Exhibit 13
Financial Statements and Supplementary Data
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(amounts in thousands)
At and For the Years Ended December 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- ------------ ----------- ------------ ------------
Period End Balance Sheet Data:
Securities ........................................... $ 994,095 $1,148,722 $1,244,369 $1,079,995 $ 901,592
Loans, net of unearned income ........................ 1,699,841 1,541,521 1,305,555 1,220,629 1,173,967
Allowance for loan losses ............................ 28,604 25,713 21,800 21,000 19,800
Total assets ......................................... 3,013,430 2,991,874 2,814,695 2,537,957 2,289,582
Total deposits ....................................... 2,503,788 2,397,653 2,374,591 2,062,648 1,926,576
Long-term bonds and notes ............................ 2,177 2,714 -- 1,279 1,050
Total stockholders' equity ........................... 341,390 310,427 286,807 288,573 261,938
Average Balance Sheet Data:
Securities ........................................... $1,090,588 $1,251,971 $1,184,698 $ 984,203 $ 903,386
Loans, net of unearned income ........................ 1,611,046 1,455,086 1,243,617 1,201,381 1,083,165
Allowance for loan losses ............................ 26,591 23,939 21,040 20,410 17,670
Total assets ........................................ 2,993,972 3,006,195 2,696,107 2,442,953 2,285,877
Total deposits ...................................... 2,477,916 2,505,531 2,233,837 2,034,030 1,945,528
Long-term bonds and notes ............................ 2,426 2,795 586 1,369 1,795
Total stockholders' equity ........................... 325,508 308,854 289,878 271,303 230,051
Performance Ratios:
Return on average assets ............................ 1.23% 1.05% 1.15% 1.25% 1.38%
Return on average assets excluding
cumulative effect of accounting change ............ 1.23% 1.05% 1.11% 1.25% 1.38%
Return on average assets excluding gain on sale of
credit card portfolio and securities transactions . 1.15% 1.05% 1.15% 1.25% 1.38%
Return on average equity ............................ 11.31% 10.27% 10.68% 11.29% 13.74%
Return on average equity excluding cumulative
effect of accounting change ....................... 11.31% 10.27% 10.28% 11.29% 13.74%
Return on average equity excluding gain on sale of
credit card portfolio and securities transactions . 10.56% 10.25% 10.68% 11.29% 13.74%
Net interest margin (TE) ............................ 4.70% 4.73% 4.67% 5.14% 5.20%
Average loans to average deposits ................... 65.02% 58.07% 55.67% 59.06% 55.67%
Non-interest expense as a percent
of total revenue (TE) and excluding amortization of
purchased intangibles and securities transactions 58.50% 63.84% 61.62% 59.09% 56.76%
Non-interest expense as a percent
of total revenue (TE) and excluding amortization of
purchased intangibles and securities transactions
and gain on sale of credit card portfolio ......... 59.74% 63.84% 61.62% 59.09% 56.76%
Allowance for loan losses to period-end loans ....... 1.68% 1.67% 1.67% 1.72% 1.69%
Non-performing assets to loans plus other real estate 0.69% 0.56% 0.63% 0.74% 0.55%
Allowance for loan losses to non-performing loans ... 281% 365% 367% 313% 435%
Net charge-offs to average loans .................... 0.53% 0.51% 0.44% 0.50% 0.41%
See notes to consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(amounts in thousands, except per share data)
At and For the Years Ended December 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ----------- --------- --------- ----------
Capital Ratios:
Average stockholders' equity to average assets ..... 10.87% 10.27% 10.75% 11.11% 10.06%
Stockholders' equity to total assets ............... 11.33% 10.38% 10.19% 11.37% 11.44%
Tier 1 leverage .................................... 10.20% 9.61% 9.50% 10.41% 10.53%
Tier 1 risk-based .................................. 15.95% 15.60% 17.15% 19.08% 18.59%
Total risk-based ................................... 17.20% 16.85% 18.40% 20.33% 19.85%
Income Data:
Interest income ..................................... $216,947 $207,674 $193,659 $181,459 $169,404
Interest expense .................................... 94,251 83,961 81,742 71,698 64,804
Net interest income ................................. 122,696 123,713 111,917 109,761 104,600
Net interest income (TE) ............................ 128,981 129,375 116,125 112,425 108,626
Provision for loan losses ........................... 11,531 7,585 6,229 6,399 6,154
Non-interest income
(excluding securities transactions and gain on sale
of credit card portfolio) ........................ 48,695 45,545 32,164 31,889 28,391
Securities transactions ............................. 3 67 167 279 31
Gain on sale of credit card portfolio ............... 3,753 -- -- -- --
Non-interest expense ................................ 109,896 115,442 93,782 87,554 80,095
Earnings before income taxes and cumulative
effect of accounting change ....................... 53,720 46,298 44,237 47,976 46,773
Net earnings ........................................ 36,824 31,710 30,960 30,624 31,603
Net earnings excluding credit card gain
and securities transactions ....................... 34,382 31,666 30,851 30,443 31,583
Per Share Data:
Earnings before cumulative effect
of accounting change:
Basic ........................................... $ 3.39 $ 2.91 $ 2.79 $ 2.82 $ 3.08
Diluted ......................................... 3.39 2.91 2.78 2.82 3.08
Net earnings:
Basic ........................................... 3.39 2.91 2.90 2.82 3.08
Diluted ......................................... 3.39 2.91 2.89 2.82 3.08
Net earnings excluding gain on sale of
credit card portfolio and securities transactions:
Basic ........................................... 3.17 2.91 2.89 2.80 3.07
Diluted ......................................... 3.16 2.90 2.88 2.80 3.07
Cash dividends paid ................................. 1.25 1.00 1.00 1.00 0.88
Book value .......................................... 31.79 28.55 27.29 26.44 24.42
Weighted average number of shares outstanding:
Basic ............................................. 10,860 10,887 10,693 10,870 10,277
Diluted ........................................... 10,867 10,901 10,705 10,877 10,277
Number of shares outstanding (period end) ........... 10,740 10,873 10,508 10,916 10,725
See notes to consolidated financial statements
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
Summary of Quarterly Operating Results (in thousands, except per share data)
2000 1999
------------------------------------------------ ------------------------ ---------------------
First Second Third Fourth First Second Third Fourth
----------- ---------- ---------- ---------- ---------- --------- ---------- ----------
Interest income (TE) ............. $ 54,653 $ 54,719 $ 56,590 $ 57,270 $ 52,612 $ 53,105 $ 53,649 $ 53,970
Interest expense ................. (21,935) (22,316) (24,591) (25,409) (21,170) (20,998) (20,626) (21,167)
-------- -------- -------- -------- -------- -------- -------- --------
Net Interest Income (TE) ......... 32,718 32,403 31,999 31,861 31,442 32,107 33,023 32,803
Provision for loan losses ........ (1,769) (2,434) (3,038) (4,290) (1,420) (1,621) (1,918) (2,626)
Non-interest income .............. 14,539 11,812 12,400 13,699 10,016 10,912 11,762 12,922
Non-interest expense ............. (28,560) (27,967) (27,036) (26,333) (27,820) (28,213) (29,740) (29,669)
Taxable equivalent adjustment .... (1,494) (1,528) (1,625) (1,637) (1,360) (1,400) (1,401) (1,501)
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before income taxes ... 15,434 12,286 12,700 13,300 10,858 11,785 11,726 11,929
Income taxes ..................... (5,048) (3,744) (4,032) (4,072) (3,227) (3,975) (3,882) (3,504)
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings ..................... $ 10,386 $ 8,542 $ 8,668 $ 9,228 $ 7,631 $ 7,810 $ 7,844 $ 8,425
======== ======== ======== ======== ======== ======== ======== ========
Basic earnings per share:
Net earnings ...................... $ 0.95 $ 0.79 $ 0.80 $ 0.85 $ 0.70 $ 0.72 $ 0.72 $ 0.77
Net earnings excluding gain on
sale of credit card portfolio and
securities transactions ......... 0.78 0.78 0.80 0.81 0.70 0.72 0.72 0.77
Diluted earnings per share:
Net earnings ...................... 0.95 0.79 0.80 0.85 0.70 0.72 0.72 0.77
Net earnings excluding gain on
sale of credit card portfolio and
securities transactions ......... 0.78 0.78 0.80 0.81 0.70 0.72 0.72 0.77
See notes to consolidated financial statements
Market Information
The Company's common stock trades on the Nasdaq Stock Market under the symbol "HBHC" and is quoted in publications under
"HancHd". The following table sets forth the high and low sale prices of the Company's common stock as reported on the Nasdaq
Stock Market. These prices do not reflect retail mark-ups, mark-downs or commissions.
Cash
High Low Dividends
Sale Sale Paid
------------- ------------ ------------
2000
1st quarter $40.00 $30.88 $0.25
2nd quarter 34.63 31.00 0.25
3rd quarter 32.50 29.63 0.25
4th quarter 39.63 29.00 0.50
1999
1st quarter $48.00 $41.00 $0.25
2nd quarter 47.00 42.00 0.25
3rd quarter 45.00 37.75 0.25
4th quarter 41.50 37.13 0.25
There were 5,549 holders of record of common stock of the Company at
January 3, 2001 and 11,072,770 shares issued. On January 3, 2001, the high and
low sale prices of the Company's common stock as reported on the Nasdaq Stock
Market were $38.13 and $35.00, respectively. The principal source of funds to
the Company to pay cash dividends are the dividends received from the Banks.
Consequently, dividends are dependent upon earnings, capital needs, regulatory
policies and statutory limitations affecting the Banks. Federal and state
banking laws and regulations restrict the amount of dividends and loans a bank
may make to its parent company. Dividends paid to the Company by Hancock Bank
are subject to approval by the Commissioner of Banking and Consumer Finance of
the State of Mississippi and those paid by Hancock Bank of Louisiana are subject
to approval by the Commissioner for Financial Institutions of the State of
Louisiana. The Company's management does not expect regulatory restrictions to
affect its policy of paying cash dividends. Although no assurance can be given
that Hancock Holding Company will continue to declare and pay regular quarterly
cash dividends on its common stock, the Company has paid regular cash dividends
since 1937.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------------------
2000 1999
---------------- -------------------
Assets:
Cash and due from banks .................................. $ 130,379,760 $ 156,738,459
Interest-bearing time deposits with other banks .......... 3,877,021 100,000
Securities available for sale, at fair value
(amortized cost of $578,566,308 and $660,591,000) ...... 576,318,477 639,415,961
Securities held to maturity, at amortized cost
(fair value of $418,612,487 and $498,467,000) .......... 417,777,000 509,306,344
Federal funds sold ....................................... 59,000,000 3,000,000
Loans .................................................... 1,711,239,390 1,558,435,659
Less:
Allowance for loan losses ............................ (28,603,557) (25,712,557)
Unearned income ...................................... (11,398,823) (16,915,072)
---------------- -------------------
Loans, net ......................................... 1,671,237,010 1,515,808,030
Property and equipment, net .............................. 51,636,196 55,007,662
Other real estate ........................................ 1,492,010 1,616,490
Accrued interest receivable .............................. 25,585,151 23,805,308
Goodwill and other intangibles, net ...................... 40,756,892 44,512,562
Other assets ............................................. 35,370,804 42,563,268
---------------- -------------------
Total Assets ........................................... $ 3,013,430,321 $ 2,991,874,084
================ ===================
Liabilities and Stockholders' Equity:
Deposits:
Non-interest bearing demand ............................ $ 528,753,513 $ 527,218,971
Interest-bearing savings, NOW,
money market and time ................................ 1,975,034,043 1,870,434,519
---------------- -------------------
Total deposits ......................................... 2,503,787,556 2,397,653,490
Securities sold under agreements to repurchase ........... 144,560,609 213,773,219
Federal Home Loan Bank advance ........................... -- 50,000,000
Other liabilities ........................................ 21,514,775 17,305,727
Long-term notes .......................................... 2,177,189 2,714,220
---------------- -------------------
Total Liabilities .................................... 2,672,040,129 2,681,446,656
Commitments and contingencies (notes 12 and 13) .......... -- --
Stockholders' equity:
Common stock - $3.33 par value per share;
75,000,000 shares authorized, 11,072,770 shares issued 36,872,324 36,872,324
Capital surplus ........................................ 196,024,178 196,047,463
Retained earnings ...................................... 115,365,765 92,153,278
Unrealized loss on securities available
for sale, net of deferred taxes ...................... (1,461,090) (13,764,053)
Unearned compensation .................................. (843,503) (808,203)
Treasury stock, 139,655 shares in 2000 and 1,906
shares in 1999, at cost ............................. (4,567,482) (73,381)
---------------- -------------------
Total Stockholders' Equity ........................... 341,390,192 310,427,428
---------------- -------------------
Total Liabilities and Stockholders' Equity ......... $ 3,013,430,321 $ 2,991,874,084
================ ===================
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31,
---------------------------------------------
2000 1999 1998
-------------- ------------- --------------
Interest Income:
Loans ............................................. $149,526,248 $133,420,326 $118,502,095
U.S. Treasury securities .......................... 5,494,273 10,059,273 14,469,447
Obligations of U.S. government agencies ........... 21,819,311 25,175,384 26,180,328
Obligations of states and political subdivisions .. 9,475,402 9,448,205 6,864,952
Mortgage-backed securities ........................ 9,313,238 10,044,833 9,799,653
CMOs .............................................. 16,740,452 17,091,380 13,631,324
Federal funds sold ................................ 2,432,906 1,290,135 3,089,792
Other investments ................................. 2,144,837 1,145,199 1,120,961
-------------- ------------- --------------
Total interest income ........................... 216,946,667 207,674,735 193,658,552
-------------- ------------- --------------
Interest Expense:
Deposits .......................................... 86,548,381 76,809,975 74,463,671
Federal funds purchased and securities sold
under agreements to repurchase .................. 7,495,280 6,975,740 7,216,677
Long-term notes and other interest ................ 206,985 175,667 61,483
-------------- ------------- --------------
Total interest expense .......................... 94,250,646 83,961,382 81,741,831
-------------- ------------- --------------
Net Interest Income ............................... 122,696,021 123,713,353 111,916,721
Provision for loan losses ...................................... 11,530,652 7,585,294 6,228,965
-------------- ------------- --------------
Net interest income after provision for loan losses 111,165,369 116,128,059 105,687,756
-------------- ------------- --------------
Non-Interest Income:
Service charges on deposit accounts ............... 27,179,737 24,978,788 19,164,074
Other service charges, commissions and fees ....... 18,629,044 17,739,001 10,161,475
Securities gains, net ............................. 3,259 66,937 167,139
Gain on sale of credit card portfolio ............. 3,753,498 -- --
Other ............................................. 2,885,102 2,827,518 2,838,834
-------------- ------------- --------------
Total non-interest income ....................... 52,450,640 45,612,244 32,331,522
-------------- ------------- --------------
Non-Interest Expense:
Salaries and employee benefits .................... 59,185,839 61,595,623 50,832,743
Net occupancy expense of premises ................. 7,135,408 7,267,740 5,559,608
Equipment rentals, depreciation and maintenance ... 8,323,356 9,538,585 7,707,028
Amortization of intangibles ....................... 3,755,670 3,775,255 2,404,914
Other ............................................. 31,496,072 33,264,877 27,278,170
-------------- ------------- --------------
Total non-interest expense ...................... 109,896,345 115,442,080 93,782,463
-------------- ------------- --------------
Earnings before income taxes and cumulative effect
of accounting change ............................ 53,719,664 46,298,223 44,236,815
Income taxes ................................................... 16,896,084 14,588,153 14,427,427
-------------- ------------- --------------
Earnings before cumulative effect of accounting ... 36,823,580 31,710,070 29,809,388
change
Cumulative effect of accounting change ......................... -- -- 1,150,811
-------------- ------------- --------------
Net Earnings ...................................... $ 36,823,580 $ 31,710,070 $ 30,960,199
============== ============= ==============
Basic earnings per common share:
Before cumulative effect of accounting change ..... $ 3.39 $ 2.91 $ 2.79
Cumulative effect of accounting change ............ -- -- 0.11
-------------- ------------- --------------
Net Earnings .................................... $ 3.39 $ 2.91 $ 2.90
============== ============= ==============
Diluted earnings per common share:
Before cumulative effect of accounting change .... $ 3.39 $ 2.91 $ 2.78
Cumulative effect of accounting change .... -- -- 0.11
------------ ------------ -------------
Net Earnings .... $ 3.39 $ 2.91 $ 2.89
============ ============ =============
See notes to consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
-------------------------------------------------------------------------------------------------------
Unrealized
Gain (Loss)
on Securities
Common Capital Retained Available For Unearned Treasury
Amount Surplus Earnings Sale, Net Compensation Stock
--------------- -------------- --------------- ------------- ------------- ---------------
Balance, January 1, 1998 $ 36,872,324 $ 200,766,498 $ 51,401,100 $ 65,742 $ (532,467) $ -
Net earnings 30,960,199
Cash dividends - $1.00 per share (10,862,585)
Change in unrealized gain (loss) on
securities available for sale, net 93,136
Transactions relating to restricted
stock grants, net (477,482)
Purchase of treasury stock, net (230,216) (21,249,049)
--------------- -------------- --------------- ------------- ------------- ---------------
Balance, December 31, 1998 36,872,324 200,536,282 71,498,714 158,878 (1,009,949) (21,249,049)
Net earnings 31,710,070
Cash dividends - $1.00 per share (11,055,506)
Change in unrealized gain (loss) on
securities available for sale, net (13,922,931)
Transactions relating to restricted
stock grants, net 201,746
Issuance of treasury stock, net (4,488,819) 21,175,668
--------------- -------------- --------------- ------------- ------------- ---------------
Balance, December 31, 1999 36,872,324 196,047,463 92,153,278 (13,764,053) (808,203) (73,381)
Net earnings 36,823,580
Cash dividends - $1.25 per share (13,611,093)
Change in unrealized gain (loss) on
securities available for sale, net 12,302,963
Transactions relating to restricted
stock grants, net (35,300)
Purchase of treasury stock, net (23,285) (4,494,101)
--------------- -------------- --------------- ------------- ------------- ---------------
Balance, December 31, 2000 $ 36,872,324 $ 196,024,178 $115,365,765 $ (1,461,090) $ (843,503) $ (4,567,482)
=============== ============== =============== ============= ============= ===============
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Years Ended December 31,
--------------------------------------------------
2000 1999 1998
----------------- ------------- ---------------
Net earnings ............................................................. $ 36,823,580 $ 31,710,070 $ 30,960,199
Other comprehensive earnings
(loss):
Unrealized gain (loss) on securities available for sale, net:
Unrealized holding gains (losses) arising during the year ... 12,106,963 (13,916,931) 114,136
Reclassification adjustments for losses (gains)
included in net earnings.................................. 201,000 (6,000) (21,000)
----------------- ------------- ---------------
Total other comprehensive earnings (loss) ......... 12,307,963 (13,922,931) 93,136
----------------- ------------- ---------------
Total Comprehensive Earnings ............ $ 49,131,543 $ 17,787,139 $ 31,053,335
================= ============= ===============
See notes to consolidated financial statements.
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------------------------------------------------
2000 1999 1998
--------------- -------------- --------------
Cash Flows from Operating Activities:
Net earnings ...................................................... $ 36,823,580 $ 31,710,070 $ 30,960,199
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation ....................................... 8,270,874 7,693,612 5,188,749
Provision for loan losses .......................... 11,530,652 7,585,294 6,228,965
Provision for deferred income taxes ................ (284,000) (2,039,000) (435,000)
Cumulative effect of accounting change
(before income taxes) ....... -- -- (1,863,662)
Gains on sales/calls of securities ................. (3,259) (66,937) (167,139)
(Increase) decrease in interest receivable ......... (1,779,843) 1,373,210 (2,821,561)
Amortization of intangible assets .................. 3,757,670 3,775,255 2,404,914
Increase (decrease) in interest payable ............ 3,031,954 (52,540) 847,700
Other, net ......................................... (1,262,800) (3,730,918) (6,894,964)
--------------- -------------- --------------
Net cash provided by operating activities...... 60,084,828 46,248,046 33,448,201
--------------- -------------- --------------
Cash Flows from Investing Activities:
Net (increase) decrease in interest-bearing time deposits .. (3,777,021) (4,000) 1,971,500
Proceeds from maturities of securities held to maturity .... 98,053,228 350,002,513 225,302,135
Purchase of securities held to maturity .................... (6,523,884) (79,243,000) (99,464,050)
Proceeds from sales and maturities of trading
and available-for-sale securities .................. 195,017,484 207,189,122 83,297,803
Purchase of securities available for sale .................. (112,989,533) (330,963,660) (375,620,262)
Net (increase) decrease in federal funds sold .............. (56,000,000) 4,825,000 35,500,000
Net increase in loans ...................................... (185,663,203) (135,992,653) (91,010,541)
Proceeds from sale of credit card portfolio ................ 21,330,000
Purchase of property, equipment and software, net .......... (5,133,121) (8,688,754) (12,675,267)
Proceeds from sales of other real estate ................... 1,420,277 1,098,664 802,512
Net cash received in connection with
business acquisitions .............................. -- 23,927,000 --
--------------- -------------- --------------
Net cash (used) provided by investing activities (54,265,773) 32,150,232 (231,896,170)
--------------- -------------- --------------
Cash Flows from Financing Activities:
Net increase (decrease) in deposits ........................ 106,134,066 (183,514,994) 311,942,900
Dividends paid ............................................. (13,611,093) (11,055,506) (10,862,585)
Treasury stock transactions, net ........................... (4,951,086) (11,484,087) (22,857,810)
Repayments of long-term bonds and notes .................... (537,031) (464,864) (1,279,402)
Net (decrease) increase in federal funds purchased and
securities sold under agreements to repurchase ........... (69,212,610) 73,565,973 (30,326,372)
(Repayments of) proceeds from FHLB advance ................. (50,000,000) 50,000,000 --
--------------- -------------- --------------
Net cash (used) provided by financing activities ... (32,177,754) (82,953,478) 246,616,731
--------------- -------------- --------------
Net (decrease) increase in cash and due from banks ................ (26,358,699) (4,555,200) 48,168,762
Cash and due from banks, beginning ................................ 156,738,459 161,293,659 113,124,897
--------------- -------------- --------------
Cash and due from banks, ending ................................... $ 130,379,760 $ 156,738,459 $ 161,293,659
=============== ============== ==============
Supplemental Information:
Income taxes paid ............................................. $ 17,800,000 $ 14,839,133 $ 16,460,355
Interest ...................................................... 91,218,691 84,013,922 80,894,131
paid
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Hancock Holding Company (the Company) is a bank holding company headquartered in Gulfport, Mississippi operating in the states of Mississippi and Louisiana through two wholly-owned bank subsidiaries, Hancock Bank, Gulfport, Mississippi and Hancock Bank of Louisiana, Baton Rouge, Louisiana (the Banks). The Banks are community oriented and focus primarily on offering commercial, consumer and mortgage loans and deposit services to individuals and small to middle market businesses in their respective market areas. The Company’s operating strategy is to provide its customers with the financial sophistication and breadth of products of a regional bank, while successfully retaining the local appeal and level of service of a community bank.
Summary of Significant Accounting Policies
The accounting and reporting policies of the Company conform with generally accepted accounting principles and general practices within the banking industry. The following is a summary of the more significant of those policies.
Consolidation - - The consolidated financial statements of the Company include the accounts of the Company, the Banks and other subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation.
Comprehensive Income - Comprehensive income includes net earnings and other comprehensive income which, in the case of the Company, includes only unrealized gains and losses on securities available for sale.
Use of Estimates - In preparing the financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. The determination of the allowance for loan losses is a material estimate that is particularly subject to significant change.
Cash - - For the purpose of presentation in the statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption “Cash and due from banks”.
Securities - - Securities have been classified into one of three categories: trading, available-for-sale, or held-to-maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically. Trading account securities are held for resale in anticipation of short-term market movements. Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities not classified as held to maturity or trading are classified as available for sale.
With the exception of securities reclassified from held to maturity to trading and subsequently sold upon adoption of Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” (SFAS No.133) during 1998, the Company had no significant trading account securities during the three years ended December 31, 2000.
Held-to-maturity securities are stated at amortized cost. Available-for-sale securities are stated at fair value with unrealized gains and losses, net of income taxes, reported as a separate component of stockholders’ equity until realized.
The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Amortization, accretion and accrued interest are included in interest income on securities. Realized gains and losses, and declines in value judged to be other than temporary, are included in net securities gains and losses. Gains and losses on the sale of securities available for sale are determined using the specific-identification method.
Derivative Instruments - Effective October 1, 1998, the Company adopted SFAS No. 133. The Statement was issued in June 1998 and required the Company to recognize all derivatives as either assets or liabilities in the Company’s balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specially designated as a hedge. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Further, SFAS No. 133 permitted, at the time of implementation, the reclassification of securities classified as held to maturity without calling into question the Company’s original intent.
The Company is not currently engaged in any significant activities with derivatives. At the time of implementation of this Statement, the Company reclassified a portion of its held-to-maturity portfolio to trading securities. The securities that were transferred to trading had an amortized cost of $5,126,000 and unrealized gross gains of $1,864,000 ($1,151,000 net of income taxes) at October 1, 1998. This amount is reported as a cumulative effect of accounting change in the 1998 consolidated statement of earnings. These securities were sold in 1998 subsequent to the transfer.
Loans – Certain loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield on the related loan. Interest on loans is recorded to income as earned. Where doubt exists as to collectibility of a loan, the accrual of interest is discontinued, all unpaid accrued interest is reversed and payments subsequently received are applied first to principal. Interest income is recorded after principal has been satisfied and as payments are received.
The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s impaired loans include troubled debt restructurings, and performing and non-performing major loans for which full payment of principal or interest is not expected. Non-major homogenous loans, which are evaluated on an overall basis, generally include all loans under $500,000. The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of its collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is required as a component of the allowance for loan losses. Changes to the valuation allowance are recorded as a component of the provision for loan losses.
Generally, loans of all types which become 90 days delinquent are deemed currently uncollectible unless such loans are in the process of collection through repossession or foreclosure. Loans deemed currently uncollectible are charged off against the allowance account. As a matter of policy, loans are placed on a non-accrual status when doubt exists as to collectibility.
Allowance for Loan Losses - The allowance for loan losses is a valuation account available to absorb losses on loans. All losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is likely to occur; recoveries are credited to the allowance for loan losses at the time of receipt. Periodically during the year management estimates the probable level of losses to determine whether the allowance is adequate to absorb reasonably foreseeable, anticipated losses in the existing portfolio based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay, the estimated value of any underlying collateral and current economic conditions. The allowance for loan losses is increased by charges to expense and decreased by loan charge-offs (net of recoveries).
Property and Equipment - Property and equipment are recorded at amortized cost. Depreciation is computed principally by the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the term of the lease or the asset’s useful life.
Other Real Estate - Other real estate acquired through foreclosure and bank acquisitions is stated at the fair market value at the date of acquisition, net of the costs of disposal. When a reduction to fair market value at the time of foreclosure is required, it is charged to the allowance for loan losses. Any subsequent adjustments are charged to expense.
Intangible Assets - Intangible assets include the values assigned to core deposits of acquired banks which are being amortized over lives ranging from six to seven years using accelerated methods and goodwill which is being amortized over fifteen years. Accumulated amortization of intangible assets amounted to approximately $16.3 million and $12.6 million at December 31, 2000 and 1999, respectively.
Trust Fees - Trust fees are recorded as earned.
Income Taxes - Provisions for income taxes are based on taxes payable or refundable for the current year (after exclusion of non-taxable income such as interest on state and municipal securities) and deferred taxes on temporary differences between the amount of taxable income and pre-tax financial income. Deferred taxes on temporary differences are calculated at the currently enacted tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Stock Based Compensation - The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock options. The pro forma disclosures required by Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" (SFAS No. 123) are included in Note 10.
Basic and Diluted Earnings Per Common Share - Basic earnings per share (EPS) excludes dilution and is computed by dividing earnings by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Reclassifications - Certain prior year amounts have been reclassified to conform with the 2000 presentation.
NOTE 2 - ACQUISITIONSOn January 15, 1999, Hancock Holding Company acquired American Securities Bancshares of Ville Platte, Inc.(ASB), Ville Platte, Louisiana which owned 100% of the stock of American Security Bank for approximately $15,200,000 cash and 644,000 shares of common stock of the Company. These transactions were accounted for using the purchase method of accounting and the results of operations since the date of acquisition are included in the consolidated statements of earnings. The excess of the purchase price over the value of the net tangible assets acquired was assigned to goodwill and is being amortized over 15 years.
The following unaudited pro forma consolidated results of operations give effect to the acquisition of ASB as though it had occurred on January 1, 1998 (in thousands, except per share data):
Years Ended December 31,
--------------------------------------
1999 1998
------------- -------------
Interest income $ 208,362 $ 208,359
Interest expense (84,331) (89,104)
Provision for loan losses (7,610) (8,811)
------------- -------------
Net interest income after provision for loan losses 116,421 110,444
Net earnings $ 31,318 $ 30,867
Basic earnings per common share 2.87 2.72
Diluted earnings per common share 2.87 2.71
The unaudited pro forma information is not necessarily indicative either of results of operations that would have occurred had the purchases been made as of January 1, 1998 or of future results of operations of the combined companies.
In connection with the 1999 acquisition, liabilities were assumed as follows (in thousands):
1999
-------------
Fair value of all assets, excluding cash $ 214,573
Cash acquired, net of amount paid 23,927
Market value of common stock issued (28,006)
-------------
Liabilities assumed $ 210,494
=============
NOTE 3 - SECURITIESThe amortized cost and fair value of securities classified as available for sale were as follows (in thousands):
December 31, 2000 December 31, 1999
----------------------------------------------------- ------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
------------ ----------- ------------ ------------ ------------ ----------- ----------- ----------
U.S. Treasury ............ $ 77,054 $ 189 $ 70 $ 77,173 $ 84,341 $ 8 $ 875 $ 83,474
U.S. government agencies . 265,029 629 1,792 263,866 302,450 -- 12,326 290,124
Municipal obligations .... 36,400 425 429 36,396 33,382 121 1,475 32,028
Mortgage-backed securities 48,841 153 287 48,707 70,465 88 1,561 68,992
CMOs ..................... 137,170 390 1,272 136,288 151,693 -- 5,128 146,565
Other debt securities .... 6,140 -- 184 5,956 10,601 -- 27 10,574
Equity securities ........ 7,932 -- -- 7,932 7,659 -- -- 7,659
------------ ----------- ------------ ------------ ------------ ----------- ----------- ----------
$578,566 $ 1,786 $ 4,034 $ 576,318 $ 660,591 $ 217 $21,392 $639,416
============ =========== ============ ============ ============ =========== =========== ==========
The amortized cost and fair value of debt securities classified as available for sale at December 31, 2000, by contractual maturity, were as follows (in thousands):
Amortized Cost Fair Value
-------------- -----------
Due in one year or less $ 133,366 $ 133,274
Due after one year through five years 181,437 180,718
Due after five years through ten years 81,517 81,318
Due after ten years 174,314 173,076
-------------- -----------
$ 570,634 $ 568,386
============== ===========
The amortized cost and fair value of securities classified as held to maturity were as follows (in thousands):
December 31, 2000 December 31, 1999
-------------------------------------------------------- ----------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------------- ------------- ------------ ------------ ----------- ----------- --------- -----------
U.S. Treasury ............ $ 8,292 $ 56 $ - $ 8,348 $ 24,277 $ 105 $ 2 $ 24,380
U.S. government agencies . 71,286 123 185 71,224 95,409 5 2,794 92,620
Municipal obligations .... 159,977 1,885 1,049 160,813 165,891 597 5,282 161,206
Mortgage-backed securities 69,896 585 330 70,151 81,340 195 1,411 80,124
CMOs ..................... 102,167 200 449 101,918 136,286 93 2,345 134,034
Other debt securities .... 6,159 1 1 6,159 6,103 1 1 6,103
-------------- ------------- ------------ ------------ ----------- ----------- --------- -----------
$417,777 $ 2,850 $ 2,014 $ 418,613 $ 509,306 $ 996 $11,835 $ 498,467
============== ============= ============ ============ =========== =========== ========= ===========
The amortized cost and fair value of securities classified as held to
maturity at December 31, 2000, by contractual maturity, were as follows (in
thousands):
Amortized Cost Fair Value
------------- ------------
Due in one year or less $ 39,686 $ 39,810
Due after one year through five years 96,300 96,606
Due after five years through ten years 130,348 131,062
Due after ten years 151,443 151,135
------------- ------------
$ 417,777 $ 418,613
============= ============
Proceeds from sales of available-for-sale securities were $97,417,000 in 2000, $18,693,000 in 1999 and 19,222,000 in 1998. Gross gains of $51,000 in 2000, $9,000 in 1999 and $540,000 in 1998 and gross losses of $360,000 in 2000, $0 in 1999 and $508,000 in 1998 were realized on such sales. There were no material gains or losses on held-to-maturity securities called during 2000. Gross gains of $58,000 were recognized on held-to-maturity securities called during 1999. The Company realized trading gains of approximately $300,000 in 2000.
Securities with an amortized cost of approximately $570,173,000 at December 31, 2000 and $598,998,000 at December 31, 1999, were pledged primarily to secure public deposits and securities sold under agreements to repurchase.
The Company’s collateralized mortgage obligations (CMOs) generally consist of first and second tranche sequential pay and/or planned amortization class (PAC) instruments.
NOTE 4 - LOANSLoans, net of unearned income, consisted of the following (in thousands):
December 31,
-----------------------------------------------
2000 1999
---------------- ------------------
Real estate loans $ 973,390 $ 838,017
Commercial and industrial loans 280,358 213,939
Loans to individuals for household, family
and other consumer expenditures 396,944 439,280
Leases and other loans 49,149 50,285
---------------- ------------------
$ 1,699,841 $ 1,541,521
================ ==================
The Company generally makes loans in its market areas of South Mississippi and Southern Louisiana. Loans are made in the normal course of business to its directors, executive officers and their associates on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Such loans did not involve more
than normal risk of collectibility. The balance of loans to the Company's direct 2000 and 1999 was approximately and $8,800,356 and $3,745,000, respectively.ors, executive officers and their affiliates at December 31, 2000 and 1999 was approximately and $8,800,356 and $3,745,000, respectively.
Changes in the allowance for loan losses were as follows (in thousands):
Years Ended December 31,
---------------------------------------------------------------
2000 1999 1998
---------------- -------------------- -------------------
Balance at January 1 ........................ $ 25,713 $ 21,800 $ 21,000
Balance acquired through acquisitions & other (147) 3,815 --
Recoveries .................................. 2,509 2,484 1,701
Loans charged off ........................... (11,002) (9,971) (7,130)
Provision charged to operating expense ...... 11,531 7,585 6,229
---------------- -------------------- -------------------
Balance at December 31 ...................... $ 28,604 $ 25,713 $ 21,800
================ ==================== ===================
Non-accrual and renegotiated loans amounted to approximately 0.60% and 0.46% of total loans at December 31, 2000 and December 31, 1999, respectively. In addition, the Company's other individually evaluated impaired loans amounted to approximately 0.55% and 0.23% of total loans at December 31, 2000 and 1999, respectively. Related reserve amounts were not significant and there was no significant change in these amounts during the years ended December 31, 2000, 1999 or 1998. The amount of interest not accrued on these loans did not have a significant effect on earnings in 2000, 1999 or 1998.
Transfers from loans to other real estate amounted to approximately $1,130,000, $764,000 and $656,000 in 2000, 1999 and 1998, respectively. Valuation allowances associated with other real estate amounted to $887,000, $1,199,000 and $1,088,000 at December 31, 2000, 1999 and 1998, respectively.
NOTE 5 - PROPERTY AND EQUIPMENTProperty and equipment, stated at cost less accumulated depreciation and amortization, consisted of the following (in thousands):
December 31,
-------------------------------------------
2000 1999
---------------- ------------------
Land, buildings and leasehold improvements $ 59,249 $ 57,608
Furniture, fixtures and equipment 50,793 53,667
---------------- ------------------
110,042 111,275
Accumulated depreciation and amortization (58,406) (56,267)
---------------- ------------------
$ 51,636 $ 55,008
================ ==================
NOTE 6 - FEDERAL HOME LOAN BANK ADVANCEAt December 31, 1999, the Company had a $50,000,000 advance outstanding under a $147,000,000 line of credit with the Federal Home Loan Bank of Dallas (FHLB). This advance bore interest at 5.85% and was due January 21, 2000. The advance was collateralized by a blanket floating lien on the Company's residential first mortgage loans. All funds drawn on that advance were repaid by February 4, 2000. At December 31, 2000 the Company had a line of credit with the FHLB of approximately $220,000,000.
NOTE 7 - STOCKHOLDERS' EQUITYBasic and diluted earnings per common share were based on the weighted average number of shares outstanding of approximately 10,860,000 and 10,867,000 in 2000, 10,887,000 and 10,901,000 in 1999 and 10,693,000 and 10,705,000 in 1998. Outstanding amounts reflect reductions for treasury stock and 162,200 shares of stock owned by subsidiaries.
Stockholders' equity of the Company includes the undistributed earnings of the bank subsidiaries. Dividends are payable only out of undivided profits or current earnings. Moreover, dividends to the Company's stockholders can generally be paid only from dividends paid to the Company by the Banks. Consequently, dividends are dependent upon earnings, capital needs, regulatory policies and statutory limitations affecting the Banks. Federal and state banking laws and regulations restrict the amount of dividends and loans a bank may make to its parent company. Dividends paid by Hancock Bank are subject to approval by the Commissioner of Banking and Consumer Finance of the State of Mississippi and those paid by Hancock Bank of Louisiana are subject to approval by the Commissioner of Financial Institutions of the State of Louisiana. The amount of capital of the subsidiary banks available for dividends at December 31, 2000 was approximately $130 million.
The Company and its bank subsidiaries are required to maintain certain minimum capital levels. At December 31, 2000 and 1999, the Company and the Banks were in compliance with their respective statutory minimum capital requirements. Following is a summary of the actual capital levels at December 31, 2000 and 1999 (amounts in thousands):
To be Well
Required for Capitalized Under
Minimum Capital Prompt Corrective
Actual Adequacy Action Provisions
-------------------------- ---------------------- -----------------------------
Amount Ratio % Amount Ratio % Amount Ratio %
------------ --------- ------------ -------- ----------- -------------
At December 31, 2000
Total capital (to risk weighted assets)
Company $ 325,774 17.20 $ 151,554 8.00 $ N/A N/A
Hancock Bank 191,709 17.48 87,752 8.00 109,691 10.00
Hancock Bank of Louisiana 137,038 17.12 64,046 8.00 80,058 10.00
Tier 1 capital (to risk weighted assets)
Company $ 302,094 15.95 $ 75,777 4.00 $ N/A N/A
Hancock Bank 177,998 16.23 43,876 4.00 65,814 6.00
Hancock Bank of Louisiana 127,031 15.87 32,023 4.00 48,035 6.00
Tier 1 leverage capital
Company $ 302,094 10.20 $ 88,837 3.00 $ N/A N/A
Hancock Bank 177,998 9.77 54,648 3.00 91,080 5.00
Hancock Bank of Louisiana 127,031 10.66 35,739 3.00 59,566 5.00
To be Well
Required for Capitalized Under
Minimum Capital Prompt Corrective
Actual Adequacy Action Provisions
-------------------------- ---------------------- -----------------------------
Amount Ratio % Amount Ratio % Amount Ratio %
------------ --------- ------------ -------- ----------- -------------
At December 31, 1999
Total capital (to risk weighted assets)
Company $ 302,106 16.85 $ 143,400 8.00 $ N/A $ N/A
Hancock Bank 187,527 17.62 85,150 8.00 106,438 10.00
Hancock Bank of Louisiana 116,573 15.77 59,100 8.00 73,900 10.00
Tier 1 capital (to risk weighted assets)
Company $ 279,659 15.61 $ 71,700 4.00 $ N/A $ N/A
Hancock Bank 174,214 16.37 42,575 4.00 63,862 6.00
Hancock Bank of Louisiana 107,302 14.52 29,600 4.00 44,400 6.00
Tier 1 leverage capital
Company $ 279,659 9.61 $ 87,350 3.00 $ N/A $ N/A
Hancock Bank 174,214 9.71 53,832 3.00 89,700 5.00
Hancock Bank of Louisiana 107,302 9.34 34,500 3.00 57,500 5.00
Risk-based capital requirements are intended to make regulatory capital more sensitive to risk elements of the Company. Currently, the Company and its bank subsidiaries are required to maintain a minimum risk-based capital ratio of 8.0%, with not less than 4.0% in Tier 1 capital. In addition, the Company and its bank subsidiaries must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total average assets) of at least 3.0% based upon the regulators latest composite rating of the institution.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required each federal banking agency to implement prompt corrective actions for institutions that it regulates. The rules provide that an institution is "well capitalized" if its total risk-based capital ratio is 10.0% or greater, its Tier 1 risked-based capital ratio is 6.0% or greater, its leverage ratio is 5.0% or greater and the institution is not subject to a capital directive. Under this regulation, each of the subsidiary banks was deemed to be "well capitalized" as of December 31, 2000 and 1999 based upon the most recent notifications from their regulators. There are no conditions or events since those notifications that management believes would change these classifications.
NOTE 8 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows (in thousands):
December 31,
----------------------------------------
2000 1999
---------------- ---------------
Deferred tax assets:
Unrealized loss on securities available for sale $ 787 $ 7,411
Post-retirement benefit obligation 1,646 1,408
Allowance for loan losses 8,896 8,300
Other real estate valuation allowances 337 268
Deferred compensation 1,065 1,090
Lease accounting 300 330
Other 179 599
---------------- ---------------
13,210 19,406
---------------- ---------------
Deferred tax liabilities:
Property and equipment depreciation (3,631) (3,960)
Prepaid pension (1,679) (1,322)
Discount accretion on securities (1,628) (1,512)
---------------- ---------------
(6,938) (6,794)
---------------- ---------------
Net deferred tax asset $ 6,272 $ 12,612
================ ===============
Income taxes consisted of the following components (in thousands):
Years Ended December 31,
-----------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Currently payable $ 17,180 $ 16,627 $ 14,862
Deferred (284) (2,039) (435)
--------------- --------------- ---------------
$ 16,896 $ 14,588 $ 14,427
=============== =============== ===============
The reason for differences in income taxes reported compared to
amounts computed by applying the statutory income tax rate of 35% to
earnings before income taxes were as follows (in thousands):
Years Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998
------------------------ ---------------------- ------------------------
Amount % Amount % Amount %
------------- -------- ------------- ------- ------------ --------
Taxes computed at statutory rate $ 18,802 35 $ 16,204 35 $ 15,483 35
Increases (decreases) in taxes resulting from:
State income taxes, net of federal income tax benefit 272 1 283 1 410 1
Tax-exempt interest (3,610) (7) (3,260) (7) (2,380) (5)
Goodwill amortization 1,303 2 1,300 3 840 2
Other, net 129 - 61 - 74 -
------------- -------- ------------- ------- ------------ --------
Income tax expense $ 16,896 31 $ 14,588 32 $ 14,427 33
============= ======== ============= ======= ============ ========
The income tax provisions related to items included in the Statement of Other Comprehensive Earnings were as follows (in thousands):
Years Ended December 31,
----------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
Unrealized holdings gains (losses) $ 6,516 $ (7,493) $ 60
Reclassification adjustments 108 (3) (11)
--------------- -------------- ---------------
Total other comprehensive earnings $ 6,624 $ (7,496) $ 49
=============== ============== ===============
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company has a non-contributory pension plan covering substantially all salaried full-time employees who have been employed by the Company the required length of time. The Company's current policy is to contribute annually the minimum amount that can be deducted for federal income tax purposes. The benefits are based upon years of service and the employee's compensation during the last five years of employment. Data relative to the pension plan follows (in thousands):
Years Ended December 31,
-------------------------
2000 1999
---------- -----------
Change in Benefit Obligation:
Benefit obligation at beginning of year ..... $ 30,870 $ 29,120
Service cost ................................ 1,180 1,183
Interest cost ............................... 2,178 1,986
Actuarial loss .............................. 1,656 67
Benefits paid ............................... (1,681) (1,486)
---------- -----------
Benefit obligation at end of year ....... 34,203 30,870
---------- -----------
Change in Plan Assets:
Fair value of plan assets at
beginning of year ....................... 30,937 28,791
Actual return on plan assets ................ 2,748 2,343
Employer contributions ...................... 1,968 1,537
Benefits paid ............................... (1,681) (1,486)
Expenses .................................... (169) (248)
---------- -----------
Fair value of plan assets at end of year 33,803 30,937
---------- -----------
(Unfunded) funded status ............ (400) 67
Unrecognized portion of net obligation being
amortized over 15 years ................. 46 91
Unrecognized net actuarial loss ................. 4,428 2,963
Unrecognized prior service cost ................. 382 476
---------- -----------
Prepaid pension cost included in other assets $ 4,456 $ 3,597
========== ===========
Rate assumptions at December 31:
Discount rate ............................... 7.50% 7.25%
Expected return on plan assets .............. 8.00% 8.00%
Rate of compensation increase ............... 3.00% 3.00%
Years Ended December 31,
-------------------------------
2000 1999 1998
-------- -------- ---------
Net pension expense included the following
(income) expense components:
Service cost benefits earned during the period $ 1,180 $ 1,183 $ 1,041
Interest cost on projected benefit obligation 2,178 1,986 2,018
Return on plan assets ........................ (2,748) (2,343) (2,249)
Amortization of prior service cost ........... 92 92 92
Net amortization and deferral ................ 406 174 244
-------- -------- ---------
Net pension expense ...................... $ 1,108 $ 1,092 $ 1,146
======== ======== =========
The Company sponsors two defined benefit post-retirement plans, other than the pension plan, that cover full-time employees who have reached 45 years of age. One plan provides medical benefits and the other provides life insurance benefits. The post-retirement health care plan is contributory, with retiree contributions adjusted annually and subject to certain employer contribution maximums; the life insurance plan is non- contributory. Data relative to these post-retirement benefits, none of which have been funded, were as follows (in thousands):
Years Ended December 31,
--------------------------
2000 1999
---------- -------------
Change in Benefit Obligation:
Benefit obligation at beginning of year . $ 6,094 $ 6,238
Service cost ............................ 216 397
Interest cost ........................... 341 412
Actuarial gain .......................... (1,564) (667)
Benefits paid ........................... (261) (286)
---------- -------------
Benefit obligation at end of year .. 4,826 6,094
Fair value of plan assets ............... -- --
---------- -------------
Amount unfunded .................... (4,826) (6,094)
Unrecognized transition obligation being
amortized over 20 years ............ 581 1,680
Unrecognized net actuarial (gain) loss .. (208) 318
---------- -------------
Accrued post-retirement benefit cost $(4,453) $(4,096)
========== =============
Rate assumptions at December 31:
Discount rate ...................... 7.75% 7.75%
For measurement purposes in 2000, a 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. The rate was assumed to decrease gradually to 5.75% over 5 years and remain at that level thereafter. In 1999, rates of 7.5% and 5.5% were assumed and in 1998, rates of 8.0% and 5.5% were assumed. The health care cost trend rate assumption has an effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated post-retirement benefit obligation at December 31, 2000, by $862,000 and the aggregate of the service and interest cost components of net periodic post-retirement benefit cost for the year then ended by $150,000. A 1% decrease in the rate would decrease those items by $684,000 and $114,000, respectively.
Years Ended December 31,
---------- ----------------------------
2000 1999 1998
---------- ----------- -----------
Net Periodic Post-Retirement Benefit Cost:
Amortization of unrecognized net loss and other $ 8 $ 30 $ 12
Service cost benefits attributed to service during the year 216 397 293
Interest costs on accumulated post-retirement benefit obligation 341 412 375
Amortization of transition obligation over 20 years 53 143 143
---------- ----------- -----------
Net Periodic Post-Retirement Cost $ 618 $ 982 $ 823
========== =========== ===========
The Company has a non-contributory profit sharing plan covering substantially all salaried full-time employees who have been employed the required length of time. Contributions are made at the discretion of the Board of Directors and amounted to $647,900 in 2000, $504,000 in 1999 and $569,000 in 1998.
In addition, the Company has an employee stock purchase plan that is designed to provide the employees of the Company a convenient means of purchasing common stock of the Company. Substantially all salaried, full-time employees, with the exception of Leo W. Seal, Jr., who have been employed by the Company the required length of time are eligible to participate. The Company contributes an amount equal to 25% of each participant's contribution, which contribution cannot exceed 5% of the employee's base pay. The Company's contribution amounted to $124,900 in 2000, $116,300 in 1999 and $101,300 in 1998.
The post-retirement plans relating to health care payments and life insurance and the stock purchase plan are not guaranteed and are subject to immediate cancellation and/or amendment. These plans are predicated on future Company profit levels that will justify their continuance. Overall health care costs are also a factor in the level of benefits provided and continuance of these post-retirement plans. There are no vested rights under the post-retirement health or life insurance plans.
NOTE 10 - EMPLOYEE STOCK PLANS
In February 1996, the stockholders of the Company approved the Hancock Holding Company 1996 Long-Term Incentive Plan (the Plan) to provide incentives and awards for employees of the Company and its subsidiaries. Awards as defined in the Plan include, with limitations, stock options (including restricted stock options), restricted and performance shares, and performance stock awards, all on a stand-alone, combination or tandem basis. A total of 5,000,000 common shares can be granted under the Plan with an annual grant maximum of 1% of the Company's outstanding common stock (as reported for the fiscal year ending immediately prior to such plan year). The exercise price is equal to the market price on the date of grant, except for certain of those granted to major shareholders where the option price is 110% of the market price.
On December 14, 2000, options to purchase 85,300 shares were granted, of which 82,703 are exercisable at $35.00 per share and 2,597 are exercisable at $38.50 per share. Options totaling 82,703 are exercisable at a vesting rate of 25% per year on the anniversary date of grant and 2,597 are exercisable six months after the date of grant.
On December 21, 1999, options to purchase 86,526 shares were granted, of which 84,150 are exercisable at $38.25 per share and 2,376 are exercisable at $42.075 per share. Options totaling 84,150 are exercisable at a vesting rate of 25% per year on the anniversary date of grant and 2,376 are exercisable six months after the date of grant.
On December 24, 1998, options to purchase 72,125 shares were granted, of which 70,036 are exercisable at $43.50 per share and 2,089 are exercisable at $47.85 per share. Options totaling 70,036 are exercisable at a vesting rate of 25% per year on the anniversary date of grant and 2,089 are exercisable six months after the date of grant.
Following is a summary of the transactions:
Number of Average Exercise
Options Exercise Price of Options
Outstanding Per Share Aggregate
----------- ----------- -------------------
Balance January 1, 1998 96,325 $ 53.14 $ 5,119,000
Granted 72,125 43.63 3,146,525
Exercised (8,500) 40.00 (340,000)
Cancelled (4,425) 60.00 (265,500)
----------- ----------- -------------------
Balance December 31, 1998 155,525 49.25 7,660,025
Granted 86,526 38.35 3,318,681
Cancelled (1,775) 60.00 (106,500)
----------- ----------- -------------------
Balance December 31, 1999 240,276 45.25 10,872,206
Granted 85,300 35.11 2,994,590
Cancelled (14,926) 46.01 (686,697)
----------- ----------- -------------------
Balance December 31, 2000 310,650 $ 42.43 $ 13,180,099
=========== =========== ===================
At December 31, 2000, options on 132,508 shares were exercisable at $38.25 to $60.00 per share, with a weighted average price of $48.76 per share. At December 31, 1999, options on 101,173 shares were exercisable at $40.00 to $60.00 per share, with a weighted average price of $52.04 per share. At December 31, 1998, options on 83,400 shares were exercisable at $40.00 to $60.00 per share, with a weighted average price of $54.12 per share. The weighted average remaining contractual life of options outstanding at December 31, 2000 was 7.63 years.
The Company has adopted the disclosure-only option under SFAS No. 123. The weighted average fair value of options granted during 2000, 1999 and 1998 was $10.20, $12.20 and $13.48, respectively. Had compensation costs for the Company's stock options been determined based on the fair value at the grant date, consistent with the method under SFAS No. 123, the Company's net earnings and earnings per share would have been as indicated below:
Years Ended December 31,
-------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Net earnings (in thousands):
As reported $ 36,824 $ 31,710 $ 30,960
Pro forma 36,390 31,496 29,936
Basic earnings per share:
As reported $ 3.39 $ 2.91 $ 2.90
Pro forma 3.35 2.89 2.80
Diluted earnings per share:
As reported $ 3.39 $ 2.91 $ 2.89
Pro forma 3.35 2.89 2.80
The fair value of the options granted under the Company's stock option plans during the years ended December 31, 2000, 1999 and 1998 was estimated using the Black-Scholes Pricing Model with the following assumptions used: dividend yield of 2.5%, 2.4% and 1.9%, expected volatility of 25%, 25% and 24%, risk-free interest rates of 5.3%, 6.2% and 4.9%, respectively and expected lives of 8 years in 2000, 1999, and 1998.
During 2000, the Company granted 12,620 restricted shares which vest at the end of three years. During 1999, the Company granted 434 restricted shares which vest at 12, 18 and 24 month intervals and 11,827 shares which vest at the end of three years. During 1998, the Company granted 12,070 restricted shares which vest at 12, 18 and 24 month intervals, and 7,050 shares were granted which vest at the end of three years. Vesting is contingent upon continued employment by the Company. On December 31, 2000, 30,327 of these restricted grants were not vested. The 2000 shares had respective market values of $32.00 and $35.00 at the dates of grant. The 1999 shares had respective market values of $38.25 and $42.075 at the dates of grant. The 1998 shares had respective market values of $46.00 and $43.50 at the dates of grant. Compensation expense related to restricted stock grants totaled $398,400 for 2000, $630,000 for 1999 and $308,000 for 1998. The remaining unearned compensation of $843,503 is being amortized over the life of the grants.
NOTE 11 - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTSThe following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:
Cash, Short-Term Investments and Federal Funds Sold - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities - For securities, fair value equals quoted market price, if available. If a quoted market price is not available, a reasonable estimate of fair value is used.
Loans - The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans with the same remaining maturities would be made to borrowers with similar credit ratings.
Deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.
Long-Term Notes - Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.
Commitments - The fair value of commitments to extend credit was not significant.
The estimated fair values of the Company's financial instruments were as follows (in thousands):
December 31,
-----------------------------------------------------------
2000 1999
---------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------- ------------- --------------
Financial assets:
Cash, short-term investments and federal funds sold $ 193,257 $ 193,257 $ 159,838 $ 159,838
Securities available for sale ..................... 576,318 576,318 639,416 639,416
Securities held to maturity ....................... 417,777 418,612 509,306 498,467
Loans, net of unearned income ..................... 1,699,841 1,654,910 1,541,521 1,542,738
Less: allowance for loan losses ................ (28,604) (28,604) (25,713) (25,713)
----------- ----------- ----------- -----------
Loans, net .................................. 1,671,237 1,626,306 1,515,808 1,517,025
Financial liabilities:
Deposits .......................................... $ 2,503,788 $ 2,415,228 $ 2,397,653 $ 2,398,858
Securities sold under agreements to repurchase .... 144,561 144,561 213,773 213,773
Federal Home Loan Bank advances ................... -- -- 50,000 50,000
Long-term notes ................................... 2,177 2,177 2,714 2,714
NOTE 12 - OFF-BALANCE-SHEET RISKIn the normal course of business, the Company enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded and involve, to varying degrees, elements of credit risk not reflected in the consolidated balance sheets. The contract amounts of these instruments reflect the Company's exposure to credit loss in the event of non-performance by the other party on whose behalf the instrument has been issued. The Company undertakes the same credit evaluation in making commitments and conditional obligations as it does for on-balance-sheet instruments and may require collateral or other credit support for off-balance-sheet financial instruments. These obligations are summarized below (in thousands):
December 31,
---------------------------------
2000 1999
------------- -----------------
Commitments to extend credit $ 380,051 $ 439,718
Letters of credit 21,403 18,148
Approximately $218,000,000 and $254,000,000 of commitments to extend credit at December 31, 2000 and 1999, respectively, were at variable rates and the remainder were at fixed rates. A commitment to extend credit is an agreement to lend to a customer as long as the conditions established in the agreement have been satisfied. A commitment to extend credit generally has a fixed expiration date or other termination clauses and may require payment of a fee by the borrower. Since commitments often expire without being fully drawn, the total commitment amounts do not necessarily represent future cash requirements of the Company. The Company continually evaluates each customer's credit worthiness on a case-by- case basis. Occasionally, a credit evaluation of a customer requesting a commitment to extend credit results in the Company obtaining collateral to support the obligation.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing a letter of credit is essentially the same as that involved in extending a loan.
NOTE 13 - CONTINGENCIESThe Company is party to various legal proceedings arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, all such matters are adequately covered by insurance or, if not so covered, are not expected to have a material adverse effect on the financial statements of the Company.
NOTE 14 - SUPPLEMENTAL INFORMATION
The following is selected supplemental information (in thousands):
Years Ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------ -------------
Other service charges, commissions and fees:
Trust fees $ 6,058 $ 4,445 $ 3,071
Investment commissions and fees 3,295 3,328 508
Credit card income 2,762 2,654 2,240
Years Ended December 31,
-------------------------------------------
2000 1999 1998
------------- ------------- -----------
Other non-interest expense:
Postage $ 3,496 $ 3,857 $ 3,312
Communication 4,102 4,692 3,405
Data processing 5,456 5,026 3,562
Professional fees 2,876 2,906 2,889
Taxes and licenses 2,326 2,401 1,873
Printing and supplies 1,349 2,459 2,131
Marketing 2,386 2,750 1,961
NOTE 15 - SEGMENT REPORTINGThe Company's primary segments are geographically divided into the Mississippi (MS) and Louisiana (LA) markets. Each segment offers the same products and services but are managed separately due to different pricing, product demand and consumer markets. Both segments offer commercial, consumer and mortgage loans and deposit services. Following is selected information for the Company's segments (in thousands):
Years Ended December 31,
--------------------------------------------------------------------
2000 1999 1998
----------------------- -------------------- ----------------------
MS LA MS LA MS LA
----------- ---------- ---------- --------- ---------- -----------
Interest income ......................... $127,496 $ 87,166 $122,626 $ 80,366 $122,813 $ 67,271
Interest expense ........................ 61,046 37,019 53,171 30,945 56,896 24,789
----------- ---------- ---------- --------- ---------- -----------
Net interest income .................. 66,450 50,147 69,455 49,421 65,917 42,482
Provision for loan losses ............... 5,308 4,957 2,295 4,626 2,731 2,854
Non-interest income ..................... 22,341 25,220 21,728 19,866 18,822 13,261
Depreciation and amortization ........... 4,954 2,884 5,013 2,474 3,517 1,671
Other non-interest expense .............. 51,248 42,698 53,674 47,051 48,661 36,727
----------- ---------- ---------- --------- ---------- -----------
Earnings before income taxes and
cumulative effect of accounting change 27,281 24,828 30,201 15,136 29,830 14,491
Income taxes ............................ 7,470 8,724 8,637 5,519 9,390 5,062
----------- ---------- ---------- --------- ---------- -----------
Earnings before cumulative effect
of accounting change .............. 19811 16,104 21,564 9,617 20,440 9,429
Cumulative effect of accounting change .. -- -- -- -- 1,151 --
----------- ---------- ---------- --------- ---------- -----------
Net earnings ......................... $ 19,811 $ 16,104 $ 21,564 $ 9,617 $ 21,591 $ 9,429
=========== ========== ========== ========= ========== ===========
At and For Years Ended December 31,
------------------------------------------
2000 1999 1998
------------ ------------ -------------
Net Interest Income:
MS ............................. $ 66,450 $ 69,455 $ 65,917
LA ............................. 50,147 49,421 42,482
Other .......................... 6,099 4,837 3,518
------------ ------------ -------------
Consolidated net interest income $ 122,696 $ 123,713 $ 111,917
============ ============ =============
Net Earnings:
MS ............................. $ 19,811 $ 21,564 $ 21,591
LA ............................. 16,104 9,617 9,429
Other .......................... 909 529 (60)
------------ ------------ -------------
Consolidated net earnings $ 36,824 $ 31,710 $ 30,960
============ ============ =============
Assets:
MS ............................. $ 1,847,203 $ 1,826,006 $ 1,833,064
LA ............................. 1,284,735 1,216,238 1,003,620
Other .......................... 44,219 31,172 27,487
Intersegment ................... (162,727) (81,542) (49,476)
------------ ------------ -------------
Consolidated assets ..... $ 3,013,430 $ 2,991,874 $ 2,814,695
============ ============ =============
NOTE 16 - SUMMARIZED FINANCIAL INFORMATION OF HANCOCK HOLDING COMPANY
(PARENT COMPANY ONLY)
Balance Sheets
December 31,
-----------------------------
2000 1999
-------------- -------------
Assets:
Investment in subsidiaries ...... $345,749,367 $312,282,926
Other ........................... 362,643 430,788
-------------- -------------
$346,112,010 $312,713,714
-------------- -------------
Liabilities and Stockholders' Equity:
Due to subsidiaries ............. $ 4,721,818 $ 2,286,286
Stockholders' equity ............ 341,390,192 310,427,428
-------------- -------------
$346,112,010 $312,713,714
-------------- -------------
Statements of Earnings
Years Ended December 31,
------------------------------------------------
2000 1999 1998
-------------- ------------ ----------------
Dividends received from subsidiaries ... $ 17,636,385 $ 35,368,193 $ 36,555,000
Equity in earnings of subsidiaries
greater than
(less than) dividends received ..... 20,960,727 (1,914,920) (5,209,781)
Net expenses ........................... (1,873,532) (1,823,036) (1,689,631)
Income tax credit ...................... 100,000 79,833 153,800
-------------- ------------ ----------------
Earnings before cumulative effect of
accounting change ............... 36,823,580 31,710,070 29,809,388
Cumulative effect of accounting change . -- -- 1,150,811
-------------- ------------ ----------------
Net earnings ........................... $ 36,823,580 $ 31,710,070 $ 30,960,199
-------------- ------------ ----------------
Statements of Cash Flows
Years Ended December 31,
------------------------------------------------
2000 1999 1998
--------------- ------------- ----------------
Cash flows from operating activities - principally
dividends received from subsidiaries .......... $ 18,461,767 $ 36,868,662 $ 35,952,990
Cash flows from investing activities - principally
business acquisitions ......................... -- (15,176,495) --
Cash flows from financing activities:
Dividends paid ................................ (13,611,093) (11,055,506) (10,862,585)
Treasury stock transactions, net .............. (4,951,086) (11,484,047) (22,857,810)
Repayment of note ............................. -- -- (1,279,402)
--------------- ------------- ----------------
Net cash used by financing activities....... (18,562,179) (22,539,553) (34,999,797)
--------------- ------------- ----------------
Net (decrease) increase in cash ............... (100,412) (847,386) 953,193
Cash, beginning ................................... 276,908 1,124,294 171,101
--------------- ------------- ----------------
$ 176,496 $ 276,908 $ 1,124,294
--------------- ------------- ----------------
Board of Directors and Stockholders
Hancock Holding Company
Gulfport, Mississippi
We have audited the accompanying consolidated balance sheets of Hancock Holding Company and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, comprehensive earnings, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Hancock Holding Company and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, in 1998 the Company changed its method of accounting for derivative instruments to conform with the Statement of Financial Accounting Standards No. 133 and in conjunction therewith reclassified certain securities from its held-to- maturity portfolio to trading securities.
Deloitte & Touche LLPNew Orleans, Louisiana
January 15, 2001
HANCOCK HOLDING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Purpose
The purpose of this discussion and analysis is to focus on significant changes and events in the financial condition and results of operations of Hancock Holding Company and its subsidiaries during 2000 and selected prior periods. This discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this report, including the preceding consolidated financial statements and related notes. Certain information relating to prior years has been reclassified to conform to the current year's presentation.
Forward-Looking StatementsCongress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company's anticipated future financial performance. This act provides a safe harbor for such disclosure which protects the company from unwarranted litigation if actual results are different from management expectations. This discussion and analysis 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 which could cause the Company's actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements.
SummaryThe Company earned $36.8 million in 2000, an increase of $5.1 million, or 16%, from 1999. Earnings on a per share basis were $3.39 in 2000, an increase of $0.48 from 1999's $2.91. Earnings were favorably impacted by the sale of most of the Company's credit card portfolio in March, 2000. The sale resulted in a pretax gain of $3.8 million. Excluding the after-tax impact of the credit card gain, earnings were up $2.7 million, or 8%, from 1999. The Company experienced minimal growth in earning assets, which when coupled with rising funding costs, resulted in a reduction of $0.4 million in net interest income (TE) from 1999. Also unfavorably impacting earnings in 2000 was an increase in the provision for loan losses. 2000's provision of $11.5 million was $3.9 million higher than the $7.6 million recorded in 1999. The increase was warranted due to higher net charge-offs as well as the Company's desire to maintain an adequate level of loan loss reserves in response to signs of a slowing in U.S. economic activity. Non-interest income (excluding the impact of the credit card sale and securities transactions) of $48.7 million was up $3.2 million, or 7%, from 1999. The majority of this increase was reflected in Trust income and service charge income. Non-interest expense of $109.9 million was actually down $5.5 million, or nearly 5%, from 1999. Decreases in this area were recorded in nearly every expense category.
Loans and Allowance For Loan LossesAverage loans increased $156 million, or 11%, in 2000 compared to an increase of $211 million, or 17%, in 1999. Table 1 shows average loans for a three-year period.
TABLE 1. AVERAGE LOANS
(dollars in thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial & R.E. Loans $791,157 50% $675,091 47% $528,670 42%
Mortgage loans 212,904 13% 181,527 12% 171,756 14%
Direct consumer loans 471,585 29% 454,959 31% 404,453 33%
Indirect consumer loans 135,400 8% 143,509 10% 138,738 11%
- -----------------------------------------------------------------------------------------------------------------------------------
Total average loans (net of unearned) $1,611,046 100% $1,455,086 100% $1,243,617 100%
- -----------------------------------------------------------------------------------------------------------------------------------
As indicated by Table 1, commercial and real estate loans increased $116 million, or 17%, from 1999. Included in this category are commercial real estate loans, which are loans secured by properties used in commercial or industrial operations. Economic activity in the Company's primary markets both in Mississippi and Louisiana remained strong throughout 2000 and contributed to the sustained loan growth experienced in these loan categories. The Banks originate commercial and real estate loans to a wide variety of customers in many different industries, and as such, no single industry concentrations existed at December 31, 2000.
Average mortgage loans of $212.9 million were $31.4 million, or 17%, higher in 2000. The majority of the growth in 2000 for this category was in the area of retail mortgage loans. The Company originates both fixed-rate and adjustable-rate mortgage loans. Certain types of mortgage loans are sold in the secondary mortgage market, while the Banks retain other types. The Banks also originate home equity loans. This product offers customers the opportunity to leverage rising home prices and equity to obtain tax-advantaged consumer financing.
Direct consumer loans, which includes loans and revolving lines of credit made directly to consumers, were up $16.6 million, or 4%, from 1999. The increase in direct consumer loans from 1999 includes a reduction in credit card loans due to the sale of most of the Company's credit card portfolio. In March, 2000, the Company sold $17.2 million of its credit card portfolio to a national credit card company for a pretax gain of $3.8 million. As of December 31, 2000, the Bank maintains a small credit card portfolio of approximately $3 million. The Company also originates indirect consumer loans, which consist primarily of consumer loans originated through a third party such as an automobile dealer. Average indirect consumer loans of $135.4 million for 2000 were down $8.1 million, or 6%, from 1999. Included with both direct and indirect consumer loans are loans outstanding and originated by the Company's expanding finance company subsidiary, which increased approximately $9.5 million, or 46%, at December 31, 2000, compared to the subsidiary's outstanding loans on December 31, 1999.
At December 31, 2000, the allowance for loan losses was $28.6 million, or 1.68% of year-end loans, compared to $25.7 million, or 1.67% of year- end loans for 1999. The allowance was 281% of non-performing loans at year-end 2000, compared to 365% at year-end 1999. Management utilizes several quantitative methodologies for determining the adequacy of the allowance for loan losses and is of the opinion that the allowance at December 31, 2000 is adequate even after considering signs of a slowing U.S. economy. Table 2 presents the activity in the allowance for loan losses over the past 5 years.
TABLE 2. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Balance at the beginning of year $25,713 $21,800 $21,000 $19,800 $17,391
Reserves acquired in bank purchase and other (147) 3,815 0 832 654
Provision for possible loan losses
charged to operations 11,531 7,585 6,229 6,399 6,154
Loans charged to the allowance
Commercial, real estate & mortgage 6,917 3,202 1,087 1,072 1,049
Direct and indirect consumer 4,084 6,769 6,043 7,141 5,417
- -------------------------------------------------------------------------------------------------------------------------------
Total 11,001 9,971 7,130 8,213 6,466
- -------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged-off
Commercial, real estate & mortgage 1,334 814 546 652 1,123
Direct and indirect consumer 1,174 1,670 1,155 1,530 944
- -------------------------------------------------------------------------------------------------------------------------------
Total 2,508 2,484 1,701 2,182 2,067
- -------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 8,493 7,487 5,429 6,031 4,399
- -------------------------------------------------------------------------------------------------------------------------------
Balance at the end of year $28,604 $25,713 $21,800 $21,000 $19,800
- -------------------------------------------------------------------------------------------------------------------------------
Ratios
Gross charge-offs to average loans 0.68% 0.69% 0.57% 0.68% 0.60%
Recoveries to gross charge-offs 0.16% 0.17% 0.14% 0.18% 0.19%
Net charge-offs to average loans 0.53% 0.51% 0.44% 0.50% 0.41%
Allowance for loan losses to year end loans 1.68% 1.67% 1.67% 1.72% 1.69%
- -------------------------------------------------------------------------------------------------------------------------------
Non-performing assets consist of non-performing loans, restructured loans and other real estate. Table 3 presents information related to non- performing assets for the five years ended December 31, 2000. Total non-performing assets at December 31, 2000 were $11.7 million, an increase of $3.0 million from December 31, 1999. This increase was due primarily to a specific credit. Loans 90 days past due but still accruing were $9.2 million at December 31, 2000. This compares to $4.4 million at December 31, 1999. Efforts on the part of Management to reduce the levels of past due loans will continue in 2001 as the Company focuses on this issue.
TABLE 3. NON-PERFORMING ASSETS
December 31
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
Loans accounted for on a non-accrual basis $10,182 $6,901 $4,602 $3,898 $2,905
Restructured loans 0 152 1,332 2,822 1,645
- --------------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 10,182 7,053 5,934 6,720 4,550
Other real estate 1,492 1,616 2,245 2,358 1,875
- --------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $11,674 $8,669 $8,179 $9,078 $6,425
- --------------------------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $9,277 $4,442 $2,907 $5,423 $8,361
- --------------------------------------------------------------------------------------------------------------------------------
Ratios
Non-performing assets to loans plus
other real estate 0.69% 0.56% 0.63% 0.74% 0.55%
Allowance for loan losses to
non-performing loans 281% 365% 367% 313% 435%
Loans 90 days past due still accruing to loans 0.55% 0.29% 0.22% 0.44% 0.71%
- --------------------------------------------------------------------------------------------------------------------------------
Investment SecuritiesThe Company's investment in securities was $0.994 billion at December 31, 2000, compared to $1.149 billion at December 31, 1999. Average investment securities were $1.091 billion for 2000 as compared to $1.252 billion for 1999. The overall decrease in the security portfolio from 1999 to 2000 was part of balance sheet management strategy that encompassed using maturities from the security portfolio to fund increases in loans not covered by deposit growth. Management feels that the aforementioned strategy is a safe and prudent method of funding loan growth given the relative size of the security portfolio as compared to certain peer banks.
The Company generally purchases securities with a maturity schedule that provides ample liquidity. Certain securities have been classified as available for sale based on management's internal assessment of the portfolio after considering the Company's liquidity requirements and the portfolio's exposure to changes in market interest rates and prepayment activity. At December 31, 2000, the composition of the security portfolio was 58% classified as available for sale and 42% as held to maturity. At December 31, 1999, these relative percentages were 56% available for sale and 44% held to maturity.
The December 31, 2000 carrying value of the held-to-maturity portfolio was $417.7 million and the market value was $418.6 million. The available-for-sale portfolio was $576.3 million at December 31, 2000. The vast majority of securities in the Bank's portfolio are fixed rate and there were no investment in securities of a single issuer, other than U.S. Treasury and U.S. Government agency securities and mortgage-backed securities issued or guaranteed by U.S. government agencies, exceeds 10% of stockholder's equity. The Bank does not normally maintain a securities trading portfolio.
Deposits and Short-Term BorrowingsYear-end total deposits increased $106 million, or more than 4% from 1999 to 2000. However, total average deposits decreased by $27.6 million, or over 1%, in 2000 from 1999. Decreases were registered in nearly all deposit categories with the exception of time deposits and money market deposits. Average demand deposits were down $25 million, or 5%, from 1999. Similarly, NOW deposits decreased $15 million, or 6%. An increase of $1.4 million, or less than 1% from 1999 was recorded in money market deposits. The Bank's premier money market account product, Treasury Checking, was responsible for overall growth of over $58 million, or 40%, from 1999. Decreases of over $56 million in other money market deposit products nearly offset the increase in the aforementioned Treasury Checking product. Time deposits, which consist primarily of certificates of deposit, were up nearly $39 million, or 4%, from 1999.
Short-term borrowings, on average, were down nearly $3 million, or just under 2%, from 1999 to 2000. Short-term borrowings consist of purchases of federal funds and sales of securities under repurchase agreements. Average sales of securities under repurchase agreements were up over $21 million, or 16%, from 1999, while federal funds purchases were down $24 million, or nearly 70%.
TABLE 4. AVERAGE DEPOSITS
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing demand deposits $537,057 22% $562,552 22% $493,218 24%
NOW account deposits 219,511 9% 234,231 9% 432,093 21%
Money market deposits 464,140 19% 462,724 18% 134,899 7%
Savings deposits 297,715 12% 325,306 13% 282,305 4%
Time deposits 959,493 38% 920,718 38% 891,322 44%
- ----------------------------------------------------------------------------------------------------------------------------------
Total average deposits $2,477,916 100% $2,505,531 100% $2,233,837 100%
- ----------------------------------------------------------------------------------------------------------------------------------
LiquidityLiquidity represents the Company's ability to provide funds to satisfy demands from depositors, borrowers and other commitments by either converting assets to cash or accessing new or existing funds. The principal sources of funds which provide liquidity are customer deposits, payments of principal and interest on loans, maturities and sales of securities, earnings and borrowings. The Company has a line of credit with the Federal Home Loan Bank of over $200 million and has borrowing capacity at the Federal Reserve's Discount Window in excess of $100 million. At December 31, 2000, cash and due from banks and securities available for sale were 28.2% of total deposits.
Asset/Liability ManagementThe Company's net income is dependent 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 income.
In an attempt to manage its exposure to changes in interest rates, the Asset/Liability Committee (ALCO) monitors the Company's interest rate risk. The Company's interest rate management policy is designed to produce a stable net interest margin in periods of interest rate fluctuations. Interest sensitive assets and liabilities are those that are subject to maturity or repricing within a given time period. 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.
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-term 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-term 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 such accounts carry a lower interest cost than certificate accounts and that a material portion of such accounts may be more resistant to changes in interest rates.
One approach used to quantify interest rate risk is the net portfolio value ("NPV") analysis. NPV includes stockholders' equity of the Company as reported in the financial statements, adjusted for changes in the carrying value of investments, loans and certificates of deposit, when considering changes in market values on a pre-tax basis. In essence, this analysis calculates the difference between the present value of liabilities and the present value of expected cash flows from assets and off-balance sheet contracts. Table 5 presents an analysis of the Company's interest rate risk as measured by the estimated changes in NPV resulting from an instantaneous and sustained parallel shift in the yield curve (+ or - 300 basis points, measured in 100 basis point increments) at December 31, 2000. Table 5 indicates that the Company's level of NPV declines when rates rise but generally increases when rates decline.
TABLE 5. NET PORTFOLIO VALUE AT RISK
- -------------------------------------------------------------------------------
December 31, 2000
- -------------------------------------------------------------------------------
Change in Estimated Increase
Interest Estimated (Decrease) in NPV
Rates NPV Amount Amount Percent
-------------- --------------- ------------ -----------
(basis points) (amounts in thousands)
+ 300 $350,510 ($57,269) -14.0%
+ 200 $370,425 ($37,354) -9.2%
+ 100 $389,159 ($18,620) -4.6%
Stable $407,779 - -
- 100 $417,340 $9,561 2.3%
- 200 $415,217 $7,438 1.8%
- 300 $407,681 ($98) 0.0%
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Certain assumptions in assessing the interest rate risk were employed in preparing data for the Company included in the preceding table. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under the various interest rate scenarios. It was also assumed that delinquency rates will not change as a result of changes in interest rates, although there can be no assurance that this will be the case. Even if interest rates change in the designated amounts, there can be no assurance that the Company's assets and liabilities would perform as anticipated. In addition, a change in U. S. Treasury rates in the designated amounts accompanied by a change in the shape of the U. S. Treasury yield curve would cause significantly different changes to the NPV than indicated above.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. The Company considers all of these factors in monitoring its exposure to interest rate risk.
The Company does not currently engaged in any significant trading activities or the use of derivative instruments to control interest rate risk. Even though such activities are permitted with the approval of the Board of Directors, the Company does not intend to engage in a significant level of 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.
Capital ResourcesComposite ratings by the respective regulatory authorities of the Company and the Banks establish minimum capital levels. Currently, the Company and the Banks are required to maintain minimum Tier 1 leverage ratios of at least 3%, subject to an increase up to 5%, depending on the composite rating. At December 31, 2000, the Company's and the Banks' capital balances were in excess of current regulatory minimum requirements.
The Company undertook two important actions during 2000 that were designed to better manage the Company's capital position. In July, 2000, the Company announced that it would begin a stock buy-back program consisting of a repurchase of up to 10% of the Company's outstanding common stock. As of December 31, 2000, the Company had repurchased 150,236 common shares, or approximately 1.4% of the outstanding shares at June 30, 2000. Also, in November, 2000, the Company declared a special cash dividend of $.25 per share in addition to the regular $.25 per share dividend.
The regulatory capital ratios of the Company and the Banks far exceed the minimum required ratios, and the Banks have been categorized as "well capitalized" in the most recent notice received from their regulators.
TABLE 6. RISK-BASED CAPITAL AND CAPITAL RATIOS
(dollars in thousands) 2000 1999 1998 1997 1996
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Tier 1 regulatory capital $302,094 $279,659 $260,182 $259,900 $238,110
Tier 2 regulatory capital 23,680 22,447 18,997 17,677 16,056
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Total regulatory capital $325,774 $302,106 $279,179 $277,577 $254,166
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Risk-weighted assets $1,894,423 $1,792,515 $1,516,986 $1,362,261 $1,280,753
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Ratios
Leverage (Tier 1 capital to average assets) 10.20% 9.61% 9.50% 10.41% 10.53%
Tier 1 capital to risk-weighted assets 15.95% 15.60% 17.15% 19.08% 18.59%
Total capital to risk-weighted assets 17.20% 16.85% 18.40% 20.33% 19.85%
Stockholders' equity to total assets 11.33% 10.38% 10.19% 11.37% 11.44%
Tangible equity to total assets 9.98% 9.02% 9.34% 10.36% 10.48%
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Results of OperationsNet Interest IncomeNet interest income (TE) of $129.0 million was recorded for the year 2000, a decrease of $.4 million from 1999. The decrease in 2000 followed an increase of $13.2 million, or 11%, in 1999 from 1998. Higher loan growth in 1999 was the major factor behind the increase from 1998. The factors contributing to the changes in net interest income are presented in Tables 7 and 8. Table 7 is an analysis of the components of the Company's average balance sheets, level of interest income and expense and the resulting earning asset yields and liability rates. Table 8 breaks down the overall changes in the level of net interest income into rate and volume components.
A primary factor behind the decline in net interest income from 1999 to 2000 was an increase in the overall rate paid on interest-bearing liabilities. This rate, which represents the overall cost in terms of interest expense to the Company of all deposits and other interest-bearing funding sources except demand deposits, increased from 3.97% in 1999 to 4.47% in 2000, an increase of 50 basis points. The primary reason for this increase in funding costs was an overall increase in the level of interest rates throughout 2000, which translated into higher deposit costs for the Company's deposit products, especially certificates of deposit and interest-bearing transaction accounts. Yields on earning assets were unable to keep pace with the rising cost of funding sources. The Company's earning assets yield increased from 7.80% in 1999 to 8.13% for the year 2000, an increase of 33 basis points. Although average loans did increase $156 million, or 11%, from 1999, the average yield on loans was up 14 basis points. The yield earned by the security portfolio for 2000 was 6.41%, compared to 6.22% earned for 1999, an increase of 19 basis points. The net interest margin, which is net interest income (TE) as a percent of average earning assets, narrowed from 4.73% in 1999 to 4.70% in 2000.
Another factor that contributed to the decline in net interest income in 2000 was the lower level of growth in earning assets than was experienced by the Company in 1999. Average earning assets in 2000 grew $8 million, or less than 1%, from the prior year. This was after growth of $250 million, or 10%, in 1999. While average loans grew $156 million from 1999, the security portfolio experienced a decline in its average balance of $161 million. Average federal funds sold were up $14 million from 1999. Because average deposits were down $27.6 million, or 1.1%, in 2000 from 1999, the Company relied on maturities from the security portfolio to fund loan growth.
Provision For Loan LossesThe provision for loan losses was $11.5 million for 2000, an increase of $3.9 million from 1999's level of $7.6 million. The higher loan loss provision in 2000 was due to overall higher net charge-offs, which were $1.0 million higher in 2000, higher loan growth of $156 million and additions to the allowance for loan losses in response to signs of a slowing in U.S. economic activity.
TABLE 7. SUMMARY OF AVERAGE BALANCE SHEETS
NET INTEREST INCOME (TE) & INTEREST RATES
(dollars in thousands) 2000 1999 1998
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Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
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ASSETS
EARNING ASSETS
Loans (TE) $1,611,046 $150,857 9.36% $1,455,086 $134,113 9.22% $1,243,617 $119,015 9.57%
U.S. Treasury securities 98,704 5,494 5.57% 180,480 10,059 5.57% 243,224 14,469 5.95%
U.S. agency securities 373,295 21,819 5.85% 420,214 25,175 5.99% 340,906 21,175 6.21%
CMOs 264,207 16,740 6.34% 269,427 17,053 6.33% 212,043 13,631 6.43%
Mortgage-backed securities 136,879 9,313 6.80% 165,291 10,016 6.06% 151,669 9,800 6.46%
Obligations of states and
political subdivisions (TE) 196,518 14,429 7.34% 195,861 14,417 7.36% 137,584 10,562 7.68%
FHLB stock and
other corporate securities 20,955 2,057 9.81% 20,698 1,204 5.81% 99,272 6,093 6.14%
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Total investment in 1,090,558 69,852 6.41% 1,251,971 77,924 6.22% 1,184,698 75,730 6.39%
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Federal funds sold and
short-term investments 42,672 2,523 5.91% 28,845 1,300 4.50% 57,371 3,122 5.44%
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Total earning assets 2,744,276 $223,232 8.13% 2,735,902 $213,337 7.80% 2,485,686 $197,867 7.96%
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NON-EARNING ASSETS
Other assets 276,287 294,232 231,461
Allowance for loan losses (26,591) (23,939) (21,040)
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Total assets $2,993,972 $3,006,195 $2,696,107
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LIABILITIES AND STOCKHOLDERS'
EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing transaction $ 829,760 $27,190 3.28% $843,535 $24,232 2.87% $827,007 $25,588 3.09%
deposits
Time deposits 875,627 49,056 5.60% 841,942 42,554 5.05% 762,762 41,236 5.41%
Public funds 235,472 10,302 4.37% 257,502 10,023 3.89% 150,850 7,641 5.07%
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Total interest-bearing deposits 1,940,859 86,548 4.46% 1,942,979 76,809 3.95% 1,740,619 74,465 4.28%
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Customer repurchase agreements 157,633 7,024 4.46% 136,255 5,387 3.95% 152,421 7,037 4.62%
Other interest-bearing liabilities 10,533 679 6.44% 34,700 1,765 5.09% 4,859 240 4.94%
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Total interest-bearing liabilities 2,109,025 94,251 4.47% 2,113,934 83,961 3.97% 1,897,899 81,742 4.31%
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NON-INTEREST BEARING LIABILITIES AND
STOCKHOLDERS' EQUITY
Demand deposits 537,057 562,552 493,218
Other liabilities 22,382 20,855 15,112
Stockholders' equity 325,508 308,854 289,878
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Total liabilities and
stockholders' equity $2,993,972 $3,006,195 $2,696,107
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Net interest income and margin (TE) $128,981 4.70% $129,375 4.73% $116,125 4.67%
Net earning assets and spread $635,251 3.67% $621,968 3.83% $587,787 3.65%
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TABLE 8. SUMMARY OF CHANGES IN NET INTEREST INCOME (TE)
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(dollars in thousands) 2000 Compared to 1999 1999 Compared to 1998
- ----------------------------------------------------------------------------------------- ---------------------------------------
Due to Due to
Change in Total Change in Total
---------------------- Increase ----------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
INTEREST INCOME (TE)
Loans $13,608 $3,136 $16,744 $19,955 ($581) $19,374
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U.S. Treasury securities (4,552) (13) (4,565)
(3,724) (686) (4,410)
U.S. agency securities (2,755) (601) (3,356)
(548) (456) (1,004)
CMOs (296) (17) (313)
Mortgage-backed securities (528) (175) (703) 4,583 (878) 3,705
Obligations of states and
political subdivisions (TE) 8 4 12 4,476 (4,897) (421)
FHLB stock and
other corporate securities 15 838 853 270 (214) 56
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Total investment in securities (8,108) 36 (8,072) 5,057 (7,131) (2,074)
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Federal funds and short-term investments 741 482 1,223 (1,753) (78) (1,831)
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Total interest income (TE) $6,241 $3,654 $9,895 $23,259 ($7,790) $15,469
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INTEREST EXPENSE
Interest-bearing transaction deposits ($402) $3,360 $2,958 $3,794 $1,450 $5,244
Time deposits 1,753 4,749 6,502 (2,191) (3,090) (5,281)
Public Funds (900) 1,179 279 5,396 (3,014) 2,382
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Total interest-bearing deposits 451 9,288 9,739 6,999 (4,654) 2,345
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Customer repurchase agreements 905 733 1,638 (668) (827) (1,495)
Other interest-bearing liabilities (1,466) 378 (1,088) 1,392 (23) 1,369
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Total interest expense ($110) $10,399 $10,289 $7,723 ($5,504) $2,219
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Change in net interest income (TE) $6,351 ($6,745) ($394) $15,536 ($2,286) $13,250
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Non-Interest IncomeTable 9 is a three-year analysis of the components of non-interest income. Overall, non-interest income of $52.5 million was reported in 2000, as compared to $45.6 million for 1999. Excluding the gain on the sale of the Company's credit card portfolio of $3.8 million and insignificant levels of security transactions in both years, non-interest income for 2000 was $48.7 million, compared to $45.5 million for 1999. This represented an increase of $3.2 million, or 7%. Significant increases were reflected in Trust income and service charge income. Service charges on deposit accounts were up $2.2 million, or 9%, from 1999 due mainly to the continuation of pricing initiatives that were begun in 1999. Trust service fees increased $1.6 million, or 36%, from 1999, after an increase of $1.4 million, or 45%, from 1998. The Company's continued emphasis on building new Trust relationships resulted in overall higher levels of fee income in this area.
TABLE 9. NON-INTEREST INCOME - ------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands ) 2000 % change 1999 % change 1998 - ------------------------------------------------------------------------------------------------------------------------------ Service charges on deposit accounts $27,179 9% $24,979 30% $19,164 Trust income 6,058 36% 4,445 45% 3,071 Insurance and investment sales commissions 4,835 5% 4,613 464% 818 Credit card income 2,762 4% 2,654 18% 2,240 Electronic banking income 2,075 12% 1,846 0% 1,840 ATM fees 1,461 -1% 1,473 42% 1,037 Other fees and income 4,325 -22% 5,535 39% 3,994 - ------------------------------------------------------------------------------------------------------------------------------ Total other non-interest income 48,695 7% 45,545 42% 32,164 - ------------------------------------------------------------------------------------------------------------------------------ Gain on sale of credit card portfolio 3,753 - - - - Securities transactions 3 -96% 67 -60% 167 - ------------------------------------------------------------------------------------------------------------------------------ Total non-interest income $52,451 15% $45,612 41% $32,331 - ------------------------------------------------------------------------------------------------------------------------------Non-Interest Expense
Expense control was an important strategic focus of the Company in 2000. This focus resulted in an overall decline in the level of non- interest expense of $5.5 million, or 5%, from 1999 to 2000. The expense control initiative that was begun in the fourth quarter of 1999 was a broad-based effort by Company management to control all levels of non-interest expense throughout the Company's operations, but without any reduction in customer service levels or risk of loss of control. Nearly every non-interest expense category saw expenses actually reduced or remain relatively flat. The biggest dollar reductions were reflected in personnel expense as that area was reduced $2.4 million, or 4%, from 1999. Other significant reductions were experienced in postage and communications expense, down $1.0 million, or 11%, and stationary and supplies, down $1.1 million, or 45%, from 1999. The Company's efforts toward expense control have been institutionalized into the Banks' culture and will remain a strategic focus in 2001. Table 10 further details the changes in non-interest expense.
TABLE 10. NON-INTEREST EXPENSE
(dollars in thousands) 2000 % change 1999 % change 1998
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Employee compensation $48,659 -3% $50,402 19% $42,349
Employee benefits 10,526 -6% 11,194 32% 8,484
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Total personnel expense 59,185 -4% 61,596 21% 50,833
Equipment and data processing expense 13,779 1% 13,706 25% 10,922
Net occupancy expense 7,135 -2% 7,268 31% 5,560
Postage and communications 7,598 -11% 8,549 27% 6,717
Ad valorem and franchise taxes 2,326 -3% 2,401 28% 1,873
Legal and professional services 2,876 -1% 2,905 1% 2,889
Stationary and supplies 1,349 -45% 2,459 15% 2,131
Amortization of intangible assets 3,756 -1% 3,775 57% 2,405
Advertising 2,386 -13% 2,750 40% 1,961
Deposit insurance and regulatory fees 802 18% 681 26% 539
Training expenses 390 -17% 470 0% 472
Other expense 8,314 -6% 8,882 19% 7,480
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Total non-interest expense $109,896 -5% $115,442 23% $93,782
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New Financial Accounting StandardsThere are no new financial accounting standards that have been issued, but not yet effective that will have a material effect on the Company's financial statements.