UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549FORM 10-QX Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 ------- Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 ------- For Quarter Ending June 30, 2004 --------------------------------------------------- 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 Identification incorporation or organization) Number) ONE HANCOCK PLAZA, P.O. BOX 4019, GULFPORT, MISSISSIPPI 39502 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (228) 868-4872 - ---------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - ---------------------------------------------------------------------------- (Former name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO -------- -------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 32,510,843 common shares were outstanding as of July 31, 2004 for financial statement purposes.
HANCOCK HOLDING COMPANY ----------------------- INDEX ----- PART I. FINANCIAL INFORMATION PAGE NUMBER - ------------------------------- ----------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited)-- June 30, 2004 and December 31, 2003 3 Condensed Consolidated Statements of Earnings (Unaudited) -- Three and Six months Ended June 30, 2004 and 2003 4 Condensed Consolidated Statements of Common Stockholders' Equity Equity (Unaudited) -- Six Months Ended June 2004 and Year Ended December 31, 2003 5 Condensed Consolidated Statements of Cash Flows (Unaudited) -- Six months Ended June 30, 2004 and 2003 6 Notes to Unaudited Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 28 ITEM 4. Controls and Procedures 31 PART II. OTHER INFORMATION - ---------------------------- ITEM 2. Changes in Securities and Use of Proceeds 32 ITEM 6. Exhibits and Reports on Form 8-K 33 SIGNATURES 34 - ----------
PART I FINANCIAL INFORMATION ----------------------------- ITEM 1. FINANCIAL STATEMENTS - ---------------------------- HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (amounts in thousands) (Unaudited) June 30, December 31, 2004 2003* ------------------- ------------------- ASSETS: Cash and due from banks (non-interest bearing) $ 165,842 $ 178,082 Interest-bearing time deposits with other banks 8,318 5,554 Federal funds sold - 5,734 Securities available for sale, at fair value (amortized cost of $1,250,846 and $1,115,404) 1,226,070 1,118,066 Securities held to maturity, at amortized cost (fair value of $152,886 and $169,451) 146,658 159,983 Loans 2,624,134 2,459,143 Less: Allowance for loan losses (38,300) (36,750) Unearned income (10,553) (10,499) ------------------- ------------------- Loans, net 2,575,281 2,411,894 Property and equipment, net of accumulated depreciation of $74,811 and $72,034 73,227 73,332 Other real estate, net 3,781 5,439 Accrued interest receivable 23,879 23,125 Goodwill, net 56,474 49,100 Other intangible assets, net 13,581 8,131 Life insurance contracts 77,885 51,165 Other assets 93,941 60,753 ------------------- ------------------- TOTAL ASSETS $ 4,464,937 $4,150,358 ================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 644,941 $ 636,745 Interest-bearing savings, NOW, money market and time 2,958,319 2,811,102 ------------------- ------------------- Total deposits 3,603,260 3,447,847 Federal funds purchased 41,852 - Securities sold under agreements to repurchase 208,976 150,096 Short-term notes - 9,400 Long-term notes 50,283 50,428 Other liabilities 127,059 57,706 ------------------- ------------------- TOTAL LIABILITIES 4,031,430 3,715,477 CONVERTIBLE PREFERRED STOCK: Preferred Stock - $20 par value, 50,000,000 shares authorized and 1,658,187 issued at December 31, 2003; converted to common stock February 2004 - 37,067 COMMON STOCKHOLDERS' EQUITY: Common Stock-$3.33 par value per share; 75,000,000 shares authorized, 33,262,392 and 33,216,240 issued, respectively 110,764 55,305 Capital surplus 136,499 145,125 Retained earnings 214,188 247,001 Accumulated other comprehensive loss, net (24,039) (6,304) Unearned compensation (1,995) (957) Treasury stock, at cost, (64,079 and 2,191,102 shares, respectively) (1,910) (42,356) ------------------- ------------------- TOTAL COMMON STOCKHOLDERS' EQUITY 433,507 397,814 ------------------- ------------------- TOTAL LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY $4,464,937 $4,150,358 =================== =================== * The balance sheet at December 31, 2003 has been derived from the audited balance sheet at that date. See notes to unaudited condensed consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS --------------------------------------------- (UNAUDITED) ----------- (amounts in thousands except per share) Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------------ 2004 2003 2004 2003 ----------- ------------ ------------- ------------- INTEREST INCOME: Loans, including fees $ 41,509 $ 39,375 $ 81,857 $ 77,743 U. S. Treasury securities 115 400 163 812 Obligations of U. S. government agencies 4,711 4,665 8,494 10,371 Obligations of states and political subdivisions 2,057 2,339 4,241 4,832 Mortgage-backed securities 4,294 3,367 8,194 4,841 Collateralized mortgage obligations (CMOs) 3,004 4,087 6,042 8,506 Federal funds sold 53 119 206 449 Other investments 575 275 963 690 ----------- ------------ ------------- ------------- Total interest income 56,318 54,627 110,160 108,244 ----------- ------------ ------------- ------------- INTEREST EXPENSE: Deposits 13,234 14,007 25,673 28,625 Federal funds purchased and securities sold under agreements to repurchase 357 352 699 723 Long-term notes and other interest 627 603 1,316 1,196 ----------- ------------ ------------- ------------- Total interest expense 14,218 14,962 27,688 30,544 ----------- ------------ ------------- ------------- NET INTEREST INCOME 42,100 39,665 82,472 77,700 Provision for loan losses 3,817 3,966 7,353 6,986 ----------- ------------ ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 38,283 35,699 75,119 70,714 ----------- ------------ ------------- ------------- NON-INTEREST INCOME Service charges on deposit accounts 10,771 10,202 21,001 20,357 Other service charges, commissions and fees 7,867 5,788 15,019 10,942 Securities gains, net 11 659 161 1,114 Gain on sale of assets 3,000 - 5,258 - Other income 2,981 1,012 5,829 3,042 ----------- ------------ ------------- ------------- Total non-interest income 24,630 17,661 47,268 35,455 ----------- ------------ ------------- ------------- NON-INTEREST EXPENSE Salaries and employee benefits 21,137 20,705 44,033 40,877 Net occupancy expense of premises 2,405 2,294 4,818 4,411 Equipment rentals, depreciation and maintenance 2,376 2,221 4,702 4,307 Amortization of intangibles 524 178 848 356 Other expense 12,995 9,899 24,298 18,337 ----------- ------------ ------------- ------------- Total non-interest expense 39,437 35,297 78,699 68,288 ----------- ------------ ------------- ------------- EARNINGS BEFORE INCOME TAXES 23,476 18,063 43,688 37,881 Income tax expense 7,104 5,681 13,172 11,836 =========== ============ ============= ============= NET EARNINGS 16,372 12,382 30,516 26,045 PREFERRED DIVIDEND REQUIREMENT - 663 - 1,327 =========== ============ ============= ============= NET EARNINGS AVAILABLE TO COMMON STOCKHOLDERS $ 16,372 $ 11,719 $ 30,516 $ 24,718 =========== ============ ============= ============= BASIC EARNINGS PER COMMON SHARE $ 0.50 $ 0.38 $ 0.94 $ 0.80 =========== ============ ============= ============= DILUTED EARNINGS PER COMMON SHARE $ 0.50 $ 0.37 $ 0.93 $ 0.78 =========== ============ ============= ============= DIVIDENDS PAID PER COMMON SHARE $ 0.125 $ 0.105 $ 0.25 $ 0.21 =========== ============ ============= ============= WEIGHTED AVG. COMMON SHARES OUTSTANDING-BASIC 32,549 30,841 32,299 30,862 =========== ============ ============= ============= WEIGHTED AVG. COMMON SHARES OUTSTANDING-DILUTED 33,042 33,484 33,023 33,496 =========== ============ ============= ============= See notes to unaudited condensed consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY ---------------------------------------------------------------- UNAUDITED --------- (amounts in thousands, except per share data) Accumulated Other Comprehensive Common Stock Capital Retained Income Unearned Treasury Shares Amount Surplus Earnings (Loss), net Compensation Stock ----------- ------------ ----------- ------------ ------------- ------------ ------------Balance, January 1, 2003 16,608,120 $ 55,305 $ 145,949 $ 208,253 $ 10,049 $ (552) $ (31,492) Net earnings 26,045 Cash dividends - $0.21 per common share (7,149) Cash dividends - $0.80 per preferred share (1,327) Change in unrealized gain on securities available for sale, net (4,891) Transactions relating to restricted stock grants, net (672) 872 Common stock buyback program and other treasury stock transactions, net (2,936) Common stock options exercised, net (2,115) 2,136 ----------- ------------ ----------- ------------ ------------- ----------- ------------Balance, June 30, 2003 16,608,120 $ 55,305 $ 143,834 $ 225,822 $ 5,158 $ (1,224) $ (31,420) =========== ============ =========== ============ ============= =========== ============Balance, January 1, 2004 16,608,120 $ 55,305 $ 145,125 $ 247,001 $(6,304) $ (957) $ (42,356) Net earnings 30,516 Cash dividends - (8,024) $0.25 per common share 100% stock dividend 16,608,120 55,305 (55,305) Preferred stock conversion (5,521) 42,624 Change in unrealized loss on securities available for sale, net (17,735) Transactions relating to restricted stock grants, net (1,038) 1,038 New shares issued 46,152 154 Common stock buyback program and other treasury stock transactions, net (3,450) Common stock options exercised, net (3,105) 234 ----------- ------------ ----------- ------------ ------------- ----------- ------------Balance, June 30, 2004 33,262,392 $ 110,764 $ 136,499 $ 214,188 $ (24,039) $ (1,995) $ (1,910) =========== ============ =========== ============ ============= =========== ============ See notes to unaudited condensed consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- UNAUDITED ---------- (amounts in thousands) Six Months Ended June 30, ---------------------------------------- 2004 2003 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 30,516 $ 26,045 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 3,342 3,454 Amortization of software 1,268 1,344 Provision for loan losses 7,353 6,986 Provision for losses on other real estate owned 94 250 Increase in bank owned life insurance contracts (1,721) Gain on sales of securities available for sale, net (161) (1,114) Gain on sale of assets (5,258) - Amortization of intangible assets 848 356 Amortization of securities premium/discount 3,144 6,412 Increase in deferred tax asset 955 52 Decrease (increase) in interest receivable (754) 1,636 Increase in accrued expenses 4,481 7,331 Increase in other liabilities 1,821 794 Decrease in interest payable (657) (1,260) Increase in unearned premiums 63,708 - Decrease (increase) in miscellaneous receivable 13,786 (235) (Increase) decrease in other assets (37,447) 3,594 Other, net 17,642 (10,161) ---------------- ---------------- Net cash provided by operating activities 102,960 45,484 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in interest-bearing time deposits (2,764) (2,772) Proceeds from maturities, calls or prepayments of securities held to maturity 13,324 40,625 Proceeds from sales and maturities of securities available for sale 388,459 749,366 Purchase of securities available for sale (527,044) (866,634) Net decrease in federal funds sold 5,734 42,235 Net increase in loans (149,521) (149,721) Purchase of property, equipment and software, net (3,531) (5,455) Proceeds from sales of other real estate 2,818 2,463 Proceeds from sale of merchant services business 3,000 - Premiums paid on bank owned life insurance contracts (25,000) - Net cash paid in connection with sale transaction (22,351) - Net cash (paid) received in connection purchase transaction (15,364) 38,933 ---------------- ---------------- Net cash used in investing activities (332,240) (150,960) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 133,097 89,322 Dividends paid (8,024) (8,475) Net increase in federal funds purchased and securities sold under agreements to repurchase 100,732 14,904 Cash received from exercise of common stock options 3,105 - Treasury stock transactions, net (2,178) (2,043) Conversion of preferred stock to cash (147) - Repayment of short-term note (9,400) - Reductions of long-term notes (145) (323) ---------------- ---------------- Net cash provided by financing activities 217,040 93,385 ---------------- ---------------- NET DECREASE IN CASH AND DUE FROM BANKS (12,240) (12,091) CASH AND DUE FROM BANKS, BEGINNING 178,082 187,786 ---------------- ---------------- CASH AND DUE FROM BANKS, ENDING $ 165,842 $ 175,695 ================ ================ SUPPLEMENTAL INFORMATION: Income taxes paid $ 12,680 $ 5,317 Interest paid 14,875 16,223 SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES Transfers from loans to other real estate $ 2,352 $ 3,793 Financed sale of foreclosed property 894 1,081 See notes to unaudited condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements include the accounts of Hancock Holding Company, its wholly-owned banks, Hancock Bank, Hancock Bank of Louisiana and Hancock Bank of Florida and other subsidiaries. All material intercompany profits, transactions and balances have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year. For further information, refer to the consolidated financial statements and notes thereto of Hancock Holding Company's 2003 Annual Report to Shareholders.
Following is a summary of the Company’s comprehensive earnings for the three monthsand six months ended June 30, 2004 and 2003.
(Amounts in thousands) Three Months Ended June 30, Six Months Ended June 30, ---------------------------- -------------------------- 2004 2003 2004 2003 ------------- ------------ ------------ ---------- Net earnings $ 16,372 $12,382 $30,516 $26,045 Other comprehensive income (net of income tax): Net unrealized holding losses on securities available for sale, net of tax of $12,276 and $470, $9,493 and $2,244, respectively (22,799) (872) (17,630) (4,167) Reclassification adjustments for gains included in earnings, net of tax of $4 and $231, $56 and $390, respectively (7) (428) (105) (724) ------------- ------------ ------------ ---------- Total Comprehensive Earnings (Loss) ($6,434) $11,082 $12,781 $21,154 ============= ============ ============ ==========
The Company applies the Accounting Practices Board (APB) Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized. The Company has adopted the disclosure-only option under Statement of Financial Accounting Standards (SFAS) No. 123. Had compensation costs for the Company’s stock options been determined based on the fair value at the grant date, consistent with the method under SFAS No. 123, the Company’s net earnings and earnings per share would have been as indicated below:
(Amounts in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- ---------------------------------- 2004 2003 2004 2003 -------------- --------------- --------------- -------------- Net earnings available to common stockholders: As reported $ 16,372 $ 11,719 $ 30,516 $ 24,718 Deduct total stock based compensation determined under the fair value method, net of tax (145) (300) (290) (600) -------------- --------------- --------------- -------------- Pro forma net earnings available to common stockholders $ 16,227 $ 11,419 $ 30,226 $ 24,118 ============== =============== =============== ============== Basic earnings per share: As reported $ 0.50 $ 0.38 $ 0.94 $ 0.80 Pro forma $ 0.50 $ 0.37 $ 0.94 $ 0.78 Diluted earnings per share: As reported $ 0.50 $ 0.37 $ 0.93 $ 0.78 Pro forma $ 0.50 $ 0.36 $ 0.93 $ 0.76
During March 2004, the Company acquired the majority of loans, securities and deposits of the former Guaranty National Bank of Tallahassee, Florida. The Office of the Comptroller of Currency closed all locations of Guaranty National on March 12, 2004. With the transaction, the Company acquired five locations with approximately $40.0 million in performing loans and approximately $69.1 million in deposits from the Federal Deposit Insurance Corporation (FDIC) for a premium of $13.6 million, or 20% of acquired deposits. In accounting for the transaction, management considered it to be an “acquisition of business” and, accordingly, accounted for it under the purchase method of accounting pursuant to SFAS No. 141. Final allocation of asset fair values have been recorded based on an analysis, performed by an independent third party, of deposit balances acquired in this transaction.
On March 8, 2004, the Company completed the sale of four Louisiana branches to Sabine State Bank, resulting in a $2.3 million pre-tax gain. The branches that were sold were acquired in the 1999 American Security Bank purchase. The Company made a cash payment of approximately $20 million whereby approximately $19.7 million in loans were transferred and $42.9 million in deposits liabilities assumed by Sabine State Bank in this transaction.
On February 4, 2004 the Company completed the redemption/conversion of substantially all $37.1 million of its 8% Cumulative Convertible Preferred Stock which had been originally issued in partial payment for the acquisition of Lamar Capital Corporation in July, 2001. The conversion factor was .6666 shares of Hancock Holding Company common stock for each share of the preferred stock. A total of 7,304 shares of the preferred stock was redeemed for cash at the contract price of $20.00 per share plus pro rated dividends of $0.1511 per share.
On February 26, 2004 the Company’s Board of Directors declared a two-for-one stock split in the form of a 100% common stock dividend. The additional shares were payable March 18, 2004 to shareholders of record at the close of business on March 8, 2004.
All information concerning earnings per share, dividends per share, and number of shares outstanding has been adjusted to give effect to this split.
On May 25, 2004 the Company announced the sale of its merchant services business to First Data Corporation (First Data). The agreement established Hancock Merchant Services under which First Data provides all merchant payment processing services on behalf of Hancock Bank. The arrangement further advances the technology offered to Hancock merchant customers through an expanded portfolio of electronic products and services and augments a merchant support network with additional relationship managers throughout Hancock’s Gulf South markets.
In accordance with the First Data agreement, Hancock Holding Company received a one-time pre-tax cash payment of $3.0 million that increased second quarter 2004 after-tax earnings by $1.95 million, or $.06 per share. In addition, the agreement stipulates that Hancock participates in revenue related to both the existing book of business, as well as new business.
The Company’s primary segments are geographically divided into the Mississippi (MS), Louisiana (LA) and Florida (FL) markets. Each segment offers the same products and services but is managed separately due to different pricing, product demand, and consumer markets. Each segment offers commercial, consumer and mortgage loans and deposit services. In the following tables, the column “Other” includes additional consolidated subsidiaries of the Company: Hancock Mortgage Corporation, Hancock Investment Services, Inc., Hancock Insurance Agency, Inc., Harrison Finance Company, Magna Insurance Company and three real estate corporations owning land and buildings that house bank branches and other facilities. Following is selected information for the Company’s segments:
Three Months Ended, (amounts in thousands) June 30, 2004 MS LA FL Other * Consolidated -------------- -------------- -------------- -------------- -------------- Interest income $ 29,834 $ 22,241 $ 860 $ 3,383 $ 56,318 Interest expense 9,526 4,851 282 (441) 14,218 -------------- -------------- -------------- -------------- -------------- Net interest income 20,308 17,390 578 3,824 42,100 Provision for loan losses 1,490 1,462 (36) 901 3,817 Non-interest income 9,892 10,009 119 4,610 24,630 Depreciation and amortization 1,464 677 - 145 2,286 Other non-interest expense 16,605 12,859 1,006 6,681 37,151 -------------- -------------- -------------- -------------- -------------- Earnings before income taxes 10,641 12,401 (273) 707 23,476 Income tax expense 3,130 3,850 (105) 229 7,104 -------------- -------------- -------------- -------------- -------------- Net earnings $ 7,511 $ 8,551 $ (168) $ 478 $ 16,372 ============== ============== ============== ============== ============== Total assets $2,678,601 $1,790,403 $ 79,144 $ (83,211) $4,464,937 ============== ============== ============== ============== ============== Three Months Ended, (amounts in thousands) June 30, 2003 MS LA FL Other * Consolidated -------------- -------------- -------------- -------------- -------------- Interest income $ 30,634 $ 20,769 $ - $ 3,224 $ 54,627 Interest expense 9,994 5,073 - (105) 14,962 -------------- -------------- -------------- -------------- -------------- Net interest income 20,640 15,696 - 3,329 39,665 Provision for loan losses 2,521 1,016 - 429 3,966 Non-interest income 8,816 6,224 - 2,621 17,661 Depreciation and amortization 1,583 738 - 122 2,443 Other non-interest expense 16,260 12,741 - 3,853 32,854 -------------- -------------- -------------- -------------- -------------- Earnings before income taxes 9,092 7,425 - 1,546 18,063 Income tax expense 2,804 2,280 - 597 5,681 -------------- -------------- -------------- -------------- -------------- Net earnings $ 6,288 $ 5,145 $ - $ 949 $ 12,382 ============== ============== ============== ============== ============== Total assets $2,509,697 $1,630,755 $ - $ (7,400) $4,133,052 ============== ============== ============== ============== ============== * Includes eliminations
Six Months Ended, (amounts in thousands) June 30, 2004 MS LA FL Other * Consolidated -------------- -------------- -------------- -------------- -------------- Interest income $ 58,748 $ 44,085 $ 1,037 $ 6,290 $ 110,160 Interest expense 18,671 9,335 356 (674) 27,688 -------------- -------------- -------------- -------------- -------------- Net interest income 40,077 34,750 681 6,964 82,472 Provision for loan losses 2,826 2,514 364 1,649 7,353 Non-interest income 19,530 18,928 150 8,660 47,268 Depreciation and amortization 2,958 1,369 - 283 4,610 Other non-interest expense 34,853 25,639 1,101 12,496 74,089 -------------- -------------- -------------- -------------- -------------- Earnings before income taxes 18,970 24,156 (634) 1,196 43,688 Income tax expense 5,425 7,463 (245) 529 13,172 -------------- -------------- -------------- -------------- -------------- Net earnings $ 13,545 $ 16,693 $ (389) $ 667 $ 30,516 ============== ============== ============== ============== ============== Total assets $2,678,601 $1,790,403 $ 79,144 $ (83,211) $4,464,937 ============== ============== ============== ============== ============== Six Months Ended, (amounts in thousands) June 30, 2003 MS LA FL Other * Consolidated -------------- -------------- -------------- -------------- -------------- Interest income $ 61,349 $ 40,871 $ - $ 6,024 $ 108,244 Interest expense 20,553 10,222 - (231) 30,544 -------------- -------------- -------------- -------------- -------------- Net interest income 40,796 30,649 - 6,255 77,700 Provision for loan losses 3,943 2,209 - 834 6,986 Non-interest income 17,234 12,968 - 5,253 35,455 Depreciation and amortization 3,134 1,422 - 243 4,799 Other non-interest expense 31,400 24,986 - 7,103 63,489 -------------- -------------- -------------- -------------- -------------- Earnings before income taxes 19,553 15,000 - 3,328 37,881 Income tax expense 6,067 4,592 - 1,177 11,836 -------------- -------------- -------------- -------------- -------------- Net earnings $ 13,486 $ 10,408 $ - $ 2,151 $ 26,045 ============== ============== ============== ============== ============== Total assets $2,509,697 $1,630,755 $ - $ (7,400) $4,133,052 ============== ============== ============== ============== ============== * Includes eliminations
In December 2003, the FASB issued SFAS 132 (revised 2003), which revises employers’ disclosures about pension plans and other postretirement benefits. Net periodic benefits cost includes the following components for the three and six months ended June 30, 2004 and 2003:
Three months ended June 30, Pension Benefits Other Postretirement Benefits ---------------------------------- --------------------------------- 2004 2003 2004 2003 --------------- --------------- --------------- -------------- Service Cost $ 514,357 $ 452,125 $ 64,750 $ 56,619 Interest Cost 787,772 744,178 87,250 83,778 Expected return on plan assets (760,753) (677,836) - - Amortization of prior service cost 20,713 22,937 (13,250) (13,259) Amortization of net (gain) loss 234,478 200,998 13,750 5,927 Amortization of transition obligation - - 1,250 1,288 --------------- --------------- --------------- -------------- Net periodic benefit cost $ 796,567 $ 742,402 $ 153,750 $ 134,353 =============== =============== =============== ============== Six months ended June 30, Pension Benefits Other Postretirement Benefits ---------------------------------- --------------------------------- 2004 2003 2004 2003 --------------- --------------- --------------- -------------- Service Cost $ 1,028,714 $ 904,250 $ 129,500 $ 113,238 Interest Cost 1,575,544 1,488,356 174,500 167,556 Expected return on plan assets (1,521,506) (1,355,672) - - Amortization of prior service cost 41,426 45,874 (26,500) (26,518) Amortization of net (gain) loss 468,956 401,996 27,500 11,854 Amortization of transition obligation - - 2,500 2,576 --------------- --------------- --------------- -------------- Net periodic benefit cost $ 1,593,134 $ 1,484,804 $ 307,500 $ 268,706 =============== =============== =============== ==============
The Company anticipates that it will, contribute $3.1 million to its pension plan in 2004. During the first and second quarter of 2004, the Company contributed $754,000 and $571,000, respectively.
The following table sets forth, for the periods indicated, average net loans outstanding, allowance for loan losses, amounts charged-off and recoveries of loans previously charged-off:
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- ---------------------------------- 2004 2003 2004 2003 ---------------- ---------------- ---------------- ---------------- Balance of allowance for loan losses at beginning of period $ 37,500 $ 34,740 $ 36,750 $ 34,740 Provision for loan losses 3,817 3,966 7,353 6,986 Loans charged-off: Commercial, Real Estate & Mortgage 1,214 1,778 3,621 2,881 Direct & Indirect Consumer 1,728 1,403 3,340 3,619 Finance Company 602 488 1,266 962 Demand Deposit Accounts 1,146 1,119 2,158 2,097 ---------------- ---------------- ---------------- ---------------- Total charge-offs 4,690 4,788 10,385 9,559 ---------------- ---------------- ---------------- ---------------- Recoveries of loans previously charged-off: Commercial, Real Estate & Mortgage 452 169 1,701 496 Direct & Indirect Consumer 438 402 942 1,003 Finance Company 101 59 216 128 Demand Deposit Accounts 682 692 1,723 1,446 ---------------- ---------------- ---------------- ---------------- Total recoveries 1,673 1,322 4,582 3,073 ---------------- ---------------- ---------------- ---------------- Net charge-offs 3,017 3,466 5,803 5,486 ---------------- ---------------- ---------------- ---------------- Balance of allowance for loan losses at end of period $ 38,300 $ 35,240 $ 38,300 $ 35,240 ================ ================ ================ ================ The following table sets forth, for the periods indicated, certain ratios related to the Company's charge-offs, allowance for loan losses and outstanding loans: Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- ---------------------------------- 2004 2003 2004 2003 ---------------- ---------------- ---------------- ---------------- Ratios : Net charge-offs to average net loans 0.47% 0.64% 0.46% 0.61% Net charge-offs to period-end net loans 0.46% 0.62% 0.44% 0.58% Allowance for loan losses to average net loans 1.49% 1.62% 1.52% 1.65% Allowance for loan losses to period-end net loans 1.47% 1.57% 1.47% 1.57% Net charge-offs to loan loss allowance 7.88% 9.84% 15.15% 18.41% Provision for loan losses to net charge-offs 126.52% 114.43% 126.71% 107.71%
Following is a summary of the information used in the computation of earnings per common share (in thousands).
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ------------------------------ 2004 2003 2004 2003 ------------- ---------- ----------- ------------- Net earnings - used in computation of diluted earnings per common share $ 16,372 $ 12,382 $ 30,516 $ 26,045 Preferred dividend requirement - 663 - 1,327 ------------- ---------- ----------- ------------- Net earnings available to common stockholders - used in computation of basic earnings per common share $ 16,372 $11,719 $ 30,516 $ 24,718 ============= ========== =========== ============= Weighted average number of common shares outstanding - used in computation of basic earnings per common share 32,549 30,841 32,299 30,862 Effect of dilutive securities Stock options 493 431 724 422 Convertible preferred stock - 2,212 - 2,212 ------------- ---------- ----------- ------------- Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted earnings per common share 33,042 33,484 33,023 33,496 ============= ========== =========== =============
There were no anti-dilutive shares outstanding for the three and six months ended June 30, 2004 and 2003.
SELECTED FINANCIAL DATAThe following tables present selected comparative financial data. All share and per share data have been restated to reflect the 100% stock dividend made March 18, 2004. (amounts in thousands, except per share data) Three Months Ended Six Months Ended -------------------------- -------------------------- 6/30/2004 6/30/2003 6/30/2004 6/30/2003 -------------------------- --------------------------Per Common Share DataEarnings per share: Basic $0.50 $0.38 $0.94 $0.80 Diluted $0.50 $0.37 $0.93 $0.78 Cash dividends per share $0.125 $0.105 $0.25 $0.21 Book value per share (period end) $13.32 $12.91 $13.32 $12.91 Weighted average number of shares: Basic 32,549 30,841 32,299 30,862 Diluted (1) 33,042 33,484 33,023 33,496 Period end number of shares 32,538 30,777 32,538 30,777 Market data: High closing price $32.25 $24.63 $32.25 $24.63 Low closing price $25.00 $21.00 $25.00 $21.00 Period end closing price $29.06 $23.38 $29.06 $23.38 Trading volume 3,252 2,573 5,998 5,416 (1) There were no anti-dilutive shares outstanding for the three months and six months ended June 30, 2004 and 2003.
(amounts in thousands, except per share data) Three Months Ended Six Months Ended ---------------------------- -------------------------- 6/30/2004 6/30/2003 6/30/2004 6/30/2003 ---------------------------- --------------------------Performance RatiosReturn on average assets 1.49% 1.20% 1.41% 1.28% Return on average common equity 14.97% 12.42% 13.99% 13.24% Earning asset yield (Tax Equivalent ("TE")) 5.83% 5.95% 5.83% 6.00% Total cost of funds 1.43% 1.58% 1.42% 1.64% Net interest margin (TE) 4.40% 4.37% 4.41% 4.36% Non-interest expense as a percent of total revenue (TE) before amortization of purchased intangibles and securities transactions 59.40% 60.09% 60.83% 58.73% Average common equity as a percent of average total assets 9.95% 9.68% 10.09% 9.70% Leverage ratio (period end) 8.76% 9.00% 8.76% 9.16% FTE Headcount 1,754 1,789 1,754 1,789Asset Quality InformationNon-accrual loans $10,134 $16,860 $10,134 $16,860 Foreclosed assets $4,270 $5,685 $4,270 $5,685 Total non-performing assets $14,404 $22,545 $14,404 $22,545 Non-performing assets as a percent of loans and foreclosed assets 0.55% 1.00% 0.55% 1.00% Accruing loans 90 days past due $3,701 $2,817 $3,701 $2,817 Accruing loans 90 days past due as a percent of loans 0.14% 0.13% 0.14% 0.13% Non-performing assets + accruing loans 90 days past due to loans and foreclosed assets 0.69% 1.12% 0.69% 1.12% Net charge-offs $3,017 $3,466 $5,803 $6,486 Net charge-offs as a percent of average loans 0.47% 0.64% 0.46% 0.61% Allowance for loan losses $38,300 $35,240 $38,300 $35,240 Allowance for loan losses as a percent of period end loans 1.47% 1.57% 1.47% 1.57% Allowance for loan losses to NPAs + accruing loans 90 days past due 211.55% 138.95% 211.55% 138.95% Provision for loan losses $3,817 $3,966 $7,353 $6,986 Provision for loan losses to net charge-offs 126.52% 114.43% 126.71% 107.71%Average Balance SheetTotal loans $2,563,910 $2,172,805 $2,520,941 $2,133,227 Securities 1,404,701 1,575,392 1,346,094 1,521,177 Short-term investments 29,530 46,818 52,420 93,552 Earning assets 3,998,141 3,795,016 3,919,455 3,747,956 Allowance for loan losses (37,869) (34,911) (37,398) (34,826) Other assets 460,512 372,555 464,147 376,074 Total assets $4,420,784 $4,132,659 $4,346,204 $4,089,204 Non-interest bearing deposits $651,324 $599,041 $636,798 $591,061 Interest bearing transaction deposits 1,824,098 1,686,294 1,816,176 1,668,968 Time deposits 1,180,287 1,142,855 1,140,836 1,132,752 Total interest bearing deposits 3,004,385 2,829,150 2,957,012 2,801,720 Total deposits 3,655,709 3,428,190 3,593,810 3,392,781 Other borrowed funds 239,321 231,726 234,337 227,832 Other liabilities 85,781 35,815 74,930 34,776 Preferred stock - 37,069 4,504 37,069 Common stockholders' equity 439,972 399,859 438,622 396,745 Total liabilities, preferred stock & common equity $4,420,784 $4,132,659 $4,346,204 $4,089,204
(amounts in thousands, except per share data) Three Months Ended Six Months Ended ---------------------------- ---------------------------- 6/30/2004 6/30/2003 6/30/2004 6/30/2003 ---------------------------- ----------------------------Period end Balance SheetCommercial/real estate loans $1,384,913 $1,137,004 $1,384,913 $1,137,004 Mortgage loans 400,333 356,056 400,333 356,056 Direct consumer loans 481,815 494,913 481,815 494,913 Indirect consumer loans 287,070 211,903 287,070 211,903 Finance Company loans 59,450 50,894 59,450 50,894 Total loans 2,613,581 2,250,770 2,613,581 2,250,770 Securities 1,372,728 1,549,522 1,372,728 1,549,522 Short-term investments 8,318 7,795 8,318 7,795 Earning assets 3,994,627 3,808,087 3,994,627 3,808,087 Allowance for loan losses (38,300) (35,240) (38,300) (35,240) Other assets 508,611 360,205 508,611 360,205 Total assets $4,464,937 $4,133,052 $4,464,937 $4,133,052 Non-interest bearing deposits $644,941 $612,098 $644,941 $612,098 Interest bearing transaction deposits 1,791,830 1,668,000 1,791,830 1,668,000 Time deposits 1,166,489 1,149,898 1,166,489 1,149,898 Total interest bearing deposits 2,958,319 2,817,898 2,958,319 2,817,898 Total deposits 3,603,260 3,429,996 3,603,260 3,429,996 Other borrowed funds 301,351 229,123 301,351 229,123 Other liabilities 126,819 39,389 126,819 39,389 Preferred stock - 37,069 - 37,069 Common stockholders' equity 433,507 397,475 433,507 397,475 Total liabilities, preferred stock & common equity $4,464,937 $4,133,052 $4,464,937 $4,133,052Net Charge-Off InformationNet charge-offs: Commercial/real estate loans $788 $1,605 $1,947 $2,346 Mortgage loans (26) 4 (27) 39 Direct consumer loans 1,182 1,094 1,818 2,345 Indirect consumer loans 572 334 1,015 922 Finance company loans 501 429 1,050 834 -------------------------- ---------------------------- Total net charge-offs $3,017 $3,466 $5,803 $6,486 ========================== ============================ Net charge-offs to average loans: Commercial/real estate loans 0.23% 0.59% 0.30% 0.44% Mortgage loans -0.03% 0.00% -0.01% 0.03% Direct consumer loans 0.98% 0.89% 0.75% 0.95% Indirect consumer loans 0.82% 0.67% 0.75% 0.95% Finance Company loans 3.48% 3.50% 3.73% 3.48% Total net charge-offs to average loans 0.47% 0.64% 0.46% 0.61%
(amounts in thousands, except per share amounts) Three Months Ended Six Months Ended ---------------------------- ---------------------------- 6/30/2004 6/30/2003 6/30/2004 6/30/2003 ---------------------------- ----------------------------Average Balance Sheet CompositionPercentage of earning assets/funding sources: Loans 64.13% 57.25% 64.32% 56.92% Securities 35.13% 41.51% 34.34% 40.59% Short-term investments 0.74% 1.23% 1.34% 2.50% Earning assets 100.00% 100.00% 100.00% 100.00% Non-interest bearing deposits 16.29% 15.78% 16.25% 15.77% Interest bearing transaction deposits 45.62% 44.43% 46.34% 44.53% Time deposits 29.52% 30.11% 29.11% 30.22% Total deposits 91.44% 90.33% 91.69% 90.52% Other borrowed funds 5.99% 6.11% 5.98% 6.08% Other net interest-free funding sources 2.58% 3.56% 2.33% 3.40% Total funding sources 100.00% 100.00% 100.00% 100.00% Loan mix: Commercial/real estate loans 52.75% 50.64% 52.60% 50.68% Mortgage loans 15.26% 15.17% 15.05% 14.63% Direct consumer loans 18.84% 22.78% 19.25% 23.29% Indirect consumer loans 10.89% 9.15% 10.86% 9.13% Finance Company loans 2.26% 2.26% 2.25% 2.27% Total loans 100.00% 100.00% 100.00% 100.00% Average dollars (in thousands) Loans $2,563,910 $2,172,805 $2,520,941 $2,133,227 Securities 1,404,701 1,575,392 1,346,094 1,521,177 Short-term investments 29,530 46,818 52,420 93,552 -------------------------- ---------------------------- Earning assets $3,998,141 $3,795,016 $3,919,455 $3,747,956 ========================== ============================ Non-interest bearing deposits $651,324 $599,041 $636,798 $591,061 Interest bearing transaction deposits 1,824,098 1,686,294 1,816,176 1,668,968 Time deposits 1,180,287 1,142,855 1,140,836 1,132,752 -------------------------- ---------------------------- Total deposits 3,655,709 3,428,190 3,593,810 3,392,781 Other borrowed funds 239,321 231,726 234,337 227,832 Other net interest-free funding sources 103,110 135,099 91,308 127,343 -------------------------- ---------------------------- Total funding sources $3,998,141 $3,795,016 $3,919,455 $3,747,956 ========================== ============================ Loans: Commercial/real estate loans $1,352,432 $1,100,310 $1,325,916 $1,081,084 Mortgage loans 391,270 329,534 379,295 312,169 Direct consumer loans 483,150 494,880 485,301 496,840 Indirect consumer loans 279,230 198,917 273,770 194,805 Finance Company loans 57,829 49,164 56,659 48,329 -------------------------- ---------------------------- Total average loans $2,563,910 $2,172,805 $2,520,941 $2,133,227 ========================== ============================
The following discussion provides management’s analysis of certain factors that have affected the Company’s consolidated financial condition and operating results during the periods included in the accompanying condensed consolidated financial statements. Hancock Holding Company (the Company), organized in 1984 as a bank holding company registered under the Bank Holding Company Act of 1956, as amended, is headquartered in Gulfport, Mississippi. At June 30, 2004 the Company operated 103 banking offices and more than 130 automated teller machines (ATMs) in the states of Mississippi, Louisiana and Florida through three wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi (Hancock Bank MS), Hancock Bank of Louisiana, Baton Rouge, Louisiana (Hancock Bank LA) and Hancock Bank of Florida, Tallahassee, Florida (Hancock Bank FL). Hancock Bank MS also operates a loan production office in the State of Alabama. Hancock Bank MS, Hancock Bank LA, and Hancock Bank FL are referred to collectively as the “Banks”.
The Banks are community oriented and focus primarily on offering commercial, consumer and mortgage loans and deposit services to individuals and small to middle market businesses in their respective market areas. The Company’s operating strategy is to provide its customers with the financial sophistication and breadth of products of a regional bank, while successfully retaining the local appeal and level of service of a community bank. At June 30, 2004, the Company had total assets of $4.5 billion and employed on a full-time equivalent basis 1,245 persons in Mississippi, 479 persons in Louisiana and 30 persons in Florida.
Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The Company’s single most critical accounting policy relates to its allowance for loan losses, which reflects the estimated losses resulting from the inability of its borrowers to make loan payments. If the financial condition of its borrowers were to deteriorate, resulting in an impairment of their ability to make payments, its estimates would be updated, and additional provisions for loan losses may be required.
The Company manages liquidity through traditional funding sources of core deposits, federal funds, and maturities of loans and securities held to maturity and sales and maturities of securities available for sale.
The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:
June 30, March 31, December 31, 2004 2004 2003 ---------------- ----------------- ----------------- Total securities to total deposits 38.10% 37.17% 37.07% Total loans (net of unearned income) to total deposits 72.53% 69.49% 71.02% Interest-earning assets to total assets 89.47% 90.49% 90.06% Interest-bearing deposits to total deposits 82.10% 82.07% 81.53%
The Company continues to maintain an adequate capital position. The ratios as of June 30, 2004, March 31, 2004 and December 31, 2003 are as follows:
June 30, March 31, December 31, 2004 2004 2003 -------------------- ---------------------- ---------------------- Average equity to average assets 9.95% 10.24% 9.63% Average equity to average assets (1) 10.13% 10.11% 9.62% Total capital to risk-weighted assets (2) 13.73% 14.30% 14.88% Tier 1 capital to risk-weighted assets (3) 12.52% 13.05% 13.65% Leveraged capital to average total assets (4) 8.76% 8.97% 9.29% (1) Equity capital consists of stockholders' equity (excluding unrealized gains/(losses)). (2) Total capital consists of equity capital less intangible assets plus a limited amount of allowance for loan losses. Risk-weighted assets represent the assigned risk portion of all on and off-balance-sheet assets. Based on Federal Reserve Board guidelines, assets are assigned a risk factor percentage from 0% to 100%. A minimum ratio of total capital to risk-weighted assets of 8% is required. (3) Tier 1 capital consists of equity capital less intangible assets. A minimum ratio of tier 1 capital to risk-weighted assets of 4% is required. (4) Leverage capital consists of equity capital less goodwill and core deposit intangibles. Regulations require a minimum 3% leverage capital ratio for an entity to be considered adequately capitalized
Net earnings increased $3.99 million, or 32%, for the second quarter of 2004 compared to the second quarter of 2003. Net earnings increased $4.47 million or 17% for the first half of 2004 compared to the first half of 2003. Following is selected information for quarterly and year-to-date comparison:
Three Months Ended June 30, Six Months Ended June 30, ------------------------------- ------------------------------- 2004 2003 2004 2003 --------------- -------------- -------------- --------------- Results of Operations: Return on average assets 1.49 % 1.20 % 1.41 % 1.28 % Return on average equity 14.97 % 12.42 % 13.99 % 13.24 % Net Interest Income: Yield on average interest-earning assets (TE) 5.83 % 5.95 % 5.83 % 6.00 % Cost of average interest-bearing funds 1.76 % 1.96 % 1.75 % 2.03 % ----------- -------------- -------------- --------------- Net interest spread (TE) 4.07 % 3.99 % 4.08 % 3.97 % =========== ============== ============== =============== Net interest margin (TE) (net interest income on a tax-equivalent basis divided by average interest-earning assets) 4.40 % 4.37 % 4.41 % 4.36 % =========== ============== ============== ===============
Net interest income (te) for the second quarter of 2004 increased $2.5 million, or 6%, from the second quarter of 2003, and was $1.7 million, or 4% higher than the previous quarter. The Company’s net interest margin (te) was 4.40% in the second quarter of 2004, 3 basis points wider than the same quarter a year ago and 1 basis point narrower than the previous quarter.
Compared to the same quarter a year ago, the primary driver of the $2.5 million increase in net interest income (te) was a $203 million, or 5%, increase in average earning assets mainly from average loan growth of $391 million, or 18%. Average deposit growth of $228 million, or 7%, along with a net decrease in the securities portfolio of $171 million, or 11%, funded the Company’s loan growth and related increase in earning assets. This overall improvement in earning asset mix enabled the Company to maintain its loan to deposit ratio at approximately 70% since the fourth quarter of 2003. In addition, loans now comprise 64% of the Company’s earning asset base, as compared to 57% for the same quarter a year ago. The net interest margin (te) widened 3 basis points as the reduction in total funding costs (15 basis points) more than offset the decline in the yield on average earning assets (12 basis points).
The higher level of net interest income (te) (up $1.7 million, or 4%) and the relatively flat net interest margin (down 1 basis point) as compared to the previous quarter was primarily due to a larger earning asset base (average earning assets were up $157 million from the prior quarter). Average loans grew $86 million, or 4%, from the previous quarter and were funded largely through average deposit growth. Average deposits were up $124 million, or 4%, from the prior quarter primarily due to a $79 million increase in time deposits - mostly related to an effort to lock in longer-term CDs at historically low rates. The yield on the Company’s $1.40 billion securities portfolio improved 2 basis points to 4.50%. The Company’s overall funding costs increased by 2 basis points from the prior quarter, mostly through a 5 basis point increase in the cost of interest-bearing deposits.
The following tables detail the components of the Company's net interest spread and net interest margin. Three Months Ended June 30, Three Months Ended June 30, ------------------------------------ ------------------------------------- 2004 2003 ------------------------------------ ------------------------------------- (dollars in thousands) Interest Volume Rate Interest Volume Rate ------------------------------------ ------------------------------------- Average Earning Assets Commercial & real estate loans (TE) $18,611 $1,352,432 5.53% $16,253 $1,100,310 5.92% Mortgage loans 5,590 391,270 5.71% 5,052 329,534 6.13% Consumer loans 15,650 820,208 7.67% 15,751 742,961 8.50% Loan fees & late charges 2,413 - 0.00% 2,922 - 0.00% --------------------------------------------------------------------------- Total loans (TE) 42,263 2,563,910 6.62% 39,979 2,172,805 7.38% US treasury securities 115 11,056 4.17% 400 48,101 3.33% US agency securities 4,711 455,212 4.14% 4,665 450,334 4.14% CMOs 3,004 311,844 3.85% 4,087 530,975 3.08% Mortgage backed securities 4,294 403,969 4.25% 3,367 321,640 4.19% Municipals (TE) 3,101 174,213 7.12% 3,508 196,803 7.13% Other securities 564 48,406 4.66% 267 27,539 3.88% --------------------------------------------------------------------------- Total securities (TE) 15,788 1,404,701 4.50% 16,294 1,575,392 4.14% Fed funds sold 53 21,573 0.98% 119 39,964 1.20% Cds with banks 11 7,956 0.57% 8 6,854 0.45% Other short-term investments - - 0.00% - - 0.00% --------------------------------------------------------------------------- Total short-term investments 64 29,530 0.87% 127 46,818 1.09% Average earning assets yield (TE) $58,115 $3,998,141 5.83% $56,400 $3,795,016 5.95% Interest-Bearing Liabilities Interest-bearing transaction deposits $3,857 $1,824,098 0.85% $4,668 $1,686,294 1.11% Time deposits 9,377 1,180,287 3.20% 9,339 1,142,855 3.28% --------------------------------------------------------------------------- Total interest bearing deposits 13,234 3,004,385 1.77% 14,007 2,829,150 1.99% Customer repos 316 175,142 0.73% 340 177,369 0.77% Other borrowings 668 64,179 4.19% 615 54,357 4.54% --------------------------------------------------------------------------- Total borrowings 985 239,321 1.65% 955 231,726 1.65% Total interest bearing liab cost $14,218 $3,243,707 1.76% $14,963 $3,060,876 1.96% Noninterest-bearing deposits 651,324 599,041 Other net interest-free funding sources 103,110 135,099 Total Cost of Funds $14,218 $3,998,141 1.43% $14,963 $3,795,016 1.58% Net Interest Spread (TE) $43,897 4.07% $41,438 3.99% Net Interest Margin (TE) $43,897 $3,998,141 4.40% $41,438 $3,795,016 4.37%
Six Months Ended June 30, Six Months Ended June 30, ----------------------------------- -------------------------------------- 2004 2003 ------------------------------------ ------------------------------------- (dollars in thousands) Interest Volume Rate Interest Volume Rate ------------------------------------ ------------------------------------- Average Earning Assets Commercial & real estate loans (TE) $36,536 $1,325,916 5.54% $32,442 $1,081,084 6.05% Mortgage loans 10,786 379,295 5.69% 9,775 312,169 6.26% Consumer loans 31,466 815,730 7.76% 31,442 739,974 8.57% Loan fees & late charges 4,576 - 0.00% 5,304 - 0.00% --------------------------------------------------------------------------- Total loans (TE) 83,363 2,520,941 6.64% 78,963 2,133,227 7.45% US treasury securities 163 10,587 3.10% 812 49,177 3.33% US agency securities 8,494 413,430 4.11% 10,371 486,335 4.26% CMOs 6,042 315,880 3.83% 8,506 537,947 3.16% Mortgage backed securities 8,194 385,777 4.25% 4,841 216,350 4.48% Municipals (TE) 6,386 179,091 7.13% 7,248 201,861 7.18% Other securities 931 41,329 4.51% 603 29,508 4.09% --------------------------------------------------------------------------- Total securities (TE) 30,210 1,346,094 4.49% 32,381 1,521,177 4.26% Fed funds sold 206 42,883 0.96% 449 76,612 1.18% Cds with banks 19 6,791 0.56% 21 6,034 0.71% Other short-term investments 13 2,747 0.97% 65 10,907 1.21% --------------------------------------------------------------------------- Total short-term investments 238 52,420 0.91% 535 93,552 1.15% Average earning assets yield (TE) $113,811 $3,919,455 5.83% $111,879 $3,747,956 6.00% Interest-Bearing Liabilities Interest-bearing transaction deposits $7,695 $1,816,176 0.85% $9,786 $1,668,968 1.18% Time deposits 17,978 1,140,836 3.17% 18,839 1,132,752 3.35% --------------------------------------------------------------------------- Total interest bearing deposits 25,673 2,957,012 1.75% 28,625 2,801,720 2.06% Customer repos 654 172,486 0.76% 709 174,238 0.82% Other borrowings 1,361 61,851 4.42% 1,209 53,594 4.55% --------------------------------------------------------------------------- Total borrowings 2,015 234,337 1.73% 1,919 227,832 1.70% Total interest bearing liab cost $27,688 $3,191,349 1.74% $30,544 $3,029,553 2.03% Noninterest-bearing deposits 636,798 591,061 Other net interest-free funding sources 91,308 127,343 Total Cost of Funds $27,688 $3,919,455 1.42% $30,544 $3,747,956 1.64% Net Interest Spread (TE) $86,123 4.08% $81,336 3.97% Net Interest Margin (TE) $86,123 $3,919,455 4.41% $81,336 $3,747,956 4.36%
The amount of the allowance for loan losses equals the cumulative total of the provisions for loan losses, reduced by actual loan charge-offs, and increased by allowances acquired in acquisitions and recoveries of loans previously charged-off. Provisions are made to the allowance to reflect the currently perceived risks of loss associated with the bank’s loan portfolio. A specific loan is charged-off when management believes, after considering, among other things, the borrower’s financial condition and the value of any collateral, that collection of the loan is unlikely.
The following information is useful in determining the adequacy of the loan loss allowance and loan loss provision. The ratios are calculated using average loan balances. (Amounts shown are in thousands.)
At and For the ----------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, ----------------------------------- -------------------------------- 2004 2003 2004 2003 --------------- --------------- --------------- ------------ Annualized net charge-offs to average loans 0.47% 0.64% 0.46% 0.61% Annualized provision for loan losses to average loans 0.60% 0.73% 0.58% 0.66% Average allowance for loan losses to average loans 1.48% 1.61% 1.48% 1.63% Gross charge-offs (1) $ 4,690 $ 4,788 $ 10,385 $ 9,559 Gross recoveries $ 1,673 $ 1,322 $ 4,582 $ 3,073 Non-accrual loans $ 10,134 $ 16,860 $ 10,134 $ 16,860 Accruing loans 90 days or more past due $ 3,701 $ 2,817 $ 3,701 $ 2,817 (1) Gross charge-offs for the six months ended June 30, 2004 were higher primarily due to the removal of commercial credits that were deemed uncollectible.
Non-interest income for the second quarter of 2004 was up $7.0 million, or 39.5%, compared to the same quarter a year ago and was up $2.0 million, or 8.8%, compared to the first quarter of 2004. The primary factors impacting the higher levels of non-interest income as compared to the quarter a year ago, include a $3.0 million gain on the sale of credit card merchant services and higher levels of insurance fees (up $2.0 million) mostly related to the December 31, 2003 purchase of Magna Insurance Company. In addition, other income was up $1.2 million when compared to the quarter a year ago due to income related to a bank owned life insurance program that was initiated in July 2003. Driving the higher levels of non-interest income from the prior quarter were increases in service charges on deposit accounts (up $541,000), trust fees (up $292,000) and insurance fees (up $344,000).
Excluding the gain on sale of assets and securities transactions, non-interest income for the second quarter of 2004 was up $4.6 million, or 27.2%, compared to the same quarter a year ago and was up $1.4 million, or 6.9%, compared to the first quarter of 2004.
The components of non-interest income for the three months and six months ended June 30, 2004 and 2003 are presented in the following table.
Three Months Ended June 30, Six Months Ended June 30, ----------------------------------- ----------------------------------- (dollars in thousands) 2004 2003 2004 2003 ---------------- ---------------- --------------- ---------------- Service charges on deposit accounts $ 10,771 $ 10,202 $ 21,001 $ 20,357 Trust fees 2,277 2,032 4,262 3,972 Credit card merchant discount fees 1,042 1,091 1,903 1,891 Insurance fees 2,828 836 5,312 1,352 Investment & annuity fees 584 840 1,276 1,771 ATM fees 1,136 990 2,264 1,956 Secondary mortgage market operations 531 (203) 916 436 Other income 2,450 1,214 4,915 2,606 Gain on sale of assets 3,000 - 5,258 - Securities transactions gains 11 659 161 1,114 ------------- ---------------- --------------- ---------------- Total non-interest income $ 24,630 $ 17,661 $ 47,268 $ 35,455 ============= ================ =============== ================
Operating expenses for the second quarter of 2004 were $4.1 million, or 11.7%, higher compared to the same quarter a year ago and were $175,000, or 0.5%, higher than the previous quarter. An increase from the prior quarter was reflected in increased other operating expense (up $1.7 million) and higher amortization of intangibles (up $199,000) but was substantially offset by decreased personnel expense (down $1.8 million). During March 2004, the Company adjusted its amortization related to deferred compensation contracts, which primarily caused the positive variance in personnel expense when comparing the second quarter of 2004 to the first quarter of 2004. The increase from the same quarter a year ago was reflected in higher personnel expense (up $432,000), higher other operating expense (up $3.1 million) and higher amortization of intangibles (up $346,000).
The Company’s efficiency ratio (expressed as operating expenses as a percent of total revenue (te) before gain on sale of branches, merchant services, securities transactions and amortization of purchased intangibles) decreased to 59.40% for the second quarter of 2004. This was compared to 60.09% for the same quarter a year ago, and 62.34% for the previous quarter. The Company’s number of full service banking facilities stands at 103 as of June 30, 2004 and the number of full-time equivalent employees was 1,754 at June 30, 2004, a reduction of 35 from one year ago.
The following table presents the components of non-interest expense for the three months and six months ended June 30, 2004 and 2003.
Three Months Ended June 30, Six Months Ended June 30, ----------------------------------- ----------------------------------- (dollars in thousands) 2004 2003 2004 2003 ---------------- ---------------- ---------------- --------------- Employee compensation $ 16,707 $ 16,657 $ 33,647 $ 32,951 Employee benefits 4,430 4,048 10,386 7,926 ---------------- ---------------- ---------------- --------------- Total personnel expense 21,137 20,705 44,033 40,877 ---------------- ---------------- ---------------- --------------- Equipment and data processing expense 4,299 3,910 8,622 7,691 Net occupancy expense 2,405 2,294 4,818 4,411 Postage and communications 2,064 2,135 4,144 4,273 Ad valorem and franchise taxes 837 688 1,650 1,425 Legal and professional services 2,492 959 3,876 1,789 Stationery and supplies 454 446 938 955 Amortization of intangible assets 524 178 848 356 Advertising 1,037 888 2,125 1,653 Deposit insurance and regulatory fees 213 213 424 431 Training expenses 123 110 251 251 Other real estate owned expense 67 328 298 535 Other expense 3,785 2,443 6,672 3,641 ---------------- ---------------- ---------------- --------------- Total non-interest expense $ 39,437 $ 35,297 $ 78,699 $ 68,288 ================ ================ ================ ===============
The effective federal income tax rate of the Company continues to be less than the statutory rate of 35%, due primarily to tax-exempt interest income. For the six months ended June 30, 2004 and 2003, the effective federal income tax rate was approximately 30% and 31%, respectively. The amount of tax-exempt income earned during the first six months of 2004 was $6.5 million compared to $6.8 million for the comparable period in 2003.
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. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded and involve, to varying degrees, elements of credit risk not reflected in the consolidated balance sheets. The contract amounts of these instruments reflect the Company’s exposure to credit loss in the event of non-performance by the other party on whose behalf the instrument has been issued. The Company undertakes the same credit evaluation in making commitments and conditional obligations as it does for on-balance-sheet instruments and may require collateral or other credit support for off-balance-sheet financial instruments.
At June 30, 2004 the Company had $489.4 million in unused loan commitments outstanding, of which approximately $288.3 million were at variable rates and the remainder was at fixed rates. A commitment to extend credit is an agreement to lend to a customer as long as the conditions established in the agreement have been satisfied. A commitment to extend credit generally has a fixed expiration date or other termination clauses and may require payment of a fee by the borrower. Since commitments often expire without being fully drawn, the total commitment amounts do not necessarily represent future cash requirements of the Company. The Company continually evaluates each customer’s credit worthiness on a case-by-case basis. Occasionally, a credit evaluation of a customer requesting a commitment to extend credit results in the Company obtaining collateral to support the obligation.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing a letter of credit is essentially the same as that involved in extending a loan. At June 30, 2004 the Company had $42.6 million in letters of credit issued and outstanding.
In January 2003, the Company adopted the provisions of the Financial Accounting Standars Board (FASB) Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." The effect of adoption of this Interpretation did not have a material impact on the Company's financial statements.
The following table shows all significant contractual obligations of the Company at June 30, 2004 according to payments due by period.
Payment due by period ----------------------------------------- (dollars in thousands) Less than 1-3 3-5 More than Total 1 year years years 5 years -------------- ------------ ------------- ------------ ------------- Certificates of Deposit $1,166,489 $522,849 $319,359 $324,275 $6 Short-Term Debt Obligations 250,828 250,828 - - - Long-Term Debt Obligations 50,283 13 17 50,023 230 Operating Lease Obligations 17,553 3,295 4,550 3,043 6,665 -------------- ------------ ------------- ------------ ------------- Total $1,485,153 $776,985 $323,926 $377,341 $6,901 ============== ============ ============= ============ =============
In December 2003, the FASB issued SFAS 132 (revised 2003), which revises employers’ disclosures about pension plans and other postretirement benefits. It does not change the measurement or recognition of those plans required by SFAS 87, Employers’ Accounting for Pensions, SFAS 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and SFAS 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. This Statement retains the disclosure requirements contained in SFAS 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original SFAS 132 about the assets, obligations, cash flows, investment strategy, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. This Statement is effective for financial statements ending after December 15, 2003. The Company adopted SFAS 132 as prescribed. The required interim disclosure is located in Item 1 of the Consolidated Financial Statements.
In January 2003, the FASB issued FIN 46, which clarifies the application of Accounting Research Bulletin (“ARB”) 51, Consolidated Financial Statements, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure requirements of this Interpretation were effective for all financial statements issued after January 31, 2003. The consolidation requirements applied to all variable interest entities created after January 31, 2003. This Interpretation was amended in October 2003 by FASB Staff Position (“FSP”) 46-6, Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities. This FSP deferred the effective date for applying the provisions of FIN 46 for interests held by public companies in variable interest entities or potential variable interest entities created before February 1, 2003. As amended, public companies must apply the consolidation requirements to variable interest entities that existed prior to February 1, 2003 and remain in existence as of the end of annual or interim periods ending after December 15, 2003. In December 2003, FIN 46R was issued, which again deferred the effective date for interests held by public companies in special-purpose entities for periods ending after December 15, 2003, and for all other types of entities for periods ending after March 15, 2004. The Company adopted FIN 46 as prescribed. The effect of this Interpretation on the Consolidated Financial Statements was not material.
In October 2003, the American Institute of Certified Public Accountants (“AICPA”) issued SOP 03-3, which addresses accounting for differences between contractual cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations and applies to all nongovernmental entities, including not-for-profit organizations. This SOP does not apply to loans originated by the entity. This SOP limits the yield that may be accreted (“accretable yield”) to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (“nonaccretable difference”) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. This SOP prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet. Subsequent increases in cash flows expected to be collected generally would be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash
flows expected to be collected would be recognized as impairment. This SOP prohibits “carrying over” or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. Management is currently assessing the potential impact of this SOP to the Consolidated Financial Statements.
During the first quarter of 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 105, “Loan Commitments Accounted for as Derivative Instruments”. This SAB addresses the accounting for loan commitments entered into after March 31, 2004, and certain disclosure requirements relevant in the context of mortgage banking activities. The effects of SAB 105 are not material to the Company’s operations or financial position.
In March 2004, the Emerging Issues Task Force reached a consensus on Issue 03-1, “Meaning of Other Than Temporary Impairment” (Issue 03-1). The Task Force reached a consensus on an other-than-temporary impairment model for debt and equity securities accounted for under Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and cost method investments. The basic model developed by the Task Force in evaluating whether an investment within the scope of Issue 03-1 is other-than-temporarily impaired is as follows: Step 1: Determine whether the investment is impaired. An investment is impaired if its fair value is less than its cost. Step 2: Evaluate whether the impairment is other-than-temporary. Step 3: If the impairment is other-than-temporary, recognize an impairment loss equal to the difference between the investment’s cost and its fair value. The three-step model used to determine other-than-temporary impairments shall be applied prospectively to all current and future investments in interim or annual reporting periods beginning after June 15, 2004. The Company does not anticipate that the adoption of Issue 03-1 will have a material impact on its financial condition or results of operations.
Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This Act provides a safe harbor for such disclosures that protects the companies from unwarranted litigation if the actual results are different from management expectations. This report contains forward-looking statements and reflects management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties that could cause the Company’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements.
The Company’s net earnings are dependent, in part, on its net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.
In an attempt to manage its exposure to changes in interest rates, management monitors the Company’s interest rate risk. The Company’s interest rate management policy is designed to produce a relatively stable net interest margin in periods of interest rate fluctuations. Interest sensitive assets and liabilities are those that are subject to maturity or repricing within a given time period. Management also reviews the Company’s securities portfolio, formulates investment strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner.
Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income and the fair value of the Company’s investment securities. As of quarter close, the effective duration of the securities portfolio was 2.79. A rate increase of 100 basis points would move the effective duration to 3.30, while a 200 basis point rise would result in an effective duration of 3.46.
In adjusting the Company’s asset/liability position, the Board and management attempt to manage the Company’s interest rate risk while enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company’s interest rate risk position somewhat in order to increase its net interest margin. The Company’s results of operations and net portfolio values are well positioned for a rising interest rate environment. The cumulative gap at 12 months is +5%; indicating the balance sheet is asset sensitive. Exposure to interest rate risk is presented in the following table.
Net Interest Income (te) at Risk Change in interest Estimated increase (decrease) rates (basis points) in net interest income ----------------------------- ----------------------------- - 100 - 6.91% Stable 0.00% + 100 + 3.61% + 200 + 6.76% + 300 + 9.74%
The Company also controls interest rate risk by emphasizing the core relationship aspects of non-certificate depositor accounts and selected maturity targets for certificate of deposit accounts. As of June 30, 2004, regular savings and club accounts represented $260.3 million and money market accounts and now accounts totaled $1.1 billion. Excluding public fund accounts, this represents 56.3% total interest bearing deposit accounts.
Over the past 18 months, the interest rate sensitivity of the depositor accounts has been effectively mitigated by strategically increasing the percentage of variable rate loans. From January 2003 to June 2004, this ratio has grown from 31% to 40%. During the same period, the Company’s loan-to-deposit ratio has risen from 64% to 70%. The resulting impact of these balances sheet strategies can be seen in the Company’s static gap report as of June 30, 2004.
Analysis of Interest Sensitivity at June 30, 2004 Within 6 months 1 to 3 > 3 Non-Sensitive Overnight 6 months to 1 year years years Balance Total ---------- ---------- ----------- ----------- ----------- ----------- ----------- (amounts in thousands) Assets Securities $ - $ 222,096 $ 192,826 $ 307,065 $ 650,742 $ - $1,372,729 Federal funds sold & Short-term investments 8,222 - 95 - - - 8,317 Loans 33,201 1,281,853 229,658 550,994 479,574 - 2,575,280 Other assets - - - - - 508,611 508,611 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total Assets $ 41,423 $1,503,949 $ 422,579 $ 858,059 $1,130,316 $ 508,611 $4,464,937 ========== ========== =========== =========== =========== =========== =========== Liabilities Interest bearing transaction deposits $ - $ 702,473 $ 284,772 $ 741,962 $ 62,623 $ - $1,791,830 Time deposits - 320,593 202,256 319,359 324,281 - 1,166,489 Non-interest bearing deposits - - - - 644,941 - 644,941 Federal funds purchased 41,852 - - - - - 41,852 Borrowings 208,976 3 10 17 50,253 - 259,259 Other liabilities - - - - - 127,059 127,059 Shareholders' Equity - - - - - 433,507 433,507 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total Liabilities & Equity $ 250,828 $1,023,069 $ 487,038 $1,061,338 $1,082,098 $ 560,566 $4,464,937 ========== ========== =========== =========== =========== =========== =========== Interest sensitivity gap $ (209,405) $ 480,880 $ (64,459) $ (203,279) $ 48,218 $ (51,955) Cumulative interest rate sensitivity gap $ (209,405) $ 271,475 $ 207,016 $ 3,737 $ 51,955 $ - Cumulative interest rate sensitivity gap as a percentage of total earning assets (5.0)% 7.0 % 5.0 % 0.0 % 1.0 % Analysis of Interest Sensitivity at December 31, 2003 Within 6 months 1 to 3 > 3 Non-Sensitive Overnight 6 months to 1 year years years Balance Total ---------- ---------- ----------- ----------- ----------- ----------- ----------- (amounts in thousands) Assets Securities $ - $ 222,439 $ 184,857 $ 415,614 $ 455,139 $ - $1,278,049 Federal funds sold & Short-term investments 11,138 - 150 - - - 11,288 Loans 31,477 1,190,556 213,713 514,248 498,650 - 2,448,644 Other assets - - - - - 412,377 412,377 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total Assets $ 42,615 $1,412,995 $ 398,720 $ 929,862 $ 953,789 $ 412,377 $4,150,358 ========== ========== =========== =========== =========== =========== =========== Liabilities Interest bearing transaction deposits $ - $ 811,256 $ 212,119 $ 612,678 $ 62,661 $ - $1,698,714 Time deposits - 351,459 118,889 330,758 311,281 - 1,112,387 Non-interest bearing deposits - - - - 636,745 - 636,745 Federal funds purchased - - - - - - - Borrowings 159,496 78 77 15 50,258 - 209,924 Other liabilities - - - - - 57,707 57,707 Shareholders' Equity - 37,067 - - - 397,814 434,881 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total Liabilities & Equity $ 159,496 $1,199,860 $ 331,085 $ 943,451 $1,060,945 $ 455,521 $4,150,358 ========== ========== =========== =========== =========== =========== =========== Interest sensitivity gap $ (116,881) $ 213,135 $ 67,635 $ (13,589) $ (107,156) $ (43,144) Cumulative interest rate sensitivity gap $ (116,881) $ 96,254 $ 163,889 $ 150,300 $ 43,144 $ - Cumulative interest rate sensitivity gap as a percentage of total earning assets (3.0)% 3.0 % 4.0 % 4.0 % 1.0 %
Certain assumptions in assessing interest rate risk were employed in preparing data for the Company included in the preceding tables portraying the Company’s interest rate risk sensitivity. These assumptions relate to interest rates, loan and deposit growth, pricing, loan prepayment speeds, deposit decay rates, securities portfolio strategy and market value of certain assets under the various interest rate scenarios. Even if interest rates change in the designated amounts, there can be no assurance that the Company’s assets and liabilities would perform as anticipated. In addition, a change in U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to the net interest income than indicated above.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Certain assets, such as adjustable rate loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. The Company considers all of these factors in monitoring its exposure to interest rate risk.
Even though permissible under the Asset Liability Management Policy approved by the Board of Directors, the Company is not currently engaged in the use of derivatives to control interest rate risk. Management and the Board of Directors review the need for such activities on a regular basis as part of its monthly interest rate risk analysis.
Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company’s business activities.
The foregoing disclosures related to the market risk of the Company should be read in conjunction with the Company’s audited consolidated financial statements, related notes and management’s discussion and analysis for the year ended December 31, 2003 included in the Company’s 2003 Annual Report on Form 10-K.
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2004, (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.
Since the Evaluation Date, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect such controls.
On February 4, 2004 the Company completed the redemption/conversion of substantially all $37.1 million of the 8% Cumulative Convertible Preferred Stock issued in partial payment for the acquisition of Lamar Capital Corporation in July, 2001. The conversion factor was .6666 shares of Hancock Holding Company common stock for each share of the preferred stock. A total of 7,304 shares of the preferred stock was redeemed for cash at the contract price of $20.00 per share plus pro rated dividends of $0.1511 per share.
In July 2000, the Company announced the execution of a stock buyback program that provides for the repurchase of up to 10 % of the Company’s issued common stock. The program authorizes the repurchase of approximately 3,320,000 shares of the Company’s issued common stock.
The following table provides information with respect to purchases made by the issuer or any affiliated purchaser of the issuer’s equity securities.
(a) (b) (c) (d) Total number of Maximum number shares purchased of shares Total number as a part of publicly that may yet be of shares or Average Price announced plans purchased under units purchased Paid per Share or programs (1) Plans or Programs ------------------- ------------------ --------------------- ----------------------- Total as of March 31, 2004 131,123 $ 29.0645 51,754 938,870 =================== ================== ===================== Apr. 1, 2004 - Apr. 30, 2004 101,000 (2) $ 29.9908 100,000 838,870 May. 1, 2004 - May. 31, 2004 349 (3) 28.0600 - 838,870 Jun. 1, 2004 - Jun. 30, 2004 2,531 (4) 27.6800 - 838,870 ------------------- ------------------ --------------------- Total as of June 30, 2004 103,880 $ 28.5769 100,000 =================== ================== ===================== (1) The Company publicly announced its stock buy-back program on July 18, 2000. (2) 1,000 shares were purchased on the open market during April in order to satisfy obligations pursuant to the Company's long term incentive plan that was established in 1996. (3) 349 shares were purchased on the open market during May in order to satisfy obligations pursuant to the Company's long term incentive plan that was established in 1996. (4) 2,531 shares were purchased on the open market during June in order to satisfy obligations pursuant to the Company's long term incentive plan that was established in 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-KExhibits: 1. Exhibit 31 - Rule 13a-14(a) / 15d-14(a) Certifications 2. Exhibit 32 - Section 1350 Certifications Reports on Form 8-K: 1. A Form 8-K was filed on April 12, 2004 for the purpose of announcing, by press release, earnings for the first quarter ended March 31, 2004. 2. A Form 8-K was filed on April 23, 2004 for the purpose of announcing, by press release, a presentation by the Company's officers at the Gulf South Bank Conference on April 26, 2004 in New Orleans, LA.
SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HANCOCK HOLDING COMPANY ------------------------------ Registrant August 6, 2004 By: - --------------- ------------------------------- Date George A. Schloegel Vice-Chairman of the Board & Chief Executive Officer August 6, 2004 By: - --------------- -------------------------------- Date Carl J. Chaney Executive Vice President & Chief Financial Officer