UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 ------- Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 ------- For Quarter Ending September 30, 2002 --------------------------------------------------- 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 -------- -------- 15,493,900 common shares were outstanding as of November 12, 2002 for financial statement purposes.
HANCOCK HOLDING COMPANY ----------------------- INDEX ----- PART I. FINANCIAL INFORMATION PAGE NUMBER - ------------------------------- ----------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets -- September 30, 2002 and December 31, 2001 3 Condensed Consolidated Statements of Earnings -- Three Months and Nine Months Ended September 30, 2002 and 2001 4 Condensed Statements of Common Stockholder's Equity 5 Condensed Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 2002 and 2001 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 20 ITEM 4. Controls and Procedures 21 PART II. OTHER INFORMATION - --------------------------- ITEM 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 - ---------- CERTIFICATIONS 24 - --------------
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (amounts in thousands) (Unaudited) September 30, December 31, 2002 2001 * -------------------- ------------------- ASSETS: Cash and due from banks (non-interest bearing) $ 153,422 $ 164,808 Interest-bearing time deposits with other banks 4,820 8,433 Securities available for sale (amortized cost of $1,244,779 and $1,078,129) 1,273,492 1,085,425 Securities held to maturity (fair value of $249,471 and $292,650) 236,439 287,370 Federal funds sold 132,500 92,000 Loans, net of unearned income 2,020,171 1,890,039 Less: Allowance for loan losses (33,315) (34,417) -------------------- ------------------- Loans, net 1,986,856 1,855,622 Property and equipment, net of accumulated depreciation of $65,352 and $62,912 70,288 66,266 Other real estate, net 7,178 3,003 Accrued interest receivable 26,234 27,860 Goodwill and other intangibles 53,432 53,910 Other assets 27,093 35,148 -------------------- ------------------- TOTAL ASSETS $ 3,971,754 $ 3,679,845 ==================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Non-interest bearing demand $ 657,211 $ 624,058 Interest-bearing savings, NOW, money market and time 2,621,082 2,415,676 -------------------- ------------------- Total deposits 3,278,293 3,039,734 Federal funds purchased 900 125 Securities sold under agreements to repurchase 177,462 161,208 Other liabilities 36,583 22,556 Long-term notes 51,178 51,606 -------------------- ------------------- TOTAL LIABILITIES 3,544,416 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 195,892 177,736 Retained earnings 148,476 141,099 Unrealized gain (loss) on securities available for sale, net 18,664 4,742 Unearned compensation (674) (433) Treasury stock (792,517 and 437,032 shares, respectively) (27,394) (10,902) -------------------- ------------------- TOTAL COMMON STOCKHOLDERS' EQUITY 390,269 367,547 -------------------- ------------------- TOTAL LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY $ 3,971,754 $ 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 conslidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS --------------------------------------------- (UNAUDITED) --------- (amounts in thousands except per share) Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ------------------------------ ------------------------------ 2002 2001 2002 2001 ----------- ------------ ------------ ------------- INTEREST INCOME: Loans $ 40,060 $ 43,320 $ 117,567 $ 121,154 U. S. Treasury securities 416 596 1,189 2,604 Obligations of U. S. government agencies 6,322 7,033 19,577 18,059 Obligations of states and political subdivisions 2,630 2,823 8,071 7,653 Mortgage-backed securities 1,374 2,240 4,414 5,956 CMOs 6,796 5,033 20,360 13,347 Federal funds sold 173 865 1,094 4,695 Other investments 632 480 1,807 1,398 ----------- ------------ ------------ ------------- Total interest income 58,403 62,390 174,079 174,866 ----------- ------------ ------------ ------------- INTEREST EXPENSE: Deposits 16,399 25,528 51,774 73,718 Federal funds purchased and securities sold under agreements to repurchase 574 1,212 1,675 4,422 Notes and other interest-bearing liabilities 624 845 1,842 980 ----------- ------------ ------------ ------------- Total interest expense 17,597 27,585 55,291 79,120 ----------- ------------ ------------ ------------- NET INTEREST INCOME 40,806 34,805 118,788 95,746 Provision for loan losses 3,597 2,088 13,804 6,116 ----------- ------------ ------------ ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 37,209 32,717 104,984 89,630 ----------- ------------ ------------ ------------- NON-INTEREST INCOME Service charges on deposit accounts 11,080 7,635 31,095 21,093 Other service charges, commissions and fees 5,085 3,863 16,587 12,124 Other 1,509 1,874 4,901 4,393 ----------- ------------ ------------ ------------- Total non-interest income 17,674 13,372 52,583 37,610 ----------- ------------ ------------ ------------- NON-INTEREST EXPENSE Salaries and employee benefits 19,510 17,537 58,571 48,883 Net occupancy expense of premises 2,220 2,343 6,331 5,959 Equipment rentals, depreciation and maintenance 2,260 2,045 6,319 5,766 Amortization of intangibles 188 1,265 563 3,084 Other 10,985 8,881 31,036 24,045 ----------- ------------ ------------ ------------- Total non-interest expense 35,163 32,071 102,820 87,737 ----------- ------------ ------------ ------------- EARNINGS BEFORE INCOME TAXES 19,720 14,018 54,747 39,503 Income taxes 6,430 4,283 17,453 12,234 ----------- ------------ NET EARNINGS 13,290 9,735 37,294 27,269 PREFERRED DIVIDEND REQUIREMENT 663 663 1,990 663 ----------- ------------ ------------ ------------- NET EARNINGS AVAILABLE TO COMMON STOCKHOLDERS $ 12,627 $ 9,072 $ 35,304 $ 26,606 =========== ============ ============ ============= BASIC EARNINGS PER COMMON SHARE $ 0.80 $ 0.56 $ 2.23 $ 1.65 =========== ============ ============ ============= DILUTED EARNINGS PER COMMON SHARE $ 0.78 $ 0.57 $ 2.18 $ 1.65 =========== ============ ============ ============= DIVIDENDS PAID PER COMMON SHARE $ 0.20 $ 0.19 $ 0.60 $ 0.56 =========== ============ ============ ============= WEIGHTED AVG. COMMON SHARES OUTSTANDING-BASIC 15,709 16,061 15,825 16,085 =========== ============ ============ ============= WEIGHTED AVG. COMMON SHARES OUTSTANDING-DILUTED 17,047 17,214 17,116 16,494 =========== ============ ============ ============= See notes to unaudited condensed consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED STATEMENTS OF COMMMON STOCKHOLDERS' EQUITY ---------------------------------------------------- (UNAUDITED) ----------- (amounts in thousands except per share) Common Capital Retained Available For Unearned Treasury Amount Surplus Earnings Sale, Net Compensation Stock ------------- ------------ ------------- ------------ ----------- ------------ Balance, January 1, 2000 $ 36,872 $ 196,047 $ 92,153 $ (13,764) $ (808) $ (73) Net earnings 36,824 Cash dividends - $0.83 per share (13,611) Change in unrealized gain (loss) on securities available for sale, net 12,303 Transactions relating to restricted stock grants, net (36) Purchase of treasury stock, net (23) (4,494) ------------- ------------ ------------- ------------ ----------- ------------ Balance, December 31, 2000 36,872 196,024 115,366 (1,461) (844) (4,567) Net earnings 39,255 Cash dividends - $.75 per share (12,195) Cash dividends - $0.80 per preferred share (1,327) Change in unrealized gain (loss) on securities available for sale, net 6,203 Transactions relating to restricted stock grants, net 411 Purchase of treasury stock, net 146 (6,335) ------------- ------------ ------------- ------------ ----------- ------------ Balance, December 31, 2001 36,872 196,170 141,099 4,742 (433) (10,902) Net earnings 37,294 Cash dividends - $0.60 per common share (9,452) Cash dividends - $1.20 per preferred share (1,990) 50% Common Stock Dividend 18,433 (18,475) Change in unrealized gain (loss) on securities available for sale, net 13,922 Transactions relating to restricted stock grants, net (241) Purchase of treasury stock, net (278) (16,492) ------------- ------------ ------------- ------------ ----------- ------------ Balance, September 30, 2002 $ 55,305 $ 195,892 $ 148,476 $ 18,664 $ (674) $ (27,394) ============= ============ ============= ============ =========== ============ See notes to unaudited condensed consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- UNAUDITED --------- (amounts in thousands) Nine Months Ended September 30, ----------------------------------------- 2002 2001 ---------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 37,294 $ 27,269 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 4,784 4,499 Amortization of software 1,671 1,862 Provision for loan losses 13,804 6,116 Provision for losses on other real estate owned 1,518 85 Gain on sales of securities (5) (16) Loss on sale of other real estate owned 125 (24) Decrease (Increase) in interest receivable 1,626 (470) Amortization of intangible assets 563 3,084 Increase in accrued expenses 9,924 6,621 Increase in other liabilities 7,573 2,611 Decrease in interest payable (3,470) (1,171) Other, net (4,897) (11,092) ---------------- ----------------- Net cash provided by operating activities 70,510 39,374 ---------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease (increase) in interest-bearing time deposits 3,613 (5,204) Proceeds from maturities of securities held to maturity 50,431 106,228 Proceeds from maturities of securities available for sale 521,283 406,704 Purchase of securities available for sale (687,433) (710,344) Net decrease (increase) in federal funds sold (40,500) 32,775 Net (increase) decrease in loans (150,845) 5,812 Purchase of property, equipment and software, net (7,863) (9,214) Proceeds from sales of other real estate 2,469 1,914 Net cash used in connection with purchase transaction - (52) ---------------- ----------------- Net cash used in investing activities (308,845) (171,381) ---------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 238,559 171,406 Dividends paid (11,442) (9,831) Net increase in federal funds purchased and securities sold under agreements to repurchase and other temporary funds 17,029 10,414 Treasury stock transactions (16,769) (3,453) Reductions of long-term notes (428) (20,425) ---------------- ----------------- Net cash provided by (used in) financing activities 226,949 148,111 ---------------- ----------------- NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (11,386) 16,104 CASH AND DUE FROM BANKS, BEGINNING 164,808 130,380 ---------------- ----------------- CASH AND DUE FROM BANKS, ENDING $ 153,422 $ 146,484 ================ ================= 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 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.
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 nine months ended September 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.
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 Sept. 30, Nine Months Ended Sept. 30, ------------------------------------------------------------------------ 2002 2001 2002 2001 ------------- ------------- -------------- --------------- Net earnings $ 13,290 $ 9,735 $ 37,294 $ 27,269 Add back goodwill amortization - 902 - 2,704 ------------- ------------- -------------- --------------- Adjusted net earnings $ 13,290 $ 10,637 $ 37,294 $ 29,973 ============= ============= ============== =============== Basic earnings per common share Reported net earnings $ 0.80 $ 0.56 $ 2.23 $ 1.65 Goodwill amortization - 0.06 - 0.17 ------------- ------------- -------------- --------------- Adjusted net earnings $ 0.80 $ 0.62 $ 2.23 $ 1.82 ============= ============= ============== =============== Diluted earnings per common share Reported net earnings $ 0.78 $ 0.57 $ 2.18 $ 1.65 Goodwill amortization - 0.05 - 0.16 ------------- ------------- -------------- --------------- Adjusted net earnings $ 0.78 $ 0.62 $ 2.18 $ 1.82 ============= ============= ============== =============== COMPREHENSIVE EARNINGS Following is a summary of the Company's comprehensive earnings for the three months and nine months ended September 30, 2002 and 2001. (Amounts in thousands) Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ------------------------------------------------------------------- 2002 2001 2002 2001 ------------- ------------- ------------ ------------ Net earnings $ 13,290 $ 9,735 $ 37,294 $ 27,269 Other comprehensive income (net of income tax): Unrealized holding gains on securities available for sale 3,948 10,352 13,922 14,826 ------------- ------------- ------------ ------------ Total Comprehensive Earnings $17,238 $20,087 $51,216 $42,095 ============= ============= ============ ============
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):
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ------------------------------ -------------------------------- 2002 2001 2002 2001 ------------ ------------ ------------- ------------- Interest Income $58,403 $62,390 $ 174,079 $ 190,136 Interest expense 17,597 27,585 55,291 88,713 Provision for loan losses 3,597 2,088 13,804 9,387 ------------ ------------ ------------- ------------- Net interest income after provision for loan losses 37,209 32,717 104,984 92,036 Net earnings available to common stockholders $12,627 $ 9,072 $ 35,304 $ 23,939 Basic earnings per common share $ 0.80 $ 0.56 $ 2.23 $ 1.49 Diluted earnings per common share $ 0.78 $ 0.57 $ 2.18 $ 1.49
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.
The following tables present selected comparative financial data. All share and per share data has been restated to give effect of a 50% stock dividend made August 5, 2002.
(amounts in thousands, except per share data) Three Months Ended Nine Months Ended -------------------------------------------------------- 9/30/2002 9/30/2001 9/30/2002 9/30/2001 --------------------------- -------------------------- Per Common Share Data Earnings per share: Basic $0.80 $0.56 $2.23 $1.65 Diluted $0.78 $0.57 $2.18 $1.65 Earnings per share before amortization of purchased intangibles: Basic $0.82 $0.64 $2.27 $1.85 Diluted $0.79 $0.64 $2.21 $1.84 Cash dividends per share $0.20 $0.19 $0.60 $0.56 Book value per share (period end) $25.15 $23.26 $25.15 $23.26 Weighted average number of shares: Basic 15,709 16,061 15,825 16,085 Diluted 17,047 17,214 17,116 16,494 Period end number of shares 15,517 15,982 15,517 15,982 Market data: High closing price $49.73 $29.33 $49.73 $29.66 Low closing price $39.33 $25.99 $27.56 $23.33 Period end closing price $46.97 $27.05 $46.97 $27.05 Trading volume 3,690 1,042 7,054 2,404
(amounts in thousands, except per share data) Three Months Ended Nine Months Ended ----------------------------------------------------------- 9/30/2002 9/30/2001 9/30/2002 9/30/2001 ----------------------------- ---------------------------- Performance Ratios Return on average assets 1.36% 1.06% 1.30% 1.09% Return on average common equity 13.30% 10.60% 12.87% 10.29% Earning asset yield (TE) 6.77% 7.64% 6.81% 7.88% Total cost of funds 1.97% 3.27% 2.10% 3.46% Net interest margin (TE) 4.80% 4.38% 4.71% 4.42% Non-interest expense as a percent of total revenue (TE) before amortization of purchased intangibles and securities transactions 57.97% 61.49% 57.78% 60.99% Average common equity as a percent of average total assets 10.24% 9.98% 10.09% 10.63% Leverage ratio (period end) 9.30% 8.42% 9.30% 8.42% FTE Headcount 1,773 1,727 1,773 1,727 Asset Quality Information Non-accrual loans $12,373 $16,214 $12,373 $16,214 Restructured loans - - - - Other real estate 7,178 3,161 7,178 3,161 Total nonperforming assets $19,551 $19,375 $19,551 $19,375 Nonperforming assets as a percent of loans and ORE 0.96% 1.02% 0.96% 1.02% Loans 90 days past due $5,234 $7,648 $5,234 $7,648 Loans 90 days past due as a percent of loans 0.26% 0.40% 0.26% 0.40% Nonperforming assets + loans 90 days past due to loans and ORE 1.22% 1.42% 1.22% 1.42% Net charge-offs $2,547 $3,114 $14,506 $7,142 Net charge-offs as a percent of average loans 0.51% 0.65% 1.01% 0.54% Allowance for loan losses $33,315 $36,122 $33,315 $36,122 Allowance for loan losses as a percent of period end loans 1.65% 1.90% 1.65% 1.90% Allowance for loan losses to NPAs + loans 90 days past due 134.42% 133.67% 134.42% 133.67% Provision for loan losses $3,597 $2,088 $13,804 $6,116 Provision for loan losses to net charge-offs 141.23% 67.06% 95.16% 85.64% Average Balance Sheet Total loans 1,985,726 1,902,652 1,928,893 1,758,787 Securities 1,511,750 1,337,757 1,499,953 1,158,392 Short-term investments 46,478 108,512 93,988 141,093 Earning assets 3,543,954 3,348,921 3,522,834 3,058,271 Allowance for loan losses (32,607) (36,688) (32,897) (31,377) Other assets 360,824 336,340 349,073 306,658 Total assets $3,872,171 $3,648,573 $3,839,011 $3,333,552 Non-interest bearing deposits $616,347 $585,893 $616,256 $551,026 Interest bearing transaction deposits 1,427,413 1,176,022 1,414,671 1,080,717 Time deposits 1,134,825 1,236,775 1,131,613 1,128,793 Total interest bearing deposits 2,562,238 2,412,797 2,546,284 2,209,510 Total deposits 3,178,585 2,998,690 3,162,540 2,760,535 Other borrowed funds 228,757 227,267 224,569 183,633 Other liabilities 31,151 25,179 27,506 23,898 Preferred stock 37,069 33,171 37,069 11,179 Common shareholders' equity 396,609 364,266 387,326 354,306 Total liabilities, preferred stock & common equity $3,872,171 $3,648,573 $3,839,011 $3,333,552
(amounts in thousands, except per share data) Three Months Ended Nine Months Ended ----------------------------------------------------------- 9/30/2002 9/30/2001 9/30/2002 9/30/2001 ---------------------------- ---------------------------- Period end Balance Sheet Commercial/real estate loans $1,014,565 $914,500 $1,014,565 $914,500 Mortgage loans 271,891 235,024 271,891 235,024 Direct consumer loans 503,123 549,664 503,123 549,664 Indirect consumer loans 185,882 158,692 185,882 158,692 Finance Company loans 44,711 39,230 44,711 39,230 Total loans 2,020,171 1,897,110 2,020,171 1,897,110 Securities 1,509,931 1,383,742 1,509,931 1,383,742 Short-term investments 137,320 56,081 137,320 56,081 Earning assets 3,667,422 3,336,933 3,667,422 3,336,933 Allowance for loan losses (33,315) (36,122) (33,315) (36,122) Other assets 337,647 334,138 337,647 334,138 Total assets $3,971,754 $3,634,948 $3,971,754 $3,634,948 Non-interest bearing deposits $657,211 $588,595 $657,211 $588,595 Interest bearing transaction deposits 1,462,363 1,197,310 1,462,363 1,197,310 Time deposits 1,158,720 1,205,611 1,158,720 1,205,611 Total interest bearing deposits 2,621,082 2,402,921 2,621,082 2,402,921 Total deposits 3,278,293 2,991,516 3,278,293 2,991,516 Other borrowed funds 232,067 206,438 232,067 206,438 Other liabilities 34,055 32,146 34,055 32,146 Preferred stock 37,069 33,171 37,069 33,171 Common shareholders' equity 390,269 371,677 390,269 371,677 Total liabilities, preferred stock & common equity $3,971,754 $3,634,948 $3,971,754 $3,634,948 Net Charge-Off Information Net charge-offs: Commercial/real estate loans $256 $716 $7,663 $1,527 Mortgage loans 1 105 - 106 Direct consumer loans 1,420 1,665 3,987 3,784 Indirect consumer loans 405 359 1,518 924 Finance company loans 465 269 1,338 801 Total net charge-offs $2,547 $3,114 $14,506 $7,142 Net charge-offs to average loans: Commercial/real estate loans 0.10% 0.31% 1.05% 0.24% Mortgage loans 0.00% 0.18% 0.00% 0.06% Direct consumer loans 1.12% 1.19% 1.06% 1.05% Indirect consumer loans 0.87% 0.93% 1.17% 0.88% Finance Company loans 4.19% 2.89% 4.40% 3.33% Total net charge-offs to average loans 0.51% 0.65% 1.01% 0.54%
(amounts in thousands, except per share amounts) Three Months Ended Nine Months Ended ----------------------------------------------------------- 9/30/2002 9/30/2001 9/30/2002 9/30/2001 ---------------------------- ---------------------------- Average Balance Sheet Composition Percentage of earning assets/funding sources: Loans 56.03% 56.81% 54.75% 57.51% Securities 42.66% 39.95% 42.58% 37.88% Short-term investments 1.31% 3.24% 2.67% 4.61% Earning assets 100.00% 100.00% 100.00% 100.00% Non-interest bearing deposits 17.39% 17.49% 17.49% 18.02% Interest bearing transaction deposits 40.28% 35.12% 40.16% 35.34% Time deposits 32.02% 36.93% 32.12% 36.91% Total deposits 89.69% 89.54% 89.77% 90.26% Other borrowed funds 6.45% 6.79% 6.37% 6.00% Other net interest-free funding sources 3.85% 3.67% 3.85% 3.73% Total funding sources 100.00% 100.00% 100.00% 100.00% Loan mix: Commercial/real estate loans 50.56% 48.48% 50.56% 49.39% Mortgage loans 12.71% 12.37% 12.19% 13.55% Direct consumer loans 25.26% 29.17% 26.17% 27.28% Indirect consumer loans 9.25% 8.05% 8.97% 7.96% Finance Company loans 2.21% 1.94% 2.11% 1.83% Total loans 100.00% 100.00% 100.00% 100.00% Average dollars (in thousands) Loans $1,985,726 $1,902,652 $1,928,893 $1,758,787 Securities 1,511,750 1,337,757 1,499,953 1,158,392 Short-term investments 46,478 108,512 93,988 141,093 Earning assets $3,543,954 $3,348,921 $3,522,834 $3,058,271 Non-interest bearing deposits $616,347 $585,893 $616,256 $551,026 Interest bearing transaction deposits 1,427,413 1,176,022 1,414,671 1,080,717 Time deposits 1,134,825 1,236,775 1,131,613 1,128,793 Total deposits 3,178,585 2,998,690 3,162,540 2,760,535 Other borrowed funds 228,757 227,267 224,569 183,633 Other net interest-free funding sources 136,612 122,964 135,725 114,103 Total funding sources $3,543,954 $3,348,921 $3,522,834 $3,058,271 Loans: Commercial/real estate loans $1,004,067 $922,344 $975,272 $868,580 Mortgage loans 252,350 235,428 235,190 238,258 Direct consumer loans 501,673 554,920 504,771 479,742 Indirect consumer loans 183,652 153,076 172,971 140,010 Finance Company loans 43,983 36,884 40,689 32,196 Total average loans $1,985,726 $1,902,652 $1,928,893 $1,758,787
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.
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:
September 30, June 30, March 31, December 31, 2002 2002 2002 2001 ----------------- ------------------ -------------- -------------- Total securities to total deposits 46.06% 49.76% 45.85% 45.16% Total loans (net of unearned income) to total deposits 61.62% 61.10% 59.45% 62.18% Interest-earning assets to total assets 92.34% 92.00% 92.22% 91.20% Interest-bearing deposits to total deposits 79.95% 80.19% 80.08% 79.47%
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 Sept. 30, Nine Months Ended Sept. 30, ---------------------------------- -------------------------------- 2002 2001 2002 2001 --------------- ---------------- --------------- --------------- Balance of allowance for loan losses at beginning of period $ 32,265 $ 28,604 $ 34,417 $ 28,604 Balance acquired through acquisition & other - 8,544 (400) 8,544 Provision for loan losses 3,597 2,088 13,804 6,116 Loans charged-off: Commercial, Real Estate & Mortgage 509 369 8,165 1,310 Direct & Indirect Consumer 1,618 2,491 5,535 5,845 Finance Company 531 825 1,573 2,244 Demand Deposit Accounts 1,454 503 3,613 1,108 --------------- ---------------- --------------- --------------- Total charge-offs 4,112 4,188 18,886 10,507 --------------- ---------------- --------------- --------------- Recoveries of loans previously charged-off: Commercial, Real Estate & Mortgage 251 36 501 163 Direct & Indirect Consumer 394 513 1,362 1,565 Finance Company 66 473 235 1,512 Demand Deposit Accounts 854 52 2,282 125 --------------- ---------------- --------------- --------------- Total recoveries 1,565 1,074 4,380 3,365 --------------- ---------------- --------------- --------------- Net charge-offs 2,547 3,114 14,506 7,142 --------------- ---------------- --------------- --------------- Balance of allowance for loan losses at end of period $ 33,315 $ 36,122 $ 33,315 $ 36,122 =============== ================ =============== ===============
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 Sept. 30, Nine Months Ended Sept. 30, ------------------------------------------------------------------------ 2002 2001 2002 2001 ---------------- ---------------- ---------------- ---------------- Ratios (%): Net charge-offs to average net loans 0.51 0.65 1.01 0.54 Net charge-offs to period-end net loans 0.50 0.66 0.72 0.38 Allowance for loan losses to average net loans 1.68 1.90 1.73 2.05 Allowance for loan losses to period-end net loans 1.65 1.90 1.65 1.90 Net charge-offs to loan loss allowance 30.58 34.48 43.54 19.77 Loan loss provision to net charge-offs 141.23 67.06 95.16 85.64
The Company continues to maintain an adequate capital position. The ratios as of September 30, 2002, June 30, 2002, March 31, 2002 and December 31, 2001 are as follows:
September 30, June 30, March 31, December 31, 2002 2002 2002 2001 --------------- -------------- ------------- -------------- Average equity to average assets 10.09% 10.01% 10.05% 10.51% Total capital to risk-weighted assets (2) 16.80% 17.03% 17.40% 15.99% Tier 1 capital to risk-weighted 15.48% 15.73% 16.12% 14.74% assets (3) Leverage capital to average total assets (4) 9.30% 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
Net earnings increased approximately $710,000 or 5.6% over the second quarter of 2002 and $3.6 million or 36.5% compared to the third quarter of 2001.
On a year-to-date basis net earnings have increased $10.0 million or 36.8% in 2002 as compared to 2001. Following is selected information for comparison:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ------------------------------------------------------------------ 2002 2001 2002 2001 -------------- --------------- -------------- -------------- Results of Operations: Return on average assets 1.36 % 1.06 % 1.30 % 1.09 % Return on average equity 13.30 % 10.60 % 12.87 % 10.29 % Net Interest Income: Yield on average interest-earning assets (tax equivalent) 6.77 % 7.64 % 6.81 % 7.88 % Cost of average interest-bearing funds 2.50 % 4.15 % 2.67 % 4.42 % -------------- --------------- -------------- -------------- Net interest spread 4.26 % 3.50 % 4.14 % 3.45 % ============== =============== ============== ============== Net yield on interest-earning assets (net interest income on a tax-equivalent basis divided by average interest-earning assets) 4.80 % 4.38 % 4.71 % 4.42 % ============== =============== ============== ==============
The third quarter of 2002 showed an increase in net interest income, on a tax-equivalent basis (TE), of $1.1 million, compared to the previous quarter and $6.0 million compared to the same period one year ago. The Company's net interest margin for the three-month period ended September 30, 2002 was 4.80% compared to 4.66% for the previous quarter and 4.38% for the prior year period. The higher level of net interest income (TE) and margin expansion as compared to the previous quarter was due principally to a better earning asset mix related to the third quarter's $69 million of loan growth. Although total deposits were down $29 million from the second quarter, total funding costs were also
down 9 basis points. Redeploying maturing cash flows from the securities portfolio to loans funded the quarter's loan growth. All of the aforementioned actions resulted in an increase in the Company's average loan to deposit ratio to 62.5% in the current quarter from 59.8% in the previous quarter.
Year-to-date net interest income (TE) increased $23.2 million or 23% over the same period last year. The Company's net interest margin for the first nine months of 2002 was 4.71% compared to 4.42% for the same period one year ago. The Company's growth in net interest income (TE) and net interest margin (TE) expansion compared to the same quarter a year ago was primarily due to a $195 million increase in average earning assets, as well as a 130 basis point reduction in total funding costs. The increase in average earning assets was fueled by a $180 million increase in total deposits, which, in turn, funded a $83 million increase in loans. The remaining funds were invested in the Company's security portfolio. The decrease in total funding costs resulted from continued falling market rates, coupled with on-going deposit pricing discipline.
The following tables detail the components of the Company's net interest spread and net interest margin.
Three Months Ended Three Months Ended ------------------------------------------------------------------------- 09/30/02 09/30/01 ------------------------------------------------------------------------- (dollars in thousands) Interest Volume Rate Interest Volume Rate ------------------------------------------------------------------------- Average Earning Assets Commercial & real estate loans (TE) $17,224 $1,004,067 6.81% $17,812 $922,344 7.66% Mortgage loans 4,460 252,350 7.07% 4,458 235,428 7.57% Consumer loans 16,671 729,308 9.07% 19,203 744,881 10.23% Loan fees & late charges 2,248 - 0.00% 2,385 - 0.00% ------------------------------------------------------------------------- Total loans (TE) 40,603 1,985,726 8.12% 43,858 1,902,652 9.16% US treasury securities 416 50,452 3.27% 596 40,006 5.91% US agency securities 6,322 538,059 4.70% 7,033 519,793 5.41% CMOs 6,796 575,653 4.72% 5,033 346,330 5.81% Mortgage backed securities 1,374 92,096 5.97% 2,240 158,167 5.67% Municipals (TE) 3,943 219,373 7.19% 4,223 238,290 7.09% Other securities 622 36,118 6.83% 402 35,170 4.54% ------------------------------------------------------------------------- Total securities (TE) 19,473 1,511,750 5.15% 19,527 1,337,757 5.84% Fed funds sold 164 39,638 1.65% 865 102,115 3.36% Cds with banks 10 5,101 0.80% 77 6,397 4.76% Other short-term investments 9 1,739 2.16% - - 0.00% ------------------------------------------------------------------------- Total short-term investments 184 46,478 1.57% 942 108,512 3.44% Average earning assets yield (TE) $60,260 $3,543,954 6.77% $64,327 $3,348,921 7.64% Interest-Bearing Liabilities Interest-bearing transaction deposits $6,114 $1,427,413 1.70% $8,833 $1,176,022 2.98% Time deposits 10,285 1,134,825 3.60% 16,695 1,236,775 5.36% ------------------------------------------------------------------------- Total interest bearing deposits 16,399 2,562,238 2.54% 25,528 2,412,797 4.20% Customer repos 574 172,973 1.32% 1,212 154,640 3.11% Other borrowings 624 55,784 4.44% 845 72,628 4.61% ------------------------------------------------------------------------- Total borrowings 1,198 228,757 2.08% 2,056 227,267 3.59% Total interest bearing liab cost $17,597 $2,790,995 2.50% $27,584 $2,640,064 4.15% Noninterest-bearing deposits 616,347 585,893 Other net interest-free funding sources 136,612 122,964 Total Cost of Funds $17,597 $3,543,954 1.97% $27,584 $3,348,921 3.27% Net Interest Spread (TE) $42,663 4.26% $36,743 3.50% Net Interest Margin (TE) $42,663 $3,543,954 4.80% $36,743 $3,348,921 4.38% -------------------------------------------------------------------------
Nine Months Ended Nine Months Ended ------------------------------------------------------------------------- 09/30/02 09/30/01 ------------------------------------------------------------------------- (dollars in thousands) Interest Volume Rate Interest Volume Rate ------------------------------------------------------------------------- Average Earning Assets Commercial & real estate loans (TE) $49,952 $975,272 6.85% $52,956 $868,580 8.15% Mortgage loans 12,730 235,190 7.22% 13,743 238,258 7.69% Consumer loans 49,696 718,431 9.25% 49,533 651,948 10.16% Loan fees & late charges 6,772 - 0.00% 6,524 - 0.00% ------------------------------------------------------------------------- Total loans (TE) 119,150 1,928,893 8.26% 122,755 1,758,787 9.33% US treasury securities 1,189 47,782 3.33% 2,603 59,723 5.83% US agency securities 19,577 532,976 4.90% 18,059 429,092 5.61% CMOs 20,360 557,441 4.87% 13,347 297,718 5.98% Mortgage backed securities 4,414 98,738 5.96% 5,956 129,253 6.14% Municipals (TE) 12,095 224,725 7.18% 11,499 212,217 7.22% Other securities 1,645 38,290 5.73% 1,175 30,390 5.17% ------------------------------------------------------------------------- Total securities (TE) 59,281 1,499,953 5.27% 52,639 1,158,392 6.06% Fed funds sold 645 51,896 1.66% 4,695 136,367 4.60% Cds with banks 162 8,422 2.58% 223 4,726 6.31% Other short-term investments 449 33,670 1.78% - - 0.00% ------------------------------------------------------------------------- Total short-term investments 1,256 93,988 1.79% 4,918 141,093 4.66% Average earning assets yield (TE) $179,686 $3,522,834 6.81% $180,312 $3,058,271 7.88% Interest-Bearing Liabilities Interest-bearing transaction deposits $18,794 $1,414,671 1.78% $25,800 $1,080,717 3.19% Time deposits 32,980 1,131,613 3.89% 47,918 1,128,793 5.68% ------------------------------------------------------------------------- Total interest bearing deposits 51,774 2,546,284 2.72% 73,718 2,209,510 4.46% Customer repos 1,675 169,831 1.32% 4,422 155,809 3.79% Other borrowings 1,842 54,738 4.50% 979 27,824 4.71% ------------------------------------------------------------------------- Total borrowings 3,517 224,569 2.09% 5,401 183,633 3.93% Total interest bearing liab cost $55,291 $2,770,853 2.67% $79,119 $2,393,142 4.42% Noninterest-bearing deposits 616,256 551,026 Other net interest-free funding sources 135,725 114,103 Total Cost of Funds $55,291 $3,522,834 2.10% $79,119 $3,058,271 3.46% Net Interest Spread (TE) $124,396 4.14% $101,193 3.45% Net Interest Margin (TE) $124,396 $3,522,834 4.71% $101,193 $3,058,271 4.42% -------------------------------------------------------------------------
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 Sept. 30, Nine Months Ended Sept. 30, --------------------------------------------------------------------------- 2002 2001 2002 2001 --------------- --------------- --------------- ---------------- Annualized net charge-offs to average loans 0.51% 0.65% 1.01% 0.54% Annualized provision for loan losses to average loans (1) 0.72% 0.44% 0.96% 0.46% Average allowance for loan losses to average loans 1.64% 1.93% 1.71% 1.78% Gross charge-offs (2) $ 4,112 $ 4,188 $ 18,886 $ 10,507 Gross recoveries 1,565 1,074 4,380 3,365 Non-accrual loans 12,373 16,214 12,373 16,214 Accruing loans 90 days or more past due 5,234 7,648 5,234 7,648 (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 increased $150,000 or 0.9% from the second quarter and increased $4.3 million or 32.3% 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.
Significant factors impacting the growth in non-interest income from the third quarter of 2001 included expansion of Trust and Insurance revenues, as well as a series of initiatives related to pricing and processing for service charges on deposit accounts. Lower levels of investment & annuity fees, as well as a seasonal decrease in Trust revenue impacted non-interest income levels as compared to the previous quarter.
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ----------------------------------- -------------------------------- (dollars in thousands) 2002 2001 2002 2001 -------------- ---------------- --------------- ------------ Service charges on deposit accounts $ 11,080 $ 7,635 $ 31,095 $ 21,093 Trust fees 1,785 1,544 5,700 4,695 Credit card merchant discount fees 792 693 2,434 1,979 Insurance fees 650 412 1,753 1,052 Investment & annuity fees 855 832 3,867 2,462 ATM fees 1,003 382 2,833 1,120 Secondary mortgage market operations 416 416 1,634 760 Other income 1,088 1,441 3,261 4,431 Securities transactions gain/(losses) 5 16 5 16 -------------- ---------------- --------------- ------------ Total non-interest income $ 17,674 $ 13,371 $ 52,582 $ 37,608 ============== ================ =============== ============
Non-interest expense for the three-month period ended September 30, 2002 increased $1.1 million, or 3.2%, compared to the previous quarter and $3.1 million, or 9.6%, compared to the same period the previous year. Increases from the previous quarter and the same period the previous year resulted primarily from higher other real estate owned write-downs on two specific commercial real estate properties. 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 $15 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. Franchise taxes, other real estate owned and advertising expense accounted for $4.6 million or 30.7% of the increased expenses as compared to a year ago. Other real estate owned expense for the nine-month period includes $1.5 million in write-downs.
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ----------------------------------------------------------------------- (dollars in thousands) 2002 2001 2002 2001 ---------------- ---------------- ---------------- ---------------- Employee compensation $ 16,070 $ 14,461 $ 47,044 $ 39,910 Employee benefits 3,441 3,076 11,528 8,973 ---------------- ---------------- ---------------- ---------------- Total personnel expense 19,511 17,537 58,572 48,883 ---------------- ---------------- ---------------- ---------------- Equipment and data processing expense 3,846 3,483 11,046 10,408 Net occupancy expense 2,220 2,343 6,331 5,959 Postage and communications 2,002 2,007 5,829 5,720 Ad valorem and franchise taxes 1,441 643 3,876 1,849 Legal and professional services 1,009 1,122 3,135 2,513 Stationery and supplies 518 515 1,460 1,324 Amortization of intangible assets 188 1,265 563 3,084 Advertising 752 942 2,812 1,869 Deposit insurance and regulatory fees 222 238 662 622 Training expenses 181 80 420 290 Other real estate owned expense 956 167 1,895 230 Other expense 2,317 1,729 6,219 4,986 ---------------- ---------------- ---------------- ---------------- Total non-interest expense $ 35,163 $ 32,071 $ 102,820 $ 87,737 ================ ================ ================ ================
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 nine months of 2002 was $5,607,000 compared to $5,447,000 for the comparable period in 2001.
Following is a summary of the information used in the computation of earnings per common share (in thousands).
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, -------------------------------------------------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Net earnings - used in computation of diluted earnings per common share $ 13,290 $ 9,735 $37,294 $27,269 Preferred divdend requirement 663 663 1,990 663 ------------- ------------- ------------- ------------- Net earnings available to common stockholders - used in computation of basic earnings per common share $ 12,627 $ 9,072 $35,304 $26,606 ============= ============= ============= ============= Weighted average number of common shares outstanding - used in computation of basic earnings per common share 15,709 16,061 15,825 16,085 Effect of dilutive securities Stock options 232 47 185 53 Convertible preferred stock 1,106 1,106 1,106 356 ------------- ------------- ------------- ------------- Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted earnings per common share 17,047 17,214 17,116 16,494 ============= ============= ============= =============
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.
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 September 30, 2002 the Company had $244 million of regular savings and club accounts and $990 million of money market and NOW accounts, representing 47.1% 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.
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 a date within 90 days prior to the filing date of this quarterly report (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.
Part II - OTHER INFORMATION --------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- Exhibits: None Reports on Form 8-K: 1. A Form 8-K was filed on July 25, 2002 for the purpose of revising the Company's 2002 earnings-per-share guidance. 2. A Form 8-K was filed on August 14, 2002 to certify that the Form 10-Q for the periods ended June 30, 2002 fully complied with the requirements of section 13(a) of the Securities Exchange Act of 1934. 3. A Form 8-K was filed on November 11, 2002 for the purpose of revising the Company's 2002 fourth quarter earnings-per-share guidance.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HANCOCK HOLDING COMPANY ---------------------------------- Registrant November 13,2002 By: /s/ George A. Schloegel - ------------------------- -------------------------------------- Date George A. Schloegel Vice-Chairman of the Board and Chief Executive Officer November 13, 2002 By: /s/ Carl J. Chaney - -------------------------- -------------------------------------- Carl J. Chaney Executive Vice President and Chief Financial Officer
CERTIFICATIONS I, George A. Schloegel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Hancock Holding Company. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ George A. Schloegel -------------------------------- George A. Schloegel Vice-Chairman of the Board & Chief Executive Officer
I, Carl J. Chaney, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Hancock Holding Company. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): d. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and e. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Carl J. Chaney ------------------------------ Carl J. Chaney Executive Vice President & Chief Financial Officer
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 September 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.
Date: November 13, 2002 /s/ George A. Schloegel -------------------------------- George A. Schloegel Vice-Chairman of the Board & Chief Executive Officer
Date: November 13, 2002 /s/ Carl J. Chaney ------------------------------ Carl J. Chaney Executive Vice President & Chief Financial Officer