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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1999 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from __________ to ___________
Commission file number 0-10826
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BancorpSouth, Inc.
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(Exact name of registrant as specified in its charter)
Mississippi 64-0659571
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Mississippi Plaza
Tupelo, Mississippi 38804
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (662) 680-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common stock, $2.50 par value New York Stock Exchange
Common stock purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $2.50 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
(Cover Page Continued on Next Page)
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(Continued from Cover Page)
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of January 31, 2000, was approximately $821,846,000 based
on the closing sale price as reported on the New York Stock Exchange on such
date.
On January 31, 2000, the registrant had outstanding 57,204,183 shares
of Common Stock, par value $2.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement used in connection with
Registrant's Annual Meeting of Shareholders to be held May 2, 2000, are
incorporated by reference into Part III of this Report.
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BANCORPSOUTH, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 1999
CONTENTS
PART I
Item 1. Business............................................................................... 4
Item 2. Properties............................................................................. 17
Item 3. Legal Proceedings ..................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.................................... 18
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............... 18
Item 6. Selected Financial Data................................................................ 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation... 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................. 31
Item 8. Financial Statements and Supplementary Data............................................ 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 57
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 58
Item 11. Executive Compensation................................................................. 59
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 59
Item 13. Certain Relationships and Related Transactions......................................... 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 60
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PART I
Item 1. - Business
General
BancorpSouth, Inc. (the "Company") is a bank holding company with
commercial banking and financial services operations in Mississippi, Tennessee
and Alabama. Its principal subsidiary is BancorpSouth Bank (the "Bank"). The
Company's principal office is located at One Mississippi Plaza, Tupelo,
Mississippi 38804 and its telephone number is (662) 680-2000.
Description of Business
The Bank has its principal office in Tupelo, Lee County, Mississippi,
and conducts a general commercial banking and trust business through 167 offices
in 87 municipalities or communities in 50 counties throughout Mississippi,
western Tennessee and parts of Alabama. The Bank has grown through the
acquisition of other banks, the purchase of assets from federal regulators and
through the opening of new branches and offices. In addition, the Bank operates
investment services, consumer finance, credit life insurance and insurance
agency subsidiaries. At December 31, 1999, the Bank had total deposits of
approximately $4.82 billion and total assets of approximately $5.78 billion.
The Company, through its subsidiaries, provides a range of financial
services to individuals and small-to-medium size businesses. Various types of
checking accounts, both interest bearing and non-interest bearing, are
available. Savings accounts and certificates of deposit with a range of
maturities and interest rates are available to meet the needs of customers.
Other services include safe deposit and night depository facilities. Limited
24-hour banking with automated teller machines is provided in most of its
principal markets. The Bank is an issuing bank for MasterCard and overdraft
protection is available to approved MasterCard holders maintaining checking
accounts with the Bank.
The Company offers a variety of services through the Bank's trust
department of its subsidiary bank, including personal trust and estate services,
certain employee benefit accounts and plans, including individual retirement
accounts, and limited corporate trust functions.
At December 31, 1999, the Company and its subsidiaries employed 2,606
persons. The Company and its subsidiaries are not a party to any collective
bargaining agreements, and employee relations are considered to be good.
Competition
Vigorous competition exists in all major areas where the Company is
engaged in business. The Bank competes for available loans and depository
accounts with state and national commercial banks as well as savings and loan
associations, insurance companies, credit unions, money market mutual funds,
automobile finance companies and financial services companies. None of these
competitors is dominant in the entire area served by the Bank.
The principal areas of competition in the banking industry center on a
financial institution's ability and willingness to provide credit on a timely
and competitively priced basis, to offer a sufficient range of deposit and
investment opportunities at a competitive price and maturity, and to offer
personal and other services of sufficient quality and at competitive prices. The
Company and its subsidiaries believe they can compete effectively in all these
areas.
Regulation and Supervision
The following is a brief summary of the regulatory environment in which
the Company and its subsidiaries operate and is not designed to be a complete
discussion of all statutes and regulations affecting such operations, including
those statutes and regulation specifically mentioned herein.
The Company is a bank holding company and is registered as such under
the Bank Holding Company Act of 1956 with the Board of Governors of the Federal
Reserve System (the "Federal Reserve") and is subject to regulation and
supervision by the Federal Reserve. The Company is required to file with the
Federal Reserve annual reports and such other information as it may require. The
Federal Reserve may also conduct examinations of the Company.
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The Company is a legal entity which is separate and distinct from its
subsidiaries. There are various legal limitations on the extent to which the
Bank may extend credit, pay dividends or otherwise supply funds to the Company
or its affiliates. In particular, the Bank is subject to certain restrictions
imposed by federal law on any extensions of credit to the Company or, with
certain exceptions, other affiliates. Dividends to shareholders are paid from
dividends paid to the Company by the Bank, which are subject to regulation by
the Mississippi Department of Banking and Consumer Finance (the "Mississippi
Department").
The Bank is incorporated under the banking laws of the State of
Mississippi and is subject to the applicable provisions of Mississippi banking
laws. The Bank is subject to the supervision of the Mississippi Department and
to regular examinations by that department. The deposits in the Bank are insured
by the Federal Deposit Insurance Corporation (the "FDIC") and, therefore, the
Bank is subject to the provisions of the Federal Deposit Insurance Act and to
examination by the FDIC. The Bank is not a member of the Federal Reserve.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") permits, among other things, the acquisition by bank holding
companies of savings associations, irrespective of their financial condition,
and increased the deposit insurance premiums for banks and savings associations.
FIRREA also provides that commonly controlled federally insured financial
institutions must reimburse the FDIC for losses incurred by the FDIC in
connection with the default of another commonly controlled financial institution
or in connection with the provision of FDIC assistance to such a commonly
controlled financial institution in danger of default. Reimbursement liability
under FIRREA is superior to any obligations to shareholders of such federally
insured institutions (including a bank holding company such as the Company if it
were to acquire another federally insured financial institution), arising as a
result of their status as a shareholder of a reimbursing financial institution.
The Company and the Bank are subject to the provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). This statute
provides for increased funding for the FDIC's deposit insurance fund and
expanded the regulatory powers of federal banking agencies to permit prompt
corrective actions to resolve problems of insured depository institutions
through the regulation of banks and their affiliates, including bank holding
companies. The provisions are designed to minimize the potential loss to
depositors and to FDIC insurance funds if financial institutions default on
their obligations to depositors or become in danger of default. Among other
things, FDICIA provides a framework for a system of supervisory actions based
primarily on the capital levels of financial institutions. FDICIA also provides
for a risk-based deposit insurance premium structure. The FDIC charges an annual
assessment for the insurance of deposits based on the risk a particular
institution poses to its deposit insurance fund. While most of the Company's
deposits are in the Bank Insurance Fund (BIF), certain other of the Company's
deposits which were acquired from thrifts over the years remain in the Savings
Association Insurance Fund (SAIF).
The Company is required to comply with the risk-based capital
guidelines established by the FRB, and to other tests relating to capital
adequacy which the Federal Reserve adopts from time to time. See Note 19 of
Notes to Consolidated Financial Statements included in this report.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("IBBEA") was signed into law. IBBEA permits adequately
capitalized and managed bank holding companies to acquire control of banks in
states other than their home states, subject to federal regulatory approval,
without regard to whether such a transaction is prohibited by the laws of any
state. IBBEA permits states to continue to require that an acquired bank have
been in existence for a certain minimum time period which may not exceed five
years. A bank holding company may not, following an interstate acquisition,
control more than 10% of the nation's total amount of bank deposits or 30% of
bank deposits in the relevant state (unless the state enacts legislation to
raise the 30% limit). States retain the ability to adopt legislation to
effectively lower the 30% limit. Federal banking regulators may approve merger
transactions involving banks located in different states, without regard to laws
of any state prohibiting such transactions; except that, mergers may not be
approved with respect to banks located in states that, prior to June 1, 1997,
enacted legislation prohibiting mergers by banks located in such state with
out-of-state institutions. Federal banking regulators may permit an out-of-state
bank to open new branches in another state if such state has enacted legislation
permitting interstate branching. Affiliated institutions are authorized to
accept deposits for existing accounts, renew time deposits and close and service
loans for affiliated institutions without being deemed an impermissible branch
of the affiliate.
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The federal Gramm-Leach-Bliley Act of 1999 (the "GLBA") was signed into
law on November 12, 1999. Under the GLBA, banks are no longer prohibited by the
Glass-Steagall Act from associating with a company engaged principally in
securities activities. The GLBA also permits bank holding companies to elect to
become a "financial holding company," which would expand the powers of the bank
holding company. Financial holding company powers relate to financial activities
that are determined by the Federal Reserve to be financial in nature, incidental
to an activity that is financial in nature, or complementary to a financial
activity (provided that the complementary activity does not pose a safety and
soundness risk). The GLBA itself defines certain activities as financial in
nature, including lending activities, underwriting and selling insurance,
providing financial or investment advice, underwriting, dealing and making
markets in securities and merchant banking. In order to qualify as a financial
holding company, a bank holding company's depository subsidiaries must be both
well capitalized and well managed, and must have at least a satisfactory rating
under the Community Reinvestment Act. The bank holding company must also declare
its intention to become a financial holding company to the Federal Reserve and
certify that its depository subsidiaries meet the capitalization and management
requirements. The repeal of the Glass-Steagall Act provisions and the
availability of financial holding company powers became effective on March 11,
2000. The GLBA establishes the Federal Reserve as the umbrella regulator of
financial holding companies, with subsidiaries of the financial holding company
being more specifically regulated by other regulatory authorities, such as the
Securities and Exchange Commission, the Commodity Futures Trading Commission and
state securities and insurance regulators, based upon the subsidiaries'
particular activities. The GLBA also provides for minimum federal standards of
privacy to protect the confidentiality of the personal financial information of
customers and to regulate use of such information by financial institutions. A
bank holding company that does not elect to become a financial holding company
remains subject to the Bank Holding Company Act. Management believes that the
Company currently meets the requirements to make an election to become a
financial holding company under the GLBA; however, management is considering the
operational flexibility and other benefits, and the increased regulation,
expense and other disadvantages, associated with becoming a financial holding
company, and has not yet determined whether the Company will make an election to
become a financial holding company.
The Community Reinvestment Act of 1997 ("CRA") and its implementing
regulations are intended to encourage regulated financial institutions to meet
the credit need of their local community or communities, including low and
moderate income neighborhoods, consistent with the safe and sound operation of
such financial institutions. The regulations provide that the appropriate
regulatory authority will assess CRA reports in connection with applications for
establishment of domestic branches, acquisitions of banks or mergers involving
bank holding companies. An unsatisfactory CRA rating may serve as a basis to
deny an application to acquire or establish a new bank, to establish a new
branch or to expand banking services. At December 31, 1999, the Company had a
"satisfactory" CRA rating.
The Equal Credit Opportunity Act requires non-discrimination in banking
services. The federal enforcement agencies have recently cited institutions for
red-lining (refusing to extend credit to residents of a specific geographic area
known to be comprised predominantly of minorities) or reverse red-lining
(extending credit to minority applicants on terms less favorable than those
offered to non-minority applicants). Violations can result in the assessment of
substantial civil penalties.
The Bank's insurance subsidiaries are regulated by the insurance
regulatory authorities and applicable laws and regulations of the states in
which they operate.
Lending Activities
The Company's lending activities include both commercial and consumer
loans. Loan originations are derived from a number of sources including real
estate broker referrals, mortgage loan companies, direct solicitation by the
Company's loan officers, present savers and borrowers, builders, attorneys,
walk-in customers and, in some instances, other lenders. The Company has
established disciplined and systematic procedures for approving and monitoring
loans that vary depending on the size and nature of the loan.
Commercial Lending
The Bank offers a variety of commercial loan services including term
loans, lines of credit, equipment and receivable financing and agricultural
loans. A broad range of short-to-medium term commercial loans, both secured and
unsecured are made available to businesses for working capital (including
inventory and receivables), business expansion
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(including acquisition and development of real estate and improvements), and the
purchase of equipment and machinery. At times, the Company also makes
construction loans to real estate developers for the acquisition, development
and construction of residential subdivisions.
Commercial loans are granted based on the borrower's ability to
generate cash flow to support its debt obligations and other cash related
expenses. A borrower's ability to repay commercial loans is substantially
dependent on the success of the business itself and on the quality of its
management. As a general practice, the Bank takes as collateral a security
interest in any available real estate, equipment, inventory, receivables or
other personal property, although such loans may also be made infrequently on an
unsecured basis. Generally, the Bank requires personal guaranties of its
commercial loans to offset the risks associated with such loans.
The Bank has very little exposure as an agricultural lender. Crop
production loans are either fully supported by the collateral and financial
strength of the borrower, or else a 90% loan guaranty is obtained through the
Farmers Home Administration on such loans.
Residential Consumer Lending
A portion of the Bank's lending activities consists of the origination
of fixed and adjustable rate residential mortgage loans secured by
owner-occupied property located in the Bank's primary market areas. Home
mortgage lending is unique in that a broad geographic territory may be serviced
by originators working from strategically placed offices either within the
Bank's traditional banking facilities or from affordable storefront locations in
commercial buildings. In addition, the Bank offers construction loans, second
mortgages home improvement loans and home equity lines of credit. The Bank has
received an "outstanding" CRA rating from the FDIC Company after its most recent
examination.
The Bank finances the construction of individual, owner-occupied houses
on the basis of written underwriting and construction loan management
guidelines. First mortgage construction loans are made to solvent and competent
contractors on both a pre-sold and a "speculation" basis. Such loans are also
made to qualified individual borrowers and are generally supported by a take-out
commitment from a permanent lender. The Bank makes residential construction
loans to individuals who intend to erect owner occupied housing on a purchased
parcel of real estate. The construction phase of these loans have certain risks,
including the viability of the contractor, the contractor's ability to complete
the project and changes in interest rates.
In most cases, the Bank will sell its mortgage loans of 15 or more
years in term in the secondary market. The sale to the secondary market allows
the Bank to hedge against the interest rate risks related to such lending
operations. This brokerage arrangement allows the Bank to accommodate its
clients' demands while eliminating the interest rate risk for the 15 to 30 year
period generally associated with such loans. After the sale of a loan, the
Bank's only involvement is to act as a servicing agent.
The Bank in most cases requires title, fire, extended casualty
insurance, and, where required by applicable regulations, flood insurance to be
obtained by the borrower. The Bank maintains its own errors and omissions
insurance policy to protect against loss in the event of failure of a mortgagor
to pay premiums on fire and other hazard insurance policies. Mortgage loans
originated by the Bank customarily include a "due on sale" clause giving the
Bank the right to declare a loan immediately due and payable in the event, among
other matters, that the borrower sells or otherwise disposes of the real
property subject to a mortgage. In general, the Bank enforces due on sales
clauses. Borrowers are typically permitted to refinance or repay loans at their
option without penalty.
Non-Residential Consumer Lending
Non-residential consumer loans made by the Bank include loans for
automobiles, recreation vehicles, boats, personal (secured and unsecured) and
deposit account secured loans. In addition, the Bank provides federally insured
or guaranteed student loans to students at major universities and community
colleges in the Bank's market areas. The Bank also conducts various indirect
lending activities through established retail companies in its market areas.
Non-residential consumer loans are attractive to the Bank because they typically
have a shorter term and carry higher interest rates than
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that charged on other types of loans. Non-residential consumer loans, however,
do pose additional risks of collectability when compared to traditional types of
loans granted by commercial banks such as residential mortgage loans.
The Bank also issues credit cards solicited on the basis of
applications received through referrals from the Bank's branch networks. The
Bank generally has a small portfolio of credit card receivables outstanding.
Credit card lines are underwritten using conservative credit criteria, including
past credit history and debt-to-income ratios, similar to the credit policies
applicable to other personal consumer loans. Historically, the Bank believes
that its credit card losses have been well-below industry norms.
Consumer loans are granted based on employment and financial
information solicited from prospective borrowers as well as credit records
collected from various reporting agencies. Stability of the borrower,
willingness to pay and credit history are the primary factors to be considered.
The availability of collateral is also a factor considered in making such a
loan. The Bank seeks collateral that can be assigned and has good marketability
with a clearly adequate margin of value. The geographic area of the borrower is
another consideration with preference given to borrowers in the Bank's market
area.
Other Financial Services
The Bank's consumer finance subsidiaries extend consumer loans to
individuals and entities that may not satisfy the Bank's lending standards, and
operate in 51 offices located in 51 communities in Mississippi, Tennessee and
Alabama.
The Bank's insurance service subsidiaries serve as agents in the sale
of title, life, automobile, homeowners, farmowners and other commercial
insurance policies, and operate in 94 offices in Mississippi, Tennessee and
Alabama. On June 30, 1999, Stewart Sneed Hewes, Inc. and its affiliated
companies merged with one of the Bank's insurance services subsidiaries. Founded
in 1905, Stewart Sneed Hewes specialized in commercial lines of insurance and
offered a full line of property and casualty, life, health and employee benefits
products and services. Stewart Sneed Hewes was one of the largest insurance
brokerage organizations in Mississippi. Headquartered in Gulfport, Mississippi,
Stewart Sneed Hewes operated in 6 communities in Mississippi.
The Bank's investment services subsidiary provides brokerage,
investment advisory and asset management services, and operates in 8 communities
in Mississippi, Tennessee and Alabama.
See Note 20 to the Company's Consolidated Financial Statements included
elsewhere in the Report for financial information about each segment of the
Company, as defined by generally accepted accounting principles.
Asset Quality
Management seeks to maintain a high quality of assets through
conservative underwriting and sound lending practices. Management intends to
follow this policy even though it may result in foregoing the funding of higher
yielding loans. While there is no assurance that the Company will not suffer
losses on its loans, management believes that the Company has in place adequate
underwriting and loan administration policies and personnel to manage the
associated risks prudently.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. Undesirable loans include loans
to provide initial equity and working capital to new businesses with no other
capital strength, loans secured by unregistered stock, loans for speculative
transactions in stock, land or commodity markets, loans to borrowers or the
taking of collateral outside the Company's market area, loans dependent on
secondary liens as primary collateral, and non-recourse loans. To the extent
risks are identified, additional precautions are taken in order to reduce the
Company's risk of loss. Commercial loans entail certain additional risks since
they usually involve large loan balances to single borrowers or a related group
of borrowers, resulting in a more concentrated loan portfolio. Further, since
their payment is usually dependent upon the successful operation of the
commercial enterprise, they also are subject to adverse conditions in the
economy.
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The Board of Directors of the Bank concentrates its efforts and
resources, and that of its management and lending officials, on loan review and
underwriting policies. Loan status and monitoring is handled through the Bank's
Loan Administration Department. Weak financial performance is identified and
monitored using past due reporting, the internal loan rating system, loan review
reports, the various loan committee functions, and periodic Asset Quality Rating
Committee meetings. Senior loan officers have established a review process with
the objective of quickly identifying, evaluating and initiating necessary
corrective action for substandard loans. The results of loan reviews are
reported to the audit committee of the Company's and the Bank's Board of
Directors. Combined, these components are integral elements of the Bank's loan
program, which has resulted in its loan portfolio performance to date.
Nonetheless, management maintains a cautious outlook in anticipating the
potential effects of uncertain economic conditions (both locally and nationally)
and the possibility of more stringent regulatory standards.
Selected Statistical Information
Set forth in this section below is certain selected statistical
information relating to the Company's business.
Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and
Interest Differentials
See "Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption "Net Interest Revenue"
included herein for information regarding the distribution of assets,
liabilities and shareholders' equity, and interest rates and interest
differentials.
Analysis of Changes in Effective Interest Differential
See "Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption "Net Interest Revenue"
included herein for information regarding the analysis of changes in effective
interest differential.
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Investment Portfolio
Held-to-Maturity Securities
The following table shows the amortized cost of held-to-maturity
securities at December 31, 1999, 1998 and 1997:
December 31,
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1999 1998 1997
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(In thousands)
U. S. Treasury securities $ 60,971 $103,012 $109,013
U. S. Government agency
securities 560,350 333,866 288,711
Taxable obligations of states
and political subdivisions 6,041 2,295 8,131
Tax exempt obligations of states
and political subdivisions 213,392 212,408 169,037
Other securities -- -- 15
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TOTAL $840,754 $651,581 $574,907
======== ======== ========
The following table shows the maturities and weighted average yields as
of the end of the latest period for each investment category presented above:
December 31, 1999
------------------------------------------------------
U.S.
U.S. GOVERMENT STATES & WEIGHTED
TREASURY AGENCY POLITICAL AVERAGE
SECURITIES SECURITIES SUBDIVISIONS YIELD
---------- ---------- ------------ -----
(In thousands)
PERIOD TO MATURITY:
Maturing within
one year $38,955 $ 48,564 $ 21,898 6.08%
Maturing after one
year but within
five years 22,016 384,367 113,412 5.94%
Maturing after five
years but within
ten years -- 117,531 60,529 6.68%
Maturing after ten
years -- 9,888 23,594 7.29%
------- -------- --------
TOTAL $60,971 $560,350 $219,433
======= ======== ========
The yield on tax-exempt obligations of states and political
subdivisions has been adjusted to a taxable equivalent basis using a 35% tax
rate.
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Available-for-Sale Securities
The following table shows the book value of available-for-sale
securities at December 31, 1999, 1998 and 1997:
December 31,
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1999 1998 1997
-------- -------- --------
(In thousands)
U. S. Treasury securities $ 66,024 $106,225 $143,948
U. S. Government agency
securities 195,990 335,506 318,963
Taxable obligations of states
and political subdivisions 6,415 5,739 1,229
Tax exempt obligations of states
and political subdivisions 32,330 38,696 18,034
Other securities 44,525 97,574 55,306
-------- -------- --------
TOTAL $345,284 $583,740 $537,480
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The following table shows the maturities and weighted average yields as
of the end of the latest period for each investment category presented above:
December 31, 1999
---------------------------------------------------------------
U.S.
U.S. GOVERMENT STATES & WEIGHTED
TREASURY AGENCY POLITICAL OTHER AVERAGE
SECURITIES SECURITIES SUBDIVISIONS SECURITIES YIELD
---------- ---------- ------------ ---------- -----
(In thousands)
PERIOD TO MATURITY:
Maturing within
one year $12,235 $ 20,933 $ 1,017 $ 5,843 6.16%
Maturing after one
year but within
five years 48,510 94,000 4,577 13,521 6.22%
Maturing after five
years but within
ten years 5,279 61,842 15,021 23,461 6.64%
Maturing after ten
years -- 19,215 18,130 1,700 6.95%
------- -------- ------- -------
TOTAL $66,024 $195,990 $38,745 $44,525
======= ======== ======= =======
The yield on tax-exempt obligations of states and political
subdivisions has been adjusted to a taxable equivalent basis using a 35% tax
rate.
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Loan Portfolio
The Company's loans are widely diversified by borrower and industry.
The following table shows the composition of loans by collateral type of the
Company at December 31 for the years indicated.
DECEMBER 31,
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1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In thousands)
Commercial &
agricultural (1) $ 371,169 $ 395,514 $ 369,427 $ 322,658 $ 299,920
Consumer & installment 978,013 930,698 898,348 818,091 774,012
Real estate mortgage (2) 2,514,573 2,113,380 1,819,396 1,640,755 1,519,718
Lease financing 254,868 210,559 172,821 149,582 122,290
Other 12,795 26,393 26,005 20,483 23,062
---------- ---------- ---------- ---------- ----------
Total gross loans $4,131,418 $3,676,544 $3,285,997 $2,951,569 $2,739,002
========== ========== ========== ========== ==========
(1) Including $11,731,000, $16,864,000, $16,691,000, $18,731,000 and
$19,637,000 in 1999, 1998, 1997, 1996 and 1995, respectively, of loans
classified as agricultural.
(2) Including $63,038,000, $49,214,000, $44,249,000, $42,672,000 and
$36,448,000 in 1999, 1998, 1997, 1996 and 1995, respectively, of loans
secured by or relating to agricultural land.
Maturity Distribution of Loans
The maturity distribution of the Company's loan portfolio is one factor
in management's evaluation of the risk characteristics of the loan portfolio.
The following table shows the maturity distribution of gross loans of the
Company as of December 31, 1999.
ONE YEAR ONE TO AFTER
OR LESS FIVE YEARS FIVE YEARS
---------- ---------- ----------
(In thousands)
Commercial
& agricultural $ 191,841 $ 152,194 $ 27,134
Consumer & installment 430,284 538,472 9,257
Real estate mortgages 842,592 1,269,488 402,493
Lease financing 80,047 162,011 12,810
Other 10,073 2,467 255
---------- ---------- --------
Total gross loans $1,554,837 $2,124,632 $451,949
========== ========== ========
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Sensitivity of Loans to Changes in Interest Rates
The interest sensitivity of the Company's loans is important in the
management of effective interest differential. The Company attempts to manage
the relationship between the rate sensitivity of its assets and liabilities to
produce an effective interest differential that is not significantly impacted by
the level of interest rates. The following table shows the interest sensitivity
of the Company's gross loans as of December 31, 1999.
December 31, 1999
--------------------------
FIXED VARIABLE
RATE RATE
---------- --------
(In thousands)
Loan Portfolio
Due after one year $2,330,022 $246,559
---------- --------
Non-accrual, Past Due and Restructured Loans
Non-performing loans consist of both non-accrual loans and loans which
have been restructured (primarily in the form of reduced interest rates) because
of the borrower's weakened financial condition. The aggregate principal balance
of non-accrual loans was $5,150,000, $6,629,000, $5,179,000, $6,593,000 and
$3,696,000 at December 31, 1999, 1998, 1997, 1996 and 1995, respectively. The
aggregate principal balance of restructured loans was $91,000, $713,000,
$1,097,000, $1,812,000 and $281,000 at December 31, 1999, 1998, 1997, 1996 and
1995, respectively. The total amount of interest earned on non-performing loans
was approximately $126,000, $153,000, $58,000, $42,000 and $70,000 in 1999,
1998, 1997, 1996 and 1995, respectively. The gross interest income that would
have been recorded under the original terms of those loans amounted to $361,000,
$385,000, $263,000, $373,000 and $112,000 in 1999, 1998, 1997, 1996 and 1995,
respectively. Accruing loans which were contractually past due 90 days or more
for years ended December 31, 1999, 1998, 1997, 1996 and 1995, amounted to
$14,378,000, $10,308,000, $8,659,000, $6,687,000 and $6,203,000, respectively.
Loans considered impaired, under Statement of Financial Accounting
Standards ("SFAS") No. 114, as amended by SFAS No. 118, are loans which, based
on current information and events, it is probable that the creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. The Company's recorded investment in loans considered impaired at
December 31, 1999 and 1998 was $5,790,000 and $8,643,000, respectively, with a
valuation reserve of $2,176,000 and $3,223,000, respectively. The average
recorded investment in impaired loans during 1999 and 1998 was $6,207,000 and
$9,187,000, respectively.
The Company's policy provides that loans, other than installment loans,
are generally placed in non-accrual status if, in management's opinion, payment
in full of principal or interest is not expected, or when payment of principal
or interest is more than 90 days past due, unless the loan is both well-secured
and in the process of collection.
In the normal course of business, management becomes aware of possible
credit problems in which borrowers exhibit potential for the inability to comply
with the contractual terms of their loans, but which do not currently meet the
criteria for disclosure as problem loans. Historically, some of these loans are
ultimately restructured or placed in non-accrual status. At December 31, 1999,
no loans were known to be potential problem loans.
At December 31, 1999, the Company did not have any concentration of
loans in excess of 10% of total loans outstanding. Loan concentrations are
considered to exist when there are amounts loaned to a multiple number of
borrowers engaged in similar activities, which would cause them to be similarly
impacted by economic or other conditions. However, the Company does conduct
business in a geographically concentrated area. The ability of the Company's
borrowers to repay loans is to some extent dependent upon the economic
conditions prevailing in the Company's market area.
13
14
Summary of Loan Loss Experience
In the normal course of business, the Company assumes risks in
extending credit. The Company manages these risks through its lending policies,
loan review procedures and the diversification of its loan portfolio. Although
it is not possible to predict loan losses with certainty, management
continuously reviews the characteristics of the loan portfolio to determine its
overall risk profile and quality.
Constant attention to the quality of the loan portfolio is achieved by
a formal loan review process. The Board of Directors of the Bank has appointed a
Loan Loss Reserve Valuation Committee (the Committee) which is responsible for
ensuring that the allowance for loan and leases losses (ALLL) provides coverage
of both known and inherent losses. The Committee considers estimates of loss for
individually-analyzed credits as well as factors such as historical experience,
changes in economic and business conditions and concentrations of risk in
determining the level of ALLL. The Committee meets a least quarterly to
determine the amount of additions to the ALLL. The Committee is composed of
senior management from Loan Administration, Lending and Finance. In each period,
the Committee bases the ALLL on its loan classification system as well as an
analysis of general economic and business trends in our region and nationally.
A key input for determining the amount of the ALLL is the Company's
loan classification system. The Company has a disciplined approach for assigning
credit ratings and classifications to individual credits. Each credit is
assigned a grade by the loan officer at origination that serves as a basis for
the credit analysis of the entire portfolio. Periodically, loan officers review
the status of each credit and update its grading. The gradings assigned by the
loan officer are reviewed by an independent Loan Review Department (Loan
Review). Loan Review is responsible for reviewing the credit rating and
classification of individual credits. They also assess trends in the overall
portfolio, adherence to internal credit policies and Loan Administration
procedures and other factors that may affect the overall adequacy of the ALLL.
Throughout this on-going process, management and the Committee are advised of
the condition of individual loans and of the quality profile of the entire loan
portfolio for consideration in establishing the ALLL.
Any loan or portion thereof which is classified as "loss" by regulatory
examiners or which is determined by management to be uncollectible because of
such factors as the borrower's failure to pay interest or principal, the
borrower's financial condition, economic conditions in the borrower's industry,
or the inadequacy of underlying collateral, is charged off.
The provision for credit losses charged to operating expense is an
amount which, in the judgment of management, is necessary to maintain the
allowance for credit losses at a level that is adequate to meet the present and
potential risks of losses on the Company's current portfolio of loans.
Management's judgment is based on a variety of factors which include the
Company's experience related to loan balances, charge-offs and recoveries,
scrutiny of individual loans and risk factors, results of regulatory agency
reviews of loans and economic conditions of the Company's market area. Material
estimates that are particularly susceptible to significant change in the near
term are a necessary part of this process. Future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for credit losses. Such agencies may
require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Management does not believe the allowance for credit losses can be
fragmented by category of loans with any precision that would be useful to
investors but is doing so in this report only in an attempt to comply with
disclosure requirements of regulatory agencies. The breakdown of the allowance
by loan category is based in part on evaluations of specific loans' past history
and on economic conditions within specific industries or geographical areas.
Accordingly, since all of these conditions are subject to change, the allocation
is not necessarily indicative of the breakdown of any future losses.
The following table presents (a) the breakdown of the allowance for
credit losses by loan category and (b) the percentage of each category in the
loan portfolio to total loans at December 31 for the years presented:
14
15
1999 1998 1997 1996 1995
----------------- ----------------- ----------------- ----------------- -----------------
ALLOW % OF ALLOW % OF ALLOW % OF ALLOW % OF ALLOW % OF
FOR LOANS TO FOR LOANS TO FOR LOANS TO FOR LOANS TO FOR LOANS TO
CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL
LOSS LOANS LOSS LOANS LOSS LOANS LOSS LOANS LOSS LOANS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Commercial & agricultural $3,932 8.98% $ 3,924 10.76% $ 3,294 11.24% $ 4,003 10.93% $ 3,461 10.95%
Consumer & installment 19,586 23.67% 19,105 25.31% 16,653 27.34% 13,163 27.72% 11,443 28.26%
Real estate mortgage 28,761 60.87% 25,102 57.48% 21,559 55.37% 22,467 55.59% 22,462 55.49%
Lease financing 3,196 6.17% 2,802 5.73% 2,592 5.26% 2,070 5.07% 1,433 4.46%
Other 82 0.31% 150 0.72% 140 0.79% 3 0.69% -- 0.84%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL $55,557 100.00% $51,083 100.00% $44,238 100.00% $41,706 100.00% $38,799 100.00%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
The following table sets forth certain information with respect to the
Company's loans (net of unearned discount) and the allowance for credit losses
for the five years ended December 31, 1999.
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
LOANS
Average loans for the period $ 3,799,799 $ 3,424,008 $ 3,004,058 $ 2,787,794 $ 2,478,363
=========== =========== =========== =========== ===========
ALLOWANCE FOR CREDIT LOSSES
Balance, beginning
of period $ 51,083 $ 44,238 $ 41,706 $ 38,799 $ 34,806
Loans charged off:
Commercial & agricultural (520) (1,493) (1,307) (1,919) (1,445)
Consumer & installment (10,438) (9,749) (8,477) (7,031) (5,305)
Real estate mortgage (1,326) (2,130) (1,304) (845) (742)
Lease financing (66) (75) (48) (30) (1)
----------- ----------- ----------- ----------- -----------
Total loans charged off (12,350) (13,447) (11,136) (9,825) (7,493)
----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial & agricultural 304 422 634 771 471
Consumer & installment 1,595 2,315 1,499 1,502 1,319
Real estate mortgage 177 303 366 254 381
Lease financing 59 20 57 5 18
----------- ----------- ----------- ----------- -----------
Total recoveries 2,135 3,060 2,556 2,532 2,189
----------- ----------- ----------- ----------- -----------
Net charge-offs (10,215) (10,387) (8,580) (7,293) (5,304)
Provision charged to
operating expense 14,689 16,080 10,516 10,200 7,183
Acquisitions -- 1,152 596 -- 2,114
----------- ----------- ----------- ----------- -----------
Balance, end of period $ 55,557 $ 51,083 $ 44,238 $ 41,706 $ 38,799
=========== =========== =========== =========== ===========
RATIOS
Net charge-offs to
average loans 0.27% 0.30% 0.29% 0.26% 0.21%
=========== =========== =========== =========== ===========
15
16
Deposits
Deposits represent the principal source of funds for the Company. The
distribution and market share of deposits by type of deposit and by type of
depositor are important considerations in the Company's assessment of the
stability of its funds sources and its access to additional funds. Furthermore,
management shifts the mix and maturity of the deposits depending on economic
conditions and loan and investment policies in an attempt, within set policies,
to minimize cost and maximize effective interest differential.
The following table shows the classification of deposits on an average
basis for the three years ended December 31, 1999.
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
---------- -------- ---------- ------- ---------- --------
(Dollars in thousands)
Non-interest bearing
demand deposits $ 603,545 -- $ 554,450 -- $ 485,542 --
Interest bearing
demand deposits 1,098,270 2.41% 997,007 2.63% 912,813 3.17%
Savings deposits 818,375 4.78% 715,368 4.85% 576,464 4.20%
Time deposits 2,159,454 5.26% 2,136,382 5.56% 1,931,880 5.57%
---------- ---------- ----------
TOTAL DEPOSITS $4,679,644 $4,403,207 $3,906,699
========== ========== ==========
Time deposits of $100,000 and over including certificates of deposits
of $100,000 and over at December 31, 1999, had maturities as follows:
DECEMBER 31,
1999
--------
(In thousands)
Three months or less $328,278
Over three months through six months 178,105
Over six months through twelve months 186,278
Over twelve months 147,757
--------
TOTAL $840,418
========
16
17
Return on Equity and Assets
Return on average common equity, average assets, and the dividend
payout ratio are based on net income for the three years ended December 31,
1999, as presented below:
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
----- ----- -----
Return on average common equity 14.47% 13.16% 13.89%
Return on average assets 1.24 1.12 1.20
Dividend payout ratio 40.83 44.55 39.90
The Company's average common equity as a percent of average assets was
8.57%, 8.51% and 8.65% for 1999, 1998 and 1997, respectively.
Short-Term Borrowings
See Note 9 of Notes to Consolidated Financial Statements included
herein for information about short-term borrrowings.
Item 2. - Properties
The physical properties of the Company are held in its subsidiaries as
follows:
a. BancorpSouth Bank - The main office is located at One
Mississippi Plaza in the central business district of Tupelo,
Mississippi in a seven-floor modern glass, concrete and steel
office building owned by the Bank. The Bank occupies
approximately 80% of the rentable space, with the remainder
leased to various unaffiliated tenants.
The Bank owns 136 of its 154 branch banking facilities. The
remaining 18 branch banking facilities are occupied under
leases varying in length from one to eight years. The Bank
also owns several buildings in the Hattiesburg, Mississippi,
area (which provide space for certain of its Southern Region
activities, including warehouse requirements, mortgage
lending, trust services, lease servicing and central
operations), an operations center near the Tupelo Municipal
Airport, an office building in downtown Jackson, Mississippi
(which has approximately 86,000 square feet of space, of which
the Bank uses approximately two-thirds for banking activities
while leasing or holding for lease the remaining 28,000 square
feet) and an office building in downtown Gulfport, Mississippi
(which has approximately 85,000 square feet of space, of which
the Bank uses approximately 7,500 square feet for banking
activities while leasing or holding for lease the remaining
portion of the building).
The Bank considers all its buildings and leased premises to be
in good condition. The Bank also owns several parcels of
property acquired under foreclosure. Ownership of and rentals
on other real property by the Bank are not material.
b. Personal Finance Corporation - This wholly-owned subsidiary of
the Bank occupies 38 leased offices, with the unexpired terms
varying in length from one to five years. The average size of
these leased offices is approximately 1,000 square feet. All
these premises are considered to be in good condition.
c. BancorpSouth Insurance Services of Mississippi, Inc. - This
wholly-owned subsidiary of the Bank owns four of the six
offices it occupies. It leases two offices that have unexpired
terms varying in length from five months to one year.
17
18
Item 3. - Legal Proceedings
The Company and its subsidiaries are defendants in various lawsuits
arising in the ordinary course of business. In the opinion of management, after
consultation with outside legal counsel, the outcome of these actions should not
have a material adverse effect on the financial condition of the Company and its
subsidiaries, taken as a whole.
Item 4. - Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of 1999.
Executive Officers of the Company
For information regarding executive officers of the Company, see "Item
10. - Directors and Executive Officers of the Registrant" in this Report.
PART II
Item 5. - Market for the Registrant's Common Equity and Related Stockholder
Matters
Market for Common Stock
The common stock of the Company trades on the New York Stock Exchange
under the symbol BXS. The following table sets forth, for the periods indicated,
the range of sale prices of the Company's common stock as reported on the New
York Stock Exchange. The prices have been restated to reflect the effect of the
two-for-one stock split effected in the form of a 100% stock dividend paid May
15, 1998.
High Low
----- ---
1999:
4th quarter $17.5000 $16.3125
3rd quarter 19.3750 15.3750
2nd quarter 19.1250 15.8125
1st quarter 19.4375 15.7500
High Low
----- ---
1998:
4th quarter $21.5625 $17.7500
3rd quarter 22.4375 16.8125
2nd quarter 23.0625 20.3125
1st quarter 24.0000 20.6250
Holders of Record
As of February 29, 2000, there were 9,149 shareholders of record of the
Company's common stock.
Dividends
The Company declared cash dividends totaling $0.49 per share during
1999, $0.45 during 1998 and $0.395 during 1997. Future dividends, if any, will
vary depending on the Company's profitability and anticipated capital
requirements and applicable federal and state regulations. See "Item 1. -
Business - Regulation and Supervision".
18
19
Item 6. - Selected Financial Data
SELECTED FINANCIAL INFORMATION (UNAUDITED)
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
Earnings Summary:
Interest revenue $ 414,187 $ 398,003 $ 353,774 $ 322,410 $ 294,901
Interest expense 196,686 194,309 167,606 148,999 135,938
---------- ---------- ---------- ---------- ----------
Net interest revenue 217,501 203,694 186,168 173,411 158,963
Provision for credit losses 14,689 16,080 10,516 10,200 7,183
---------- ---------- ---------- ---------- ----------
Net interest revenue, after provision
for credit losses 202,812 187,614 175,652 163,211 151,780
Other revenue 79,331 66,242 59,679 56,529 48,485
Other expense 183,000 166,514 156,574 142,039 136,649
---------- ---------- ---------- ---------- ----------
Income before income taxes 99,143 87,342 78,757 77,701 63,616
Income tax expense 30,190 29,369 24,891 26,350 19,041
---------- ---------- ---------- ---------- ----------
Net income $ 68,953 $ 57,973 $ 53,866 $ 51,351 $ 44,575
========== ========== ========== ========== ==========
Per Share Data:
Net income: Basic $ 1.21 $ 1.02 $ 1.00 $ 1.00 $ 0.87
Diluted 1.20 1.01 0.99 0.99 0.87
Cash dividends 0.49 0.45 0.395 0.35 0.31
Book value 8.70 8.18 7.45 6.91 6.23
Balance Sheet - Averages:
Total assets $5,563,010 $5,177,846 $4,481,933 $4,055,489 $3,711,949
Held-to-maturity securities 784,372 723,981 612,308 512,958 559,217
Available-for-sale securities 475,929 555,978 437,748 360,821 307,732
Loans, net of unearned discount 3,799,799 3,424,008 3,004,058 2,787,794 2,478,363
Total deposits 4,679,644 4,403,207 3,906,699 3,509,474 3,226,575
Total shareholders' equity 476,453 440,659 387,675 335,356 304,628
Selected Ratios:
Return on average assets 1.24% 1.12% 1.20% 1.27% 1.20%
Return on average shareholders' equity 14.47% 13.16% 13.89% 15.31% 14.63%
19
20
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
QUARTER ENDED
----------------------------------------------
MAR 31 JUN 30 SEPT 30 DEC 31
------- -------- -------- --------
(In thousands, except per share amounts)
1999
Interest revenue $99,414 $101,199 $104,323 $109,251
Net interest revenue 52,305 53,493 54,666 57,037
Provision for credit losses 3,063 3,607 4,112 3,907
Income before income taxes 23,440 24,298 26,523 24,882
Net income 16,865 16,450 17,580 18,058
Earnings per share: Basic 0.29 0.29 0.31 0.32
Diluted 0.29 0.29 0.31 0.31
Dividends per share 0.12 0.12 0.12 0.13
1998
Interest revenue $96,806 $100,412 $100,837 $ 99,948
Net interest revenue 49,793 51,020 51,315 51,566
Provision for credit losses 3,731 3,443 5,089 3,817
Income before income taxes 23,167 24,542 22,320 17,313
Net income 15,422 16,281 14,561 11,709
Earnings per share: Basic 0.27 0.28 0.26 0.21
Diluted 0.27 0.28 0.25 0.21
Dividends per share 0.11 0.11 0.11 0.12
1997
Interest revenue $84,224 $ 87,726 $ 89,888 $ 91,936
Net interest revenue 44,747 46,645 46,702 48,074
Provision for credit losses 1,740 2,481 2,804 3,491
Income before income taxes 20,604 21,832 20,262 16,059
Net income 13,762 14,640 13,849 11,615
Earnings per share: Basic 0.25 0.27 0.26 0.21
Diluted 0.25 0.27 0.25 0.21
Dividends per share 0.095 0.095 0.095 0.11
20
21
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a bank holding company with commercial banking
operations in Mississippi, Tennessee and Alabama. The Bank, the Company's
banking subsidiary, is headquartered in Tupelo, Mississippi. The Bank and its
consumer finance, credit life insurance, insurance agency and brokerage
subsidiaries provide commercial banking, leasing, mortgage origination and
servicing, life insurance, brokerage and trust services to corporate customers,
local governments, individuals and other financial institutions through an
extensive network of branches and offices located throughout Mississippi, west
Tennessee and certain Alabama markets.
The following discussion provides certain information concerning the
consolidated financial condition and results of operations of the Company. For a
complete understanding of the following discussion, reference is made to the
Consolidated Financial Statements and Notes thereto presented elsewhere in this
Annual Report.
THREE YEARS ENDED DECEMBER 31, 1999
RESULTS OF OPERATIONS
Summary
The table below summarizes the Company's net income, return on average
assets and return on average shareholders' equity for the years ended December
31, 1999, 1998 and 1997.
1999 1998 1997
---- ---- ----
(Dollars in thousands, except per share amounts)
Net income $ 68,953 $ 57,973 $ 53,866
Net income per share: Basic $ 1.21 $ 1.02 $ 1.00
Diluted $ 1.20 $ 1.01 $ 0.99
Return on average assets 1.24% 1.12% 1.20%
Return on average shareholders' equity 14.47% 13.16% 13.89%
NET INTEREST REVENUE
Net interest revenue is the difference between interest revenue earned
from earning assets such as loans, leases and securities, and interest expense
paid on liabilities such as deposits and borrowings, and continues to provide
the Company with its principal source of revenue. Net interest revenue is
affected by the general level of interest rates, changes in interest rates and
by changes in the amount and composition of interest earning assets and interest
bearing liabilities. The Company's long-term objective is to manage those assets
and liabilities to maximize net interest revenue, while balancing interest rate,
credit, liquidity and capital risks. The relative performance of the lending and
deposit-raising functions is frequently measured by two calculations - net
interest margin and net interest rate spread. Net interest margin is determined
by dividing fully-taxable equivalent net interest revenue by average earning
assets. Net interest rate spread is the difference between the average
fully-taxable equivalent yield earned on interest earning assets and the average
rate paid on interest bearing liabilities. Net interest margin is generally
greater than the net interest rate spread due to the additional income earned on
those assets funded by non-interest bearing liabilities, or free funding, such
as demand deposits and shareholders' equity.
The Company has shown significant growth in average interest earning
assets and average interest bearing liabilities during the three years ended
December 31, 1999. Average interest earning assets increased by 7.4% during
1999, 15.6% during 1998 and 11.0% during 1997. Average interest bearing
liabilities for increased 7.3% during 1999, 16.0% during 1998 and 10.6% during
1997. Net interest margin for 1999 was 4.28%, a decline of three basis points
from 4.31% for 1998, which represented a decline of 25 basis points from 4.56%
for 1997.
21
22
The following table presents average interest earning assets, average
interest bearing liabilities, net interest income, net interest margin and net
interest rate spread for the three years ended December 31, 1999.
Each of the measures is reported on a fully-taxable equivalent basis.
1999 1998 1997
------------------------------- ------------------------------- ---------------------------------
(Taxable equivalent basis) Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
(Dollars in thousands)
ASSETS
Interest bearing deposits in
other banks $ 10,081 $ 556 5.52% $ 10,250 $ 598 5.83% $ 10,778 $ 578 5.36%
Held-to-maturity securities:
U.S. treasury and agencies 555,822 33,856 6.09% 528,222 32,234 6.10% 444,605 28,931 6.51%
State and political
subdivisions (1) 228,550 13,770 6.02% 195,758 12,842 6.56% 167,688 12,042 7.18%
Other securities -- -- -- 1 -- -- 15 -- --
Available-for-sale securities(2) 475,929 28,683 6.03% 555,978 34,344 6.18% 437,748 27,901 6.37%
Federal funds sold 80,340 3,974 4.95% 77,606 4,090 5.27% 95,521 5,102 5.34%
Loans (net of unearned
discount) (3) (5) 3,799,799 335,121 8.82% 3,424,008 315,515 9.21% 3,004,058 281,839 9.38%
Mortgages held for sale 51,664 3,638 7.04% 52,634 3,470 6.59% 29,409 2,103 7.15%
---------- -------- ---------- -------- ---------- --------
Total interest earning
assets and revenue 5,202,185 419,598 8.07% 4,844,457 403,093 8.32% 4,189,822 358,496 8.56%
Other assets 414,308 381,425 335,480
Less: allowance for credit
losses (53,483) (48,036) (43,369)
---------- ---------- ----------
Total $5,563,010 $5,177,846 $4,481,933
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand - interest bearing $1,098,270 $ 26,453 2.41% $ 997,007 $ 26,210 2.63% $ 912,813 $ 28,965 3.17%
Savings 818,375 39,090 4.78% 715,368 34,697 4.85% 576,464 24,228 4.20%
Time 2,159,454 113,686 5.26% 2,136,382 118,761 5.56% 1,931,880 107,520 5.57%
Federal funds purchased and
securities sold under
repurchase agreements 103,258 4,403 4.26% 62,796 2,861 4.56% 47,026 2,342 4.98%
Other short-term borrowings(4) 57,803 3,421 5.92% 13,622 906 6.65% 12,943 1,130 8.73%
Long-term debt 170,377 9,633 5.65% 183,815 10,874 5.92% 61,202 3,421 5.59%
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities and expense 4,407,537 196,686 4.46% 4,108,990 194,309 4.73% 3,542,328 167,606 4.73%
Demand deposits -
non-interest bearing 603,545 554,450 485,542
Other liabilities 75,475 73,747 66,388
---------- ---------- ----------
Total liabilities 5,086,557 4,737,187 4,094,258
Shareholders' equity 476,453 440,659 387,675
---------- ---------- ----------
Total $5,563,010 $5,177,846 $4,481,933
========== ========== ==========
Net interest revenue $222,912 $208,784 $190,890
======== ======== ========
Net interest margin 4.28% 4.31% 4.56%
Net interest rate spread 3.60% 3.59% 3.82%
Interest bearing liabilities to
interest earning assets 84.72% 84.82% 84.55%
(1) Includes taxable equivalent adjustments of $3,345,000, $3,226,000 and
$2,922,000 in 1999, 1998 and 1997, respectively, using an effective tax
rate of 35%.
(2) Includes taxable equivalent adjustment of $854,000, $828,000 and
$1,027,000 in 1999, 1998 and 1997, respectively, using an effective tax
rate of 35%.
(3) Includes taxable equivalent adjustment of $1,212,000, $1,036,000 and
$772,000 in 1999, 1998 and 1997, respectively, using an effective tax
rate of 35%.
(4) Interest expense includes interest paid on liabilities not included in
averages.
(5) Non-accrual loans are immaterial for each of the years presented.
22
23
Net interest revenue may also be analyzed by segregating the rate and
volume components of interest revenue and interest expense. The table that
follows presents an analysis of rate and volume change in net interest revenue
from 1997 to 1998 and from 1998 to 1999. Changes, which are not solely due to
volume or rate, are allocated to volume.
1999 OVER 1998 - 1998 OVER 1997 -
INCREASE (DECREASE) INCREASE (DECREASE)
-------------------------------- -------------------------------
(Taxable equivalent basis) Volume Rate Total Volume Rate Total
-------- -------- -------- -------- ------- --------
(In thousands)
INTEREST REVENUE
Due from banks - interest bearing $ (9) $ (33) $ (42) $ (31) $ 51 $ 20
Held-to-maturity securities:
U.S. Government agencies 1,681 (59) 1,622 5,103 (1,800) 3,303
State and political subdivisions 1,976 (1,048) 928 1,841 (1,041) 800
Available-for-sale securities (4,824) (837) (5,661) 7,303 (860) 6,443
Federal funds sold 135 (251) (116) (944) (68) (1,012)
Loans (net of unearned discount) 33,143 (13,537) 19,606 38,697 (5,021) 33,676
Mortgages held for sale (68) 236 168 1,531 (164) 1,367
-------- -------- -------- -------- ------- --------
Total 32,034 (15,529) 16,505 53,500 (8,903) 44,597
-------- -------- -------- -------- ------- --------
INTEREST EXPENSE
Demand deposits - interest bearing 2,439 (2,196) 243 2,213 (4,968) (2,755)
Savings deposits 4,920 (527) 4,393 6,737 3,732 10,469
Time deposits 1,215 (6,290) (5,075) 11,368 (127) 11,241
Federal funds purchased and
securities sold under
repurchase agreements 1,725 (183) 1,542 718 (199) 519
Other short-term borrowings 2,615 (100) 2,515 45 (269) (224)
Long-term debt (760) (481) (1,241) 7,253 200 7,453
-------- -------- -------- -------- ------- --------
Total 12,154 (9,777) 2,377 28,334 (1,631) 26,703
-------- -------- -------- -------- ------- --------
Increase (decrease) in effective
interest differential $ 19,880 $ (5,752) $ 14,128 $ 25,166 $(7,272) $ 17,894
======== ======== ======== ======== ======= ========
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INTEREST RATE SENSITIVITY
The interest sensitivity gap is the difference between the maturity or
repricing scheduling of interest sensitive assets and interest sensitive
liabilities for a given period of time. A prime objective of asset/liability
management is to maximize net interest margin while maintaining a reasonable mix
of interest sensitive assets and liabilities. The following table sets forth the
Company's interest rate sensitivity at December 31, 1999.
INTEREST RATE SENSITIVITY
MATURING OR REPRICING
---------------------------------------------------
91 DAYS OVER 1
0 TO 90 TO YEAR TO OVER
DAYS 1 YEAR 5 YEARS 5 YEARS
----------- ----------- ---------- --------
(IN THOUSANDS)
Interest earning assets:
Interest bearing deposits with banks $ 5,411 $ -- $ -- $ --
Federal funds sold 65,000 -- -- --
Held-to-maturity securities 83,815 187,474 482,671 86,794
Available-for-sale securities 17,277 46,727 178,497 102,783
Loans & leases, net of unearned 1,012,232 515,689 2,215,564 310,047
Mortgages held for sale 37,521 -- -- --
----------- ----------- ---------- --------
Total interest earning assets 1,221,256 749,890 2,876,732 499,624
----------- ----------- ---------- --------
Interest bearing liabilities:
Interest bearing demand deposits & savings 909,199 282,167 683,803 --
Time deposits 727,039 1,076,899 518,253 3,488
Federal funds purchased & securities
sold under repurchase agreements 153,989 -- -- --
Long-term debt 657 1,971 8,425 127,507
Other 80,539 9,195 352 2,868
----------- ----------- ---------- --------
Total interest bearing liabilities 1,871,423 1,370,232 1,210,833 133,863
----------- ----------- ---------- --------
Interest sensitivity gap $ (650,167) $ (620,342) $1,665,899 $365,761
=========== =========== ========== ========
Cumulative interest sensitivity gap $ (650,167) $(1,270,509) $ 395,390 $761,151
=========== =========== ========== ========
In the event interest rates decline after 1999, it is likely that the
Company will experience a slightly positive effect on net interest income in the
following one year period, as the cost of funds will decrease at a more rapid
rate than interest income on interest earning assets. Conversely, in periods of
increasing interest rates, based on the current interest sensitivity gap, the
Company will experience decreased net interest income.
PROVISIONS FOR CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses is the annual cost of providing an
allowance or reserve for estimated probable losses on loans. The amount for each
year is dependent upon many factors, including loan growth, net charge-offs,
changes in the composition of the loan portfolio, delinquencies, management's
assessment of loan portfolio quality, the value of collateral and general
economic factors. The process of determining the adequacy of the provision
requires that management make material estimates and assumptions that are
particularly susceptible to significant change.
When determining the adequacy of the allowance for credit losses,
management considers changes in the size and character of the loan portfolio,
changes in non-performing and past due loans, historical loan loss experience,
the existing risk of individual loans, concentrations of loans to specific
borrowers or industries and existing economic conditions. The allowance for
credit losses for commercial loans is based principally upon the Company's loan
classification system. The Company has a disciplined approach for assigning
credit ratings and classifications to individual credits. Each credit is
assigned a grade by the loan officer that serves as a basis for the credit
analysis of the entire portfolio. The grade assigned considers the borrower's
creditworthiness, collateral values, cash flows and other factors. An
independent loan review department is responsible for reviewing the credit
rating and classification of individual credits and assessing trends in the
portfolio, adherence to internal credit policies and procedures and other
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factors that may affect the overall adequacy of the allowance. The loan review
department is supplemented by regulatory agencies that provide an additional
level of review. The loss factors assigned to each classification are based upon
the attributes (loan to collateral values, borrower creditworthiness, etc.) of
the loans typically assigned to each grade. Management periodically reviews the
loss factors assigned in light of the general economic environment and overall
condition of the loan portfolio and modifies the loss factors assigned to each
classification as deemed appropriate. The allowance for credit losses for the
consumer loan portfolio is based upon delinquencies and historic loss rates. The
overall allowance includes a component representing the results of other
analyses intended to insure that the allowance is adequate to cover other
probable losses inherent in the portfolio. This component considers analyses of
changes in credit risk resulting from the differing underwriting criteria in
acquired loan portfolios, industry concentrations, changes in the mix of loans
originated, overall credit criteria and other economic indicators.
The provision for credit losses, the allowance for credit losses as a
percentage of loans and leases outstanding at the end of 1999, 1998 and 1997 and
net charge-offs for those years are shown in the following table:
1999 1998 1997
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Provision for credit losses $ 14,689 $ 16,080 $ 10,516
Allowance for credit losses as
a percentage of loans and leases
outstanding at year end 1.37% 1.43% 1.39%
Net charge offs $ 10,215 $ 10,387 $ 8,580
Net charge offs as a percent
of average loans 0.27% 0.30% 0.29%
The provision for credit losses for 1999 decreased 8.7% from the
provision for 1998, primarily due to a decrease in net charge-offs and the
improvement in the internal credits ratings and classifications of the Company's
overall loan portfolio at December 31, 1999. The provision for credit losses for
1998 increased 52.9% from the provision for 1997, principally as a result of
faster growth in the loan portfolio, an increase in losses and differences in
underwriting standards at acquired institutions. The 1997 provision for credit
losses increased 3.1% from the provision for 1996 as a result of slower growth
in the loan portfolio and increases in loan losses. In all years presented,
increases in consumer based loans were the principal contributors to the higher
levels of net charge-offs.
Other Revenue
The components of other revenue for the years ended December 31, 1999,
1998 and 1997 and the percentage change from the prior year are shown in the
following table:
1999 1998 1997
------------------ ------------------ ------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------- ------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
Mortgage lending $14,975 +38.6% $10,808 +36.6% $ 7,912 -9.0%
Service charges 25,288 +5.3 24,006 +6.0 22,640 +5.8
Life insurance premiums 3,975 +8.8 3,655 -3.1 3,772 -16.6
Trust income 3,954 +7.4 3,682 +13.7 3,239 +7.1
Securities gains, net 4,176 +396.0 842 -34.4 1,283 +223.2
Insurance commissions 13,573 +8.8 12,475 +22.5 10,187 +7.3
Other revenue 13,390 +24.3 10,774 +1.2 10,646 +18.4
------- ------- -------
Total other revenue $79,331 +19.8% $66,242 +11.0% $59,679 +5.6%
======= ======= =======
Mortgage lending revenue consists principally of revenue generated by
originating loans and by servicing loans for others. The origination process,
which includes secondary marketing of loans originated, produced revenue of
$8,777,000, $11,869,000 and $5,644,000 for 1999, 1998 and 1997, respectively.
Historically, origination volumes vary as mortgage interest rates change. Rising
mortgage interest rates generally slow down originations, while falling mortgage
interest rates generally result in increased originations. The servicing process
includes the actual servicing of loans and the recognition of changes in the
valuation of capitalized mortgage servicing rights. Capitalized mortgage
servicing rights are evaluated for impairment based on the excess of the
carrying amount of the mortgage servicing rights over their fair value. The
servicing process generated revenue of $6,198,000 in 1999, a loss of $1,061,000
in 1998 and revenue of $2,268,000 in 1997. The fluctuation in servicing revenue
is primarily due to changes in the valuation of
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capitalized mortgage servicing rights. Rising mortgage interest rates during
1999 resulted in the recovery of $3.3 million during 1999 of previously recorded
impairment. This compares to the recognition of $4.1 million and $400,000 in
impairment expense during 1998 and 1997, respectively. The following table
presents the principal amount of mortgage loans serviced at December 31, 1999,
1998 and 1997 and the percentage change from the previous year end.
1999 1998 1997
------------------ -------------------- -------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- ------ -------- ------ --------
(DOLLARS IN MILLIONS)
Mortgage loans serviced $1,951.1 +14.7% $1,701.7 +28.5% $1,324.0 +13.5%
Service charges on deposit accounts increased in 1999, 1998 and 1997
because of higher volumes of items processed as a result of greater economic
activity, growth in the number of deposit accounts and rate increases. Life
insurance premium revenue increased 8.8% in 1999 over 1998, reversing the trend
of declining revenue from insurance underwriting, which declined 3.1% during
1998 and 16.6% during 1997. Trust income increased 7.4% in 1999, 13.7% in 1998
and 7.1% in 1997, as a result of increases in the number of trust accounts and
the value of assets under care (either managed or in custody). The Company
established a charitable foundation in 1999 and contributed appreciated equity
securities to initially fund the foundation. This transaction resulted in
one-time securities gains of approximately $4.14 million, which are reflected in
the results for 1999. Revenue from insurance commissions and fees shows steady
growth over the three-year periods ended December 31, 1999, as the Company
continued to expand those products and services. Other revenue increased 24.3%,
1.2% and 18.4% in 1999, 1998 and 1997, respectively. The increases in other
revenue in 1999 and 1998 were primarily attributable to increased analysis
charges and increased debit card net interchange. The increase in other revenue
in 1997 was attributable to increases in gains on the sale of equipment and
facilities and increases in debit card net interchange.
OTHER EXPENSE
The components of other expense for the years ended December 31, 1999,
1998 and 1997 and the percentage change from the prior year are shown in the
following table.
1999 1998 1997
------------------ -------------------- -------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- ------ -------- ------ --------
(Dollars in thousands)
Salaries and employee benefits $ 88,278 +10.1% $ 80,207 -2.3% $ 82,126 +13.9%
Occupancy, net 12,118 +9.7 11,042 +8.4 10,183 -0.2
Equipment 16,940 +7.3 15,784 +12.5 14,025 +28.0
Telecommunications 5,918 +21.4 4,876 +16.2 4,195 +4.2
Contributions 4,146 N/A -- -- -- --
Other 55,600 +1.8 54,605 +18.6 46,045 +2.9
-------- -------- --------
Total other expense $183,000 +9.9% $166,514 +6.3% $156,574 +10.2%
======== ======== ========
While regular salaries and employee benefits increased in each of the
three years presented due to the hiring of employees to staff the banking
locations added during those years, stock appreciation rights (SARs) expense,
which is included in employee benefits, fluctuated significantly during the
three year period. The Company previously granted SARs to certain of its
employees, which requires the Company to recognize an expense in the event of an
increase in the market price of the Company's common stock or a reduction of
expense in the event of a decline in the market price of the Company's common
stock. In 1999, the Company's common stock price declined by approximately 9.7%
and in 1998 the Company's common stock price declined by approximately 24%. As a
result of these declines in value, a reduction in expense of $956,000 was
recorded in 1999 and a reduction of expense of $2.7 million was recorded in
1998. In 1997, the Company's common stock price increased approximately 75%,
which resulted in expense of $6.1 million. At December 31, 1999, the Company had
approximately 552,000 SARs outstanding. Based on that amount, a dollar increase
in the Company's stock price would result in $552,000 in SAR expense while a
dollar decrease in the Company's stock price would result in an $552,000
reduction in SAR expense. Occupancy and equipment expenses have increased in
each of the three years presented principally as a result of additional branch
offices and upgrades to the Company's internal operating systems.
Telecommunications expense increased significantly during 1999 and 1998
as a result of expanded voice and data networks and expansion of the Bank's call
center, all of which related to providing higher levels of convenient,
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27
consumer oriented banking services. Contribution expense of $4.14 million during
1999 represents the aggregate market value of appreciated equity securities used
to fund the charitable foundation established by the Company in 1999.
In 1999, as a direct result of the Company's mergers with HomeBanc
Corporation and the Stewart Sneed Hewes Insurance Group, the Company recorded
merger-related costs of approximately $1.1 million ($976,000 after tax) as other
operating expense. In 1998, as a direct result of the Company's mergers with
Alabama Bancorp., Inc., Merchants Capital Corporation and The First Corporation,
the Company recorded merger-related costs of approximately $5 million ($4.1
million after tax) as other operating expense.
FINANCIAL CONDITION
LOANS
The Company's loan portfolio represents the largest single component of
its earning asset base. The following table indicates the average loans, year
end balances of the loan portfolio and the percentage increases for the years
presented.
1999 1998 1997
----------------- ----------------- ------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- ------ -------- ------ --------
(DOLLARS IN MILLIONS)
Loans, net of unearned - average $3,799.8 +11.0% $3,424.0 +14.0% $3,004.1 +7.8%
Loans, net of unearned - year end 4,053.5 +13.2 3,582.4 +12.4 3,187.3 +11.4
Despite significant increases in the Company's loan portfolio, quality
is stressed in its lending policy as opposed to growth. The Company's
non-performing assets, which are carried either in the loan account or other
assets on the consolidated balance sheets, were as follows at the end of each
year presented.
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
Foreclosed properties $ 7,764 $ 7,131 $ 3,153
Non-accrual loans 5,150 6,629 5,179
Loans 90 days or more past due 14,378 10,308 8,659
Restructured loans 91 713 1,097
------- ------- -------
Total non-performing assets $27,383 $24,781 $18,088
======= ======= =======
Total non-performing assets as a percent of net loans 0.68% 0.69% 0.57%
======= ======= =======
The increase in loans 90 days or more past due at December 31, 1999,
when compared to December 31, 1998, is primarily the result of delinquent
mortgage loans being repurchased from investors. These repurchased loans are
government guaranteed and do not indicate an overall deterioration of the loan
portfolio. The Company has not, as a matter of policy, participated in any
highly leveraged transactions nor made any loans or investments relating to
corporate transactions such as leveraged buyouts or leveraged recapitalizations.
At December 31, 1999, 1998 and 1997, the Company did not have any concentration
of loans in excess of 10% of loans outstanding. Loan concentrations are
considered to exist when there are amounts loaned to multiple borrowers engaged
in similar activities which would cause them to be similarly impacted by
economic or other conditions. However, the Company does conduct business in a
geographically concentrated area. The ability of the Company's borrowers to
repay loans also is dependent upon the economic conditions prevailing in the
market area.
Included in non-performing assets above were loans the Company
considered impaired totaling $5,790,000, $8,643,000 and $7,181,000 in 1999, 1998
and 1997, respectively.
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SECURITIES AND OTHER EARNING ASSETS
The securities portfolio is used to make various term investments,
provide a source of liquidity and to serve as collateral to secure certain types
of deposits and borrowings. A portion of the Company's securities portfolio
continues to be tax-exempt. Investments in tax-exempt securities totaled $245.7
million at December 31, 1999, compared to $251.1 million at the end of 1998. The
Company invests only in investment grade securities, with the exception of
obligations of Mississippi, Tennessee and Alabama counties and municipalities,
and avoids other high yield non-rated securities and investments.
At December 31, 1999, the Company's available-for-sale securities
totaled $345.3 million. These securities, which are subject to possible sale,
are recorded at fair value. At December 31, 1999, the Company held no securities
whose decline in fair value was considered other than temporary.
Net unrealized losses on investment securities as of December 31, 1999
totaled $18.6 million. Net unrealized losses on held-to-maturity securities
comprised $18.5 million of that total, while net unrealized losses on
available-for-sale securities were $154,000. Net unrealized gains on investment
securities as of December 31, 1998 totaled $29.4 million. Of that total, $11.6
million was attributable to held-to-maturity securities and $17.9 million to
available-for-sale securities.
DEPOSITS
Deposits are the Company's primary source of funds to support its
earning assets. The Company has been able to effectively compete for deposits as
its primary market areas provide the sources of substantially all deposits for
all periods presented.
The following table presents the Company's average deposit mix and
percentage change for the years indicated.
1999 1998 1997
------------------- ------------------- --------------------
AVERAGE % AVERAGE % AVERAGE %
BALANCE CHANGE BALANCE CHANGE BALANCE CHANGE
-------- ------ -------- ------ -------- ------
(Dollars in millions)
Interest bearing deposits $4,076.1 +5.9% $3,848.8 +12.5% $3,421.2 +12.0%
Non-interest bearing deposits 603.5 +8.8 554.5 +14.2 485.5 +6.4
-------- -------- --------
Total average deposits $4,679.6 +6.3 $4,403.3 +12.7 $3,906.7 +11.3
======== ======== ========
LIQUIDITY
The Company's goal is to provide adequate funds to meet changes in loan
demand or any potential increase in the normal level of deposit withdrawals.
This goal is accomplished primarily by maintaining sufficient short-term liquid
assets coupled with consistent growth in core deposits in order to fund earning
assets and to maintain the availability of unused capacity to acquire funds in
national and local capital markets. Management believes that the Company's
traditional sources of maturing loans, investment securities, mortgages held for
sale, purchased federal funds and base of core deposits are adequate to meet the
Company's liquidity needs for normal operations. The Company maintains a
relationship with the Federal Home Loan Bank, which provides an additional
source of liquidity to fund term loans with borrowings of matched or longer
maturities. The matching of these assets and liabilities has had the effect of
reducing the Company's net interest margin.
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29
CAPITAL RESOURCES
The Company is required to comply with the risk-based capital
guidelines established by the Federal Reserve. These guidelines apply a variety
of weighting factors which vary according to the level of risk associated with
the assets. Capital is measured in two "Tiers": Tier I consists of paid-up share
capital, including common stock and disclosed reserves (retained earnings and
related surplus in the case of common stock), and Tier II consists of general
allowance for losses on loans and leases, "hybrid" debt capital instruments, and
all or a portion of other subordinated capital debt, depending upon remaining
term to maturity. Total capital is the sum of Tier I and Tier II capital. The
Company's Tier I capital and total capital, as a percentage of total
risk-adjusted assets, was 11.49% and 12.80%, respectively, at December 31, 1999,
compared to 11.56% and 12.82%, respectively at December 31, 1998. Both ratios
exceeded the required minimum levels for these ratios of 4% and 8%,
respectively, for each period. In addition, the Company's leverage capital ratio
(Tier I capital divided by total assets, less goodwill) was 8.38% at December
31, 1999 and December 31, 1998, compared to the required minimum leverage
capital ratio of 3%.
The FDIC's capital-based supervisory system for insured financial
institutions categorizes the capital position for banks into five categories,
ranging from well capitalized to critically undercapitalized. For a bank to
classify as "well capitalized", the Tier I risk-based capital, total risk-based
capital and leverage capital ratios must be at least 6%, 10% and 5%,
respectively. The Bank the criteria for the "well capitalized" category at
December 31, 1999.
The Company may pursue acquisition transactions of depository
institutions and businesses closely related to banking which further the
Company's business strategies. The Company anticipates that the consideration
for substantially all of these transactions, if any, would be shares of the
Company's common stock; however, transactions involving cash consideration or
other forms of consideration may also be considered.
YEAR 2000
Prior to January 1, 2000, the Company conducted significant testing,
planning and system upgrades to address potential malfunctions by computer
systems and embedded computer chips related to calendar dates after December 31,
1999. The Company has not experienced any material Year 2000 disruptions or
malfunctions, and has not been informed of any material Year 2000 disruptions or
malfunctions experienced by any of its significant vendors or customers, or by
any of the municipal agencies that provide services to the Company. The Company
will continue to monitor its internal operations and its significant vendors and
customers with respect to Year 2000 problems, and intends to take appropriate
measures to prevent or alleviate any malfunction or failures identified. Based
upon the Company's successful operation during the Year 2000, the Company does
not anticipate that it will experience any material problems related to the Year
2000; however, no assurance can be given that this will be the case.
BUSINESS RISKS
Certain statements contained in the Annual Report may not be based on
historical facts and are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
may be identified by reference to a future period(s) or by the use of
forward-looking terminology, such as "anticipate," "estimate," "expect,"
"foresee," "may," "might,""will," "would," or "intend" future or conditional
verb tenses, and variations or negatives of such terms. These forward-looking
statements include, without limitation, those relating to the Company's future
growth, revenue, assets, profitability and customer service, Year 2000 issues,
net interest revenue, interest rate sensitivity, loan loss experience,
liquidity, capital resources, market risk, earnings, effect of pending
litigation, acquisition strategy and competition.
We caution you not to place undue reliance on the forward-looking
statements contained in this Report in that actual results could differ
materially from those indicated in such forward-looking statements, due to a
variety of factors. These factors include, but are not limited to, changes in
the Company's operating or expansion strategy, availability of and costs
associated with obtaining adequate and timely sources of liquidity, possible
adverse rulings, judgements, settlements and other outcomes of pending
litigation, Year 2000 compliance, changes in consumer preferences and the risk
factors that are described in greater detail in this section below. Other
relevant risk factors may be detailed from time to time in the Company's press
releases and filings with the Securities and Exchange Commission. We undertake
no obligation to update these forward-looking statements to reflect events or
circumstances that occur after the date of this Report.
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30
Our Operations are Subject to Extensive Governmental Regulation.
BancorpSouth, Inc. is a registered bank holding company under the Bank
Holding Company Act of 1956, and the Bank is a Mississippi state banking
corporation. Accordingly, both are subject to extensive governmental regulation,
legislation and control. These laws limit the manner in which we operate,
including the amount of loans we can originate, interest we can charge on loans
and fees we can charge for certain services. We cannot predict whether, or the
extent to which, the government and governmental organizations may change any of
these laws or controls. BancorpSouth also cannot predict how any of these
changes would adversely affect the our business and prospects.
We Compete with Other Bank Holding Companies, Banks and Financial Services
Companies.
The banking business is extremely competitive in our service areas in
Mississippi, Tennessee and Alabama. We compete, and will compete, with well
established banks, credit unions and other financial institutions, several of
which have significantly greater resources and lending limits. Some of these
competitors provide certain services that the Company does not provide.
Rising Interest Rates May Result in Higher Interest Rates Being Paid on Interest
Bearing Deposits Than Are Charged on Outstanding Loans.
If interest rates rise, the we may pay interest on our customers'
interest-bearing deposits and our other liabilities at higher rates than the
interest rates paid to us by our customers on outstanding loans that were made
when interest rates were at a lower level. This situation would result in a
negative interest rate spread with respect to those loans and cause an adverse
effect on our earnings. This adverse effect would increase if interest rates
continued to rise while we had outstanding loans payable at fixed interest rates
that could not be adjusted to a higher interest rate.
Our Growth Strategy Includes Risks That Could Have an Adverse Effect on
Financial Performance.
A material element of the our growth strategy is the acquisition of
additional banks and bank holding companies in order to achieve greater
economies of scale. We cannot assure you that the current level of growth
opportunities will continue to exist, that we will be able to acquire banks and
bank holding companies that satisfy the our criteria or that any such
acquisition will be on terms favorable to the us. Further, our growth strategy
will require that we continue to hire qualified personnel, while concurrently
expanding our managerial and operational infrastructure. We cannot assure you
that we will be able to hire and retain qualified personnel or that we will be
able to successfully expand our infrastructure to accommodate future
acquisitions or growth. As a result of these factors, we may not realize the
expected economic benefits associated with our acquisitions. This could have a
material adverse effect on the our financial performance.
Our Stock Price May Fluctuate.
The stock market has, from time to time, experienced extreme price and
volume fluctuations, which often have been unrelated to the operating
performance of particular companies. Any announcement with respect to the
banking industry, market conditions or any variance in our revenues or earnings
from levels generally expected by securities analysts for a given period could
have an immediate and significant effect of the trading price of our common
stock.
Issuing Additional Shares of Its Common Stock to Acquire Other Banks and Bank
Holding Companies May Result in Dilution for Existing Shareholders.
In connection with our growth strategy, we have issued, and may issue
in the future, shares of our common stock to acquire additional banks and bank
holding companies. Resales of substantial amounts of common stock in the public
market and the potential of such sales could adversely affect the prevailing
market price of the our common stock and impair our ability to raise additional
capital through the sale of equity securities. We usually must pay an
acquisition premium above the fair market value of acquired assets for the
acquisition of banks and bank holding companies. Paying this acquisition
premium, in addition to the dilutive effect of issuing additional shares, may
also adversely affect the prevailing market price of our common stock.
Monetary Policies and Economic Factors May Limit the Our Ability to Attract
Deposits or Make Loans.
The monetary policies of federal regulatory authorities, particularly
the Board of Governors of the Federal Reserve System, and economic conditions in
the our service area and the United States generally, affect the our ability to
attract deposits and extend loans. We cannot predict either the nature and
timing of any changes in these monetary policies and economic conditions, or
their impact on our financial performance. The banking business is subject to
various material business risks, which may become more acute in periods of
economic slowdown or recession. During
30
31
such periods, foreclosures generally increase, and such conditions also could
lead to a potential decline in deposits and demand for loans.
Diversification in Types of Financial Services May Adversely Affect Our
Financial Performance.
As part of our business strategy, we have in the past diversified, and
may further diversify, our lines of business into areas that are not
traditionally associated with the banking business. We now offer insurance and
investment services through wholly-owned subsidiaries of BancorpSouth Bank. As a
result, we must now manage the development of new business lines in which we
have not previously participated. Each new business line requires the investment
of additional capital and the significant involvement of our senior management
to develop and integrate the insurance and investment services subsidiaries with
our traditional banking operations. We can offer no assurances that we will be
able to develop and integrate these new services without adversely effecting our
financial performance.
Our Ability to Declare and Pay Dividends is Limited by Law.
We derive our income solely from dividends received from owning
BancorpSouth Bank's common stock. Federal and state law limits the Bank's
ability to declare and pay dividends. In addition, the Board of Governors of the
Federal Reserve System may impose restrictions on our ability to declare and pay
dividends on our common stock.
Anti-Takeover Provisions May Prevent A Change of Our Control.
Our governing documents and certain agreements to which we are a party
contain several provisions which make a change-in-control difficult to
accomplish, and may discourage a potential acquirer. These include a shareholder
rights plan or "poison pill," a classified or "staggered" Board,
change-in-control agreements with members of management and supermajority voting
requirements. These anti-takeover provisions may have an adverse effect on the
market for our common stock.
Limited Geographic Area Increases Our Risk From Economic Downturn.
We conduct business in the limited geographic area of Mississippi,
Tennessee and Alabama. An economic downturn in the economies of these states or
the southern portion of the United States could adversely affect our financial
performance, particularly our ability to attract deposits and extend loans.
In evaluating an investment in shares of our common stock, the factors
set forth in this section should be carefully considered, along with other
matters discussed in reports and other filings that we have made with the
Securities and Exchange Commission. It should not be assumed that we have listed
or described the only risks that could affect our future performance or the
market price of our common stock.
Item 7A. - Quantitative and Qualitative Disclosures About Market Risk
Market risk reflects the risk of economic loss resulting from changes
in interest rates and market prices. This risk of loss can be reflected in
either reduced potential net interest revenue in future periods or diminished
market values of financial assets.
The Company's market risk arises primarily from interest rate risk that
is inherent in its lending, investment and deposit taking activities. Financial
institutions derive their income primarily from the excess of interest collected
over interest paid. The rates of interest the Company earns on its assets and
owes on its liabilities are established contractually for a period of time.
Since market interest rates change over time, the Company is exposed to lower
profit margins (or losses) if it cannot adapt to interest rate changes. Several
techniques might be used by a financial institution to minimize interest rate
risk. One approach used by the Company is to periodically analyze its assets and
liabilities and make future financing and investing decisions based on payment
streams, interest rates, contractual maturities, repricing opportunities and
estimated sensitivity to actual or potential changes in market interest rates.
Such activities fall under the broad definition of asset/liability management.
The Company's primary asset/liability management technique is the measurement of
its asset/liability gap, that is, the difference between the amounts of
interest-sensitive assets and liabilities that will be refinanced (repriced)
during a given period. If the asset amount to be repriced exceeds the
corresponding liability amount for a certain day, month, year or longer period,
the Company is in an asset-sensitive gap position. In this situation, net
interest revenue would increase if market interest rates rose or decrease if
market interest rates fell. If, alternatively, more liabilities than assets will
reprice, the Company is in a liability-sensitive position. Accordingly, net
interest revenue would decline when rates rose and increase when rates fell.
These examples assume that interest-rate changes for assets and liabilities are
of the same magnitude, whereas actual interest-rate changes generally differ in
magnitude for assets and liabilities.
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32
Management seeks to manage interest-rate risk through the utilization
of various tools that include matching repricing periods for new assets and
liabilities and managing the composition and size of the investment portfolio so
as to reduce the risk in the deposit and loan portfolios, while at the same time
maximizing the yield generated from the portfolio.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1999. The expected maturity categories take into account repricing opportunities
as well as contractual maturities. For core deposits without contractual
maturities (interest-bearing checking, savings and money market accounts), the
table presents cash flows based on management's judgement concerning their most
likely runoff or repricing behaviors. The fair value of loans, deposits and
other borrowings are based on the discounted value of expected cash flows using
a discount rate which is commensurate with the maturity. The fair value of
securities is based on market prices or dealer quotes.
FAIR VALUE
PRINCIPAL AMOUNT MATURING/REPRICING IN: DECEMBER 31,
2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
---------- -------- -------- -------- -------- -------- ---------- ----------
(Dollars in thousands)
RATE-SENSITIVE ASSETS:
Fixed interest rate loans $ 916,751 $408,989 $566,263 $534,810 $705,502 $310,047 $3,442,362 $3,593,203
Average interest rate 9.40% 10.71% 9.01% 8.98% 8.80% 9.31% 9.30%
Variable interest rate loans $ 648,691 -- -- -- -- -- $ 648,691 $ 654,946
Average interest rate 8.82% -- -- -- -- -- 8.82%
Fixed interest rate securities $ 335,295 $313,005 $143,985 $109,765 $ 94,884 $189,104 $1,186,038 $1,167,567
Average interest rate 6.06% 6.06% 6.23% 6.12% 6.65% 6.73% 6.24%
Other interest bearing assets $ 70,833 -- -- -- -- -- $ 70,833 $ 70,833
Average interest rate 5.94% -- -- -- -- -- 5.94%
Mortgage servicing rights (1) -- -- -- -- -- -- $ 22,666 $ 22,666
RATE-SENSITIVE LIABILITIES:
Savings & interest bearing
checking $1,191,366 $140,852 $140,859 $201,044 $201,048 -- $1,875,169 $2,031,653
Average interest rate 3.96% 2.95% 2.95% 2.92% 2.92% -- 3.59%
Fixed interest rate time
deposits $1,803,937 $275,462 $176,678 $ 45,737 $ 20,376 $ 3,488 $2,325,678 $2,345,746
Average interest rate 5.28% 5.48% 6.06% 5.68% 6.49% 9.21% 5.39%
Fixed interest rate borrowings $ 91,906 $ 1,542 $ 5,827 $ 753 $ 655 $130,375 $ 231,058 $ 219,281
Average interest rate 5.23% 6.39% 5.84% 6.40% 6.47% 5.96% 5.67%
Variable interest rate
borrowings $ 154,445 -- -- -- -- -- $ 154,445 $ 154,445
Average interest rate 4.56% -- -- -- -- -- 4.56%
RATE-SENSITIVE OFF BALANCE SHEET
ITEMS:
Commitments to extend credit for
single family mortgage loans $ 19,735 -- -- -- -- -- $ 19,735 $ 19,508
Average interest rate 7.94% -- -- -- -- -- 7.94%
Forward contracts $ 14,644 -- -- -- -- -- $ 14,644 $ 14,438
Average interest rate 7.98% -- -- -- -- -- 7.98%
(1) Mortgage servicing rights represent a non-financial asset that is
rate-sensitive in that its value is dependent upon the underlying
mortgage loans being serviced that are rate-sensitive
In addition, please see the discussion in this Report under the section
of "Item 1. - Business" captioned "Investment Portfolio" and the sections of
"Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations" that are captioned "Interest Rate Sensitivity" and
"Securities and Other Earning Assets".
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33
Item 8. - Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
BancorpSouth, Inc.:
We have audited the consolidated balance sheets of BancorpSouth, Inc.,
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and comprehensive income and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BancorpSouth, Inc., and subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/S/ KPMG LLP
Memphis, Tennessee
January 18, 2000
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34
CONSOLIDATED BALANCE SHEETS
BANCORPSOUTH, INC. AND SUBSIDIARIES
DECEMBER 31
----------------------------
1999 1998
----------- -----------
(In thousands)
ASSETS
Cash and due from banks (Note 21) $ 217,270 $ 179,909
Interest bearing deposits with other banks 5,411 8,357
Held-to-maturity securities (Note 4) (fair value
of $822,283 and $663,140) 840,754 651,581
Available-for-sale securities (Note 5) (amortized cost
of $345,438 and $565,850) 345,284 583,740
Federal funds sold 65,000 123,210
Loans (Notes 6, 7 and 17) 4,131,418 3,676,544
Less: Unearned discount 77,886 94,147
Allowance for credit losses 55,557 51,083
----------- -----------
Net loans 3,997,975 3,531,314
Mortgages held for sale 37,521 63,354
Premises and equipment, net (Note 8) 129,054 128,071
Accrued interest receivable 48,766 45,816
Other assets (Notes 11 and 18) 89,891 67,862
----------- -----------
TOTAL ASSETS $ 5,776,926 $ 5,383,214
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand:
Non-interest bearing $ 614,567 $ 636,427
Interest bearing 1,075,252 1,077,828
Savings 799,917 814,924
Other time (Note 9) 2,325,679 2,058,153
----------- -----------
Total deposits 4,815,415 4,587,332
Federal funds purchased and securities sold under
repurchase agreements (Note 9) 153,989 64,554
Short-term borrowings (Note 9) 89,000 --
Accrued interest payable 22,083 21,166
Other liabilities (Notes 11 and 12) 60,479 59,915
Long-term debt (Note 10) 138,560 182,720
----------- -----------
TOTAL LIABILITIES 5,279,526 4,915,687
----------- -----------
SHAREHOLDERS' EQUITY (NOTES 2 AND 15)
Common stock, $2.50 par value
Authorized - 500,000,000 shares; Issued - 57,304,252 shares
at December 31, 1999 and 1998 143,261 143,261
Capital surplus 90,990 91,094
Accumulated other comprehensive income (95) 11,174
Retained earnings 264,707 223,353
Treasury stock at cost (106,733 and 118,773 shares
at December 31, 1999 and 1998, respectively) (1,463) (1,355)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 497,400 467,527
----------- -----------
Commitments and contingent liabilities (Note 21) -- --
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,776,926 $ 5,383,214
=========== ===========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME
BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31
----------------------------------
1999 1998 1997
-------- -------- --------
(In thousands, except
per share amounts)
INTEREST REVENUE
Loans receivable $333,907 $314,479 $281,066
Deposits with other banks 556 598 578
Federal funds sold 3,974 4,090 5,102
Held-to-maturity securities:
U.S. Treasury 5,316 6,653 7,159
U.S. Government agencies and corporations 28,541 25,581 21,772
Obligations of states and political subdivisions 10,425 9,616 9,120
Available-for-sale securities 27,830 33,516 26,874
Mortgages held for sale 3,638 3,470 2,103
-------- -------- --------
Total interest revenue 414,187 398,003 353,774
-------- -------- --------
INTEREST EXPENSE
Deposits 179,229 179,668 160,713
Federal funds purchased and securities sold
under repurchase agreements 4,403 2,861 2,342
Other 13,054 11,780 4,551
-------- -------- --------
Total interest expense 196,686 194,309 167,606
-------- -------- --------
Net interest revenue 217,501 203,694 186,168
Provision for credit losses (Note 7) 14,689 16,080 10,516
-------- -------- --------
Net interest revenue, after provision for credit losses 202,812 187,614 175,652
-------- -------- --------
OTHER REVENUE
Mortgage lending 14,975 10,808 7,912
Service charges 25,288 24,006 22,640
Life insurance premiums 3,975 3,655 3,772
Trust income 3,954 3,682 3,239
Securities gains, net (Note 1) 4,176 842 1,283
Insurance commissions 13,573 12,475 10,187
Other 13,390 10,774 10,646
-------- -------- --------
Total other revenue 79,331 66,242 59,679
-------- -------- --------
OTHER EXPENSE
Salaries and employee benefits (Notes 12 and 14) 88,278 80,207 82,126
Occupancy net of rental income 12,118 11,042 10,183
Equipment 16,940 15,784 14,025
Telecommunications 5,918 4,876 4,195
Contribution to charitable foundation (Note 1) 4,146 -- --
Other 55,600 54,605 46,045
-------- -------- --------
Total other expense 183,000 166,514 156,574
-------- -------- --------
Income before income taxes 99,143 87,342 78,757
Income tax expense (Note 11) 30,190 29,369 24,891
-------- -------- --------
Net Income $ 68,953 $ 57,973 $ 53,866
======== ======== ========
NET INCOME PER SHARE (NOTE 15): BASIC $ 1.21 $ 1.02 $ 1.00
======== ======== ========
DILUTED $ 1.20 $ 1.01 $ 0.99
======== ======== ========
See accompanying notes to consolidated financial statements.
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36
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACCUMULATED
COMMON STOCK OTHER
---------------------- CAPITAL COMPREHENSIVE RETAINED TREASURY
SHARES AMOUNT SURPLUS INCOME EARNINGS STOCK TOTAL
---------- -------- -------- -------- --------- ------- ---------
(Dollars in thousands, except per share amounts)
Balance, December 31, 1996 25,824,884 $ 64,941 $ 85,290 $ 3,322 $ 204,755 $(2,224) $ 356,084
Net income -- -- -- -- 53,866 -- 53,866
Net unrealized change in investment
securities net of tax effect
of ($2,008) (Note 16) -- -- -- 3,241 -- -- 3,241
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 57,107
Shares issued:
Business combination (Note 3) 1,231,710 3,079 12,635 -- 962 -- 16,676
Other shares issued 142,881 164 837 -- (7,407) 1,352 (5,054)
Recognition of stock compensation -- -- -- -- 83 -- 83
Purchase of treasury stock (51,207) -- -- -- -- (1,447) (1,447)
Cash dividends declared:
BancorpSouth, $0.395 per share -- -- -- -- (17,566) -- (17,566)
Pooled acquisitions -- -- -- -- (1,420) -- (1,420)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 27,148,268 68,184 98,762 6,563 233,273 (2,319) 404,463
Net income -- -- -- -- 57,973 -- 57,973
Net unrealized change in investment
securities net of tax effect
of ($2,856) (Note 16) -- -- -- 4,611 -- -- 4,611
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 62,584
Shares issued:
Business combination (Note 3) 1,106,532 2,766 -- -- 11,637 -- 14,403
Purchase of minority interest (Note 3) 491,573 1,229 7,781 -- -- -- 9,010
Stock split (Note 2) 28,331,240 70,964 (16,400) -- (54,564) -- --
Other shares issued 137,866 118 951 -- (2,644) 1,566 (9)
Recognition of stock compensation -- -- -- -- 278 -- 278
Purchase of treasury stock (30,000) -- -- -- -- (602) (602)
Cash dividends declared:
BancorpSouth, $0.45 per share -- -- -- -- (21,266) -- (21,266)
Pooled acquisitions -- -- -- -- (1,334) -- (1,334)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 57,185,479 143,261 91,094 11,174 223,353 (1,355) 467,527
Net income -- -- -- -- 68,953 -- 68,953
Net unrealized change in investment
securities net of tax effect
of $7,118 (Note 16) -- -- -- (11,269) -- -- (11,269)
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 57,684
Other shares issued 64,540 -- (104) -- 65 749 710
Recognition of stock compensation -- -- -- -- 70 -- 70
Purchase of treasury stock (52,500) -- -- -- -- (857) (857)
Cash dividends declared:
BancorpSouth, $0.49 per share -- -- -- -- (27,734) -- (27,734)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 57,197,519 $143,261 $ 90,990 $ (95) $ 264,707 $(1,463) $ 497,400
========== ======== ======== ======== ========= ======= =========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31
-----------------------------------
1999 1998 1997
--------- --------- ---------
(In thousands)
OPERATING ACTIVITIES:
Net income $ 68,953 $ 57,973 $ 53,866
Adjustment to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 14,689 16,080 10,516
Depreciation and amortization 15,988 14,327 12,509
Deferred taxes (639) 3,772 (959)
Amortization of intangibles 1,280 865 811
Amortization of debt securities premium
and discount, net (499) (8,372) (305)
Security gains, net (4,176) (842) (1,283)
Net deferred loan origination expense (5,016) (3,366) (3,179)
Increase in interest receivable (2,950) (3,898) (3,846)
Increase in interest payable 917 2,232 1,834
Proceeds from mortgages sold 565,687 772,583 328,847
Origination of mortgages for sale (539,854) (796,476) (342,448)
Other, net 6,471 (3,613) (971)
--------- --------- ---------
Net cash provided by operating activities 120,851 51,265 55,392
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from calls and maturities of held-
to-maturity securities 177,739 578,131 246,022
Proceeds from calls and maturities of available-
for-sale securities 398,249 259,788 266,874
Proceeds from sales of held-to-maturity securities 9,040 -- --
Proceeds from sales of available-for-sale securities 66,617 42,294 31,498
Purchases of held-to-maturity securities (380,250) (646,263) (209,414)
Purchases of available-for-sale securities (238,622) (339,174) (482,486)
Net (increase) decrease in short-term investments 58,210 (108,198) 102,768
Net increase in loans (476,334) (400,961) (302,391)
Purchases of premises and equipment (18,039) (20,786) (25,814)
Proceeds from sale of premises and equipment 1,246 1,463 3,043
Other, net (19,487) (9,798) (13,291)
--------- --------- ---------
Net cash used in investing activities (421,631) (643,504) (383,191)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits 228,083 474,609 318,216
Net (decrease) increase in short-term debt and other
liabilities 89,485 (109,542) 147,594
Advances on long-term debt 145,000 125,600 12,836
Repayment of long-term debt (100,160) (10,849) (10,185)
Issuance of common stock 74 472 383
Purchase of treasury stock (857) (602) (1,447)
Payment of cash dividends (26,430) (21,729) (17,852)
--------- --------- ---------
Net cash provided by financing activities 335,195 457,959 449,545
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34,415 (134,280) 121,746
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 188,266 322,546 200,800
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 222,681 $ 188,266 $ 322,546
========= ========= =========
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANCORPSOUTH, INC. AND SUBSIDIARIES
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of BancorpSouth, Inc. (the
Company) have been prepared in conformity with generally accepted accounting
principles and prevailing practices within the banking industry. In preparing
the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period reported.
Actual results could differ significantly from those estimates. The Company and
its subsidiaries are engaged in the business of banking and activities closely
related to banking. The Company and its subsidiaries are subject to the
regulations of certain federal and state agencies and undergo periodic
examinations by those regulatory agencies. The following is a summary of the
more significant accounting and reporting policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, BancorpSouth Bank (the Bank). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain 1998 and 1997 amounts have been reclassified to conform
with the 1999 presentation.
CASH FLOW STATEMENTS
Cash equivalents include cash and amounts due from banks including
interest bearing deposits with other banks. The Company paid interest of
$195,801,000, $194,277,000 and $163,060,000 and income taxes of $20,461,000,
$27,453,000 and $28,680,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
SECURITIES
Securities are classified as either held-to-maturity, trading or
available-for-sale. Held-to-maturity securities are debt securities that the
Company has the ability and management has the positive intent to hold to
maturity. They are reported at amortized cost. Trading securities are debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term. They are reported at fair value, with unrealized
gains and losses included in earnings. The Company had no trading securities at
December 31, 1999 and 1998. Available-for-sale securities are debt and equity
securities not classified as either held-to-maturity securities or trading
securities. They are reported at fair value, with unrealized gains and losses
excluded from earnings and reported, net of tax, as a separate component of
shareholders' equity until realized. Gains and losses on securities are
determined on the identified certificate basis. Amortization of premium and
accretion of discount are computed using the interest method. Changes in the
valuation of securities which are considered other than temporary are recorded
as losses in the period recognized.
LOANS
Loans are recorded at the face amount of the notes reduced by
collections of principal. Loans include net unamortized deferred origination
costs. Unearned discount on discount-basis consumer loans is recognized as
income using a method which approximates the interest method. Interest is
recorded monthly as earned on all other loans. Where doubt exists as to the
collectibility of the loans, interest income is recorded as payment is received.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses charged to expense is an amount which,
in the judgment of management, is necessary to maintain the allowance for credit
losses at a level that is adequate based on estimated probable losses on the
Company's current portfolio of loans. Management's judgment is based on a
variety of factors which include the Company's experience related to loan
balances, charge-offs and recoveries, scrutiny of individual loans and risk
factors, results of regulatory agency reviews of loans, and present and future
economic conditions of the Company's market area. Material estimates that are
particularly susceptible to significant change in the near term are a necessary
part of this process. Future additions to the allowance may be necessary based
on changes in economic conditions. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the Company's
allowance for credit losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examination.
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39
MORTGAGES HELD FOR SALE
Mortgages held for sale are recorded at lower of aggregate cost or
market as determined by outstanding commitments from investors or current
investor yield requirements.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Provisions for depreciation and amortization,
computed using straight-line and accelerated methods, are charged to expense
over the shorter of the lease term or the estimated useful lives of the assets.
Costs of major additions and improvements are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred.
OTHER REAL ESTATE OWNED
Real estate acquired in settlement of loans is carried at the lower of
cost or fair value, less selling cost. Fair value is based on independent
appraisals and other relevant factors. At the time of acquisition, any excess of
cost over fair value is charged to the allowance for credit losses. Gains and
losses realized on sale are included in other revenue.
SECURITIES GAINS/CONTRIBUTION TO CHARITABLE FOUNDATION
During 1999, the Company established a charitable foundation.
Appreciated equity securities with an aggregate market value of approximately
$4.15 million were contributed by the Company to initially fund the foundation.
This transaction resulted in securities gains of $4.14 million and contributions
expense of $4.15 million during 1999.
PENSION EXPENSE
The Company maintains a non-contributory defined benefit pension plan
that covers all employees who qualify as to age and length of service. Net
periodic pension expense is actuarially determined.
STOCK BASED COMPENSATION
The Company elected to continue to account for stock-based compensation
to employees using the intrinsic value based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," as allowed by Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock Based Compensation." See Note 14 for disclosure
of pro forma net income and pro forma net income per share as required under
SFAS No. 123.
Prior to 1998, certain of the Company's stock option plans contained
provisions for Stock Appreciation Rights (SARs). Accounting rules for SARs
require the recognition of expense for appreciation in the market value of the
Company's common stock or a reduction of expense in the event of a decline in
the market value of the Company's common stock. See Note 14 for further
disclosures regarding SARs.
RECENT PRONOUNCEMENT
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," established accounting and reporting standards for derivative
instruments and hedging activities and requires recognition of all derivatives
as either assets or liabilities measured at fair value. This statement will be
adopted for the year 2001 and is not expected to have a material effect on the
Company's financial condition or results of operations.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company, with the exception of the Bank's credit life
insurance subsidiary, files a consolidated federal income tax return.
OTHER
Trust income is recorded on the cash basis as received, which does not
differ materially from the accrual basis.
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40
(2) STOCK SPLIT
On May 15, 1998, the Company's two-for-one stock split effected in the
form of a 100% stock dividend resulted in the issuance of 28,331,240 new shares
of common stock. Information relating to earnings per share, dividends per share
and other share data has been retroactively adjusted to reflect this stock
split.
(3) ACQUISITIONS
On March 28, 1997, Iuka Guaranty Bank, a $117 million bank
headquartered in Iuka, Mississippi, was merged with and into the Bank. Pursuant
to the merger, the Company issued 2,463,420 shares of common stock. This
transaction was accounted for as a pooling of interests and Iuka Guaranty Bank's
results of operations are included in the Company's financial statements for all
periods presented.
On October 30, 1998, Alabama Bancorp., Inc., a $280 million bank
holding company headquartered in Birmingham, Alabama, was merged with and into
the Company. Pursuant to the merger, Alabama Bancorp's subsidiary banks,
Highland Bank and First Community Bank of the South, were merged into the Bank.
The Company issued 3,604,394 shares of common stock to the shareholders of
Alabama Bancorp. In addition, a total of 491,573 shares of the Company's common
stock were issued to the minority shareholders of Highland Bank and First
Community Bank of the South. This transaction was accounted for as a pooling of
interests, except for the acquisition of the minority interest, which was
accounted for as a purchase. The purchase of the minority interest resulted in
the recognition of an intangible asset of $6.9 million that is being amortized
over a period of 15 years. The Company's financial statements for all periods
presented include the consolidated accounts of Alabama Bancorp.
On December 4, 1998, Merchants Capital Corporation, a $220 million bank
holding company headquartered in Vicksburg, Mississippi, was merged with and
into the Company. Pursuant to the merger, Merchants Capital Corporation's
subsidiary bank, Merchants Bank, was merged into the Bank. The Company issued
2,798,022 shares of common stock to the shareholders of Merchants Capital
Corporation. This transaction was accounted for as a pooling of interests and
the Company's financial statements for all periods presented include the
consolidated accounts of Merchants Capital Corporation.
On December 31, 1998, The First Corporation, a $150 million bank
holding company headquartered in Opelika, Alabama, was merged with and into the
Company. Pursuant to the merger, The First Corporation's subsidiary bank, The
First National Bank of Opelika, was merged into the Bank. The Company issued
2,265,444 shares of common stock to the shareholders of The First Corporation.
This transaction was accounted for as a pooling of interests and the Company's
financial statements for 1998 include the consolidated accounts of The First
Corporation. The financial statements for periods prior to 1998 were not
restated because the impact of The First Corporation acquisition represented a
change of less than 3% to the Company's financial results.
On February 26, 1999, HomeBanc Corporation, a $160 million bank holding
company headquartered in Guntersville, Alabama, was merged with and into the
Company. Pursuant to the merger, HomeBanc Corporation's subsidiary bank, The
Home Bank, was merged into the Bank. Each share of stock of HomeBanc Corporation
was converted into 1.5747417 shares of the Company's common stock, or a total of
2,099,971 shares of common stock. This transaction was accounted for as a
pooling of interests and the Company's financial statements for all periods
presented include the consolidated accounts of HomeBanc Corporation.
On June 30, 1999, Stewart Sneed Hewes, Inc. and subsidiaries, TSH
Rentals, Inc. and Stewart Sneed Hewes II, Inc., a group of interrelated
commercial insurance agencies, were merged with and into BancorpSouth Insurance
Services of Mississippi, Inc., a subsidiary of the Bank. A total of 1,252,806
shares of the Company's common stock were issued to effect this transaction.
This transaction was accounted for as a pooling of interests and the Company's
financial statements for all periods presented include the accounts of Stewart
Sneed Hewes, Inc. and subsidiaries, TSH Rentals, Inc. and Stewart Sneed Hewes
II, Inc.
40
41
(4) HELD-TO-MATURITY SECURITIES
A comparison of amortized cost and estimated fair values of
held-to-maturity securities as of December 31, 1999 and 1998 follows:
1999
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
(In thousands)
U.S. Treasury $ 60,971 $ 277 $ 405 $ 60,843
U.S. Government agencies and corporations 560,350 95 17,073 543,372
Tax exempt obligations of states and political subdivisions 213,392 1,896 3,024 212,264
Other 6,041 -- 237 5,804
-------- ------- ------- --------
Total $840,754 $ 2,268 $20,739 $822,283
======== ======= ======= ========
1998
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
(In thousands)
U.S. Treasury $103,012 $ 2,013 $ 10 $105,015
U.S. Government agencies and corporations 333,866 3,210 762 336,314
Tax exempt obligations of states and political subdivisions 212,408 7,824 802 219,430
Other 2,295 86 -- 2,381
-------- ------- ------- --------
Total $651,581 $13,133 $ 1,574 $663,140
======== ======= ======= ========
Gross gains of $183,000 and gross losses of $17,000 were recognized in
1999, gross gains of $371,000 and gross losses of $64,000 were recognized in
1998 and gross gains of $640,000 and gross losses of $30,000 were recognized in
1997 on held-to-maturity securities. Except for 1999, these gains and losses
were the result of held-to-maturity securities being called prior to maturity.
Included in the 1999 amounts is a gross gain of $21,000 related to the sale of
held-to-maturity securities with amortized cost of $6,016,000. The decision to
sell these securities was based on the deteriorating credit quality of the
issuer.
Held-to-maturity securities with a carrying value of approximately
$629,000,000 at December 31, 1999 were pledged to secure public and trust funds
on deposit and for other purposes.
The amortized cost and estimated fair value of held-to-maturity
securities at December 31, 1999 by contractual maturity are shown below. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. Securities that reprice periodically are considered as maturing on
the first repricing date subsequent to December 31, 1999.
1999
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------- --------
(In thousands)
Due in one year or less $271,289 $265,708
Due after one year through five years 504,056 491,513
Due after five years through ten years 55,719 54,346
Due after ten years 9,690 10,716
-------- --------
Total $840,754 $822,283
======== ========
41
42
(5) AVAILABLE-FOR-SALE SECURITIES
A comparison of amortized cost and estimated fair values of
available-for-sale securities as of December 31, 1999 and 1998 follows:
1999
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
(In thousands)
U.S. Treasury $ 65,852 $ 359 $ 187 $ 66,024
U.S. Government agencies and corporations 200,957 226 5,193 195,990
Tax exempt obligations of states and political subdivisions 32,798 538 1,006 32,330
Other 45,831 5,564 455 50,940
-------- ------- ------- --------
Total $345,438 $ 6,687 $ 6,841 $345,284
======== ======= ======= ========
1998
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
(In thousands)
U.S. Treasury $103,575 $ 2,652 $ 2 $106,225
U.S. Government agencies and corporations 331,587 4,185 266 335,506
Tax exempt obligations of states and political subdivisions 36,815 1,909 28 38,696
Preferred stock 55,320 3,243 -- 58,563
Other 38,553 6,273 76 44,750
-------- ------- ------- --------
Total $565,850 $18,262 $ 372 $583,740
======== ======= ======= ========
Gross gains of $4,423,000 and gross losses of $413,000 were recognized
in 1999, gross gains of $624,000 and gross losses of $89,000 were recognized in
1998 and gross gains of $718,000 and gross losses of $45,000 were recognized in
1997 on available-for-sale securities.
Available-for-sale securities with a carrying value of approximately
$217,000,000 at December 31, 1999 were pledged to secure public and trust funds
on deposit and for other purposes.
The amortized cost and estimated fair value of available-for-sale
securities at December 31, 1999 by contractual maturity are shown below. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. Equity securities are considered as maturing after 10 years unless
they have a repricing feature. Securities that reprice periodically are
considered as maturing on the first repricing date subsequent to December 31,
1999.
1999
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------- --------
(In thousands)
Due in one year or less $ 64,808 $ 64,006
Due after one year through five years 216,954 218,620
Due after five years through ten years 48,839 47,212
Due after ten years 14,837 15,446
-------- --------
Total $345,438 $345,284
======== ========
42
43
(6) LOANS
A summary of loans classified by collateral type at December 31, 1999
and 1998 follows:
1999 1998
---------- ----------
(In thousands)
Commercial and agricultural $ 371,169 $ 395,514
Consumer and installment 978,013 930,698
Real estate mortgage 2,514,573 2,113,380
Lease financing 254,868 210,559
Other 12,795 26,393
---------- ----------
Total $4,131,418 $3,676,544
========== ==========
Non-performing loans consist of both non-accrual loans and loans which
have been restructured (primarily in the form of reduced interest rates) because
of the borrower's weakened financial condition. The aggregate principal balance
of non-accrual loans was $5,150,000 and $6,629,000 at December 31, 1999 and
1998, respectively. Restructured loans totaled $91,000 and $713,000 at December
31, 1999 and 1998, respectively.
The total amount of interest earned on non-performing loans was
approximately $126,000, $153,000 and $58,000 in 1999, 1998 and 1997,
respectively. The gross interest income which would have been recorded under the
original terms of those loans amounted to $361,000, $385,000 and $263,000 in
1999, 1998 and 1997, respectively.
Loans considered impaired, under SFAS No.114, as amended by SFAS No.
118, are loans which, based on current information and events, it is probable
that the creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The Company's recorded investment in
loans considered impaired at December 31, 1999 and 1998 was $5,790,000 and
$8,643,000, respectively, with a valuation reserve of $2,176,000 and $3,223,000,
respectively. The average recorded investment in impaired loans during 1999 and
1998 was $6,207,000 and $9,187,000, respectively.
(7) ALLOWANCE FOR CREDIT LOSSES
The following summarizes the changes in the allowance for credit losses
for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
-------- -------- --------
(In thousands)
Balance at beginning of year $ 51,083 $ 44,238 $ 41,706
Provision charged to expense 14,689 16,080 10,516
Recoveries 2,135 3,060 2,556
Loans charged off (12,350) (13,447) (11,136)
Acquisitions -- 1,152 596
-------- -------- --------
Balance at end of year $ 55,557 $ 51,083 $ 44,238
======== ======== ========
43
44
(8) PREMISES AND EQUIPMENT
A summary by asset classification at December 31, 1999 and 1998
follows:
ESTIMATED
USEFUL LIFE
YEARS 1999 1998
----------- -------- --------
(In thousands)
Cost:
Land N/A $ 18,883 $ 17,760
Buildings and improvements 20-50 95,259 90,647
Leasehold improvements 10-20 2,578 1,947
Equipment, furniture and fixtures 3-12 93,740 84,534
Construction in progress N/A 9,172 13,607
-------- --------
219,632 208,495
Accumulated depreciation and amortization 90,578 80,424
-------- --------
Premises and equipment, net $129,054 $128,071
======== ========
(9) TIME DEPOSITS AND SHORT-TERM DEBT
Certificates of deposit and other time deposits of $100,000 or more
amounting to approximately $840,418,000 and $667,363,000 were outstanding at
December 31, 1999 and 1998, respectively. Total interest expense relating to
certificate and other time deposits of $100,000 or more totaled approximately
$35,403,000, $37,802,000, and $29,211,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
For time deposits with a remaining maturity of more than one year at
December 31, 1999, the aggregate amount of maturities for each of the following
five years is presented in the following table:
MATURING IN AMOUNT
----------- --------
(In thousands)
2001 $290,468
2002 176,709
2003 45,752
2004 20,376
2005 1,466
Thereafter 2,021
--------
Total $536,792
========
44
45
Presented below is information relating to short-term debt for the
years ended December 31, 1999 and 1998:
END OF PERIOD DAILY AVERAGE MAXIMUM
----------------------- ------------------------ OUTSTANDING
INTEREST INTEREST AT ANY
BALANCE RATE BALANCE RATE MONTH END
---------- -------- --------- -------- ----------
(Dollars in thousands)
1999:
Federal funds purchased $ 250 4.1% $ 7,588 5.1% $ 14,050
Securities sold under repurchase agreements 153,739 4.0% 37,195 4.2% 153,739
Short-term Federal Home Loan Bank advances 89,000 6.0% 57,236 5.1% 115,000
---------- ---------- ----------
Total $ 242,989 $ 102,019 $ 282,789
========== ========== ==========
1998:
Federal funds purchased $ 3,051 4.6% $ 6,172 5.2% $ 12,600
Securities sold under repurchase agreements 61,503 3.7% 56,556 4.5% 70,678
---------- ---------- ----------
Total $ 64,554 $ 62,728 $ 83,278
========== ========== ==========
Federal funds purchased generally mature the day following the date of
purchase while securities sold under repurchase agreements generally mature
within 30 days from the date of sale. At December 31, 1999, the Bank had
established informal federal funds borrowing lines of credit aggregating
$747,000,000.
(10) LONG-TERM DEBT
FEDERAL HOME LOAN BANK ADVANCES
The Bank has entered into a blanket floating lien security agreement
with the Federal Home Loan Bank (FHLB) of Dallas. Under the terms of this
agreement, the Bank is required to maintain sufficient collateral to secure
borrowings in an aggregate amount of the lesser of 75% of the book value (unpaid
principal balance) of the borrower's first mortgage collateral or 35% of the
borrower's assets.
The Bank has advances from the FHLB of Atlanta which are secured by
securities pledged at 97% of market value.
45
46
At December 31, 1999, the following FHLB fixed term advances were
repayable as follows:
FINAL DUE DATE INTEREST RATE AMOUNT
- -------------- ------------- ------
(In thousands)
2001 5.21% - 7.03% $2,088
2002 5.75% 5,000
2004 6.01% 206
2006 and beyond 5.86% - 7.69% 131,266
--------
Total $138,560
========
(11) INCOME TAXES
Total income taxes for the years ended December 31, 1999, 1998 and 1997
were allocated as follows:
1999 1998 1997
-------- -------- --------
(In thousands)
Income from continuing operations $ 30,190 $ 29,369 $ 24,891
Shareholders' equity for other comprehensive income (7,118) 2,856 2,008
Shareholders' equity for stock option plans (268) (678) (400)
-------- -------- --------
Total $ 22,804 $ 31,547 $ 26,499
======== ======== ========
The components of income tax expense (credit) attributable to
continuing operations are as follows for the years ended December 31, 1999, 1998
and 1997:
1999 1998 1997
-------- ------- --------
(In thousands)
Current:
Federal $ 28,075 $22,288 $ 22,523
State 2,754 3,309 3,327
Deferred:
Federal (585) 3,282 (825)
State (54) 490 (134)
-------- ------- --------
Total $ 30,190 $29,369 $ 24,891
======== ======= ========
46
47
Income tax expense differs from the amount computed by applying the
U.S. federal income tax rate of 35% to income before income taxes due to the
following:
1999 1998 1997
-------- -------- --------
(In thousands)
Tax expense at statutory rate $ 34,700 $ 30,570 $ 27,565
Increase (reduction) in taxes resulting from:
State income taxes net of federal tax benefit 1,755 2,469 2,075
Tax exempt interest revenue (4,230) (3,876) (3,195)
Non-deductible merger expenses 255 1,077 --
Dividend received deduction (203) (124) (118)
Charitable contribution (1,450) -- --
Other, net (637) (747) (1,436)
-------- -------- --------
Total $ 30,190 $ 29,369 $ 24,891
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are as follows:
1999 1998
------- --------
(In thousands)
Deferred tax assets:
Loans receivable, principally due to allowance
for credit losses $24,271 $ 20,827
Deferred liabilities, principally due to
compensation arrangements and vacation accruals 5,258 5,185
Unrealized losses on available-for-sale securities 190 --
Net operating loss carryforwards 698 769
------- --------
Total gross deferred tax assets 30,417 26,781
Less: valuation allowance -- --
------- --------
Deferred tax assets $30,417 $ 26,781
------- --------
Deferred tax liabilities:
Bank premises and equipment, principally due
to differences in depreciation and lease transactions $21,577 $ 19,001
Deferred assets, principally due to expense recognition 1,085 700
Investments, principally due to interest income recognition 1,532 1,875
Capitalization of mortgage servicing rights 4,197 4,008
Unrealized gains on available-for-sale securities -- 6,843
------- --------
Total gross deferred tax liabilities 28,391 32,427
------- --------
Net deferred tax assets (liabilities) $ 2,026 $ (5,646)
======= ========
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences existing at December 31,
1999.
At December 31, 1999 the Company had net operating loss carryforwards
related to business combinations for federal income tax purposes of
approximately $1,826,000 that were available to offset future federal taxable
income, subject to various limitations, through 2009.
47
48
(12) PENSION AND PROFIT SHARING PLANS
The Company maintains a noncontributory and trusteed defined benefit
pension plan covering substantially all full-time employees who have at least
one year of service and have attained the age of 21. Benefits are based on years
of service and the employee's compensation. The Company's funding policy is to
contribute to the pension plan the amount required to fund benefits expected to
be earned for the current year and to amortize amounts related to prior years
using the projected unit credit cost method. The difference between the pension
cost included in current income and the funded amount is included in other
assets or other liabilities, as appropriate. Actuarial assumptions are evaluated
periodically.
The BancorpSouth, Inc. Restoration Plan ("Restoration Plan") provides
for the payment of retirement benefits to certain participants in the
BancorpSouth, Inc. Retirement Plan ("Basic Plan"). The Restoration Plan covers
any employee whose benefit under the Basic Plan is limited by the provisions of
the Internal Revenue Code of 1986 and any employee who elects to participate in
the BancorpSouth, Inc. Deferred Compensation Plan, thereby reducing their
benefit under the Basic Plan.
A summary of the defined benefit retirement plans at and for the years
ended December 31 follows:
1999 1998 1997
-------- -------- --------
(In thousands)
Change in benefit obligation:
Projected benefit obligation at beginning of year $ 19,658 $ 19,469 $ 19,889
Service cost 1,677 1,402 1,295
Interest cost 1,517 1,343 1,332
Actuarial (gain) loss (3,296) 444 (1,489)
Benefits paid (1,669) (3,000) (1,558)
-------- -------- --------
Projected benefit obligation at end of year $ 17,887 $ 19,658 $ 19,469
======== ======== ========
Change in plan assets:
Fair value of plan assets at beginning of year $ 28,376 $ 26,124 $ 20,982
Actual return on assets 3,462 5,223 4,663
Employer contributions -- 29 2,037
Benefits paid (1,669) (3,000) (1,558)
-------- -------- --------
Fair value of plan assets at end of year $ 30,169 $ 28,376 $ 26,124
======== ======== ========
Funded status:
Benefit obligation $(17,887) $(19,658) $(19,469)
Fair value of plan assets 30,169 28,376 26,124
Unrecognized transition amount (4) (6) (7)
Unrecognized prior service cost (863) (941) (1,018)
Unrecognized actuarial gain (12,725) (8,245) (5,570)
-------- -------- --------
Net amount recognized $ (1,310) $ (474) $ 60
======== ======== ========
Components of net periodic pension cost:
Service cost $ 1,677 $ 1,402 $ 1,295
Interest cost 1,517 1,343 1,332
Expected return on assets (2,121) (1,950) (1,641)
Amortization of unrecognized transition amount (2) (2) (2)
Recognized prior service cost (78) (78) (78)
Recognized net gain (157) (152) (66)
-------- -------- --------
Net periodic pension cost $ 836 $ 563 $ 840
======== ======== ========
Plan assets consist primarily of listed bonds and commingled funds. The
assumptions used for measuring net periodic pension cost for the years ended
December 31, 1999, 1998 and 1997 are presented in the following table.
48
49
1999 1998 1997
---- ---- ----
Discount rate 7.75% 6.75% 6.50%
Rate of compensation increase 4.00 4.00 4.00
Expected return on plan assets 7.50 7.50 7.50
The Company has a non-qualified supplemental retirement plan for
certain key employees. Benefits commence when the employee retires and are
payable over a period of 10 years. The amount accrued under the plan was
$144,000 in 1999, $128,000 in 1998 and $148,000 in 1997.
The Company has a deferred compensation plan (commonly referred to as a
401(k) Plan), whereby employees may contribute a portion of their compensation,
as defined, subject to the limitations as established by the Internal Revenue
Code. Employee contributions (up to 5% of defined compensation) are matched
dollar-for-dollar by the Company. Under the terms of the plan, contributions
matched by the Company are used to purchase Company common stock at prevailing
market prices. Plan expense for the years ended December 31, 1999, 1998 and 1997
was $2,625,000, $2,519,000 and $2,445,000, respectively.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Fair value estimates, methods and assumptions are set forth below
for the Company's financial instruments.
SECURITIES
The carrying amounts for short-term securities approximate fair value
because of their short-term maturity (90 days or less) and present no unexpected
credit risk. The fair value of most longer-term securities is estimated based on
market prices or dealer quotes. See Note 4, Held-to-Maturity Securities, and
Note 5, Available-for-Sale Securities for fair values.
LOANS
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
consumer and installment and real estate mortgage. The fair value of performing
loans is calculated by discounting scheduled cash flows through the estimated
maturity using rates currently available that reflect the credit and interest
rate risk inherent in the loan. Assumptions regarding credit risk, cash flows
and discount rates are judgmentally determined using available market
information and specific borrower information.
The following table presents information for loans at December 31, 1999
and 1998:
1999 1998
-------------------------- --------------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(In thousands)
Commercial and agricultural $ 371,169 $ 406,420 $ 395,514 $ 405,607
Consumer and installment 978,013 1,051,009 930,698 995,133
Real estate mortgage 2,514,573 2,711,853 2,113,380 2,296,490
All other 12,795 13,091 26,393 30,539
---------- ---------- ---------- ----------
Total $3,876,550 $4,182,373 $3,465,985 $3,727,769
========== ========== ========== ==========
Average maturity represents the expected average cash flow period,
which in some instances is different than the stated maturity. Management has
made estimates of fair value discount rates that are believed to be reasonable.
However, because there is no market for many of these financial instruments,
management has no basis to determine whether the fair value presented above
would be indicative of the value negotiated in an actual sale. New loan rates
were used as the discount rate on new loans of the same type, credit quality and
maturity.
49
50
DEPOSIT LIABILITIES
Under SFAS 107, the fair value of deposits with no stated maturity,
such as non-interest bearing demand deposits, savings, NOW accounts and money
market checking accounts, is equal to the amount payable on demand as of
December 31, 1999 and 1998. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar maturities.
The following table presents information for certificates of deposit at December
31, 1999 and 1998:
1999 1998
----------------------- -----------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(In thousands)
Maturing or repricing in six months or less $1,197,383 $1,202,497 $ 979,376 $ 982,398
Maturing or repricing between six months and one year 606,553 610,327 457,181 460,518
Maturing or repricing between one and three years 452,140 453,021 139,880 143,859
Maturing or repricing beyond three years 69,603 79,901 481,716 492,967
---------- ---------- ---------- ----------
Total $2,325,679 $2,345,746 $2,058,153 $2,079,742
========== ========== ========== ==========
LONG-TERM DEBT
The fair value of the Company's fixed-term FHLB advances is based on
the discounted value of contractual cash flows. The discount rate is estimated
using the rates currently available for advances of similar maturities. The
following table presents information on the FHLB advances at December 31, 1999
and 1998:
1999 1998
----------------------- -----------------------
BOOK FAIR BOOK FAIR
FINAL DUE DATE VALUE VALUE VALUE VALUE
- -------------- -------- -------- -------- --------
(In thousands)
1999 $ -- $ -- $ 1,661 $ 1,661
2000 -- -- 19,185 19,237
2001 2,088 2,075 3,847 3,861
2002 5,000 4,940 17,186 17,242
2003 -- -- 185 185
Thereafter 131,472 123,266 140,656 143,160
-------- -------- -------- --------
Total $138,560 $130,281 $182,720 $185,346
======== ======== ======== ========
(14) STOCK INCENTIVE AND STOCK OPTION PLANS
During 1987, the Company issued 69,000 shares of common stock to a key
employee. The shares vested over a 10-year period subject to the Company meeting
certain performance goals and the compensation associated with this award was
recognized over the vesting period that ended during 1997.
In 1995, the Company issued 60,000 shares of common stock to a key
employee. The shares vest over a 10-year period subject to the Company meeting
certain performance goals. The unearned shares are held in escrow and totaled
36,000 at December 31, 1999. The compensation associated with this award is
being recognized over the 10-year period.
In 1998, the Company issued 70,000 shares of common stock to a key
employee. The shares vest over a 10-year period subject to the Company meeting
certain performance goals. The unearned shares are held in escrow and totaled
56,000 at December 31, 1999. The compensation associated with this award is
being recognized over the 10-year period.
In 1998, the Company issued 8,000 shares to the directors of the
Company. The shares vest over a 3-year period and the unearned shares are held
in escrow and totaled 5,340 at December 31, 1999. The compensation associated
with this award is being recognized over the 3-year period.
Key employees and directors of the Company and its subsidiaries have
been granted stock options and SARs under the Company's 1990, 1994 and 1995
stock incentive plans. The stock incentive plans were amended in 1998 to
eliminate SARs and to allow a limited number of restricted stock awards. All
options and SARs granted pursuant to these plans have an exercise price equal to
the market value on the date of the grant and are exercisable over periods of
one to
50
51
ten years. At December 31, 1999, the Company had outstanding 552,453 SARs
exercisable in conjunction with certain of the options outstanding. The Company
recorded reductions in compensation expense of $956,000 and $2,709,000 in 1999
and 1998, respectively, and recorded additional compensation expense of
$6,113,000 in 1997 related to the SARs because of the changes in market value of
its common stock. In 1995 and 1998, pursuant to certain acquisitions, incentive
and non-qualified stock options were granted to employees and directors of the
companies being acquired in exchange for stock options that were outstanding at
the time those mergers were consummated. The number of shares and option prices
of shares authorized under the various stock option plans have been adjusted for
the two-for-one stock split effected in the form of a dividend discussed in
Note 2.
In 1998, the Company adopted a stock plan through which at least 50% of
the compensation payable to each director is paid in the form of stock effective
January 1, 1999. Directors may elect under the plan to receive up to 100% of
their compensation in the form of stock.
A summary of the status of the Company's stock options outstanding as
of December 31, 1999, 1998 and 1997, and changes during the years ended on those
dates is presented below:
1999 1998 1997
-------------------- ---------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- ---------
Outstanding at beginning
of year 1,713,681 $12.53 1,663,335 $10.73 1,608,618 $ 8.53
Granted 276,000 17.23 341,526 15.90 276,557 20.36
Exercised (87,060) 4.59 (260,028) 6.02 (221,840) 6.78
Expired or cancelled (10,460) 9.88 (31,152) 8.11 -- --
--------- --------- ---------
Outstanding at end of year 1,892,161 $13.59 1,713,681 $12.53 1,663,335 $10.73
--------- --------- ---------
Exercisable at end of year 1,379,021 1,207,257 1,085,807
========= ========= =========
The following table summarizes information about stock options at
December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------------
RANGE OF NUMBER WEIGHTED-AVG WEIGHTED-AVG NUMBER WEIGHTED-AVG
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- -------------- -------------- ----------- --------------
$0.72 29,552 0.3 years $ 0.72 29,552 $ 0.72
$2.47 to $3.58 7,484 3.6 3.29 7,484 3.29
$4.10 to $6.49 149,006 2.1 5.70 149,006 5.70
$7.45 to $9.38 428,250 4.2 8.67 418,650 8.68
$11.06 to $13.63 537,250 6.6 12.31 537,250 12.31
$16.63 to $22.50 740,619 9.0 19.57 237,079 21.34
--------- ---------
$0.72 to $22.50 1,892,161 6.5 $13.59 1,379,021 $ 11.75
========= =========
51
52
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages,
but does not require, adoption of a fair-value based accounting method for
employee stock-based compensation arrangements. As permitted by the statement,
the Company has elected to disclose pro forma net income and earnings per share
amounts as if the fair-value based method had been applied in measuring
compensation cost. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1999, 1998 and 1997: expected options lives of 7
years for all three years; expected dividend yield of 3.18%, 2.84% and 3.0%;
expected volatility of 23%, 22% and 22% and risk-free interest rates of 6%, 6%
and 7%. Pro forma net income and pro forma net income per share calculated under
the provisions of SFAS No. 123 for the years ended December 31, 1999, 1998 and
1997 are presented in the following table.
1999 1998 1997
------- ------- -------
Net income (in thousands) As reported $68,953 $57,973 $53,866
Pro forma 68,201 57,294 53,315
Basic earnings per share As reported $ 1.21 $ 1.02 $ 1.00
Pro forma 1.19 1.01 0.98
Diluted earnings per share As reported $ 1.20 $ 1.01 $ 0.99
Pro forma 1.19 1.00 0.98
(15) EARNINGS PER SHARE AND DIVIDEND DATA
The computation of basic earnings per share is based on the weighted
average number of common shares outstanding. The computation of diluted earnings
per share is based on the weighted average number of common shares outstanding
plus the shares resulting from the assumed exercise of all outstanding stock
options using the treasury stock method. The following table provides a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations for the years ended December 31, 1999, 1998 and
1997:
1999 1998 1997
----------------------------------- ------------------------------------ ----------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
(In thousands, except per share amounts)
BASIC EPS:
Income available to
common shareholders $68,953 57,108 $1.21 $ 57,973 56,638 $ 1.02 $ 53,866 54,122 $1.00
===== ====== =====
Effect of dilutive stock
options -- 416 -- 586 -- 422
------- ------ -------- ------ ------- ------
DILUTED EPS:
Income available to
common shareholders
plus assumed exercise $68,953 57,524 $1.20 $ 57,973 57,224 $ 1.01 $ 53,866 54,544 $0.99
======= ====== ===== ======== ====== ====== ======== ====== =====
Dividends to shareholders are paid from dividends paid to the Company
by the Bank which are subject to approval by the applicable state regulatory
authority. At December 31, 1999, the Bank could have paid dividends to the
Company of $144,000,000 under current regulatory guidelines.
52
53
(16) OTHER COMPREHENSIVE INCOME
The following table presents the components of other comprehensive
income and the related tax effects allocated to each component for the years
ended December 31, 1999, 1998 and 1997:
1999 1998 1997
--------------------------- --------------------------- ----------------------------
BEFORE TAX NET BEFORE TAX NET BEFORE TAX NET
TAX (EXPENSE) OF TAX TAX (EXPENSE) OF TAX TAX (EXPENSE) OF TAX
AMOUNT BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT
-------- ------ -------- ------- ------- ------- ------- ------- -------
(In thousands)
Unrealized gains on securities:
Unrealized gains (losses) arising
during holding period $(14,377) $5,584 $ (8,793) $ 8,002 $(3,061) $ 4,941 $ 5,922 $(2,265) $ 3,657
Less: Reclassification adjustment for
net gains realized in net income (4,010) 1,534 (2,476) (535) 205 (330) (673) 257 (416)
-------- ------ -------- ------- ------- ------- ------- ------- -------
Other comprehensive income (loss) $(18,387) $7,118 $(11,269) $ 7,467 $(2,856) $ 4,611 $ 5,249 $(2,008) $ 3,241
======== ====== ======== ======= ======= ======= ======= ======= =======
(17) RELATED PARTY TRANSACTIONS
The Company has made, and expects in the future to continue to make in
the ordinary course of business, loans to directors and executive officers of
the Company and their affiliates. In management's opinion, these transactions
with directors and executive officers were made on substantially the same terms
as those prevailing at the time for comparable transactions with other persons
and did not involve more than normal risk of collectibility or present any other
unfavorable features. An analysis of such outstanding loans is as follows (in
thousands):
Loans outstanding at December 31, 1998 $ 21,052
New loans 1,903
Repayments (3,443)
--------
Loans outstanding at December 31, 1999 $ 19,512
========
(18) CAPITALIZED MORTGAGE SERVICING RIGHTS
Originated mortgage servicing rights ("OMSRs"), as well as purchased
mortgage servicing rights ("PMSRs"), are capitalized as assets by allocating the
total cost incurred between the loan and the servicing rights based on their
relative fair values. To determine the fair value of the servicing rights
created, the Company uses a valuation model that calculates the present value of
future cash flows. The significant assumptions utilized by the valuation model
are prepayment assumptions based upon dealer consensus and discount rates based
upon market indices at the date of determination. PMSRs and OMSRs are being
amortized in proportion to and over the period of the estimated net servicing
income. Capitalized mortgage servicing rights are evaluated for impairment based
on the excess of the carrying amount of the mortgage servicing rights over their
fair value. A quarterly value impairment analysis is performed using a
discounted methodology that is disaggregated by predominant risk
characteristics. The Company has determined those risk characteristics to
include: note rate and term and loan type based on 1) loan guarantee (i.e.,
conventional or government) and 2) interest characteristic (i.e., fixed-rate or
adjustable-rate). In measuring impairment, the carrying amount must be
stratified based on one or more predominant risk characteristics of the
underlying loans. Impairment is recognized through a valuation allowance for
each individual stratum.
53
54
The following is a summary of capitalized mortgage servicing rights,
net of accumulated amortization, and a valuation allowance for impairment:
1999 1998
------- -------
(In thousands)
Balance at beginning of year $27,343 $14,071
Mortgage servicing rights capitalized 11,779 16,376
Amortization expense (4,510) (3,104)
------- -------
Balance at end of year 34,612 27,343
Valuation allowance (1,368) (4,670)
------- -------
Fair value at end of year $33,244 $22,673
======= =======
(19) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors. Quantitative measures
established by the Board of Governors of the Federal Reserve (FRB) to ensure
capital adequacy require the Company to maintain minimum capital amounts and
ratios (risk-based capital ratios). All banking companies are required to have
core capital (Tier I) of a least 4% of risk-weighted assets, total capital of at
least 8% of risk-weighted assets and a minimum Tier I leverage ratio of 3% of
adjusted average assets. The regulations also define well capitalized levels of
Tier I, total capital and Tier I leverage as 6%, 10% and 5%, respectively. The
Company had Tier I, total capital and leverage above the well capitalized levels
at December 31, 1999 and 1998, respectively, as set forth in the following
table:
1999 1998
---------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
(Dollars in thousands)
Total Capital (to Risk-Weighted Assets) $536,130 12.80% $486,978 12.82%
Tier I Capital (to Risk-Weighted Assets) 481,440 11.49 439,435 11.56
Tier I Leverage Capital (to Average Assets) 481,440 8.38 439,435 8.38
54
55
(20) SEGMENTS
The Company's principal activity is community banking which includes
providing a full range of deposit products, commercial loans and consumer loans.
General corporate and other includes leasing, mortgage lending, trust services,
credit card activities, insurance services and other activities not allocated to
community banking.
Results of operations and selected financial information by operating
segment for the three years ended December 31, 1999, 1998 and 1997 are presented
below:
GENERAL
COMMUNITY CORPORATE
BANKING AND OTHER TOTAL
------- --------- ----------
(In thousands)
1999
RESULTS OF OPERATIONS
Net interest revenue $ 163,083 $ 54,418 $ 217,501
Provision for credit losses 11,690 2,999 14,689
- -------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 151,393 51,419 202,812
Other revenue 41,525 37,806 79,331
Other expense 140,169 42,831 183,000
- -------------------------------------------------------------------------------------
Income before income taxes 52,749 46,394 99,143
Income taxes 16,063 14,127 30,190
- -------------------------------------------------------------------------------------
Net income $ 36,686 $ 32,267 $ 68,953
SELECTED FINANCIAL INFORMATION
Identifiable assets $5,152,645 $624,281 $5,776,926
Depreciation & amortization 14,408 1,580 15,988
1998
RESULTS OF OPERATIONS
Net interest revenue $ 152,847 $ 50,847 $ 203,694
Provision for credit losses 13,333 2,747 16,080
- -------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 139,514 48,100 187,614
Other revenue 34,591 31,651 66,242
Other expense 127,273 39,241 166,514
- -------------------------------------------------------------------------------------
Income before income taxes 46,832 40,510 87,342
Income taxes 15,747 13,622 29,369
- -------------------------------------------------------------------------------------
Net income $ 31,085 $ 26,888 $ 57,973
SELECTED FINANCIAL INFORMATION
Identifiable assets $4,799,100 $584,114 $5,383,214
Depreciation & amortization 12,901 1,426 14,327
1997
RESULTS OF OPERATIONS
Net interest revenue $ 137,869 $ 48,299 $ 186,168
Provision for credit losses 6,209 4,307 10,516
- -------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 131,660 43,992 175,652
Other revenue 42,967 16,712 59,679
Other expense 128,986 27,588 156,574
- -------------------------------------------------------------------------------------
Income before income taxes 45,641 33,116 78,757
Income taxes 14,425 10,466 24,891
- -------------------------------------------------------------------------------------
Net income $ 31,216 $ 22,650 $ 53,866
SELECTED FINANCIAL INFORMATION
Identifiable assets $4,335,974 $515,976 $4,851,950
Depreciation & amortization 11,351 1,158 12,509
55
56
(21) COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
Rent expense was approximately $3,421,000 for 1999, $3,153,000 for 1998
and $3,064,000 for 1997. Future minimum lease payments for all non-cancelable
operating leases with initial or remaining terms of one year or more consisted
of the following at December 31, 1999 (in thousands):
2000 $2,984
2001 2,166
2002 1,303
2003 903
2004 677
Thereafter 921
------
Total future minimum lease payments $8,954
======
MORTGAGE LOANS SERVICED FOR OTHERS
The Company services mortgage loans for others which are not included
in the accompanying financial statements. Included in the $1.95 billion of loans
serviced for investors at December 31, 1999, is approximately $7.0 million of
primary recourse servicing where the Company is responsible for any losses
incurred in the event of nonperformance by the mortgagor. The Company's exposure
to credit loss in the event of such nonperformance is the unpaid principal
balance at the time of default. This exposure is limited by the underlying
collateral which consists of single family residences and either federal or
private mortgage insurance.
FORWARD CONTRACTS
Forward contracts are agreements to purchase or sell securities at a
future specific date at a specific price or yield. Risks arise from the
possibility that counterparties may be unable to meet the term of their
contracts and from movements in securities values and interest rates. At
December 31, 1999, the Company had obligations under forward contracts
consisting of commitments to sell mortgage loans originated or purchased by the
Company into the secondary market at a future date. These obligations are
entered into by the Company in order to establish the interest rate at which it
can offer mortgage loans to its customers. Mortgage loans held for sale by the
Company for delivery into the secondary market are recorded at the lower of cost
or market. As of December 31, 1999, the contractual or notional amount of these
forward contracts was approximately $38,000,000.
LENDING COMMITMENTS
In the normal course of business, there are outstanding various
commitments and other arrangements for credit which are not reflected in the
consolidated balance sheets. As of December 31, 1999, these included
approximately $29,682,000 for letters of credit, and approximately $807,656,000
for interim mortgage financing, construction credit, credit card and revolving
line of credit arrangements. No significant credit losses are expected from
these commitments and arrangements.
LITIGATION
Various legal claims have arisen in the normal course of business,
including claims against entities to which the Company is successor as a result
of business combinations. In the opinion of management, the ultimate resolution
of these claims will have no material effect on the Company's consolidated
financial position.
RESTRICTED CASH BALANCE
Aggregate reserves (in the form of deposits with the Federal Reserve
Bank) of $8,000,000 were maintained to satisfy Federal regulatory requirements
at December 31, 1999.
56
57
(22) CONDENSED FINANCIAL STATEMENT INFORMATION OF BANCORPSOUTH, INC.
(PARENT COMPANY ONLY)
The following condensed unaudited financial information reflects the
accounts and transactions of BancorpSouth, Inc. (parent company only) for the
dates indicated:
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(In thousands)
CONDENSED BALANCE SHEETS
Assets
Cash on deposit with subsidiary bank $ 11,877 $ 6,182
Securities -- 413
Investment in subsidiaries 490,597 461,860
Other assets 7,185 13,115
--------- ---------
Total assets $ 509,659 $ 481,570
========= =========
Liabilities and shareholders' equity
Total liabilities $ 12,259 $ 14,043
Shareholders' equity 497,400 467,527
--------- ---------
Total liabilities and shareholders' equity $ 509,659 $ 481,570
========= =========
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- --------- ---------
(In thousands)
CONDENSED STATEMENTS OF INCOME
Dividends from subsidiaries $ 31,100 $ 25,550 $ 17,937
Management fees from subsidiaries -- 1,739 1,419
Other operating income 120 809 456
-------- --------- ---------
Total income 31,220 28,098 19,812
Operating expenses 1,561 4,543 7,324
-------- --------- ---------
Income before equity in undistributed earnings
of subsidiaries 29,659 23,555 12,488
Equity in undistributed earnings of subsidiaries 39,294 34,418 41,378
-------- --------- ---------
Net income $ 68,953 $ 57,973 $ 53,866
======== ========= =========
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- --------- ---------
(In thousands)
CONDENSED STATEMENTS OF CASH FLOWS
Operating Activities:
Net income $ 68,953 $ 57,973 $ 53,866
Adjustments to reconcile net income
to net cash provided by operating activities (36,045) (20,367) (31,829)
-------- --------- ---------
Net cash provided by operating activities 32,908 37,606 22,037
Net cash used in financing activities (27,213) (43,588) (18,916)
-------- --------- ---------
Increase (decrease) in cash and cash equivalents 5,695 (5,982) 3,121
Cash and cash equivalents at beginning of year 6,182 12,164 9,043
-------- --------- ---------
Cash and cash equivalents at end of year $ 11,877 $ 6,182 $ 12,164
======== ========= =========
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements with the Company's independent
accountants and auditors on any matter of accounting principles or practices or
financial statement disclosure.
57
58
PART III
Item 10. - Directors and Executive Officers of the Registrant
Information concerning the directors and nominees of the Company
appears under the caption "Election of Directors" in the Company's definitive
Proxy Statement for its 2000 annual meeting of shareholders, and is incorporated
herein by reference.
Executive Officers of Registrant
Information follows concerning the executive officers of the Company
who are subject to the reporting requirements of Section 16 of the Securities
Exchange Act of 1934.
Name Offices Held Age
---- ------------ ---
Aubrey B. Patterson Chairman of the Board of 57
Directors and Chief
Executive Officer
of the Company and BancorpSouth
Bank; Director of the Company
L. Nash Allen, Jr. Treasurer, and Chief 55
Financial Officer of
the Company; Executive
Vice President, Chief Financial
Officer and Cashier, BancorpSouth Bank
Harry R. Baxter Executive Vice President of the Company 55
and Vice Chairman and
Director of Marketing
of the Company and BancorpSouth Bank
Gary R. Harder Executive Vice President of the Company 55
and Executive Vice President, Audit and
Loan Review of the Company and
BancorpSouth Bank
Michael W. Weeks Executive Vice President of the 51
Company and Vice Chairman of
BancorpSouth Bank
Michael L. Sappington Executive Vice President of the Company 50
and Vice Chairman of
BancorpSouth Bank
Gregg Cowsert Executive Vice President of the 52
Company and Vice Chairman and
Chief Lending Officer of BancorpSouth Bank
Cathy M. Robertson Executive Vice President of the 45
Company and BancorpSouth Bank
58
59
None of the executive officers of the Company are related by blood,
marriage or adoption. There are no arrangements or understandings between any of
the executive officers and any other person pursuant to which the individual
named above was or is to be selected as an officer. The executive officers of
the Company are elected by the Board of Directors at its first meeting following
the annual meeting of shareholders, and they hold office until the next annual
meeting or until their successors are duly elected and qualified.
Mr. Patterson has served as Chairman of the Board and Chief Executive
Officer of the Bank and the Company for at least the past five years.
Mr. Allen has served as Executive Vice President of the Bank for at
least the past five years. He has served as Treasurer and Chief Financial
Officer of the Company during this same period.
Mr. Baxter has served as Executive Vice President of the Company and
Vice Chairman and Director of Marketing of the Bank for at least the past five
years.
Mr. Harder served as Senior Vice President and Executive Vice
President-Loan Review of the Bank for at least the past five years. He is also
Executive Vice President of the Company.
Mr. Weeks served as Chairman of the Board and Chief Executive Officer
of Volunteer Bank until June 1997 when Volunteer Bank was merged into
BancorpSouth Bank and he was named Vice Chairman of BancorpSouth Bank. He has
served as Executive Vice President of the Company for at least the past five
years. Prior to his employment by the Company, Mr. Weeks served as a partner in
the accounting firm of KPMG LLP.
Mr. Sappington has served as Executive Vice President of the Company
and Vice Chairman of the Bank for at least the past five years.
Mr. Cowsert has served as Executive Vice President and Vice Chairman of
the Bank for at least the past five years. He also is Executive Vice President
of the Company.
Mrs. Robertson has served as First Vice President, Senior Vice
President and Executive Vice President of the Bank for at least the past five
years. She is also Executive Vice President of the Company.
Item 11. - Executive Compensation
Information concerning the remuneration of executive officers of the
Company appears under the caption "Executive Compensation" in the Company's
definitive Proxy Statement for its 2000 annual meeting of shareholders, and is
incorporated herein by reference. Information concerning the remuneration of
directors of the Company appears under the caption "Compensation of Directors"
in the Company's definitive Proxy Statement for its 2000 annual meeting of
shareholders, and is incorporated herein by reference.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
Information concerning the security ownership of certain beneficial
owners and directors and executive officers of the Company appears under the
caption "Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive Proxy Statement for its 2000 annual meeting of
shareholders, and is incorporated herein by reference.
Item 13. - Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
with management and others appears under the caption "Certain Relationships and
Related Transactions" in the Company's definitive Proxy Statement for its 2000
annual meeting of shareholders, and is incorporated herein by reference.
59
60
PART IV
Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Consolidated Financial Statements: See Item 8.
(a) 2. Consolidated Financial Statement Schedules:
All schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related
notes.
(a) 3. Exhibits:
(3) (a) Articles of Incorporation, as amended. (1)
(b) Bylaws. (2)
(4) Specimen Common Stock Certificate. (3)
(10) (a) 1998 Directors Plan. (2)(8)
(b) Form of deferred compensation agreement between Bancorp
of Mississippi, Inc. and certain key executives. (4)(8)
(c) 1994 Stock Incentive Plan. (3)(8)
(d) 1995 Non-Qualified Stock Option Plan for Non-Employee
Directors. (3)(7)(8)
(e) Stock Bonus Agreement between BancorpSouth, Inc. and
Michael W. Weeks, dated January 17, 1995 and Escrow
Agreement between Bank of Mississippi and Michael W.
Weeks dated January 17, 1995 (6)(8)
(f) Stock Bonus Agreement between BancorpSouth, Inc. and
Aubrey B. Patterson, Jr., dated January 20, 1998 and
Escrow Agreement between BancorpSouth Bank and Aubrey B.
Patterson, Jr., dated March 20, 1998 (7)(8)
(g) Information regarding Bancorp of Mississippi, Inc.,
amended and restated Salary Deferral-Profit Sharing
Employee Stock Ownership Plan. (5)(8)
(11) Statement re computation of per share earnings
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule.
(28) Information regarding Bancorp of Mississippi, Inc., amended
and restated Salary Deferral-Profit Sharing Employee Stock
Ownership Plan. (5)(8)
(1) Filed as exhibits 3.1 and 3.2 to the Company's registration statement
on Form S-4 filed on January 6, 1995 (Registration No. 33-88274) and
incorporated by reference thereto.
(2) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1998 (file number 0-10826), and incorporated by reference
thereto.
(3) Filed as an exhibit to the Company's Form 10-Q for the three months
ended March 31, 1998 (file number 0-10826) and incorporated by
reference thereto.
(4) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1988 (file number 0-10826), and incorporated by reference
thereto.
(5) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1990 (file number 0-10826), and incorporated by reference
thereto.
(6) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1995 (file number 0-10826), and incorporated by reference
thereto.
(7) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1997 (file number 0-1-826), and incorporated by reference
thereto.
(8) Compensatory plans or arrangements.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
60
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BancorpSouth, Inc.
DATE: March 22, 2000 /s/ Aubrey B. Patterson
--------------------------------------------
Aubrey B. Patterson
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Aubrey B. Patterson Chairman of the Board, Chief March 22, 2000
- --------------------------------- Executive Officer
Aubrey B. Patterson (Principal Executive Officer)
and Director
/s/ L. Nash Allen, Jr. Treasurer and Chief Financial March 22, 2000
- --------------------------------- Officer (Principal Financial and
L. Nash Allen, Jr. Accounting Officer)
/s/ S. H. Davis Director March 22, 2000
- ---------------------------------
S. H. Davis
/s/ Hassell H. Franklin Director March 22, 2000
- ---------------------------------
Hassell H. Franklin
/s/ Fletcher H. Goode Director March 22, 2000
- ---------------------------------
Fletcher H. Goode, M.D.
/s/ W. G. Holliman, Jr. Director March 22, 2000
- ---------------------------------
W. G. Holliman, Jr.
/s/ A. Douglas Jumper Director March 22, 2000
- ---------------------------------
A. Douglas Jumper
/s/ Turner O. Lashlee Director March 22, 2000
- ---------------------------------
Turner O. Lashlee
/s Alan W. Perry Director March 22, 2000
- ---------------------------------
Alan W. Perry
/s/ Travis E. Staub Director March 22, 2000
- ---------------------------------
Travis E. Staub
Director March , 2000
- ---------------------------------
Andrew R. Townes, DDS
/s/ Lowery A. Woodall Director March 22, 2000
- ---------------------------------
Lowery A. Woodall
61