HANCOCK HOLDING COMPANY AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(amounts in thousands)
(Unaudited)
June 30, December 31,
2002 2001 *
-------------------- -------------------
ASSETS:
Cash and due from banks (non-interest bearing) $ 156,506 $ 164,808
Interest-bearing time deposits with other banks 10,881 8,433
Securities available for sale (amortized cost of
$1,316,806 and $1,078,129) 1,339,445 1,085,425
Securities held to maturity (fair value of $260,697
and $292,650) 251,737 287,370
Federal funds sold 9,100 92,000
Loans, net of unearned income 1,953,810 1,890,039
Less: Allowance for loan losses (32,265) (34,417)
-------------------- -------------------
Loans, net 1,921,545 1,855,622
Property and equipment, net of accumulated
depreciation of $64,995 and $62,912 70,255 66,266
Other real estate, net 7,335 3,003
Accrued interest receivable 28,553 27,860
Goodwill and other intangibles 53,619 53,910
Other assets 26,404 35,148
-------------------- -------------------
TOTAL ASSETS $ 3,875,380 $ 3,679,845
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 633,375 $ 624,058
Interest-bearing savings, NOW, money market
and time 2,564,365 2,415,676
-------------------- -------------------
Total deposits 3,197,740 3,039,734
Federal funds purchased - 125
Securities sold under agreements to repurchase 172,202 161,208
Other liabilities 27,276 22,556
Long-term notes 51,334 51,606
-------------------- -------------------
TOTAL LIABILITIES 3,448,552 3,275,229
CONVERTIBLE PREFERRED STOCK:
Preferred Stock - $20 par value per share; 50,000,000
shares authorized and 1,658,275 issued 37,069 37,069
COMMON STOCKHOLDERS' EQUITY:
Common Stock-$3.33 par value per share; 75,000,000
shares authorized and 16,608,120 issued 55,305 55,305
Capital surplus 177,161 177,736
Retained earnings 157,705 141,099
Unrealized gain (loss) on securities available for
sale, net 14,716 4,742
Unearned compensation (794) (433)
Treasury stock (14,334) (10,902)
-------------------- -------------------
TOTAL COMMON STOCKHOLDERS' EQUITY 389,759 367,547
-------------------- -------------------
TOTAL LIABILITIES, PREFERRED STOCK
AND STOCKHOLDERS' EQUITY $ 3,875,380 $ 3,679,845
==================== ===================
* The balance sheet at December 31, 2001 has been taken from the audited balance sheet at that date.
See notes to unaudited condensed consolidated financial statements.
Page 3 of 14
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,
----------------------------- -----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
INTEREST INCOME:
Loans $ 38,694 $ 38,646 $ 77,508 $ 77,834
U. S. Treasury securities 420 935 773 2,008
Obligations of U. S. government agencies 6,849 6,140 13,255 11,026
Obligations of states and political subdivisions 2,685 2,451 5,440 4,830
Mortgage-backed securities 1,406 1,780 3,040 3,716
CMOs 7,116 4,555 13,564 8,314
Federal funds sold 399 1,473 920 3,830
Other investments 502 433 1,175 918
----------- ----------- ----------- -----------
Total interest income 58,071 56,413 115,675 112,476
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 17,189 23,923 35,375 48,190
Federal funds purchased and securities sold
under agreements to repurchase 564 1,498 1,101 3,210
Notes and other interest-bearing liabilities 620 58 1,218 135
----------- ----------- ----------- -----------
Total interest expense 18,373 25,479 37,694 51,535
----------- ----------- ----------- -----------
NET INTEREST INCOME 39,698 30,934 77,981 60,941
Provision for loan losses 4,879 1,793 10,207 3,648
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 34,819 29,141 67,774 57,293
----------- ----------- ----------- -----------
NON-INTEREST INCOME
Service charges on deposit accounts 10,568 6,814 20,016 13,458
Other service charges, commissions and fees 5,020 3,055 10,827 6,160
Other 1,930 2,202 4,066 4,620
----------- ----------- ----------- -----------
Total non-interest income 17,518 12,071 34,909 24,238
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 19,995 15,624 39,061 31,346
Net occupancy expense of premises 2,075 1,794 4,111 3,616
Equipment rentals, depreciation and maintenance 2,171 1,880 4,059 3,721
Amortization of intangibles 187 910 438 1,819
Other 9,634 8,045 19,988 15,544
----------- ----------- ----------- -----------
Total non-interest expense 34,062 28,253 67,657 56,046
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 18,275 12,959 35,026 25,485
Income taxes 5,694 4,029 11,023 7,951
----------- ----------- ----------- -----------
NET EARNINGS 12,581 8,930 24,003 17,534
PREFERRED DIVIDEND REQUIREMENT 663 - 1,327 -
----------- ----------- ----------- -----------
NET EARNINGS AVAILABLE TO COMMON STOCKHOLDERS $ 11,918 $ 8,930 $ 22,676 $ 17,534
=========== =========== =========== ===========
BASIC EARNINGS PER COMMON SHARE $ 0.75 $ 0.56 $ 1.43 $ 1.09
=========== =========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE $ 0.73 $ 0.55 $ 1.40 $ 1.09
=========== =========== =========== ===========
DIVIDENDS PAID PER COMMON SHARE $ 0.20 $ 0.19 $ 0.40 $ 0.37
=========== =========== =========== ===========
WEIGHTED AVG. COMMON SHARES OUTSTANDING-BASIC 15,869 16,089 15,879 16,100
=========== =========== =========== ===========
WEIGHTED AVG. COMMON SHARES OUTSTANDING-DILUTED 17,156 16,125 17,141 16,121
=========== =========== =========== ===========
See notes to unaudited condensed consolidated financial statements
Page 4 of 14
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands except per share)
Six Months Ended June 30,
-----------------------------------------
2002 2001
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 24,003 $ 17,534
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 3,043 2,842
Amortization of software 1,088 1,194
Provision for loan losses 10,207 3,648
Provision for losses on real estate owned 750 52
Increase in interest receivable (693) (1,762)
Amortization of intangible assets 375 1,819
Decrease in interest payable (3,392) (95)
Other, net 1,972 (37)
------------- -----------
Net cash provided by operating activities 37,353 25,195
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest-bearing time deposits (2,448) (1,801)
Proceeds from maturities of securities held
to maturity 35,633 70,056
Purchase of securities held to maturity - -
Proceeds from maturities of securities available
for sale 415,604 142,793
Purchase of securities available for sale (654,281) (403,433)
Net decrease (increase) in federal funds sold 82,900 (47,500)
Net (increase) decrease in loans (78,823) 2,410
Purchase of property, equipment and software, net (6,404) (6,422)
Proceeds from sales of other real estate 1,358 901
------------- -----------
Net cash used in investing activities (206,461) (242,996)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 158,006 211,893
Dividends paid (7,797) (6,116)
Net increase in federal funds purchased and
securities sold under agreements to repurchase
and other temporary funds 10,869 14,196
Reductions of long-term notes (272) (281)
------------- -----------
Net cash provided by (used in) financing activities 160,806 219,692
------------- -----------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (8,302) 1,891
CASH AND DUE FROM BANKS, BEGINNING 164,808 130,380
------------- -----------
CASH AND DUE FROM BANKS, ENDING $156,506 $132,271
------------- -----------
------------- -----------
See notes to unaudited condensed consolidated financial statements.
Page 5 of 14
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(At and For the Six Months Ended June 30, 2002 and 2001)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements include the accounts of Hancock Holding Company, its wholly-owned banks, Hancock Bank and Hancock Bank of Louisiana and other subsidiaries. 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 2001 Annual Report to Shareholders.
GOODWILL AND OTHER INTANGIBLES
In June 2001 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 “Business Combinations” and No. 142 “Goodwill and Other Intangibles”. These Statements provide that, among other things, (1) all business combinations on or after July 1, 2001 be accounted for as purchases, (2) any related goodwill on those acquisitions does not require amortization, but is subject to a periodic impairment test and that (3) goodwill on any of the Company’s acquisitions prior to July 1, 2001 not be amortized after January 1, 2002, but is subject to a periodic impairment test. The Company has performed a transitional fair value based impairment test on its goodwill and determined that the fair value exceeded the recorded value at December 31, 2001. No impairment loss, therefore, was recorded on January 1, 2002. There was no amortization of goodwill recorded in the six months ended June 30, 2002. Amortization of goodwill by the Company amounted to approximately $3.6 million in the year ended December 31, 2001 and is not deductible for income tax purposes. The Company has approximately $5.5 million of other intangible assets that will continue to amortize.
Page 6 of 14
Following is a reconciliation of net earnings and basic and diluted net earnings per share as reported to the amounts that would have been reported if SFAS No 142 had been effective as of January 1, 2001 and the amortization of goodwill had been discontinued as of that date.
(Amounts in thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ------------------------------------
2002 2001 2002 2001
------------- ------------- -------------- ---------------
Net earnings $ 12,581 $ 8,930 $ 24,003 $ 17,534
Add back goodwill amortization - 901 - 1,803
------------- ------------- -------------- ---------------
Adjusted net earnings $ 12,581 $ 9,831 $ 24,003 $ 19,337
============= ============= ============== ===============
Basic earnings per common share
Reported net earnings $ 0.75 $ 0.56 $ 1.43 $ 1.09
Goodwill amortization - 0.07 - 0.11
------------- ------------- -------------- ---------------
Adjusted net earnings $ 0.75 $ 0.63 $ 1.43 $ 1.20
============= ============= ============== ===============
Diluted earnings per common share
Reported net earnings $ 0.73 $ 0.55 $ 1.40 $ 1.09
Goodwill amortization - 0.06 - 0.11
------------- ------------- -------------- ---------------
Adjusted net earnings $ 0.73 $ 0.61 $ 1.40 $ 1.20
============= ============= ============== ===============
COMPREHENSIVE EARNINGS
Following is a summary of the Company's comprehensive earnings for the three months and six months ended June 30, 2002 and 2001.
(Amounts in thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- -------------------------------
2002 2001 2002 2001
------------- ------------- ------------ ------------
Net earnings $ 12,581 $ 8,930 $ 24,003 $ 17,534
Other comprehensive income
(net of income tax):
Unrealized holding gains on
securities available for sale 12,418 264 9,974 4,474
------------- ------------- ------------ ------------
Total Comprehensive Earnings $24,999 $9,194 $33,977 $22,008
============= ============= ============ ============
ACQUISITIONS
On July 1, 2001 the Company acquired 100% of the common stock of Lamar Capital Corporation (LCC), Purvis, Mississippi and its subsidiaries, The Lamar Bank and Southern Financial Services, Inc. The acquisition was accounted for as a purchase and the results of LCC’s operations are included in the consolidated financial statements of the Company from the date of acquisition. LCC operated 9 banking offices in southern Mississippi. The Company acquired LCC in order to expand the geographic area in which its services are offered. The aggregate price was approximately $51.3 million, including cash of $14.2 million and 1,658,275 shares of manditorily redeemable convertible preferred stock with a fair value of $37.1 million at December 31, 2001.
The unaudited pro forma consolidated results of operations give effect to the acquisition of LCC as though it had occurred on January 1, 2001 (in thousands, except per share data):
Page 7 of 14
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ --------------------------------
2002 2001 2002 2001
------------ ------------ ------------- -------------
Interest Income $58,071 $63,912 $ 115,675 $ 127,747
Interest expense 18,373 30,192 37,694 61,129
Provision for loan losses 4,879 4,669 10,207 6,919
------------ ------------ ------------- -------------
Net interest income after provision for loan losses 34,819 29,051 67,774 59,699
Net earnings available to common stockholders $11,918 $ 6,639 $ 22,676 $ 14,866
Basic earnings per common share $ 0.75 $ 0.41 $ 1.43 $ 0.92
Diluted earnings per common share $ 0.73 $ 0.41 $ 1.40 $ 0.92
STOCK SPLIT
On July 12, 2002 the Company’s Board of Directors declared a three-for-two stock split in the form of a 50% common stock dividend. The additional shares were payable August 5, 2002 to shareholders of record at the close of business on July 23, 2002.
All information concerning earnings per share, dividends per share, and number of shares outstanding have been adjusted to give effect to this split.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides management's analysis of certain factors that have affected the Company's financial condition and operating results during the periods included in the accompanying condensed consolidated financial statements.
CHANGES IN FINANCIAL CONDITION
Liquidity
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,
2002 2002 2001
------------------ -------------- --------------
Total securities to total deposits 49.76% 45.85% 45.16%
Total loans (net of unearned
income) to total deposits 61.10% 59.45% 62.18%
Interest-earning assets
to total assets 92.00% 92.22% 91.20%
Interest-bearing deposits
to total deposits 80.19% 80.08% 79.47%
sale.
Page 8 of 14
Capital Resources
The Company continues to maintain an adequate capital position. The ratios as of June 30, 2002, March 31, 2002 and December 31, 2001 are as follows:
June 30, March 31, December 31,
2002 2002 2001
-------------- ------------- --------------
Average equity to average assets 10.01% 10.05% 10.51%
Total capital to risk-weighted assets (2) 17.03% 17.40% 15.99%
Tier 1 capital to risk-weighted 15.73% 16.12% 14.74%
assets (3)
Leverage capital to average total assets (4) 9.35% 8.44% 9.49%
(1) Equity capital consists of stockholder's equity (excluding unrealized gains/(losses)).
(2) Total capital consists of equity capital less intangible assets plus a limited amount of loan loss allowance.
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 4% leverage capital ratio for an entity to be considered adequately capitalized
RESULTS OF OPERATIONS
Net Earnings
Net earnings increased approximately $1.2 million or 10.2% over the first quarter of 2002 and $3.6 million or 40.9% compared to the second quarter of 2001.
On a year-to-date basis net earnings have increased $6.5 million or 36.9% in 2002 as compared to 2001. Following is selected information for comparison:
Page 9 of 14
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
-------------- --------------- -------------- --------------
Results of Operations:
Return on average assets 1.30 % 1.11 % 1.27 % 1.11 %
Return on average equity 13.04 % 10.16 % 12.65 % 10.12 %
Net Interest Income:
Yield on average interest-earning assets
(tax equivalent) 6.72 % 7.86 % 6.83 % 8.01 %
Cost of average interest-bearing funds 2.62 % 4.44 % 2.75 % 4.58 %
-------------- --------------- -------------- --------------
Net interest spread 4.10 % 3.42 % 4.08 % 3.43 %
============== =============== ============== ==============
Net yield on interest-earning assets
(net interest income on a tax-equivalent basis
divided by average interest-earning assets) 4.66 % 4.42 % 4.67 % 4.44 %
============== =============== ============== ==============
Net Interest Income
The second quarter of 2002 showed an increase in net interest income, on a tax- equivalent basis (TE), of $1.4 million, compared to the previous quarter and $8.9 million compared to the same period one year ago. The Company's net interest margin for the three-month period ended June 30, 2002 was 4.66% compared to 4.68% for the previous quarter and 4.42% for the prior year period. Interest income(TE) for the current year increased $434,000 over the first quarter and $1.8 million over the same period one year ago. This increase results primarily from growth in the loan portfolio. Interest Expense has decreased $947,000 from the previous quarter and $701 million from the same quarter in the prior year and results from changes made to deposit pricing. The Company's loan portfolio growth is the result of the Company's acquisition of Lamar Capital Corporation in July 2001. Decreasing interest rates offered for certain types of deposit accounts favorably impacted the cost of funds.
Year-to-date net interest income(TE) has increased $17.3 million or 26.8% over the same time last year. The Company's net interest margin for the first six months of 2002 was 4.67% compared to 4.44% for the same period one year ago. Interest income(TE) has increased $3.4 million or 2.97% over the prior year. The primary factor causing the favorable variance from 2001 is the impact of a larger consumer loan portfolio. Interest expense has decreased $13.8 million and is largely due to controlling deposit pricing.
Provision for Loan Losses
The amount of the allowance 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)
Page 10 of 14
At and For the
--------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ ----------------------------------
2002 2001 2002 2001
---------------- ---------------- --------------- --------------
Annualized net charge-offs to average loans 0.88% 0.48% 1.27% 0.48%
Annualized provision for loan losses to average
loans (1) 1.02% 0.48% 1.08% 0.48%
Average allowance for loan losses to average loans 1.66% 1.70% 1.74% 1.70%
Gross charge-offs (2) $ 5,574 $ 3,146 $ 14,774 $ 6,319
Gross recoveries 1,376 1,150 2,814 2,291
Non-accrual loans 12,210 11,870 12,210 11,870
Accruing loans 90 days or more past due 6,702 6,066 6,702 6,066
(1) The provision increased as a result of Management's periodic review of the allowance for loan losses. This review
considered the effect of increased balance of loans and recent charge offs.
(2) The significant increase in gross charge-offs results, in part, from the removal of credits acquired in the Lamar
Capital Corporation acquisition that have been determined to be uncollectible. Additionally, a small number of
commercial credits totaling approximately $3.6 million were written off during the first two quarters of 2002.
Non-Interest Income
Non-interest income increased $129,000 or 0.74% from the first quarter and increased $5.4 million or 45.13% when compared to the same period a year ago. The increase over the previous quarter is a combination of increased deposit service charges and decreased investment and annuity fees. The volatility of the capital markets has led to declines in investment fee income.
The $5.4 million increase over the same period of the previous year is due to increased deposit service charges and higher ATM fee income. Primary causes for these increases are the inclusion of Lamar Capital Corporation (acquired July 2001) and the implementation of new deposit services with associated fees.
Non-Interest Expense
Non-interest expense for the three-month period ended June 30, 2002 increased $0.5 million, or 1.4%, compared to the previous quarter and $6 million, or 21.4%, compared to the same period the previous year. Increases from the previous quarter result primarily from higher personnel expenses. Increases, as compared to the same period last year, result primarily from higher personnel expenses and franchise taxes.
On a year-to-date basis, non-interest expense is higher by $12 million and results primarily from increased personnel costs associated with the additional staffing resulting from the Lamar Capital Corporation acquisition, regular salary increases as well as higher staffing associated with growth in new and existing market areas.($7.7 million). Franchise taxes and advertising expense accounted for $2.3 million or 19.2% if the increased expenses as compared to a year ago.
Income Taxes
The effective federal income tax rate of the Company continues to be less than the statutory rate of 35%, due primarily to tax-exempt interest income. The amount of tax-exempt income earned during the first six months of 2002 was $6,965,000 compared to $6,518,000 for the comparable period in 2001.
Page 11 of 14
Net Earnings Per Common Share
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,
------------------------------ -------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net earnings - used in computation of diluted
earnings per common share $ 12,581 $ 8,930 $24,003 $17,534
Preferred divdend requirement 663 - 1,327 -
------------- ------------- ------------- -------------
Net earnings available to common stockholders -
used in computation of basic earnings
per common share $ 11,918 $ 8,930 $22,676 $17,534
============= ============= ============= =============
Weighted average number of common shares
outstanding - used in computation of
basic earnings per common share 15,869 16,089 15,879 16,100
Effect of dilutive securities
Stock options 181 36 156 21
Convertible preferred stock 1,106 - 1,106 -
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding plus effect of dilutive
securities - used in computation of
diluted earnings per common share 17,156 16,125 17,141 16,121
============= ============= ============= =============
Forward Looking Information
Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This Act provides a safe harbor for such disclosures that protects the companies from unwarranted litigation if the actual results are different from management expectations. This report contains forward-looking statements and reflects management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties that could cause the Company’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Page 12 of 14
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.
In adjusting the Company’s asset/liability position, the Board and management attempt to manage the Company’s interest rate risk while enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company’s interest rate risk position somewhat in order to increase its net interest margin. The Company’s results of operations and net portfolio values remain vulnerable to increases in interest rates and to fluctuations in the difference between long and short-term interest rates.
The Company also controls interest rate risk reductions by emphasizing non-certificate depositor accounts. The Board and management believe that a material portion of such accounts may be more resistant to changes in interest rates than are certificate accounts. At June 30, 2002 the Company had $343 million of regular savings and club accounts and $976 million of money market and NOW accounts, representing 51.4% of total interest-bearing depositor accounts.
The Company does not currently engage in significant trading activities or use derivative instruments to control interest rate risk. Even though such activities may be permitted with the approval of the Board of Directors, the Company does not intend to engage in such activities in the immediate future.
Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company's business activities.
Part II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
None
Reports on Form 8-K:
None NonePage 13 of 14
SIGNATURES
SIGNATURES ----------Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CERTIFICATION
Each of the undersigned hereby certifies in his capacity as an officer of HANCOCK HOLDING COMPANY (the “Company”) that the Quarterly Report of the Company on Form 10-Q for the periods ended June 30, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such periods and the results of operations of the Company for such periods.
HANCOCK HOLDING COMPANY
----------------------------------
Registrant
August 12,2002 By: /s/ George A. Schloegel
- ------------------------- --------------------------------------
Date George A. Schloegel
Vice-Chairman of the Board and
Chief Executive Officer
August 12, 2002 By: /s/ Carl J. Chaney
- -------------------------- --------------------------------------
Carl J. Chaney
Executive Vice President and
Chief Financial Officer
Page 14 of 14
