligations 923 2 -- 925 962 5 -- 967 Other securities -- -- -- -- 544 -- 52 492 Mortgage-backed securities 5,373 317 391 5,299 5,140 101 21 5,220 CMOs 33,038 111 633 32,516 34,695 372 230 34,837 Equity securities 4,932 -- -- 4,932 4,993 -- -- 4,993 ----------------------------------------------------------------------------------------------- $98,567 $553 $1,525 $97,595 $109,297 $1,139 $659 $109,777 ===============================================================================================
The book value and market value of the debt securities classified as available-for-sale at December 31, 1996, by estimated maturity, were as follows (in thousands): BOOK VALUE MARKET VALUE ----------------------------- Due in one year or less $ 4,029 $ 3,939 Due after one year through five years 17,403 17,149 Due after five years through ten years 15,908 15,753 Due after ten years 56,295 55,822 ---------------------------- $93,635 $92,663 ============================ The book and market values of securities classified as held-to-maturity as of December 31, 1996 and 1995, were as follows (in thousands): DECEMBER 31, 1996 DECEMBER 31, 1995 ---------------------------------------------- ---------------------------------------- GROSS GROSS GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE ---------------------------------------------- ---------------------------------------- U.S. Treasury securities $175,171 $1,990 $ 60 $177,101 $239,892 $ 4,074 $ 70 $243,896 Other U.S. gov. obligations 338,796 618 1,863 337,551 317,140 1,977 417 318,700 Municipal obligations 66,367 2,088 47 68,408 56,961 2,319 1,232 58,048 Other securities -- -- -- -- 11,027 1,891 -- 12,918 Mortgage-backed securities 87,991 498 222 88,267 50,427 3,881 1,706 52,602 CMOs 135,673 300 590 135,383 63,082 301 50 63,333 ------------------------------------------------------------------------------------------ $803,998 $5,494 $2,782 $806,710 $738,529 $ 14,443 $3,475 $749,497 ==========================================================================================
The book value and market value of securities classified as held-to-maturity as of December 31, 1996, by contractual maturity, were as follows (in thousands): BOOK VALUE MARKET VALUE ---------------------------- Due in one year or less $ 99,189 $ 99,328 Due after one year through five years 227,023 227,834 Due after five years through ten years 249,010 248,796 Due after ten years 228,776 230,752 --------------------------- $803,998 $806,710 =========================== Proceeds from sales of securities were $20,425,000 in 1996 and $9,435,000 in 1995. Gross gains of $178,000 in 1996 and $16,000 in 1995 and gross losses of $147,000 in 1996 and $65,000 in 1995 were realized on those sales. There were no sales of securities in 1994. On December 29, 1995 as permitted by "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" issued by the Financial Accounting Standards Board, the Company reclassified securities with a book value of $67,789,000 and net unrealized gains of $251,000 from securities held-to-maturity to securities available-for-sale. Securities with a book value of approximately $440,507,000 at December 31, 1996 and $387,000,000 at December 31, 1995, were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law. The Company's collateralized mortgage obligations (CMOs) generally consist of first and second tranche sequential pay and/or planned amortization class (PAC) instruments. Interest income on CMOs and mortgage-backed securities is generally included with interest on obligations of other U.S. government agencies and corporations due to their guarantees of the underlying mortgages. NOTE 4-- LOANS Loans consisted of the following (in thousands): DECEMBER 31, -------------------------- 1996 1995 -------------------------- Real estate loans - primarily mortgage $ 465,919 $ 414,774 Commercial and industrial loans 169,515 176,770 Loans to individuals for household, family and other consumer expenditures 534,560 441,712 Leases 15,881 13,570 Other loans 12,895 14,807 -------------------------- $1,198,770 $1,061,633 ========================== Changes in the reserve for loan losses are as follows (in thousands): 1996 1995 1994 ----------------------------- Balance at January 1 $17,391 $15,372 $15,306 Balance acquired through acquisition 654 1,147 -- Recoveries 2,068 1,830 1,517 Loans charged off (6,466) (5,383) (3,449) Provision charged to operating expense 6,153 4,425 1,998 ------------------------------ Balance at December 31 $19,800 $17,391 $15,372 ============================== The Company generally makes loans in its market areas of South Mississippi and Southeastern Louisiana. Loans are made in the normal course of business to its directors and executive officers, and their associates on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Such loans did not involve more than normal risk of collectability or contain other unfavorable features. The balance of loans to related parties at December 31, 1996 and 1995 was approximately $6,080,000 and $5,017,000, respectively. Non-accrual and renegotiated loans amounted to approximately .25% of total loans at December 31, 1996 and 1% at December 31, 1995. The amount of interest not accrued on these loans did not have a significant effect on earnings in 1996, 1995 or 1994. The Company's impaired loans amounted to approximately 1/2% of total loans at December 31, 1996 and 1995, and the related reserve amounts were not significant at those dates. There was no significant change in these amounts during the years ended December 31, 1996 or 1995. Interest income recognized on these loans amounted to approximately $100,000 for the year ended December 31, 1996. Transfers from loans to other real estate amounted to approximately $1,952,000, $574,000 and $1,600,000 in 1996, 1995 and 1994 respectively. Reserve balances associated with other real estate amounted to $668,000 and $822,000 at December 31, 1996 and 1995 respectively. NOTE 5-- PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization as follows (in thousands): DECEMBER 31, ---------------------------- 1996 1995 ---------------------------- Land, buildings and leasehold improvements $46,730 $41,207 Furniture, fixtures and equipment 37,047 35,179 ---------------------------- 83,777 76,386 Less accumulated depreciation and amortization 43,365 37,640 ---------------------------- $40,412 $38,746 ============================ NOTE 6-- LONG-TERM BONDS Long-term bonds consist of Urban Development Refunding Revenue Bonds, with interest at 7.25%. Interest is payable semi-annually and the remaining principal is due in 1997. The Urban Development Refunding Revenue Bonds are obligations of Hancock Bank and are collateralized by land and buildings with a book value of $10,872,000. The Bank has deposited with the bond trustee U.S. Treasury securities whose principal maturities and interest payments will be sufficient to service all future principal and interest payments due on the Urban Development Refunding Revenue Bonds. NOTE 7-- STOCKHOLDERS' EQUITY Earnings per common share is based on the weighted average number of shares outstanding of approximately 10,277,000 in 1996, 10,181,000 in 1995 and 9,314,000 in 1994, reduced by shares of stock owned by subsidiaries and after giving retroactive effect to the 15% stock dividend paid in 1996. At December 31, 1996, these subsidiaries owned 162,200 shares of stock. Stockholders' equity of the Company includes the undistributed earnings of the subsidiary Banks. Dividends are payable only out of undivided profits or current earnings. Moreover, dividends to the Company's stockholders can generally be paid only from dividends paid to the Company by the Banks which, with respect to Hancock Bank, are subject to approval by the Commissioner of Banking and Consumer Finance of the State of Mississippi. The amount of capital of the subsidiary banks available for dividends at December 31, 1996 was approximately $85,000,000. The Company and its bank subsidiaries are required to maintain certain minimum capital levels. At December 31, 1996, the Company and the banks were in compliance with their respective statutory minimum capital requirements. Following is a summary of the actual capital levels at December 31, 1996: ACTUAL REQUIRED ----------------- ----------------- AMOUNT RATIO % AMOUNT RATIO % ----------------- ----------------- As of December 31, 1996 Total Capital (to Risk Weighted Assets): Company $250,369 19.02 $105,300 8.00 Hancock Bank 152,370 18.62 65,500 8.00 Hancock Bank of Louisiana 97,801 19.63 39,800 8.00 Tier I Capital (to Risk Weighted Assets): Company $237,356 18.03 $ 52,700 4.00 Hancock Bank 145,583 17.79 32,700 4.00 Hancock Bank of Louisiana 91,575 18.38 20,000 4.00 Tier I Leveraged Capital: Company $237,356 10.37 $ 69,000 3.00 Hancock Bank 145,583 10.10 43,200 3.00 Hancock Bank of Louisiana 91,575 10.54 26,000 3.00 Risk-based capital requirements are intended to make regulatory capital more sensitive to risk elements of the Company. Currently, the Company and its bank subsidiaries are 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 and its bank subsidiaries must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 3.0% based upon the regulators latest composite rating of the institutions. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") required each federal banking agency to implement prompt corrective actions for institutions that it regulates. The rules provide that an institution is "well capitalized" if its total risk-based capital ratio is 10% or greater, its Tier 1 risked-based capital ratio is 6% or greater, its leverage is 5% or greater and the institution is not subject to a capital directive. Under this regulation, the Company and each of its subsidiary banks are deemed to be "well capitalized" as of December 31, 1996 based upon the most recent notifications from their regulators. There are no conditions or events since those notifications that management believes would change their classifications. NOTE 8-- INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1996 and 1995 are as follows (in thousands): DECEMBER 31, --------------------- 1996 1995 --------------------- Deferred tax assets: Post-retirement benefit obligation $ 692 $ 653 Reserve for loan losses not currently deductible 5,002 4,750 Reserve for other real estate not currently deductible 345 312 Deferred compensation 715 670 Lease accounting 159 117 Unrealized loss on securities available-for-sale 339 -- Other 533 353 ----------------------- $ 7,785 $ 6,855 ----------------------- Deferred tax liabilities: Tax over book depreciation (3,517) (3,537) Core deposit intangible -- (355) Prepaid pension (932) (772) Unrealized gain on securities available-for-sale -- (168) Market discount accretion (665) (618) ----------------------- (5,114) (5,450) ----------------------- Net deferred tax asset $ 2,671 $ 1,405 ======================= Income taxes consist of the following components (in thousands): 1996 1995 1994 ------------------------------ Currently payable $15,924 $13,855 $11,013 Deferred (754) (790) (520) ------------------------------ $15,170 $13,065 $10,493 ============================== Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 35% to earnings before income taxes. The reasons for these differences are as follows (in thousands): 1996 1995 1994 ---------------------------------------- AMOUNT % AMOUNT % AMOUNT % ---------------------------------------- Taxes computed at statutory rate $16,371 35 $14,029 35 $11,768 35 Increases (decreases) in taxes resulting from: Tax exempt interest income (1,583) (3) (1,355) (3) (1,245)(4) Miscellaneous items - net 382 -- 391 1 (30)-- ---------------------------------------- Income tax expense $15,170 32 $13,065 33 $10,493 31 ======================================== The related income tax provision (credit) on securities gains (losses) was $10,700 in 1996 and $(17,000) in 1995. NOTE 9-- EMPLOYEE BENEFIT PLANS The Company has a non-contributory pension plan covering substantially all salaried full-time employees who have been employed by the Company the required length of time. The Company's current policy is to contribute annually the minimum amount that can be deducted for federal income tax purposes. The benefits are based upon years of service and employee's compensation during the last five years of employment. Data relative to the pension plan follows (in thousands): DECEMBER 31, --------------------------- 1996 1995 --------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ 22,702 $ 19,611 =========================== Accumulated benefit obligation $ 22,792 $ 19,674 =========================== Projected benefit obligation for service rendered to date $(24,687) $(21,491) Plan assets at fair value 23,251 20,878 --------------------------- Projected benefit obligation in excess of plan assets (1,436) (613) Remaining unrecognized portion of net obligation being amortized over 15 years 228 274 Unrecognized prior service cost 751 843 Unrecognized net loss from past experience different from that assumed 3,197 1,858 ------------------------- Prepaid pension cost included in other assets $ 2,740 $ 2,362 ========================= YEARS ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 ----------------------------- Net pension expense included the following (income) expense components: Service cost - benefits earned during the period $ 850 $ 836 $ 818 Interest cost on projected benefit obligation 1,628 1,555 1,463 Return on plan assets (2,222) (2,411) (93) Net amortization and deferral 747 1,275 (1,112) ----------------------------- Net pension expense $1,003 $1,255 $1,076 ============================= The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.75% in 1996 and 1995. The expected rate of return on plan assets was 8% in 1996 and 1995. The Plan's assets consist primarily of U.S. government and agency obligations, certificates of deposit and other fixed income obligations. The Company sponsors two defined benefit post-retirement plans other than the pension plan that cover full-time employees who have reached 45 years of age. One plan provides medical benefits and the other provides life insurance benefits. The post-retirement health care plan is contributory, with retiree contributions adjusted annually and subject to certain employer contribution maximums; the life insurance plan in non-contributory. The actuarial and recorded liabilities for these post-retirement benefits, none of which have been funded, are as follows at December 31, 1996 and December 31, 1995 (in thousands): DECEMBER 31, ------------------------ 1996 1995 ------------------------ Accumulated post-retirement benefit obligations: Retirees $ 2,159 $ 1,397 Fully eligible active plan participants 1,071 1,155 Other active plan participants 1,410 933 ------------------------ 4,640 3,485 Unrecognized transition obligation (2,150) (2,293) Unrecognized net (loss) gain (236) 675 ------------------------ Accrued post-retirement benefit cost $ 2,254 $ 1,867 ======================== Net periodic post-retirement benefit costs for 1996, 1995 and 1994 included the following components (in thousands): 1996 1995 1994 ------------------------------ Amortization of unrecognized net (loss) gain $ (30) $ 55 $ 18 Service cost-benefits attributed to service during the year 219 264 200 Interest costs on accumulated post-retirement benefit obligations 254 390 266 Amortization of transition obligation over 20 years 143 143 143 ------------------------------ Net periodic post-retirement benefit cost $ 586 $ 852 $ 627 ============================== For measurement purposes in 1996, a 9% annual rate of increase in the per capita cost of covered health care benefits was assumed. The rate was assumed to decrease gradually to 5.5% for 2003 and remain at that level thereafter. In 1995, rates of 9.5% and 5.5% were assumed, and in 1994, rates of 9.5% and 5% were assumed. The health care cost trend rate assumption has an affect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated post-retirement benefit obligation as of December 31, 1996, by $621 and the aggregate of the service and interest cost components of net periodic post-retirement benefit cost for the year then ended by $80. The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 7.5% in 1996, 7.5% in 1995 and 8.5% in 1994. The Company has a non-contributory profit sharing plan covering substantially all salaried full-time employees who have been employed the required length of time. Contributions are made at the discretion of the Board of Directors and amounted to $452,000 in 1996, $456,000 in 1995 and $413,000 in 1994. In addition, the Company has an employee stock purchase plan that is designed to provide the employees of the Company a convenient means of purchasing common stock of the Company. Substantially all salaried, full-time employees, with the exception of Leo W. Seal, Jr., who have been employed by the Company the required length of time are eligible to participate, if they so elect. The Company contributes an amount equal to 25% of each participant's contribution, which contribution cannot exceed 5% of the employee's base pay. The Company's contribution amounted to $71,000 in 1996, $58,000 in 1995 and $52,000 in 1994. The post-retirement plans relating to health care payments and life insurance and the stock purchase plan are not guaranteed and are subject to immediate cancellation and/or amendment. These plans are predicated on future Company profit levels that will justify their continuance. Overall health care costs are also a factor in the level of benefits provided and continuance of these post-retirement plans. There are no vested rights under the post-retirement health or life insurance plans. In February 1996 the stockholders of the Company approved the Hancock Holding Company 1996 Long-Term Incentive Plan to provide incentives and rewards for employees of the Company and it's subsidiaries. "Awards" as defined in the Plan includes, with limitations, stock options (including restricted stock options), restricted and performance shares, and performance stock awards, all on a stand-alone, combination or tandem basis. A total of approximately 100,000 common shares of Company stock can be granted during 1997. The exercise price is equal to the market price on the date of grant except for certain of those granted to major shareholders where the option price is 110% of the market price. On December 13, 1996, options to purchase 35,250 shares were granted, of which 32,978 are exercisable at $40 per share and 2,272 are exercisable at $44 per share. On the first anniversary of the date of grant, 27,522 of the options are exercisable and 7,728 of the options are exercisable six months after the date of the grant. All such options were outstanding at December 31, 1996 and none were exercisable at that date. The Company applies APB Opinion No. 25 and related interpretations in accounting for it's stock options under the Plan. Accordingly, no compensation cost has been recognized. Had the Company recorded compensation cost based on the fair value at the date of grant, consistent with the method of Financial Accounting Standards Board Statement No. 123 "Accounting for Stock Based Compensation", the effect on the Company's net earnings and net earnings per share would not have been material and, accordingly, the proforma effects of such costs have not been presented. NOTE 10-- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH, SHORT-TERM INVESTMENTS AND FEDERAL FUNDS SOLD-- For those short-term instruments, the carrying amount is a reasonable estimate of fair value. SECURITIES-- For securities, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is a reasonable estimate of fair value. LOANS-- The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS-- The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. LONG-TERM BOND AND NOTES-- Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. COMMITMENTS-- The fair value of commitments to extend credit was not significant. The estimated fair values of the Company's financial instruments are as follows at December 31, 1996 and 1995 (in thousands): DECEMBER 31, ---------------------------------------- 1996 1995 -------------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------------------- ----------------- Financial Assets: Cash, short-term investments and federal funds sold $ 134,428 $ 134,428 $ 279,551 $ 279,551 Securities available-for-sale 97,595 97,595 109,777 109,777 Securities held-to-maturity 803,998 806,710 738,529 749,497 Loans 1,173,967 1,167,767 1,034,978 1,024,316 Less: Reserve for loan losses (19,800) (19,800) (17,391) (7,391) ------------------------------------------- Loans, net of reserve 1,154,167 1,147,967 1,017,587 1,006,925 Financial Liabilities: Deposits $1,926,576 $1,925,157 $1,927,681 $1,932,198 Securities sold under agreements to repurchase 87,609 87,609 63,388 63,388 Federal funds purchased -- -- 3,197 3,197 Long-term bonds 1,050 1,050 2,035 2,014 NOTE 11-- OFF-BALANCE SHEET RISK In the normal course of business, the Company enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers which are not reflected in the accompanying consolidated financial statements, until they are funded or related fees are incurred or received. These instruments involve, to varying degrees, elements of credit risk not reflected in the consolidated balance sheets. The contract amounts of these instruments reflect the Company's exposure to credit loss in the event of non-performance by the other party on whose behalf the instrument has been issued. The Company undertakes the same credit evaluation in making commitments and conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support for off-balance sheet financial instruments. These obligations are summarized below as of December 31, 1996 and 1995 (in thousands): 1996 1995 -------------------------- Commitments to extend credit $224,500 $209,000 Letters of credit 7,700 5,500 Approximately $183,000,000 of commitments to extend credit at December 31, 1996 were at variable rates and the remainder were at fixed rates. Most commitments to extend credit at December 31, 1995 were at variable rates. The difference between the interest rates on commitments to extend credit and market rates is reflected in the consolidated financial statements over the terms of the related loans when, and if, they are made. A commitment to extend credit is an agreement to lend to a customer as long as the conditions established in the agreement have been satisfied. A commitment to extend credit generally has a fixed expiration date of other termination clauses and may require payment of a fee by the borrower. Since commitments often expire without being fully drawn, the total commitment amounts do not necessarily represent future cash requirements at the Company. The Company continually evaluates each customer's credit worthiness on a case-by-case basis. Occasionally, a credit evaluation of a customer requesting a commitment to extend credit results in the Company obtaining collateral to support the obligation. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing a letter of credit is essentially the same as that involved in extending a loan. NOTE 12-- CONTINGENCIES The Company is party to various legal proceedings arising in the ordinary course of business. In the opinion of management, after consultation with outside legal counsel, all such matters are adequately covered by insurance or, if not so covered, are not expected to have a material adverse effect on the financial condition of the Company. NOTE 13-- SUPPLEMENTAL INFORMATION The following is selected supplemental information for the years ended December 31, 1996, 1995 and 1994 (in thousands): 1996 1995 1994 ----------------------------- Other non-interest income: Trust fee income $2,412 $2,525 $2,500 Other non-interest expense: Deposit insurance premium expense 285 2,221 4,164 Postage expense 2,327 2,354 2,319 NOTE 14-- SUMMARIZED FINANCIAL INFORMATION OF HANCOCK HOLDING COMPANY (PARENT COMPANY ONLY) BALANCE SHEETS DECEMBER 31, ------------------------------- 1996 1995 ------------------------------- Assets: Investment in subsidiaries $261,740,752 $224,137,396 Other 225,736 42,250 -------------------------------- $261,966,488 $224,179,646 ================================ Liabilities and Stockholders' Equity: Accrued Expenses $ 28,543 $ 1,133 Stockholders' Equity 261,937,945 224,178,513 -------------------------------- $261,966,488 $224,179,646 ================================ STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 ---------------------------------------- Dividends received from subsidiaries $15,391,000 $ 9,112,361 $ 7,297,502 Excess equity in earnings of subsidiaries over dividends received 16,632,753 18,201,558 16,046,640 Interest and other expenses (555,788) (398,472) (327,632) Income tax credit 135,039 101,450 113,907 ----------------------------------------- Net Earnings $31,603,004 $27,016,897 $23,130,417 ========================================= STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 ----------------------------------------- Cash Flows from Operating Activities - principally dividends from subsidiaries $14,813,634 $ 10,054,361 $ 6,928,267 ----------------------------------------- Cash Flows from Investing Activities - purchase of Community (5,622,371) Cash Flows from Financing Activities - principally dividends paid (9,134,130) (10,028,311) (6,967,488) ---------------------------------------- Net increase (decrease) in cash 57,133 26,050 (39,221) Cash, Beginning 100,174 74,124 113,345 ---------------------------------------- Cash, Ending $ 157,307 $ 100,174 $ 74,124 ======================================== INDEPENDENT AUDITORS' REPORT BOARD OF DIRECTORS AND STOCKHOLDERS HANCOCK HOLDING COMPANY GULFPORT, MISSISSIPPI We have audited the accompanying consolidated balance sheets of Hancock Holding Company and subsidiaries as of December 31, 1996 and 1995, and the related statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Hancock Holding Company and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 15, 1997 HANCOCK HOLDING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 The Company's net income was $31.6 million, or $3.08 per share, for the year ended December 31, 1996, compared with $27.0 million, or $2.65 per share, for the year ended December 31, 1995. The increase in net income can be primarily attributed to increased loan volume and an increase in the net interest margin from an average of 5.13% in 1995 to 5.20% in 1996. The Banks' balance sheets are liability sensitive with deposits repricing faster than loans and investment securities. Non-interest income increased $2.5 million or 10.4% while non-interest expenses increased 0.6% or $500 thousand. FDIC premium expense in 1996 was $2 million lower than in 1995, which offset acquisition related expenses and other normal expense increases. The provision for loan loss increased from $4.4 million to $6.2 million in 1996 as a result of increased loan charge-off activity and increased loan volume. The loan loss reserve balance was 1.69% of period-end loans and represented 682% of non-performing loan balances at December 31, 1996. FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 The Company's net income increased to $27.0 million, or $3.05 per share, for the year ended December 31, 1995 compared to $23.1 million, or $2.86 per share, for the year ended December 31, 1994. The merger of Washington was accounted for using the pooling-of-interests method, therefore all prior financial information has been restated. The change in net income was attributable to the acquisition of Denham which accounted for $1.4 million or 35% of the $3.9 million increase and an increase in the net interest margin from an average of 4.75% in 1994 to 5.13% in 1995. The Banks' balance sheets were liability sensitive with deposits repricing faster than loans and investment securities. Non-interest income increased $3.4 million or 16.5% while non-interest expenses increased 12.1% or $8.6 million. This included the contribution by Denham of $2.6 million to non-interest income and $6.6 million of non-interest expenses. The provision for loan loss increased from $2 million to $4.4 million in 1995 as a result of increased loan charge-off activity and increased loan volume. The loan loss reserve balance was 1.68% of period-end loans and represented 326% of non-performing loan balances at December 31, 1995. FINANCIAL CONDITION SECURITIES 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 and earning requirements. The December 31, 1996 book value of the held-to-maturity portfolio was $804 million and the market value was $807 million. The available-for-sale portfolio balance was $97.5 million at December 31, 1996. LOANS Loans outstanding increased $135 million in 1996 bringing the December 31, 1996, net loan portfolio balances to $1.2 billion or 57% of earning assets. Loans acquired through the Community transaction accounted for as a purchase amounted to $36 million or 27% of the increase. Non-performing loans were $2.9 million or less than .25% of the December 31, 1996, loan balances. Restructured loans were insignificant and the amount of interest not accrued on non-performing loans did not significantly effect earnings in 1996, 1995 or 1994. The Company generally makes loans in its market areas of South Mississippi and Southeastern Louisiana. DEPOSITS AND DEPOSIT RELATED LIABILITIES Deposits remained level at $1.9 billion on December 31, 1996. Interest bearing deposit balances increased 2%. Deposits acquired through the Community transaction accounted for as a purchase amounted to $45 million. Deposit related liabilities, principally securities purchased under agreements to resell, increased from $63 million in 1995 to $88 million in 1996, or 40%. Deposits and deposit related liabilities are the Company's primary source of funds supporting its earning assets base. LIQUIDITY Liquidity represents the Company's ability to provide funds to satisfy demands from depositors, borrowers and other commitments by either converting assets to cash or accessing new or existing funds. The principal sources of funds which provide liquidity are customer deposits, payments of principal and interest on loans, maturities and sales of securities, earnings and borrowings. During 1995, the Company established a line of credit with the Federal Home Loan Bank in excess of $30 million, providing an additional liquidity source. At December 31, 1996, cash and due from banks, securities available-for-sale and federal funds sold were in excess of 10% of total deposits. CAPITAL RESOURCES Composite ratings by the respective regulatory authorities of the Company and Banks, establish minimum capital levels. Currently, the Company and the Banks are required to maintain minimum Tier I leverage ratios of at least 3%, subject to increase to at least 4% to 5%, depending on the composite rating. As of December 31, 1996, the Company and the Banks capital balances were in excess of current regulatory minimum requirements. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and servicing of Financial Assets and Extinguishments of Liabilities" which provides revised accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The Company does not anticipate that the adoption of this statement in 1997 will have a significant effect on its financial condition or results of operations. FORM 10-K ANNUAL REPORT HANCOCK HOLDING COMPANY FILES AN ANNUAL REPORT WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K. A COPY OF THE REPORT FILED ON FORM 10-K, WHEN COMPLETED, WILL BE SENT FREE OF CHARGE TO ANY SHAREHOLDER BY WRITING TO GEORGE A. SCHLOEGEL, VICE-CHAIRMAN, HANCOCK HOLDING COMPANY, P.O. BOX 4019, GULFPORT MS 39502. EX-23 4 CONSENT OF AUDITORS Exhibit (23) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statement of Hancock Holding Company on Form S-8 (No. 2-99863) and on Form S-3 (No. 33-31782) of our report dated January 15, 1997 incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1996. /s/ DELOITTE & TOUCHE LLP New Orleans, Louisiana March 27, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 119,483 2,945 12,000 0 97,595 803,997 806,710 1,173,967 (19,800) 2,289,582 1,926,576 87,609 12,409 1,050 30,043 0 0 225,683 2,289,582 107,080 57,576 6,867 171,523 60,625 64,804 106,719 6,154 31 80,252 46,773 46,773 0 0 31,603 3.08 3.08 5.00 2,905 8,361 0 0 17,391 6,466 2,761 19,800 19,800 0 2,000
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