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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
For the fiscal year ended December 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
Commission file number 1-12991
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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, 2001, was approximately $1,061,000,000 based
on the closing sale price as reported on the New York Stock Exchange on such
date.
On January 31, 2001, the registrant had outstanding 84,080,479 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 April 24, 2001, 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, 2000
CONTENTS
PART I
Item 1. Business.............................................................. 4
Item 2. Properties............................................................ 20
Item 3. Legal Proceedings..................................................... 22
Item 4. Submission of Matters to a Vote of Security
Holders............................................................... 22
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters................................................. 22
Item 6. Selected Financial Data............................................... 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.................................. 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............ 36
Item 8. Financial Statements and Supplementary Data........................... 38
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................. 61
PART III
Item 10. Directors and Executive Officers of the
Registrant............................................................ 62
Item 11. Executive Compensation.................................................. 63
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 63
Item 13. Certain Relationships and Related Transactions.......................... 64
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................................... 65
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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,
Alabama, Arkansas, Texas and Louisiana. Its principal subsidiary is BancorpSouth
Bank (the "Bank"). At December 31, 2000, the Company and its subsidiaries had
total assets of approximately $9.04 billion and total deposits of approximately
$7.48 billion. 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 247 offices
in 129 municipalities or communities in Mississippi, Tennessee, Alabama,
Arkansas, Texas and Louisiana. 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.
The Bank and its subsidiaries provide a range of financial services to
individuals and small-to-medium size businesses. The Bank operates investment
services, consumer finance, credit life insurance and insurance agency
subsidiaries which engage in investment brokerage services, consumer lending,
credit life insurance sales and sales of other insurance products. The Bank's
trust department offers a variety of services including personal trust and
estate services, certain employee benefit accounts and plans, including
individual retirement accounts, and limited corporate trust functions.
At December 31, 2000, the Company and its subsidiaries had 3,869
full-time equivalent employees. 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 regulations specifically mentioned herein.
The Company is a bank holding company and is registered as such under
the Bank Holding Company Act of 1956 (the "Bank Holding Company Act") 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 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 of
Banking and Consumer Finance and to regular examinations by that department.
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 to the
Company's Consolidated Financial Statements included in this Report.
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 of the Company or, with
certain exceptions, other affiliates.
The primary source of funds for dividends paid to the Company's
shareholders is dividends paid to the Company by the Bank. Various federal and
state laws limit the amount of dividends that the Bank may pay to the Company
without regulatory approval. Under Mississippi law, the Bank must obtain written
approval of the Commissioner of the Mississippi Department of Banking and
Consumer Finance prior to paying any dividend on the Bank's common stock. Under
FDICIA, the Bank may not pay any dividends, if after paying the dividend, it
would be undercapitalized under applicable capital requirements. The FDIC also
has the authority to prohibit the Bank from engaging in business practices which
the FDIC considers to be unsafe or unsound, which, depending on the financial
condition of the Bank, could include the payment of dividends.
In additions, the Federal Reserve has the authority to prohibit the
payment of dividends by bank holding companies if their actions constitute
unsafe or unsound practices. In 1985, the Federal Reserve issued a policy
statement on the payment of cash dividends by bank holding companies, which
outlined the Federal Reserve's view that a bank holding company that is
experiencing earnings weaknesses or other financial pressures should not pay
cash dividends that
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exceed its net income, that are inconsistent with its capital position or that
could only be funded in ways that weaken its financial health, such as by
borrowing or selling assets. The Federal Reserve indicated that, in some
instances, it may be appropriate for a bank holding company to eliminate its
dividends.
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.
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 ("SEC"), 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.
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, 2000, 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.
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The Bank's insurance subsidiaries are regulated by the insurance
regulatory authorities and applicable laws and regulations of the states in
which they operate.
The Bank's investment services subsidiary is a registered adviser under
the Investment Advisers Act of 1940 and is regulated by the SEC.
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, existing depositors 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 (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 had very little exposure as an agricultural lender. Crop
production loans have been either fully supported by the collateral and
financial strength of the borrower, or else a 90% loan guaranty has been
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
mortgage home improvement loans and home equity lines of credit.
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 with terms of 15
years or more 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
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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 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 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 branches. 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 primary
market areas.
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 54 offices located in 52 communities in Mississippi, Tennessee and
Alabama.
The Bank's insurance service subsidiaries serve as agents in the sale
of title insurance, commercial lines of insurance, and a full line of property
and casualty, life, health and employee benefits products and services and
operates in Mississippi, Tennessee and Alabama.
The Bank's investment services subsidiary provides brokerage,
investment advisory and asset management services, and operates in eight
communities in Mississippi, Tennessee and Alabama.
See Note 20 to the Company's Consolidated Financial Statements included
elsewhere in this 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
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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 primary market areas, 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
payment of these loans is usually dependent upon the successful operation of the
commercial enterprise, the risk of loss with respect to these loans may increase
in the event of adverse conditions in the economy.
The Board of Directors of the Bank focuses much of its efforts and
resources, and that of the Bank's 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. This process is an integral element of the Bank's loan
program. 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.
Recent Acquisitions
On August 31, 2000, First United Bancshares, Inc. ("First United")
merged into the Company in a transaction accounted for as a pooling of
interests. In connection with that merger, the Company issued 1.125 shares of
its common stock in exchange for each outstanding share of First United common
stock, or a total of approximately 28,489,225 shares of the Company's common
stock. First United was an Arkansas corporation and registered bank holding
company headquartered in El Dorado, Arkansas. Through its 11 subsidiary banks
and subsidiary trust company, First United conducted a commercial banking, trust
and insurance business in 69 offices in portions of Arkansas, Louisiana and
Texas. As of June 30, 2000, First United and its subsidiaries had total assets
of approximately $2.7 billion and total deposits of approximately $2.2 billion.
First United's subsidiary banks were (i) The First National Bank of El Dorado,
based in El Dorado, Arkansas, (ii) First National Bank of Magnolia, based in
Magnolia, Arkansas, (iii) Merchants and Planters Bank, N.A. of Camden, based in
Camden, Arkansas, (iv) The City National Bank of Fort Smith, based in Fort
Smith, Arkansas, (v) The Bank of North Arkansas, based in Melbourne, Arkansas,
(vi) FirstBank, based in Texarkana, Texas, (vii) First United Bank, based in
Stuttgart, Arkansas, (viii) Fredonia State Bank, based in Nacogdoches, Texas,
(ix) City Bank & Trust of Shreveport, based in Shreveport, Louisiana, (x)
Citizens National Bank of Hope, based in Hope, Arkansas, and (xi) First Republic
Bank, based in Rayville, Louisiana, and First United's subsidiary trust company
was First United Trust Company, N.A., based in El Dorado, Arkansas. Each of
these subsidiaries were merged into BancorpSouth Bank on August 31, 2000.
On October 10, 2000, Kilgore, Seay and Turner, Inc., a general
insurance agency based in Jackson, Mississippi, merged into BancorpSouth
Insurance Services, Inc., a subsidiary of the Bank, in exchange for cash
totaling $2.2 million. The transaction was accounted for as a purchase.
On October 10, 2000, Pittman Insurance and Bonding, Inc., a general
insurance agency based in Jackson, Mississippi, merged into BancorpSouth
Insurance Services, Inc., in exchange for 95,000 shares of the Company's common
stock and cash totaling $865,000. The transaction was accounted for as a
purchase.
On October 31, 2000, Texarkana First Financial Corporation ("Texarkana
First Financial") merged into the Company in exchange for cash totaling $37.5
million. The transaction was accounted for as a purchase. Texarkana First
Financial was a Texas corporation and single thrift holding company based in
Texarkana, Arkansas. Its subsidiary,
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First Federal Savings and Loan Association of Texarkana ("First Federal"), a
federally chartered stock savings and loan association, operated through a main
office and five branch offices in Texarkana, Ashdown, DeQueen, Hope and
Nashville, Arkansas and Texarkana, Texas. First Federal merged into BancorpSouth
Bank on October 31, 2000. As of June 30, 2000, Texarkana First Financial and its
subsidiary had total assets of approximately $216.0 million and total deposits
of approximately $157.6 million.
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 -- 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 -- 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, 2000, 1999 and 1998:
December 31,
---------------------------------------------
2000 1999 1998
---------- ---------- ---------
(In thousands)
U.S. Treasury securities $ 22,019 $ 74,786 $107,039
U.S. Government agency
securities 826,353 619,955 441,392
Taxable obligations of states
and political subdivisions 13,949 11,812 11,275
Tax exempt obligations of states
and political subdivisions 326,808 324,509 313,788
Other securities -- -- --
---------- ---------- --------
TOTAL $1,189,129 $1,031,062 $873,494
========== ========== ========
The following table shows the maturities and weighted average yields as
of the end of the latest period for the investment categories presented above:
December 31, 2000
-----------------------------------------------------------------------
U.S.
U.S. Government States & Weighted
Treasury Agency Political Other Average
Securities Securities Subdivisions Securities Yield
---------- ----------- ------------ ---------- --------
(Dollars in thousands)
Period to Maturity:
Maturing within
one year $ 4,987 $221,909 $ 65,682 -- 6.10%
Maturing after one
year but within
five years 17,032 489,350 186,788 -- 6.62%
Maturing after five
years but within
ten years -- 74,807 75,874 -- 6.98%
Maturing after ten
years -- 40,287 12,413 -- 6.47%
------- -------- -------- ------
TOTAL $22,019 $826,353 $340,757 --
======= ======== ======== ======
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, 2000, 1999 and 1998:
December 31,
----------------------------------------------------------
2000 1999 1998
-------- ---------- ----------
(In thousands)
U.S. Treasury securities $ 26,621 $ 97,559 $ 166,922
U.S. Government agency
securities 689,612 843,544 907,766
Taxable obligations of states
and political subdivisions 9,601 8,923 7,565
Tax exempt obligations of states
and political subdivisions 64,521 74,306 83,128
Other securities 67,045 56,203 108,734
-------- ---------- ----------
TOTAL $857,400 $1,080,535 $1,274,115
======== ========== ==========
The following table shows the maturities and weighted average yields as
of the end of the latest period for the investment categories presented above:
December 31, 2000
--------------------------------------------------------------------------------------------------
U.S.
U.S. Government State & Weighted
Treasury Agency Political Other Average
Securities Securities Subdivisions Securities Yield
---------- ---------- ------------- ----------- ---------
(Dollars in thousands)
Period to Maturity:
Maturing within
one year $19,238 $ 68,766 $13,205 $ 6,024 6.39%
Maturing after one
year but within
five years 7,383 411,059 26,102 57,365 6.88%
Maturing after five
years but within
ten years -- 144,167 30,665 2,687 7.09%
Maturing after ten
years -- 65,620 4,150 969 7.41%
------- -------- ------- -------
TOTAL $26,621 $689,612 $74,122 $67,045
======= ======== ======= =======
The yield on tax-exempt obligations of states and political
subdivisions has been adjusted to a taxable equivalent basis using a 35% tax
rate. See "Item 7. - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Securities and Other Earning Assets."
12
13
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. See "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Loans."
December 31,
------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands)
Commercial &
agricultural $ 757,885 $ 712,799 $ 721,001 $ 662,857 $ 573,425
Consumer & installment 1,065,324 1,197,277 1,133,218 1,099,151 1,001,434
Real estate mortgage 4,027,751 3,444,172 2,943,774 2,544,102 2,259,169
Lease financing 288,884 258,811 211,367 173,245 150,187
Other 21,238 12,984 26,669 26,242 20,599
---------- ---------- ---------- ---------- ----------
Total gross loans $6,161,082 $5,626,043 $5,036,029 $4,505,597 $4,004,814
========== ========== ========== ========== ==========
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, 2000.
One Year One to After
or Less Five Years Five Years
---------- ------------ ----------
(In thousands)
Commercial
& agricultural $ 405,018 $ 313,763 $ 39,104
Consumer & installment 468,998 587,043 9,283
Real estate mortgages 1,490,532 2,064,437 472,782
Lease financing 92,415 184,349 12,120
Other 16,720 4,095 423
---------- ---------- --------
Total gross loans $2,473,683 $3,153,687 $533,712
========== ========== ========
13
14
Sensitivity of Loans to Changes in Interest Rates
The interest sensitivity of the Company's loan portfolio 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, 2000.
December 31, 2000
---------------------------------
Fixed Variable
Rate Rate
--------- --------
(In thousands)
Loan Portfolio
Due after one year $3,444,421 $242,978
========== ========
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 Company's non-performing
loans were as follows at the end of each period presented.
December 31
-------------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(In thousands)
Non-accrual loans $15,572 $13,352 $13,406 $ 9,124 $10,649
Loans 90 days or more past due 25,732 17,311 13,120 12,476 9,063
Restructured loans 879 1,125 1,781 1,975 2,894
------- ------- ------- ------- -------
Total gross loans $42,183 $31,788 $28,307 $23,575 $22,606
======= ======= ======= ======= =======
The total amount of interest earned on non-performing loans was
approximately $263,000, $212,000 and $228,000 in 2000, 1999 and 1998,
respectively. The gross interest income that would have been recorded under the
original terms of those loans amounted to $878,000, $626,000 and $612,000 in
2000, 1999 and 1998, respectively.
Loans considered impaired under Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure," 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, 2000 and 1999 was $14,669,000 and $7,916,000, respectively, with a
valuation reserve of $5,639,000 and $2,074,000, respectively. The average
recorded investment in impaired loans during 2000 and 1999 was $21,769,000 and
$17,620,000, 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.
14
15
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, 2000,
no loans were known to be potential problem loans.
At December 31, 2000, 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.
15
16
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.
Attention is paid to the quality of the loan portfolio through a formal
loan review process. The Board of Directors of the Bank has appointed a Loan
Loss Reserve Valuation Committee (the "Loan Loss Committee") that is responsible
for ensuring that the allowance for credit losses 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 the allowance for credit losses. The Committee meets a
least quarterly to determine the amount of additions to the allowance for credit
losses. The Committee is composed of senior management from the Bank's Loan
Administration, Lending and Finance departments. In each period, the Committee
bases the allowance for credit losses 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 allowance for loan losses
is the Company's loan classification system. The Company has a disciplined
approach for assigning credit ratings and classifications to individual loans.
Each loan 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 loan and update its grading. The grades
assigned by the loan officer are reviewed by an independent Loan Review
Department. The Loan Review Department is responsible for reviewing the credit
rating and classification of individual loans. The Loan Review Department also
assesses 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 allowance for credit losses. Throughout this on-going process,
management and the Loan Loss Committee are advised of the condition of
individual loans and of the quality profile of the entire loan portfolio for
consideration in establishing the allowance for credit losses.
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 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 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:
16
17
2000 1999 1998 1997 1996
------------------ ------------------- ------------------- ------------------ ------------------
ALLOW- ALLOW- ALLOW- ALLOW- ALLOW-
ANCE % OF ANCE % OF ANCE % OF ANCE % OF ANCE % 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 $12,259 12.30% $11,127 12.67% $ 7,840 14.32% $ 8,015 14.71% $ 8,454 14.32%
Consumer
& installment 23,702 17.29% 22,231 21.28% 21,421 22.50% 19,187 24.40% 15,773 25.01%
Real estate
mortgage 37,279 65.38% 32,897 61.22% 28,887 58.45% 25,508 56.47% 25,271 56.42%
Lease financing 3,290 4.69% 3,196 4.60% 2,802 4.20% 2,592 3.85% 2,070 3.75%
Other 5,200 0.34% 4,781 0.23% 7,435 0.53% 6,630 0.58% 5,089 0.51%
------- ------ ------- ------ ------- ------ ------- ------ ------- -------
TOTAL $81,730 100.00% $74,232 100.00% $68,385 100.00% $61,932 100.01% $56,657 100.01%
======= ====== ======= ====== ======= ====== ======= ====== ======= =======
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, 2000. See "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Provision for Credit Losses and Allowance for Credit Losses."
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
LOANS
Average loans for the period $ 5,791,569 $ 5,211,539 $ 4,710,847 $ 4,155,013 $ 3,788,681
=========== =========== =========== =========== ===========
ALLOWANCE FOR CREDIT
LOSSES
Balance, beginning
of period $ 74,232 $ 68,385 $ 61,932 $ 56,657 54,058
Loans charged off:
Commercial & agricultural (5,974) (2,565) (4,504) (2,753) (2,936)
Consumer & installment (14,203) (12,007) (11,793) (10,652) (10,088)
Real estate mortgage (4,082) (1,936) (2,745) (2,379) (1,766)
Lease financing (347) (94) (75) (50) (30)
----------- ----------- ----------- ----------- -----------
Total loans charged off (24,606) (16,602) (19,117) (15,834) (14,820)
----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial & agricultural 1,843 833 1,408 1,632 1,491
Consumer & installment 2,443 2,411 3,120 2,140 2,561
Real estate mortgage 646 334 560 576 504
Lease financing 40 59 20 57 5
----------- ----------- ----------- ----------- -----------
Total recoveries 4,972 3,637 5,108 4,405 4,561
----------- ----------- ----------- ----------- -----------
Net charge-offs (19,634) (12,965) (14,009) (11,429) (10,259)
Provision charged to
operating expense 26,166 17,812 19,310 15,682 11,643
Acquisitions 966 1,000 1,152 1,022 1,215
----------- ----------- ----------- ----------- -----------
Balance, end of period $ 81,730 $ 74,232 $ 68,385 $ 61,932 $ 56,657
=========== =========== =========== =========== ===========
RATIOS
Net charge-offs to
average loans 0.34% 0.25% 0.30% 0.28% 0.27%
=========== =========== =========== =========== ===========
17
18
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. See "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Deposits."
The following table shows the classification of deposits on an average
basis for the three years ended December 31, 2000.
Year Ended December 31
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Non-interest bearing
demand deposits $ 967,823 -- $ 934,169 -- $ 861,421 --
Interest bearing
demand deposits 1,672,466 3.24% 1,585,545 2.86% 1,454,694 2.99%
Savings deposits 874,707 4.45% 956,056 3.78% 844,557 3.96%
Time deposits 3,758,003 5.78% 3,376,833 5.19% 3,280,353 5.50%
---------- ---------- ----------
Total deposits $7,272,999 $6,852,603 $6,441,025
========== ========== ==========
Time deposits of $100,000 and over, including certificates of deposits
of $100,000 and over, at December 31, 2000, had maturities as follows:
DECEMBER 31, 2000
-----------------
(In thousands)
Three months or less $ 419,661
Over three months through six months 249,110
Over six months through twelve months 436,201
Over twelve months 282,554
----------
TOTAL $1,387,526
==========
18
19
Return on Equity and Assets
Return on average equity, return on average assets and dividend payout
ratios based on net income for the three years ended December 31, 2000, are
presented below:
Year Ended December 31,
-----------------------------------------------
2000 1999 1998
----- ----- ----
Return on average equity 9.76% 13.89% 12.95%
Return on average assets 0.85 1.26 1.16
Dividend payout ratio 60.23 41.18 43.69
The Company's average equity as a percentage of average assets was
8.70%, 9.06% and 9.00% for 2000, 1999 and 1998, respectively. In 2000, the
Company's return on average equity (which is calculated by dividing net income
by average shareholders' equity) and return on average assets (which is
calculated by dividing net income by average total assets) decreased, and its
dividend payout ratio (which is calculated by dividing dividends declared per
share by net income per share) increased primarily due to significant
restructuring, merger-related and other charges incurred during 2000 in
connection with the merger of First United Bancshares, Inc. into the Company on
August 31, 2000. See "Item 7. - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Summary."
Short-Term Borrowings
The Company uses borrowed funds as an additional source of funds for
growth in earning assets. Short-term borrowings consist of federal funds
purchased, flexible repurchase agreements purchased, securities sold under
repurchase agreements and short-term Federal Home Loan Bank advances.
The following table sets forth, for the periods indicated, certain
information about short-term borrowings and the components thereof:
19
20
DECEMBER 31 DAILY AVERAGE MAXIMUM
-------------------- --------------------- OUTSTANDING
INTEREST INTEREST AT ANY
BALANCE RATE BALANCE RATE MONTH END
-------- -------- ----------- -------- ------------
(Dollars in thousands)
2000:
Federal funds purchased $ -- -- $ 29,859 6.3% $ 71,500
Flexible repurchase agreements 198,925 5.6% 25,804 5.7% 202,300
Securities sold under repurchase agreements 304,502 5.6% 253,152 5.3% 304,502
Short-term Federal Home Loan Bank advances -- -- 136,792 6.8% 570,000
-------- ---------- ----------
Total $503,427 $ 445,607 $1,148,302
======== ========== ==========
1999:
Federal funds purchased $ 20,100 4.6% $ 19,589 4.9% $ 23,600
Securities sold under repurchase agreements 237,327 4.2% 114,121 6.5% 237,327
Short-term Federal Home Loan Bank advances 89,000 6.0% 57,922 5.5% 115,000
-------- ---------- ----------
Total $346,427 $ 191,632 $ 375,927
======== ========== ==========
1998:
Federal funds purchased $ 9,075 5.0% $ 9,656 5.1% $ 22,790
Securities sold under repurchase agreements 134,347 4.7% 110,033 4.9% 125,267
Short-term Federal Home Loan Bank advances 1,046 5.1% 1,098 5.5% 1,322
-------- ---------- ----------
Total $144,468 $ 120,787 $ 51 $ 149,379
======== ========== ==========
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 the sale. At December 31, 2000, the Bank has
established informal federal funds borrowing lines of credit aggregating $1.49
billion.
The Bank has entered into a blanket floating lien security agreement
with the Federal Home Loan Bank 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.
Item 2. - Properties
The physical properties of the Company are held by 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 208 of its 236 branch banking facilities. The
remaining 28 branch banking facilities are occupied under
leases with unexpired terms ranging from one to seven years.
The Bank also owns other buildings that provide space for
computer operations, lease servicing, mortgage lending,
warehouse needs and other general purposes.
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.
20
21
b. Personal Finance Corporation - This wholly-owned subsidiary of
the Bank occupies 45 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
of these premises are considered to be in good condition.
c. BancorpSouth Insurance Services, Inc. - This wholly-owned
subsidiary of the Bank owns seven of the nine offices it
occupies. It leases two offices that have unexpired terms
varying in length from one to three years.
21
22
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 and results of
operations 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 2000.
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.
High Low
----------- -----------
2000 Fourth $ 14.88 $ 11.88
Third 15.31 13.81
Second 17.25 14.00
First 16.63 14.00
1999 Fourth $ 17.50 $ 16.31
Third 19.38 15.38
Second 19.13 15.81
First 19.44 15.75
Holders of Record
As of February 28, 2001, there were 10,348 shareholders of record of
the Company's common stock.
Dividends
The Company declared cash dividends totaling $0.53 per share during
2000, $0.49 during 1999 and $0.45 during 1998. Future dividends, if any, will
vary depending on the Company's profitability, anticipated capital requirements
and applicable federal and state regulations. See "Item 1. - Business -
Regulation and Supervision" and Note 15 to the Company's Consolidated Financial
Statements included elsewhere in this Report.
22
23
Item 6. - Selected Financial Data
SELECTED FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Earnings Summary: (Dollars in thousands, except per share amounts)
Interest revenue $ 674,035 $ 596,670 $ 574,414 $ 523,770 $ 476,862
Interest expense 346,883 280,150 277,104 246,945 222,806
---------- ---------- ---------- ---------- ----------
Net interest revenue 327,152 316,520 297,310 276,825 254,056
Provision for credit losses 26,166 17,812 19,310 15,682 11,643
---------- ---------- ---------- ---------- ----------
Net interest revenue, after
provision for credit losses 300,986 298,708 278,000 261,143 242,413
Other revenue 85,578 100,321 85,418 77,835 71,388
Other expense 274,227 251,882 232,928 225,199 198,360
---------- ---------- ---------- ---------- ----------
Income before income taxes 112,337 147,147 130,490 113,779 115,441
Income tax expense 37,941 44,736 42,249 34,141 37,031
---------- ---------- ---------- ---------- ----------
Net income $ 74,396 $ 102,411 $ 88,241 $ 79,638 $ 78,410
========== ========== ========== ========== ==========
Per Share Data:
Net income: Basic $ 0.88 $ 1.20 $ 1.04 $ 0.96 $ 0.98
Diluted 0.88 1.19 1.03 0.96 0.98
Cash dividends 0.53 0.49 0.45 0.395 0.35
Book value 9.40 8.84 8.44 7.72 7.08
Balance Sheet - Year End Balances:
Total assets $9,044,034 $8,441,697 $7,899,655 $7,207,205 $6,398,872
Total securities 2,046,529 2,111,597 2,147,609 2,032,644 1,793,779
Loans, net of unearned discount 6,095,315 5,541,961 4,935,668 4,400,643 3,909,003
Total deposits 7,480,920 7,066,645 6,720,906 6,102,882 5,553,941
Total shareholders' equity 789,576 757,111 723,162 639,012 566,183
Selected Ratios:
Return on average assets 0.85% 1.26% 1.16% 1.17% 1.27%
Return on average equity 9.76% 13.89% 12.95% 12.97% 14.78%
23
24
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
QUARTER ENDED
-------------------------------------------------------
Mar 31 Jun 30 Sept 30 Dec 31
- --------------------------------------------------------------------------------------------------------
2000 (In thousands, except per share amounts)
Interest revenue $158,729 $163,586 $173,325 $178,395
Net interest revenue 81,328 82,458 80,567 82,799
Provision for credit losses 4,615 5,398 10,656 5,497
Income before income taxes 39,267 38,510 16,871 17,689
Net income 26,645 25,984 9,492 12,275
Earnings per share: Basic 0.31 0.31 0.11 0.15
Diluted 0.31 0.31 0.11 0.15
Dividends per share 0.13 0.13 0.13 0.14
- --------------------------------------------------------------------------------------------------------
1999
Interest revenue $143,449 $145,545 $149,685 $157,991
Net interest revenue 76,234 77,694 79,505 83,087
Provision for credit losses 3,751 4,094 4,798 5,169
Income before income taxes 35,130 36,304 38,902 36,811
Net income 24,988 24,832 26,172 26,419
Earnings per share: Basic 0.29 0.29 0.31 0.31
Diluted 0.29 0.29 0.30 0.31
Dividends per share 0.12 0.12 0.12 0.13
- --------------------------------------------------------------------------------------------------------
1998
Interest revenue $140,201 $144,411 $145,429 $144,373
Net interest revenue 72,957 74,481 74,986 74,886
Provision for credit losses 4,048 4,793 5,602 4,867
Income before income taxes 34,451 34,732 33,300 28,007
Net income 23,619 23,570 21,799 19,253
Earnings per share: Basic 0.28 0.28 0.26 0.23
Diluted 0.28 0.28 0.25 0.22
Dividends per share 0.11 0.11 0.11 0.12
24
25
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a bank holding company headquartered in Tupelo,
Mississippi. The Bank, the Company's banking subsidiary, has commercial banking
operations in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana.
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.
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, you should refer to the
Consolidated Financial Statements and Notes thereto presented elsewhere in this
Report.
On August 31, 2000, First United Bancshares, Inc. merged into the
Company in a transaction accounted for as a pooling of interests. All prior
period financial information has been restated as if this merger had been in
effect for all periods presented. For additional information about this merger,
refer to Note 3 to the Consolidated Financial Statements included elsewhere in
this Report.
THREE YEARS ENDED DECEMBER 31, 2000
RESULTS OF OPERATIONS
SUMMARY
The table below summarizes the Company's net income, return on average
assets and return on average equity for the years ended December 31, 2000, 1999
and 1998. The table also summarizes certain restructuring, merger-related and
other charges, and presents the Company's results of operations for 2000, 1999
and 1998 excluding these charges.
(Dollars in thousands, except per share amounts) 2000 1999 1998
-------- -------- --------
AS REPORTED:
Net income $ 74,396 $102,411 $ 88,241
Net income per share: Basic $ 0.88 $ 1.20 $ 1.04
Diluted $ 0.88 $ 1.19 $ 1.03
Return on average assets 0.85% 1.26% 1.16%
Return on average equity 9.76% 13.89% 12.95%
RESTRUCTURING, MERGER-RELATED AND OTHER CHARGES (NET OF TAX):
Securities losses related to restructuring of
acquired securities portfolio $ 9,685 $ -- $ --
Merger-related charges 7,445 976 3,095
Provision for credit losses 3,770 -- --
Other charges 1,605 -- 1,380
-------- -------- --------
Total $ 22,505 $ 976 $ 4,475
Per share:
Basic $ 0.27 $ 0.01 $ 0.05
Diluted $ 0.26 $ 0.01 $ 0.05
EXCLUDING RESTRUCTURING, MERGER-RELATED AND OTHER CHARGES:
Net income $ 96,901 $103,387 $ 92,716
Net income per share: Basic $ 1.15 $ 1.21 $ 1.09
Diluted $ 1.14 $ 1.20 $ 1.08
Return on average assets 1.11% 1.27% 1.23%
Return on average equity 12.72% 13.99% 13.61%
NET INTEREST REVENUE
Net interest revenue increased 3.3% to $339.2 million in 2000 from
$328.4 million in 1999, which represented an increase of 6.6% from $308.2
million in 1998. 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
25
26
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. For
purposes of the following discussion, revenue from tax-exempt loans and
investment securities has been adjusted to fully taxable equivalent amounts,
using an effective tax rate of 35%.
Interest income increased 12.7% to $686.1 million in 2000 from $608.6
million in 1999, which represented an increase of 4.0% from $585.3 million in
1998. The increase in interest income during 2000 was attributable to a 7.6%
increase in average interest earning assets to $8.2 billion in 2000, and an
increase in the yield of those assets of 38 basis points to 8.38% in 2000. The
increase in interest income during 1999 was attributable to a 7.3% increase in
average interest earning assets to $7.6 billion during 1999, which was partially
offset by a decrease in the yield of those assets of 25 basis points to 8.00% in
1999.
Interest expense increased 23.8% to $346.9 million in 2000 from $280.2
million in 1999, which represented an increase of 1.1% from $277.1 million in
1998. The increase in interest expense during 2000 was attributable to an 8.6%
increase in average interest bearing liabilities to $6.9 billion in 2000, and an
increase in the average rate paid on those liabilities of 61 basis points to
5.01% in 2000. The increase in interest expense during 1999 was attributable to
a 7.4% increase in average interest bearing liabilities to $6.4 billion in 1999,
which was partially offset by a decrease in the average rate paid on those
liabilities of 27 basis points to 4.40% in 1999.
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.
Net interest margin for 2000 was 4.14%, a decline of 18 basis points
from 4.32% for 1999, which represented a decline of three basis points from
4.35% for 1998. Net interest rate spread for 2000 was 3.37%, a decline of 23
basis points from 3.60% for 1999, which represented an increase of two basis
points from 3.58% for 1998. The decline in net interest margin and net interest
rate spread in 2000 was due to the significant increase in funding cost which
was not offset by the smaller increase in asset yield.
The Company experienced significant growth in average interest earning
assets and average interest bearing liabilities during the three years ended
December 31, 2000. Average interest earning assets increased 7.6% during 2000,
7.3% during 1999 and 12.1% during 1998, due to increases in the Company's loan
and securities portfolios. Average interest bearing liabilities increased 8.6%
during 2000, 7.4% during 1999 and 12.5% during 1998, due to increases in the
Company's deposits and short-term borrowings.
26
27
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, 2000. Each of the
measures is reported on a fully-taxable equivalent basis.
2000 1999 1998
---------------------------- ------------------------------ ------------------------------
(Taxable equivalent basis) Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ---- --------- -------- ---- --------- -------- ----
ASSETS (Dollars in thousands)
Loans (net of unearned
income)(1)(2) $5,791,569 $527,618 9.11% $5,211,539 $459,593 8.82% $4,710,847 $434,812 9.23%
Mortgages held for sale 39,461 3,111 7.88% 51,602 3,638 7.05% 52,581 3,470 6.60%
Held to maturity
securities:
Taxable 796,125 49,086 6.17% 670,051 39,007 5.82% 665,219 38,908 5.85%
Non-taxable(3) 325,027 24,108 7.42% 315,206 23,072 7.32% 280,558 21,236 7.57%
Available-for-sale
securities:
Taxable 1,040,875 68,740 6.60% 1,108,558 67,939 6.13% 1,108,293 70,123 6.33%
Non-taxable(4) 73,829 6,011 8.14% 88,364 7,163 8.11% 87,929 6,724 7.65%
Federal funds sold and
short term investments 119,752 7,440 6.21% 162,578 8,135 5.00% 187,735 10,037 5.35%
---------- -------- ---- ---------- -------- ----- ---------- -------- ----
Total interest earning
assets and revenue 8,186,638 686,114 8.38% 7,607,898 608,547 8.00% 7,093,162 585,310 8.25%
Other assets 646,878 604,718 547,420
Less: allowance for
credit losses (77,042) (73,420) (65,712)
---------- --------- ----------
Total $8,756,474 $8,139,196 $7,574,870
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand - interest bearing $1,672,466 $ 54,226 3.24% $1,585,545 $45,380 2.86% $1,454,694 $ 43,528 2.99%
Savings 874,707 38,947 4.45% 956,056 36,145 3.78% 844,557 33,453 3.96%
Time 3,758,003 217,191 5.78% 3,376,833 175,229 5.19% 3,280,353 180,324 5.50%
Federal funds purchased,
securities sold under
repurchase agreements and
other short-term
borrowings(5) 454,089 26,742 5.89% 270,185 13,748 5.09% 157,773 9,216 5.84%
Long-term debt 164,683 9,776 5.94% 185,632 9,652 5.20% 199,205 10,584 5.31%
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities and expense 6,923,948 346,882 5.01% 6,374,251 280,154 4.40% 5,936,582 277,105 4.67%
Demand deposits -
non-interest bearing 967,823 934,169 861,421
Other liabilities 102,819 93,250 95,384
---------- ---------- ----------
Total liabilities 7,994,590 7,401,670 6,893,387
Shareholders' equity 761,884 737,526 681,483
---------- ---------- ----------
Total $8,756,474 $8,139,196 $7,574,870
========== ========== ==========
Net interest revenue $339,232 $328,393 $308,205
======== ======== ========
Net interest margin 4.14% 4.32% 4.35%
Net interest rate spread 3.37% 3.60% 3.58%
Interest bearing liabilities to
interest earning assets 84.58% 83.78% 83.69%
- -------------
(1) Includes taxable equivalent adjustment of $1,538,000, $1,293,000 and
$1,110,000 in 2000, 1999 and 1998, respectively, using an effective tax
rate of 35%.
(2) Non-accrual loans are immaterial for each of the years presented.
(3) Includes taxable equivalent adjustments of $8,438,000, $8,092,000 and
$7,433,000 in 2000, 1999 and 1998, respectively, using an effective tax
rate of 35%.
(4) Includes taxable equivalent adjustment of $2,103,000, $2,492,000 and
$2,353,000 in 2000, 1999 and 1998, respectively, using an effective tax
rate of 35%.
(5) Interest expense includes interest paid on liabilities not included in
averages.
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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 1999 to 2000 and from 1998 to 1999. Changes that are not solely due to
volume or rate have been allocated to volume.
2000 OVER 1999 -- INCREASE 1999 OVER 1998 -- INCREASE
(DECREASE) (DECREASE)
---------------------------- ----------------------------
(TAXABLE EQUIVALENT BASIS) VOLUME RATE TOTAL VOLUME RATE TOTAL
- -------------------------- ------- -------- ------- ------- -------- -------
INTEREST REVENUE
Loans (net of unearned income)......... $52,841 $ 15,184 $68,025 $44,155 $(19,374) $24,781
Mortgages held for sale................ (957) 430 (527) (69) 237 168
Held to maturity securities:
Taxable.............................. 7,773 2,306 10,079 281 (182) 99
Non-taxable.......................... 728 308 1,036 2,536 (700) 1,836
Available-for-sale securities:
Taxable.............................. (4,470) 5,271 801 16 (2,200) (2,184)
Non-taxable.......................... (1,183) 31 (1,152) 35 404 439
Federal funds sold and short term
investments.......................... (2,661) 1,966 (695) (1,259) (643) (1,902)
------- -------- ------- ------- -------- -------
Total........................ 52,071 25,496 77,567 45,695 (22,458) 23,237
------- -------- ------- ------- -------- -------
INTEREST EXPENSE
Demand -- interest bearing........... 2,818 6,028 8,846 3,745 (1,893) 1,852
Savings.............................. (3,622) 6,424 2,802 4,215 (1,523) 2,692
Time................................. 22,029 19,933 41,962 5,006 (10,101) (5,095)
Federal funds purchased, securities
sold under repurchase agreements and
other short-term borrowings.......... 10,830 2,164 12,994 5,720 (1,188) 4,532
Long-term debt......................... (1,244) 1,368 124 (706) (226) (932)
------- -------- ------- ------- -------- -------
Total........................ 30,811 35,917 66,728 17,980 (14,931) 3,049
------- -------- ------- ------- -------- -------
Increase (decrease) in effective
interest differential................ $21,260 $(10,421) $10,839 $27,715 $ (7,527) $20,188
======= ======== ======= ======= ======== =======
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29
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, 2000.
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 $ 11,687 $ -- $ -- $ --
Federal funds sold & repurchase agreements 212,925 -- -- --
Held-to-maturity securities 102,383 190,195 692,950 203,601
Available-for-sale securities 52,490 54,746 497,395 252,769
Loans, net of unearned discount 2,098,956 588,806 2,879,638 527,915
Mortgages held for sale 27,820 -- -- --
-------------- -------------- ------------- -------------
Total interest earning assets 2,506,261 833,747 4,069,983 984,285
-------------- -------------- ------------- -------------
Interest bearing liabilities:
Interest bearing demand deposits & savings 535,488 294,389 1,180,872 596,120
Time deposits 879,972 1,843,294 1,137,980 2,997
Federal funds purchased & securities
sold under repurchase agreements 503,427 -- -- --
Long-term debt 109 10,084 5,528 136,328
Other 821 144 547 1,022
-------------- -------------- ------------- -------------
Total interest bearing liabilities 1,919,817 2,147,911 2,324,927 736,467
-------------- -------------- ------------- -------------
Interest rate sensitivity gap $ 586,444 $ (1,314,164) $ 1,745,056 $ 247,818
============== ============== ============= =============
Cumulative interest sensitivity gap $ 586,444 $ (727,720) $ 1,017,336 $ 1,265,154
============== ============== ============= =============
In the event interest rates decline after 2000, based on this interest
rate sensitivity gap, it is likely that the Company would 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 this interest rate sensitivity gap, the Company would likely experience
decreased net interest income. It should be noted that the balances shown in the
table above are for a specific point in time and may not be reflective of
positions at other times during the year or in subsequent periods. Allocations
to specific interest rate sensitivity periods are based on the earlier of
maturity or repricing dates.
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. See "Item 1. - Business."
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
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30
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 relevant loan officer, which 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
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 outstanding at the end of 2000, 1999 and 1998 and net
charge-offs for those years are shown in the following table:
2000 1999 1998
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
Provision for credit losses $26,166 $17,812 $19,310
Allowance for credit losses as
a percentage of loans
outstanding at year end 1.34% 1.34% 1.39%
Net charge-offs $19,634 $12,965 $14,009
Net charge-offs as a percentage
of average loans 0.34% 0.25% 0.30%
The provision for credit losses for 2000 increased 46.9% from the
provision for 1999 and reflects a one-time charge of $6.1 million made to
provide for probable losses in the loan portfolio acquired in the merger with
First United Bancshares, Inc., and to reflect differences in underwriting
standards at the acquired company. In part, these differences in underwriting
standards also led to a 51.4% increase in net charge-offs during 2000 and
increases in internal credit ratings and classifications of the Company's
overall loan portfolio at December 31, 2000. The provision for credit losses for
1999 decreased 7.8% from the provision for 1998, principally as result of a 7.5%
decrease in net charge-offs during 1999. 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, 2000,
1999 and 1998 and the percentage change from the prior year are shown in the
following table:
2000 1999 1998
---------------------------- ----------------------------- ----------------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------------- --------- ------------- ---------- ------------- ---------
(DOLLARS IN THOUSANDS)
Mortgage lending $ 10,874 -40.5% $ 18,289 +32.4% $ 13,816 +74.6%
Service charges 40,472 +10.9 36,503 +7.9 33,835 +4.3
Life insurance premiums 4,300 +8.2 3,975 +8.8 3,655 -3.1
Trust income 6,700 +4.7 6,400 +9.6 5,841 +5.7
Securities gains (losses), net (15,632) N/M 4,416 +224.0 1,363 -1.4
Insurance commissions 16,034 +18.1 13,573 +8.8 12,475 +22.5
Other 22,830 +33.0 17,165 +18.9 14,433 -13.2
------------- ------------- -------------
Total other revenue $ 85,578 -14.7% $ 100,321 +17.4% $ 85,418 +9.7%
============= ============= =============
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31
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
$8,183,000, $11,256,000 and $13,724,000 for 2000, 1999 and 1998, respectively.
Historically, origination volumes have varied as mortgage interest rates have
changed. Rising mortgage interest rates have generally resulted in a decrease in
the volume of originations, while falling mortgage interest rates have generally
resulted in an increased volume of 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 $2,691,000 in 2000, $7,034,000 in 1999 and $92,000 in 1998. The
fluctuation in servicing revenue is primarily due to changes in the valuation of
capitalized mortgage servicing rights. Lower mortgage rates in 2000 resulted in
impairment expense of $1.0 million. 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 in impairment
expense during 1998. The following table presents the principal amount of
mortgage loans serviced at December 31, 2000, 1999 and 1998 and the percentage
change from the previous year end.
2000 1999 1998
----------------------- ----------------------- ------------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------- --------- ------- -------- --------- --------
(DOLLARS IN MILLIONS)
Mortgage loans serviced $2,217.0 +6.3% $2,085.2 +13.6% $1,836.0 +25.9%
Service charges on deposit accounts increased in 2000, 1999 and 1998
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 8.2% in 2000 and 8.8% in 1999, as compared
to a decline 3.1% during 1998. Trust income increased 4.7% in 2000, 9.6% in 1999
and 5.7% in 1998, as a result of increases in the number of trust accounts and
the value of assets under care (either managed or in custody). In 2000, the
Company restructured the securities portfolio acquired through the August 31,
2000 merger with First United Bancshares, Inc. by selling approximately $680
million of securities and reinvesting the net proceeds in higher yielding
securities, which resulted in securities losses of $15.7 million in 2000. In
1999, the Company established a charitable foundation 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 grew
steadily during 2000, 1999 and 1998, as the Company continued to expand those
products and services. The increases in the other component of other revenue in
2000 and 1999 were primarily attributable to fees generated from brokerage and
annuity sales, as well as increased analysis charges and debit card net
interchange.
OTHER EXPENSE
The components of other expense for the years ended December 31, 2000,
1999 and 1998 and the percentage change from the prior year are shown in the
following table.
2000 1999 1998
----------------------------- ---------------------------- --------------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------------- --------- ------------- --------- ------------- ---------
(DOLLARS IN THOUSANDS)
Salaries and employee benefits $ 133,855 +7.3% $ 124,750 +9.0% $ 114,443 -3.0%
Occupancy, net 18,343 +8.4 16,918 +7.5 15,736 -1.7
Equipment 24,137 +11.7 21,618 +7.5 20,103 +5.6
Telecommunications 7,234 +1.9 7,096 +18.5 5,987 +42.7
Merger-related 9,215 +656.6 1,218 -65.9 3,577 +574.9
Other 81,443 +1.4 80,282 +9.9 73,082 +8.3
------------- ------------- -------------
Total other expense $ 274,227 +8.9% $ 251,882 +8.1% $ 232,928 +3.4%
============= ============= =============
Salaries and employee benefits expense for 2000, 1999 and 1998
included increases in salaries and employee benefits due to incentive payments
and salary increases, increases in the cost of employee heath care benefits and
the hiring of employees to staff the banking locations added during those years;
however, salaries and employee benefits expense for all three years were
impacted by changes in stock appreciation rights (SARs) expense, which is
included in salaries and employee benefits expense. The Company previously
granted SARs to certain of its employees, which
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32
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 2000,
the Company's common stock price declined by approximately 25.3%, in 1999 the
Company's common stock price declined by approximately 9.9% and in 1998 the
Company's common stock price declined by approximately 24%. As a result of these
declines in value, reductions in expense of $1,844,000, $956,000 and $2.7
million were recorded in 2000, 1999 and 1998, respectively. At December 31,
2000, the Company had approximately 475,000 SARs outstanding. Based on that
amount, a dollar increase in the Company's stock price would result in $475,000
in SAR expense while a dollar decrease in the Company's stock price would result
in a $475,000 reduction in SAR expense.
Occupancy and equipment expenses increased in 2000 and 1999 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 consumer oriented banking services. The increase during 1999 in the
other component of other expense was primarily attributable to a contribution of
appreciated equity securities with an aggregate market value of $4.14 million to
a charitable foundation established by the Company in 1999.
As a direct result of the Company's merger activity, merger-related and
other costs of $9.2 million, $1.2 million and $3.6 million were recorded in
2000, 1999 and 1998, respectively. These merger-related and other costs included
termination and change of control payments, contract termination charges,
professional fees, elimination of duplicate facilities charges and other
charges. At December 31, 2000, approximately $3.1 million in accrued charges
related to merger activity were unpaid. These consisted primarily of termination
and change of control payments related to mergers in 2000 and the cost of
abandonment of a duplicate headquarters facility acquired in the 1998 merger
with Merchants Capital Corporation. The Company has formulated, documented and
approved plans with respect to termination and change of control payments and
expects to make these payments during 2001. The duplicate headquarters facility
has been abandoned and is listed for sale.
FINANCIAL CONDITION
LOANS
The Company's loan portfolio represents the largest single component of
the Company's earning asset base, comprising 70.7% of average earning assets
during 2000. See "Item 1. - Business." The following table indicates the average
loans, year end balances of the loan portfolio and the percentage increases for
the years presented.
2000 1999 1998
-------------------------- ------------------------- -------------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
----------- ---------- ---------- --------- ---------- ---------
(DOLLARS IN MILLIONS)
Loans, net of unearned - average $5,791.6 +11.1% $5,211.5 +10.6% $4,710.8 +13.4%
Loans, net of unearned - year end 6,095.3 +10.0 5,542.0 +12.3 4,935.7 +12.2
Despite significant increases in the Company's loan portfolio, quality
is stressed in the Company's lending policy as opposed to growth. The Company's
nonperforming 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.
2000 1999 1998
------- ------- -------
(DOLLARS IN THOUSANDS)
Foreclosed properties $ 7,893 $11,182 $ 8,530
Non-accrual loans 15,572 13,352 13,406
Loans 90 days or more past due 25,732 17,311 13,120
Restructured loans 879 1,125 1,781
------- ------- -------
Total non-performing assets $50,076 $42,970 $36,837
======= ======= =======
Total non-performing assets as a percentage of net loans 0.82% 0.78% 0.75%
======= ======= =======
The increase in the Company's non-performing assets in 2000 reflects a
general slow down in the overall economy of the region serviced by the Company.
The Company has not, as a matter of policy, participated in any highly
32
33
leveraged transactions nor made any loans or investments relating to corporate
transactions such as leveraged buyouts or leveraged recapitalizations. At
December 31, 2000, 1999 and 1998, 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 may be
dependent upon the economic conditions prevailing in the market area.
Included in non-performing assets above were loans the Company
considered impaired totaling $14,669,000, $7,916,000 and $11,908,000 at December
31, 2000, 1999 and 1998, respectively.
SECURITIES AND OTHER EARNING ASSETS
The securities portfolio is used to make various term investments, to
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 $414.9
million at December 31, 2000, compared to $419.6 million at the end of 1999. The
Company invests only in investment grade securities, with the exception of
obligations of certain counties and municipalities within the Company's market
area, and avoids other high yield nonrated securities and investments. See "Item
1. - Business - Investment Portfolio."
At December 31, 2000, the Company's available-for-sale securities
totaled $857.4 million. These securities, which are subject to possible sale,
are recorded at fair value. At December 31, 2000, the Company held no securities
whose decline in fair value was considered other than temporary.
Net unrealized gains on investment securities as of December 31, 2000
totaled $35.1 million. Net unrealized gains on held-to-maturity securities
comprised $10.5 million of that total, while net unrealized gains on
available-for-sale securities were $24.6 million. Net unrealized losses on
investment securities as of December 31, 1999 totaled $43.5 million. Of that
total, $21.8 million was attributable to held-to-maturity securities and $21.7
million to available-for-sale securities.
In the fourth quarter of 2000, the Company restructured the securities
portfolio acquired in the August 31, 2000 merger with First United Bancshares,
Inc. by selling approximately $680 million of securities and reinvesting the net
proceeds in higher yielding 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 in
its primary market areas. See "Item 1. - Business - Deposits."
The following table presents the Company's average deposit mix and
percentage change for the years indicated.
2000 1999 1998
---------------------- --------------------- --------------------
AVERAGE % AVERAGE % AVERAGE %
BALANCE CHANGE BALANCE CHANGE BALANCE CHANGE
------------- ------- --------- ------ ---------- ------
(DOLLARS IN MILLIONS)
Interest bearing deposits $6,305.2 +6.5% $5,918.4 +6.1% $5,579.6 +10.4%
Non-interest bearing deposits 967.8 +3.6 934.2 +8.5 861.4 +7.7
----------- ---------- ----------
Total average deposits $7,273.0 +6.1 $6,852.6 +6.4 $6,441.0 +10.0
=========== ========== ==========
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. See "-- Deposits" and "Item 1 -
Business - Short Term Borrowings."
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34
CAPITAL RESOURCES
The Company is required to comply with the riskbased capital guidelines
established by the Board of Governors of the Federal Reserve System. 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 paidup 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 riskadjusted assets, was 11.31% and 12.56%,
respectively, at December 31, 2000, compared to 12.75% and 14.02%, respectively
at December 31, 1999. Both ratios exceeded the required minimum levels for these
ratios of 4% and 8%, respectively, for each period. In addition, the Company's
Tier 1 leverage capital ratio (Tier I capital divided by total assets, less
goodwill) was 8.10% at December 31, 2000 and 8.83% at December 31, 1999,
compared to the required minimum leverage capital ratio of 3%.
The FDIC's capitalbased 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 riskbased capital, total risk-based
capital and leverage capital ratios must be at least 6%, 10% and 5%,
respectively. The Bank met the criteria for the "well capitalized" category at
December 31, 2000.
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.
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 their reference to a future period or periods or by the use
of forward-looking terminology, such as "anticipate", "believe", "estimate",
"expect", "foresee", "may", "might", "will", "would" or "intend." These
forward-looking statements include, without limitation, those relating to the
expansion and prospects of products and services, integration and impact of
recent acquisitions, effects of technology, shareholder value, prospects for
2001, the Company's future growth, revenue, profitability, assets, opportunities
and success, dividends, legal proceedings, net interest revenue, interest rate
sensitivity, liquidity, market risk and acquisitions.
We caution you not to place undue reliance on the forward-looking
statements contained in this Report, in that actual results could differ
materially form those indicated in such forward-looking statements, due to a
variety of factors. These factors include, but are not limited to changes in
economic conditions and government fiscal and monetary policies, fluctuations in
prevailing interest rates, effectiveness of the Company's interest rate hedging
strategies, laws and regulations affecting financial institutions, the ability
of the Company to compete with other financial services companies, the ability
of the Company to identify, consummate, and integrate acquisitions and
investment opportunities, the ability of the Company to operate and integrate
new technology, the ability of the Company to manage its growth and effectively
serve an expanding customer and market base, the ability of the Company to
provide competitive products and services, changes in the Company's operating or
expansion strategy, geographic concentration of the Company's assets,
availability of and costs associated with obtaining adequate and timely sources
of liquidity, the ability of the Company to attract, train, and retain qualified
personnel, the ability of the Company to effectively market its services and
products, the Company's dependence on existing sources of funding, changes in
consumer preferences, unexpected operating results or outcome of legal
proceedings, other factors generally understood to affect the financial results
of financial services companies, and other risks 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 the forward-looking statements
to reflect events or circumstances that occur after the date of this Report.
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 BancorpSouth 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
34
35
the extent to which, the government and governmental organizations may change
any of these laws or controls. We also cannot predict how any of these changes
would adversely affect 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, Alabama, Arkansas, Texas and Louisiana. 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 than do we. Some of these competitors provide certain services that we do
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, we may pay interest on our customers' interest
bearing deposits and our other liabilities at rates higher 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 rates that could not be
adjusted to a higher interest rate.
Our Growth Strategy Includes Risks That Could Have an Adverse Effect on Our
Financial Performance.
A material element of 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 our criteria or that any such acquisition
will be on terms favorable to 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 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 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 on the trading price of our common
stock.
Issuing Additional Shares of Our 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 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 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
our service area and the United States generally, affect our ability to attract
deposits and extend loans. We cannot predict either the nature or 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 such periods, foreclosures generally increase, and such
conditions also could lead to a potential decline in deposits and demand for
loans. This could adversely affect our financial performance.
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
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36
services through wholly-owned subsidiaries of BancorpSouth Bank. As a result, we
must now manage 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
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 primarily 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 or pay
dividends on our common stock.
Our Subsidiaries May Be Sued for Large Punitive Damages in Connection with
Increased Litigation Against Financial Services Companies in Our Market Areas.
In some states in which we operate, there has been a trend toward
increased class action lawsuits and other litigation against financial services
companies in connection with lending and other financial transactions. These
actions tend to seek punitive damages for transactions that involve relatively
small amounts of actual damages. Some of these actions have resulted in large
settlements or awards of punitive damages. Some of our subsidiaries are
defendants in similar lawsuits in which the plaintiffs are seeking substantial
punitive damages. Legislation and court decisions in some states may limit the
amount of punitive damages that can be recovered in legal proceedings; however,
we cannot predict the effect of such legislation and court precedent at this
time.
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, Alabama, Arkansas, Texas and Louisiana. An economic downturn in the
economies of these states or the southern region 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.
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.
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37
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
2000. 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,
2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
---------- -------- -------- -------- -------- ---------- ---------- ------------
(Dollars in thousands)
RATE-SENSITIVE ASSETS:
Fixed interest rate loans $1,928,597 $686,888 $781,483 $776,816 $634,454 $527,915 $5,336,153 $5,188,263
Average interest rate 9.05% 10.34% 8.93% 8.80% 9.26% 9.32% 9.21%
Variable interest rate loans $ 786,982 -- -- -- -- -- $ 786,982 $ 796,076
Average interest rate 9.89% -- -- -- -- -- 9.89%
Fixed interest rate securities $ 399,813 $237,313 $371,556 $270,886 $315,322 $451,639 $2,046,529 $ 63,708
Average interest rate 6.18% 6.53% 6.60% 6.82% 6.96% 7.03% 6.69%
Other interest bearing assets $ 224,612 -- -- -- -- -- $ 224,612 $ 224,612
Average interest rate 6.23% -- -- -- -- -- 6.23%
Mortgage servicing rights (1) -- -- -- -- -- -- $ 34,783 $ 34,783
RATE-SENSITIVE LIABILITIES:
Savings & interest bearing checking $ 829,877 $391,728 $391,736 $198,704 $198,704 $596,120 $2,606,869 $2,606,869
Average interest rate 3.99% 2.84% 2.84% 2.88% 2.88% 2.88% 3.22%
Fixed interest rate time deposits $2,723,266 $918,245 $115,707 $ 56,308 $ 47,720 $ 2,997 $3,864,243 $4,065,316
Average interest rate 5.87% 6.23% 5.82% 5.77% 6.37% 7.52% 5.96%
Fixed interest rate borrowings $ 10,424 $ 5,269 $ 270 $ 263 $ 273 $137,350 $ 153,849 $ 503,427
Average interest rate 6.26% 5.80% 6.70% 6.71% 6.70% 5.94% 5.96%
Variable interest rate borrowings $ 504,161 -- -- -- -- -- $ 504,161 $ 504,161
Average interest rate 4.94% -- -- -- -- -- 4.94%
RATE-SENSITIVE OFF BALANCE SHEET ITEMS:
Commitments to extend credit for
single family mortgage loans $ 19,805 -- -- -- -- -- $ 19,805 $ 19,805
Average interest rate 7.41% -- -- -- -- -- 7.41%
Forward contracts $ 22,500 -- -- -- -- -- $ 22,500 $ 22,500
Average interest rate 7.10% -- -- -- -- -- 7.10%
(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, see "Item 1. - Business - Investment Portfolio" and "Item
7. - Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Sensitivity" and "- Securities and Other Earning
Assets."
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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, 2000 and 1999, 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, 2000.
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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BancorpSouth, Inc., and subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Memphis, Tennessee
January 18, 2001
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CONSOLIDATED BALANCE SHEETS
BANCORPSOUTH, INC. AND SUBSIDIARIES
DECEMBER 31
----------------------------------
2000 1999
------------ ------------
ASSETS (IN THOUSANDS)
Cash and due from banks (Note 21) $ 314,888 $ 329,553
Interest bearing deposits with other banks 11,687 12,058
Held-to-maturity securities (Note 4) (fair value
of $1,199,644 and $1,009,240) 1,189,129 1,031,062
Available-for-sale securities (Note 5) (amortized cost
of $832,781 and $1,102,236) 857,400 1,080,535
Federal funds sold and securities purchased under
agreement to resell 212,925 110,875
Loans (Notes 6, 7 and 17) 6,161,082 5,626,043
Less: Unearned discount 65,767 84,082
Allowance for credit losses 81,730 74,232
------------ ------------
Net loans 6,013,585 5,467,729
Mortgages held for sale 27,820 37,513
Premises and equipment, net (Note 8) 197,898 171,867
Accrued interest receivable 89,605 73,076
Other assets (Notes 11 and 18) 129,097 127,429
------------ ------------
TOTAL ASSETS $ 9,044,034 $ 8,441,697
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand:
Non-interest bearing $ 1,009,808 $ 966,491
Interest bearing 1,682,278 1,589,155
Savings 924,591 937,508
Other time (Note 9) 3,864,243 3,573,491
------------ ------------
Total deposits 7,480,920 7,066,645
Federal funds purchased and securities sold under
repurchase agreements (Note 9) 503,427 257,427
Short-term borrowings (Note 9) -- 89,000
Accrued interest payable 40,611 30,929
Other liabilities (Notes 11 and 12) 77,451 74,338
Long-term debt (Note 10) 152,049 166,247
------------ ------------
TOTAL LIABILITIES 8,254,458 7,684,586
------------ ------------
SHAREHOLDERS' EQUITY (NOTES 3, 15 AND 16)
Common stock, $2.50 par value
Authorized - 500,000,000 shares; Issued - 85,793,477 and
85,762,149 shares at December 31, 2000 and 1999, respectively 214,484 214,405
Capital surplus 70,841 71,777
Accumulated other comprehensive income 15,202 (14,149)
Retained earnings 515,599 486,540
Treasury stock at cost (1,750,137 and 106,733 shares
at December 31, 2000 and 1999, respectively) (26,550) (1,462)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 789,576 757,111
------------ ------------
Commitments and contingent liabilities (Note 21) -- --
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,044,034 $ 8,441,697
============ ============
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME
BANCORPSOUTH, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
------------------------------------------
2000 1999 1998
--------- -------- --------
(In thousands, except per share amounts)
INTEREST REVENUE
Loans receivable $ 526,080 $458,300 $433,700
Deposits with other banks 1,175 1,263 1,765
Federal funds sold and securities purchased
under agreement to resell 6,266 6,869 8,271
Held-to-maturity securities: 64,756 53,990 52,713
U.S. Treasury 2,605 5,316 6,653
U.S. Government agencies and corporations 45,488 32,968 31,499
Obligations of states and political subdivisions 16,369 15,490 14,313
Other 294 216 248
Available-for-sale securities 72,647 72,610 74,495
Mortgages held for sale 3,111 3,638 3,470
--------- -------- --------
Total interest revenue 674,035 596,670 574,414
--------- -------- --------
INTEREST EXPENSE
Deposits 310,365 256,751 257,305
Federal funds purchased and securities sold
under repurchase agreements 16,966 8,362 5,930
Other 19,552 15,037 13,869
--------- -------- --------
Total interest expense 346,883 280,150 277,104
--------- -------- --------
Net interest revenue 327,152 316,520 297,310
Provision for credit losses (Note 7) 26,166 17,812 19,310
--------- -------- --------
Net interest revenue, after
provision for credit losses 300,986 298,708 278,000
--------- -------- --------
OTHER REVENUE
Mortgage lending 10,874 18,289 13,816
Service charges 40,472 36,503 33,835
Life insurance premiums 4,300 3,975 3,655
Trust income 6,700 6,400 5,841
Security gains (losses), net (15,632) 4,416 1,363
Insurance commissions 16,034 13,573 12,475
Other 22,830 17,165 14,433
--------- -------- --------
Total other revenue 85,578 100,321 85,418
--------- -------- --------
OTHER EXPENSE
Salaries and employee benefits (Note 12 and 14) 133,855 124,750 114,443
Occupancy net of rental income 18,343 16,918 15,736
Equipment 24,137 21,618 20,103
Telecommunications 7,234 7,096 5,987
Merger related 9,215 1,218 3,577
Other 81,443 80,282 73,082
--------- -------- --------
Total other expense 274,227 251,882 232,928
--------- -------- --------
Income before income taxes 112,337 147,147 130,490
Income tax expense (Note 11) 37,941 44,736 42,249
--------- -------- --------
NET INCOME $ 74,396 $102,411 $ 88,241
========= ======== ========
NET INCOME PER SHARE (NOTE 15): BASIC $ 0.88 $ 1.20 $ 1.04
========= ======== ========
DILUTED $ 0.88 $ 1.19 $ 1.03
========= ======== ========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
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, 1997 41,376,310 $103,754 $ 113,597 $ 9,030 $ 415,060 $(2,429) $ 639,012
Net income -- -- -- -- 88,241 -- 88,241
Net unrealized change in investment
securities net of tax effect
of ($3,121) (Note 16) -- -- -- 5,104 -- -- 5,104
---------- -------- --------- ------------- ----------- -------- ---------
Comprehensive income 93,345
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) 42,559,281 106,534 (51,970) -- (54,564) -- --
Other shares issued 137,866 118 2,451 -- (2,643) 1,566 1,492
Recognition of stock compensation -- -- -- -- 278 -- 278
Purchase of treasury stock (30,000) -- -- -- -- (602) (602)
Retirement of treasury stock -- -- -- -- (110) 110 --
Cash dividends declared:
BancorpSouth, $0.45 per share -- -- -- -- (32,442) -- (32,442)
Pooled acquisitions -- -- -- -- (1,334) -- (1,334)
---------- -------- --------- ------------- ----------- -------- ---------
BALANCE, DECEMBER 31, 1998 85,641,562 214,401 71,859 14,134 424,123 (1,355) 723,162
Net income -- -- -- -- 102,411 -- 102,411
Net unrealized change in investment
securities net of tax effect
of $16,279 (Note 16) -- -- -- (28,283) -- -- (28,283)
---------- -------- --------- ------------- ----------- -------- ---------
Comprehensive income 74,128
Other shares issued 66,354 4 (82) -- 65 750 737
Recognition of stock compensation -- -- -- -- 70 -- 70
Purchase of treasury stock (52,500) -- -- -- -- (857) (857)
Cash dividends declared:
BancorpSouth, $0.49 per share -- -- -- -- (40,129) -- (40,129)
---------- -------- --------- ------------- ----------- -------- ---------
BALANCE, DECEMBER 31, 1999 85,655,416 214,405 71,777 (14,149) 486,540 (1,462) 757,111
Net income -- -- -- -- 74,396 -- 74,396
Net unrealized change in investment
securities net of tax effect
of ($16,969) (Note 16) -- -- -- 29,351 -- -- 29,351
---------- -------- --------- ------------- ----------- -------- ---------
Comprehensive income 103,747
Shares issued:
Business combination (Note 3) 95,000 -- -- -- -- 1,360 1,360
Other shares issued 271,074 79 (856) -- (10) 2,455 1,668
Recognition of stock compensation -- -- (80) -- (1,065) 1,543 398
Purchase of treasury stock (1,978,150) -- -- -- -- (30,446) (30,446)
Cash dividends declared:
BancorpSouth, $0.53 per share -- -- -- -- (44,262) -- (44,262)
---------- -------- --------- ------------- ----------- -------- ---------
BALANCE, DECEMBER 31, 2000 84,043,340 $214,484 $ 70,841 $ 15,202 $ 515,599 $(26,550) $ 789,576
=========== ======== ========= ======== ========= ======== =========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31
---------------------------------------------
2000 1999 1998
------------ ------------ ----------
(In thousands)
OPERATING ACTIVITIES:
Net income $ 74,396 $ 102,411 $ 88,241
Adjustment to reconcile net income to net cash provided by operating
activities:
Provision for credit losses 26,166 17,812 19,310
Depreciation and amortization 22,697 19,966 18,455
Deferred taxes (1,833) (448) 3,964
Amortization of intangibles 3,741 2,937 1,827
Amortization of debt securities premium
and discount, net (1,464) (2,746) (10,784)
Security losses (gains), net 15,632 (4,416) (1,363)
Net deferred loan origination expense (4,576) (5,016) (3,366)
Increase in interest receivable (16,529) (4,230) (3,898)
Increase in interest payable 9,682 1,307 2,232
Proceeds from mortgages sold 345,507 565,687 772,583
Origination of mortgages for sale (336,326) (539,854) (796,476)
Other, net 2,695 (10,282) (9,056)
------------ ------------ ----------
Net cash provided by operating activities 139,788 143,128 81,669
------------ ------------ ----------
INVESTING ACTIVITIES:
Proceeds from calls and maturities of held-
to-maturity securities 306,825 230,726 631,824
Proceeds from calls and maturities of available-
for-sale securities 573,948 1,191,115 510,849
Proceeds from sales of held-to-maturity securities 308 9,040 --
Proceeds from sales of available-for-sale securities 719,568 105,234 66,597
Purchases of held-to-maturity securities (416,789) (429,110) (688,615)
Purchases of available-for-sale securities (1,163,648) (1,127,549) (630,390)
Net (increase) decrease in short-term investments (102,050) 119,056 (105,651)
Net increase in loans (567,446) (613,326) (544,406)
Purchases of premises and equipment (49,188) (21,967) (26,212)
Proceeds from sale of premises and equipment 3,342 1,246 1,463
Other, net 61,859 (10,798) (9,798)
------------ ------------ ----------
Net cash used in investing activities (633,271) (546,333) (794,339)
------------ ------------ ----------
FINANCING ACTIVITIES:
Net increase in deposits 414,275 345,763 618,381
Net increase (decrease) in short-term debt and other
liabilities 147,742 89,485 (109,542)
Advances on long-term debt 26,682 145,000 125,600
Repayment of long-term debt (40,976) (89,425) (15,118)
Issuance of common stock 951 74 472
Purchase of treasury stock (30,446) (857) (602)
Payment of cash dividends (39,781) (38,825) (32,905)
------------ ------------ ----------
Net cash provided by financing activities 478,447 451,215 586,286
------------ ------------ ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (15,036) 48,010 (126,384)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 341,611 293,601 419,985
------------ ------------ ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 326,575 $ 341,611 $ 293,601
============ ============ ==========
See accompanying notes to consolidated financial statements.
42
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANCORPSOUTH, INC. AND SUBSIDIARIES
DECEMBER 31, 2000, 1999 AND 1998
(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 1999 and 1998 amounts have been reclassified to conform
with the 2000 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
$337,201,000, $278,843,000 and $218,436,000 and income taxes of $42,131,000,
$32,283,000 and $36,876,000 for the years ended December 31, 2000, 1999 and
1998, 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. 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 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.
43
44
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.
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.
Certain of the Company's stock option plans contain 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. The Company reclassified
securities totaling $170.5 million from held-to-maturity into the
available-for-sale portfolio as of January 1, 2001.
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 results
in an amount that does not differ materially from the amount that would be
recorded under the accrual basis.
(2) STOCK SPLIT
On May 15, 1998, the Company effected a two-for-one stock split in the
form of a 100% stock dividend, which resulted in the issuance of 42,559,281 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.
44
45
(3) ACQUISITIONS
On October 30, 1998, Alabama Bancorp., Inc., a $280 million bank
holding company headquartered in Birmingham, Alabama, merged with and into the
Company. Pursuant to the merger, Alabama Bancorp's subsidiary banks, Highland
Bank and First Community Bank of the South, 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, merged with and into
the Company. Pursuant to the merger, Merchants Capital Corporation's subsidiary
bank, Merchants Bank, 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, merged with and into the
Company. Pursuant to the merger, The First Corporation's subsidiary bank, The
First National Bank of Opelika, 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, merged with and into the
Company. Pursuant to the merger, HomeBanc Corporation's subsidiary bank, The
Home Bank, 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, 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.
On August 31, 2000, First United Bancshares, Inc., a $2.7 billion bank
holding company headquartered in El Dorado, Arkansas, merged with and into the
Company. Pursuant to the merger, First United Bancshares' subsidiary banks and
trust company merged into the Bank. Each share of stock of First United
Bancshares was converted into 1.125 shares of the Company's common stock, or a
total of 28,489,225 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 First United Bancshares.
On October 10, 2000, the Pittman Insurance Agency and the Kilgore, Seay
and Turner Insurance Agency, insurance agencies based in Jackson, Mississippi,
merged with and into BancorpSouth Insurance Services of Mississippi, Inc., a
subsidiary of the Bank. Consideration given to complete this transaction
consisted of cash of $3,065,000 and 95,000 shares of the Company's common stock.
The transaction was accounted for as a purchase.
On October 31, 2000, Texarkana First Financial Corporation, a $218
million savings and loan holding company headquartered in Texarkana, Arkansas,
merged with and into the Company. Pursuant to the merger, Texarkana First
Federal Corporation's subsidiary company, First Federal Savings and Loan
Association, merged into the Bank. Consideration paid to complete this
transaction consisted of cash in the aggregate amount of $37,500,000. This
transaction was accounted for as a purchase.
(4) HELD-TO-MATURITY SECURITIES
A comparison of amortized cost and estimated fair values of
held-to-maturity securities as of December 31, 2000 and 1999 follows:
45
46
2000
------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ --------- --------- ------------
(In thousands)
U.S. Treasury $ 22,019 $ 359 -- $ 22,378
U.S. Government agencies and corporations 826,353 11,118 3,831 833,640
Obligations of states and political subdivisions 340,757 6,478 3,609 343,626
------------ --------- --------- ------------
Total $ 1,189,129 $ 17,955 $ 7,440 $ 1,199,644
============ ========= ========= ============
1999
------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ --------- --------- ------------
(In thousands)
U.S. Treasury $ 74,786 $ 287 $ 626 $ 74,447
U.S. Government agencies and corporations 619,955 152 19,050 601,057
Obligations of states and political subdivisions 336,321 2,133 4,718 333,736
------------ --------- --------- ------------
Total $ 1,031,062 $ 2,572 $ 24,394 $ 1,009,240
============ ========= ========= ============
Gross gains of $33,000 and gross losses of $172,000 were recognized in
2000, gross gains of $184,000 and gross losses of $17,000 were recognized in
1999 and gross gains of $380,000 and gross losses of $64,000 were recognized in
1998 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
$807,000,000 at December 31, 2000 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, 2000 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.
2000
----------------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------ ------------
(In thousands)
Due in one year or less $ 110,690 $ 110,498
Due after one year through five years 572,491 572,814
Due after five years through ten years 288,666 294,425
Due after ten years 217,282 221,907
------------ ------------
Total $ 1,189,129 $ 1,199,644
============ ============
46
47
(5) AVAILABLE-FOR-SALE SECURITIES
A comparison of amortized cost and estimated fair values of
available-for-sale securities as of December 31, 2000 and 1999 follows:
2000
------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ------------
(In thousands)
U.S. Treasury $ 26,463 $ 158 -- $ 26,621
U.S. Government agencies and corporations 670,186 19,975 549 689,612
Obligations of states and political subdivisions 73,275 20,159 19,312 74,122
Preferred stock 3,318 92 73 3,337
Other 59,539 4,640 471 63,708
------------ --------- --------- ------------
Total $ 832,781 $ 45,024 $ 20,405 $ 857,400
============ ========= ========= ============
1999
------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ------------
(In thousands)
U.S. Treasury $ 98,502 $ 363 $ 1,306 $ 97,559
U.S. Government agencies and corporations 868,821 630 25,907 843,544
Obligations of states and political subdivisions 84,020 948 1,739 83,229
Other 50,893 5,596 286 56,203
------------ --------- --------- ------------
Total $ 1,102,236 $ 7,537 $ 29,238 $ 1,080,535
============ ========= ========= ============
Gross gains of $549,000 and gross losses of $16,042,000 were recognized
in 2000, gross gains of $4,724,000 and gross losses of $475,000 were recognized
in 1999 and gross gains of $1,172,000 and gross losses of $125,000 were
recognized in 1998 on available-for-sale securities.
Available-for-sale securities with a carrying value of approximately
$627,000,000 at December 31, 2000 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, 2000 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,
2000.
2000
----------------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------ ------------
(In thousands)
Due in one year or less $ 60,602 $ 60,654
Due after one year through five years 408,745 418,822
Due after five years through ten years 224,384 233,456
Due after ten years 139,050 144,468
------------ ------------
Total $ 832,781 $ 857,400
============ ============
(6) LOANS
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A summary of loans classified by collateral type at December 31, 2000
and 1999 follows:
2000 1999
------------ ------------
(In thousands)
Commercial and agricultural $ 757,885 $ 712,799
Consumer and installment 1,065,324 1,197,277
Real estate mortgage 4,027,751 3,444,172
Lease financing 288,884 258,811
Other 21,238 12,984
------------ ------------
Total $ 6,161,082 $ 5,626,043
============ ============
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 $15,572,000 and $13,352,000 at December 31, 2000 and
1999, respectively. Restructured loans totaled $879,000 and $1,125,000 at
December 31, 2000 and 1999, respectively.
The total amount of interest earned on non-performing loans was
approximately $263,000, $212,000 and $228,000 in 2000, 1999 and 1998,
respectively. The gross interest income which would have been recorded under the
original terms of those loans amounted to $878,000, $626,000 and $612,000 in
2000, 1999 and 1998, 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, 2000 and 1999 was $14,669,000 and
$7,916,000, respectively, with a valuation reserve of $5,639,000 and $2,974,000,
respectively. The average recorded investment in impaired loans during 2000 and
1999 was $21,796,000 and $17,620,000, respectively.
(7) ALLOWANCE FOR CREDIT LOSSES
The following summarizes the changes in the allowance for credit losses
for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998
---------- ---------- ----------
(In thousands)
Balance at beginning of year $ 74,232 $ 68,385 $ 61,932
Provision charged to expense 26,166 17,812 19,310
Recoveries 4,972 3,637 5,108
Loans charged off (24,606) (16,602) (19,117)
Acquisitions 966 1,000 1,152
---------- ---------- ----------
Balance at end of year $ 81,730 $ 74,232 $ 68,385
========== ========== ==========
(8) PREMISES AND EQUIPMENT
A summary by asset classification at December 31, 2000 and 1999
follows:
ESTIMATED
USEFUL LIFE
YEARS 2000 1999
----------- ---------- ----------
Cost: (In thousands)
Land N/A $ 31,701 $ 28,855
Buildings and improvements 20-50 149,837 139,720
Leasehold improvements 10-20 5,958 4,835
Equipment, furniture and fixtures 3-12 150,385 127,590
Construction in progress N/A 17,443 9,184
---------- ----------
355,324 310,184
Accumulated depreciation and amortization 157,426 138,317
---------- ----------
Premises and equipment, net $ 197,898 $ 171,867
========== ==========
48
49
(9) TIME DEPOSITS AND SHORT-TERM DEBT
Certificates of deposit and other time deposits of $100,000 or more
amounting to approximately $1,387,526,000 and $1,317,345,000 were outstanding at
December 31, 2000 and 1999, respectively. Total interest expense relating to
certificate and other time deposits of $100,000 or more totaled approximately
$77,077,000, $57,602,000, and $60,007,000 for the years ended December 31, 2000,
1999 and 1998, respectively.
For time deposits with a remaining maturity of more than one year at
December 31, 2000, the aggregate amount of maturities for each of the following
five years is presented in the following table:
MATURING IN AMOUNT
----------- --------------
(In thousands)
2002 $ 916,935
2003 136,529
2004 57,633
2005 56,064
2006 345
Thereafter 2,318
------------
Total $ 1,169,824
============
Presented below is information relating to short-term debt for the
years ended December 31, 2000 and 1999:
END OF PERIOD DAILY AVERAGE MAXIMUM
--------------------- --------------------- OUTSTANDING
INTEREST INTEREST AT ANY
BALANCE RATE BALANCE RATE MONTH END
---------- -------- ---------- -------- ------------
(Dollars in thousands)
2000:
Federal funds purchased $ -- -- $ 29,859 6.3% $ 71,500
Flex-Repos purchased 198,925 5.6% 25,804 5.7% 202,300
Securities sold under repurchase agreements 304,502 5.6% 253,152 5.3% 304,502
Short-term Federal Home Loan Bank advances -- -- 136,792 6.8% 570,000
---------- ---------- ------------
Total $ 503,427 $ 445,607 1,148,302
========== ========== ============
1999:
Federal funds purchased $ 20,100 4.6% $ 19,589 4.9% $ 23,600
Securities sold under repurchase agreements 237,327 4.2% 114,121 6.5% 237,327
Short-term Federal Home Loan Bank advances 89,000 6.0% 57,922 5.5% 115,000
---------- ---------- ------------
Total $ 346,427 $ 191,632 375,927
========== ========== ============
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, 2000, the Bank had
established informal federal funds borrowing lines of credit aggregating
$1,494,000,000.
49
50
(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.
At December 31, 2000, the following FHLB fixed term advances were
repayable as follows:
FINAL DUE DATE INTEREST RATE AMOUNT
--------------- ------------- --------------
(In thousands)
2001 6.38% - 6.92% $ 10,000
2002 5.75% 5,000
2008 and beyond 5.86% - 7.19% 137,049
----------
Total $ 152,049
==========
(11) INCOME TAXES
Total income taxes for the years ended December 31, 2000, 1999 and 1998
are allocated as follows:
2000 1999 1998
---------- ---------- ----------
(In thousands)
Income from continuing operations $ 37,941 $ 44,736 $ 42,249
Shareholders' equity for other comprehensive income 16,969 (16,279) 3,121
Shareholders' equity for stock option plans (510) (268) (678)
---------- ---------- ----------
Total $ 54,400 $ 28,189 $ 44,692
========== ========== ==========
The components of income tax expense (credit) attributable to
continuing operations are as follows for the years ended December 31, 2000, 1999
and 1998:
2000 1999 1998
---------- ---------- ----------
Current: (In thousands)
Federal $ 35,790 $ 39,278 $ 33,280
State 3,984 5,906 5,005
Deferred:
Federal (1,593) (389) 3,446
State (240) (59) 518
---------- ---------- ----------
Total $ 37,941 $ 44,736 $ 42,249
========== ========== ==========
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51
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:
2000 1999 1998
-------- -------- --------
(In thousands)
Tax expense at statutory rate $ 39,318 $ 51,501 $ 45,672
Increase (reduction) in taxes resulting from:
State income taxes net of federal tax benefit 2,434 3,801 3,590
Tax-exempt interest revenue (7,284) (6,870) (6,253)
Non-deductible merger expenses 2,050 255 1,250
Charitable contribution -- (1,450) --
Other, net 1,423 (2,501) (2,010)
-------- -------- --------
Total $ 37,941 $ 44,736 $ 42,249
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999 are as follows:
2000 1999
-------- -------
Deferred tax assets: (In thousands)
Loans receivable, principally due to allowance
for credit losses $ 34,345 $29,771
Deferred liabilities, principally due to
compensation arrangements and vacation accruals 7,184 4,692
Unrealized losses on available-for-sale securities -- 7,552
Net operating loss carryforwards 629 698
-------- -------
Total gross deferred tax assets 42,158 42,713
Less: valuation allowance -- --
-------- -------
Deferred tax assets $ 42,158 $42,713
-------- -------
Deferred tax liabilities:
Bank premises and equipment, principally due
to differences in depreciation and lease transactions $ 24,167 $22,871
Deferred assets, principally due to expense recognition 1,495 1,258
Investments, principally due to interest income recognition 3,143 1,884
Capitalization of mortgage servicing rights 11,435 9,063
Unrealized gains on available-for-sale securities 9,417 --
-------- -------
Total gross deferred tax liabilities 49,657 35,076
-------- -------
Net deferred tax assets (liabilities) $ (7,499) $ 7,637
======== =======
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,
2000.
At December 31, 2000 the Company has net operating loss carryforwards
related to business combinations for federal income tax purposes of
approximately $1,643,000 that are available to offset future federal taxable
income, subject to various limitations, through 2009.
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52
(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 (the "Restoration Plan")
provides for the payment of retirement benefits to certain participants in the
BancorpSouth, Inc. Retirement Plan (the "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, 2000, 1999 and 1998 follows:
2000 1999 1998
-------- -------- --------
Change in benefit obligation: (In thousands)
- ----------------------------
Projected benefit obligation at beginning of year $ 37,328 $ 37,577 $ 34,050
Service cost 1,924 3,131 2,284
Interest cost 2,443 2,795 2,396
Curtailment 929 -- --
Amendments 2,697 -- --
Actuarial (gain) loss 4,530 (3,104) 2,870
Benefits paid (2,138) (3,071) (4,023)
-------- -------- --------
Projected benefit obligation at end of year $ 47,713 $ 37,328 $ 37,577
======== ======== ========
Change in plan assets:
- ----------------------
Fair value of plan assets at beginning of year $ 48,095 $ 46,333 $ 42,454
Actual return on assets (349) 3,471 6,777
Employer contributions -- 1,362 1,125
Benefits paid (2,138) (3,071) (4,023)
-------- -------- --------
Fair value of plan assets at end of year $ 45,608 $ 48,095 $ 46,333
======== ======== ========
Funded status:
- --------------
Benefit obligation $(47,713) $(37,328) $(37,577)
Fair value of plan assets 45,608 48,095 46,333
Unrecognized transition amount (2) (4) (6)
Unrecognized prior service cost 1,744 (1,338) (1,604)
Unrecognized actuarial gain 102 (7,752) (4,625)
-------- -------- --------
Net amount recognized $ (261) $ 1,673 $ 2,521
======== ======== ========
Components of net periodic pension cost:
- ----------------------------------------
Service cost $ 1,924 $ 3,131 $ 2,284
Interest cost 2,981 2,795 2,396
Expected return on assets (3,289) (3,434) (3,144)
Amortization of unrecognized transition amount (2) (7) 202
Recognized prior service cost 90 (78) (78)
Recognized net gain (745) (157) (152)
-------- -------- --------
Net periodic pension cost $ 959 $ 2,250 $ 1,508
======== ======== ========
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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, 2000, 1999 and 1998 are presented in the following table.
2000 1999 1998
-------------- -------------- --------------
Discount rate 7.75% 7.75% 6.75%
Rate of compensation increase 4.00 4.00 4.00
Expected rate of return on plan assets 9.00 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
$234,000 in 2000, $144,000 in 1999 and $128,000 in 1998.
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 shares of Company
common stock at prevailing market prices. Plan expense for the years ended
December 31, 2000, 1999 and 1998 was $3,507,000, $3,149,000 and $3,011,000,
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,
2000 and 1999:.
2000 1999
------------------------------ -----------------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(In thousands)
Commercial and agricultural $ 757,885 $ 744,563 $ 712,799 $ 747,250
Consumer and installment 1,065,324 1,046,598 1,197,277 1,269,761
Real estate mortgage 4,027,751 3,956,954 3,444,172 3,639,278
All other 21,238 20,865 12,984 13,280
---------- ---------- ---------- ----------
Total $5,872,198 $5,768,980 $5,367,232 $5,669,569
========== ========== ========== ==========
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
53
54
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.
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, 2000 and 1999. 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, 2000 and 1999:
2000 1999
---------------------------- ----------------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(In thousands)
Maturing or repricing in six months or less $1,643,409 $1,666,562 $1,839,822 $1,864,737
Maturing or repricing between six months and one year 1,243,370 1,304,788 931,991 945,814
Maturing or repricing between one and three years 880,237 965,766 694,730 703,070
Maturing or repricing beyond three years 97,227 128,200 106,948 118,561
---------- ---------- ---------- ----------
Total $3,864,243 $4,065,316 $3,573,491 $3,632,182
========== ========== ========== ==========
DEBT
The carrying amounts for federal funds purchased and repurchase
agreements approximate fair value because of their short-term maturity. 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, 2000 and 1999:
2000 1999
----------------------- -----------------------
BOOK FAIR BOOK FAIR
Final due date VALUE VALUE VALUE VALUE
- -------------- -------- -------- -------- --------
(In thousands)
2001 $ 10,000 $10,014 $ 2,088 $ 2,075
2002 5,000 4,994 5,000 4,940
2005 and thereafter 137,049 135,369 159,159 150,953
-------- -------- -------- --------
Total $152,049 $150,377 $166,247 $157,968
======== ======== ======== ========
(14) STOCK INCENTIVE AND STOCK OPTION PLANS
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
30,000 at December 31, 2000. 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 6-year period subject to the Company meeting
certain performance goals. The unearned shares are held in escrow and totaled
42,000 at December 31, 2000.
In 1998, the Company issued an aggregate of 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 2,144 at December 31, 2000. The
compensation associated with this award is being recognized over the 3-year
period.
In 2000, the Company issued 100,000 shares of common stock to a key
employee. The shares vest over a 5-year period subject to the Company meeting
certain performance goals. The unearned shares are held in escrow and totaled
100,000 at December 31, 2000. The compensation associated with this award is
being recognized over the 5-year period.
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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 ten years. At December 31, 2000, the Company had outstanding 475,264 SARs
exercisable in conjunction with certain of the options outstanding. The Company
recorded reductions in compensation expense of $1,844,000, $956,000 and
$2,709,000 in 2000, 1999 and 1998, respectively, 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 stock dividend discussed in Note 2.
In 1998, the Company adopted a stock plan through which a minimum of
50% of the compensation payable to each director is paid in the form of the
Company's common stock effective January 1, 1999. Directors may elect under the
plan to receive up to 100% of their compensation in the form of common stock.
A summary of the status of the Company's stock options outstanding as
of December 31, 2000, 1999 and 1998, and changes during the years ended on those
dates is presented below:
2000 1999 1998
------------------------ ---------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
Options SHARES PRICE SHARES PRICE SHARES PRICE
- ------- ---------- ---------- ---------- --------- ---------- ---------
Outstanding at beginning
of year 2,194,934 $13.74 1,938,393 $12.37 1,786,797 $10.65
Granted 539,298 13.01 355,875 16.80 459,651 15.45
Exercised (196,530) 6.71 (88,874) 4.58 (261,434) 6.02
Expired or cancelled (28,600) 19.10 (10,460) 9.88 (46,621) 7.81
--------- --------- ---------
Outstanding at end of year 2,509,102 $14.08 2,194,934 $13.74 1,938,393 $12.37
========= ========= =========
Exercisable at end of year 1,873,802 1,498,372 1,274,506
========= ========= =========
The following table summarizes information about stock options at
December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -------------------------------
Range of NUMBER WEIGHTED-AVG WEIGHTED-AVG NUMBER WEIGHTED-AVG
Exercise Prices OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ------------ -------------- -------------- ----------- --------------
$ 2.47 to $ 3.58 6,484 2.7 years $ 3.41 6,484 $ 3.41
$ 6.41 to $ 6.49 76,876 1.7 6.42 76,876 6.42
$ 7.44 to $ 9.38 403,723 3.1 8.66 403,723 8.66
$11.06 to $14.45 1,088,451 7.5 12.54 726,951 12.28
$15.06 to $22.50 933,568 7.9 18.96 659,768 19.47
--------- ---------
$2.47 to $22.50 2,509,102 6.7 $14.08 1,873,802 $13.76
========= =========
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56
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 SFAS No. 123,
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 2000, 1999 and 1998: expected options lives of 7
years for all three years; expected dividend yield of 3.00%, 3.18% and 2.84%;
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, 2000, 1999 and
1998 are presented in the following table.
2000 1999 1998
-------------- -------------- --------------
Net income (in thousands) As reported $74,396 $102,411 $88,241
Pro forma 73,361 101,163 87,250
Basic earnings per share As reported $ 0.88 $ 1.20 $ 1.04
Pro forma 0.87 1.18 1.03
Diluted earnings per share As reported $ 0.88 $ 1.19 $ 1.03
Pro forma 0.86 1.18 1.02
(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, 2000, 1999 and
1998:
2000 1999
------------------------------------ ---------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -------- ----------- ------------- ---------
BASIC EPS: (In thousands, except per share amounts)
Income available to
common shareholders $74,396 84,474 $0.88 $102,411 85,564 $1.20
===== =====
Effect of dilutive stock
options -- 337 -- 444
------- ------ -------- ------
DILUTED EPS:
Income available to
common shareholders
plus assumed exercise $74,396 84,811 $0.88 $102,411 86,008 $1.19
======= ====== ===== ======== ====== =====
1998
------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
BASIC EPS:
Income available to
common shareholders $88,241 85,094 $1.04
=====
Effect of dilutive stock
options -- 586
------- ------
DILUTED EPS:
Income available to
common shareholders
plus assumed exercise $88,241 85,680 $1.03
======= ====== =====
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, 2000, the Bank could have paid dividends to the
Company of $247,000,000 under current regulatory guidelines.
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(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, 2000, 1999 and 1998:
2000 1999 1998
----------------------------- ------------------------------- ------------------------------
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
-------- ---------- -------- ---------- ---------- --------- ---------- --------- --------
Unrealized gains on securities: (In thousands)
Unrealized gains (losses) arising
during holding period $30,827 $(11,042) $19,785 $(40,313) $14,661 $(25,652) $ 9,272 $(3,505) $5,767
Reclassification adjustment
for net losses (gains) realized in
net income 15,493 (5,927) 9,566 (4,249) 1,618 (2,631) (1,047) 384 (663)
------- -------- ------- -------- ------- -------- ------- ------- ------
Other comprehensive income (loss) $46,320 $(16,969) $29,351 $(44,562) $16,279 $(28,283) $ 8,225 $(3,121) $5,104
======= ======== ======= ======== ======= ======== ======= ======= ======
(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) Amount
--------
Loans outstanding at December 31, 1999 $19,512
New loans 3,678
Repayments (130)
Changes in directors and executive officers 1,348
-------
Loans outstanding at December 31, 2000 $24,408
=======
(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.
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The following is a summary of capitalized mortgage servicing rights,
net of accumulated amortization, and a valuation allowance for impairment:
2000 1999
-------- --------
(In thousands)
Balance at beginning of year $35,267 $28,150
Mortgage servicing rights capitalized 7,333 11,879
Amortization expense (5,425) (4,762)
------- -------
Balance at end of year 37,175 35,267
Valuation allowance (2,392) (1,368)
------- -------
Fair value at end of year $34,783 $33,899
======= =======
(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 Tier I leverage above the well capitalized
levels at December 31, 2000 and 1999, respectively, as set forth in the
following table:
2000 1999
-------------------- --------------------
AMOUNT RATIO AMOUNT RATIO
-------- ------- -------- -------
(Dollars in thousands)
Total Capital (to Risk-Weighted Assets) $811,724 12.56% $813,401 14.02%
Tier I Capital (to Risk-Weighted Assets) 730,900 11.31 740,036 12.75
Tier I Leverage Capital (to Average Assets) 730,900 8.10 740,036 8.83
58
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(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, 2000, 1999 and 1998 are presented
below:
GENERAL
COMMUNITY CORPORATE
BANKING AND OTHER TOTAL
----------- --------- -----
2000 (In thousands)
RESULTS OF OPERATIONS
Net interest revenue $ 271,775 $ 55,377 $ 327,152
Provision for credit losses 24,379 1,787 26,166
---------------------------------------------------------------------------------------------------------
Net interest income after provision 247,396 53,590 300,986
for credit losses
Other revenue 42,660 42,918 85,578
Other expense 224,348 49,879 274,227
---------------------------------------------------------------------------------------------------------
Income before income taxes 65,708 46,629 112,337
Income taxes 22,192 15,749 37,941
---------------------------------------------------------------------------------------------------------
Net income $ 43,516 $ 30,880 $ 74,396
SELECTED FINANCIAL INFORMATION
Identifiable assets $8,223,507 $820,527 $9,044,034
Depreciation & amortization 20,844 1,853 22,697
1999
RESULTS OF OPERATIONS
Net interest revenue $ 262,084 $ 54,436 $ 316,520
Provision for credit losses 14,813 2,999 17,812
---------------------------------------------------------------------------------------------------------
Net interest income after provision 247,271 51,437 298,708
for credit losses
Other revenue 59,607 40,714 100,321
Other expense 206,344 45,538 251,882
---------------------------------------------------------------------------------------------------------
Income before income taxes 100,534 46,613 147,147
Income taxes 30,565 14,171 44,736
---------------------------------------------------------------------------------------------------------
Net income $ 69,969 $ 32,442 $ 102,411
SELECTED FINANCIAL INFORMATION
Identifiable assets $7,816,689 $625,008 $8,441,697
Depreciation & amortization 18,950 1,016 19,966
1998
RESULTS OF OPERATIONS
Net interest revenue $ 246,438 $ 50,872 $ 297,310
Provision for credit losses 16,563 2,747 19,310
---------------------------------------------------------------------------------------------------------
Net interest income after provision credit losses 229,875 48,125 278,000
for credit losses
Other revenue 51,239 34,179 85,418
Other expense 191,315 41,613 232,928
---------------------------------------------------------------------------------------------------------
Income before income taxes 89,799 40,691 130,490
Income taxes 29,074 13,175 42,249
---------------------------------------------------------------------------------------------------------
Net income $ 60,725 $ 27,516 $ 88,241
SELECTED FINANCIAL INFORMATION
Identifiable assets $7,314,566 $585,089 $7,899,655
Depreciation & amortization 17,251 1,204 18,455
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(21) COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
Rent expense was approximately $4,793,000 for 2000, $4,413,000 for 1999
and $3,970,000 for 1998. 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, 2000:
(In thousands) Amount
--------
2001 $ 3,811
2002 3,121
2003 2,441
2004 1,490
2005 887
Thereafter 1,051
-------
Total future minimum lease payments $12,801
=======
MORTGAGE LOANS SERVICED FOR OTHERS
The Company services mortgage loans for others which are not included
in the accompanying financial statements. Included in the $2.2 billion of loans
serviced for investors at December 31, 2000, 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, 2000, 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, 2000, the contractual or notional amount of these
forward contracts was approximately $29,000,000.
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, 2000, these included
approximately $48,489,000 for letters of credit, and approximately
$1,046,216,000 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 $48,919,000 were maintained to satisfy Federal regulatory requirements
at December 31, 2000.
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(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:
CONDENSED BALANCE SHEETS DECEMBER 31
------------------------
2000 1999
-------- --------
Assets: (In thousands)
Cash on deposit with subsidiary bank $ 23,526 $ 46,084
Investment in subsidiaries 768,830 715,415
Other assets 15,363 19,267
-------- --------
Total assets $807,719 $780,766
======== ========
Liabilities and shareholders' equity:
Total liabilities $ 18,143 $ 23,655
Shareholders' equity 789,576 757,111
-------- --------
Total liabilities and shareholders' equity $807,719 $780,766
======== ========
YEARS ENDED DECEMBER 31
--------------------------------------
CONDENSED STATEMENTS OF INCOME 2000 1999 1998
------- -------- -------
(In thousands)
Dividends from subsidiaries $62,600 $ 49,625 $57,055
Management fees from subsidiaries -- 499 2,327
Other operating income 3,142 200 884
------- -------- -------
Total income 65,742 50,324 60,266
Operating expenses 12,623 7,479 11,664
------- -------- -------
Income before tax benefit and equity in undistributed earnings 53,119 42,845 48,602
Income tax benefit 1,383 2,816 530
------- -------- -------
Income before equity in undistributed earnings
of subsidiaries 54,502 45,661 49,132
Equity in undistributed earnings of subsidiaries 19,894 56,750 39,109
------- -------- -------
Net income $74,396 $102,411 $88,241
======= ======== =======
YEARS ENDED DECEMBER 31
--------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS 2000 1999 1998
------- -------- -------
(In thousands)
Operating activities:
Net income $74,396 $102,411 $88,241
Adjustments to reconcile net income
to net cash provided by operating activities (67,656) (63,204) (21,195)
------- -------- -------
Net cash provided by operating activities 6,740 39,207 67,046
Net cash used in financing activities (29,298) (45,708) (58,608)
------- -------- -------
Increase (decrease) in cash and cash equivalents (22,558) (6,501) 8,438
Cash and cash equivalents at beginning of year 46,084 52,585 44,147
------- -------- -------
Cash and cash equivalents at end of year $23,526 $ 46,084 $52,585
======= ======== =======
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.
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PART III
Item 10. - Directors and Executive Officers of the Registrant
Information concerning the directors and nominees of the Company
appears under the captions "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy Statement for
its 2001 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 58
Directors and Chief
Executive Officer
of the Company and BancorpSouth
Bank; Director of the Company
James V. Kelley President and Chief Operating Officer 51
of the Company and BancorpSouth
Bank; Director of the Company
L. Nash Allen, Jr. Treasurer, and Chief 56
Financial Officer of
the Company; Executive
Vice President, Chief Financial
Officer and Cashier, BancorpSouth Bank
Harry R. Baxter Executive Vice President of the Company 56
and Vice Chairman and
Director of Marketing
of BancorpSouth Bank
Gary R. Harder Executive Vice President of the Company 56
and Executive Vice President, Audit and
Loan Review of BancorpSouth Bank
Michael W. Weeks Executive Vice President of the 52
Company and Vice Chairman of
BancorpSouth Bank
Michael L. Sappington Executive Vice President of the Company 51
and Vice Chairman of
BancorpSouth Bank
Gregg Cowsert Executive Vice President of the 53
Company and Vice Chairman and
Chief Lending Officer of BancorpSouth
Bank
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63
Cathy M. Robertson Executive Vice President of the 46
Company and BancorpSouth Bank
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. Kelley has served as President and Chief Operating Officer of the
Bank and the Company since the August 31, 2000 merger of First United
Bancshares, Inc. with the Company. Prior to the merger, he served as Chairman of
the Board, President and Chief Executive Officer of First United Bancshares,
Inc. 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 has 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, a former subsidiary of the Company, 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.
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 has also served as 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 2001 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 2001 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 2001 annual meeting of
shareholders, and is incorporated herein by reference.
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64
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 2001
annual meeting of shareholders, and is incorporated herein by reference.
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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 and restated. (1)
(b) Bylaws, as amended and restated. (2)
(c) Amendment No. 1 to Amended and Restated Bylaws.
(4) Specimen Common Stock Certificate. (3)
(10) (a) 1998 Director Stock Plan. (2)(12)
(b) Form of deferred compensation agreement between Bancorp of Mississippi, Inc. and certain key
executives. (4)(12)
(c) 1994 Stock Incentive Plan. (5)(12)
(d) 1995 Non-Qualified Stock Option Plan for Non-Employee Directors. (5)(12)
(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)(12)
(f) Stock Bonus Agreement between BancorpSouth, Inc. and Aubrey B. Patterson,
dated January 20, 1998 and Escrow Agreement between BancorpSouth Bank and
Aubrey B. Patterson, dated March 20, 1998 (7)(12)
(g) First Amendment, dated January 30, 2000, to Stock Bonus Agreement, dated January 20, 1998,
between BancorpSouth, Inc. and Aubrey B. Patterson (8)(12)
(h) Second Amendment, dated January 31, 2001, to Stock Bonus Agreement, dated January 20, 1998,
between BancorpSouth, Inc. and Aubrey B. Patterson (12)
(i) Stock Bonus Agreement between BancorpSouth, Inc. and James V. Kelley,
dated April 16, 2000 and Escrow Agreement between BancorpSouth Bank and James V.
Kelley, dated April 16, 2000 (9)(12)
(j) Amendment, dated July 24, 2000, to Stock Bonus Agreement, dated April 16, 2000,
between BancorpSouth, Inc. and James V. Kelley (10)(12)
(k) Information regarding Bancorp of Mississippi, Inc., amended and restated Salary Deferral-Profit
Sharing Employee Stock Ownership Plan. (11)(12)
(11) Statement re computation of per share earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(28) Information regarding Bancorp of Mississippi, Inc., amended and restated Salary Deferral-Profit
Sharing Employee Stock Ownership Plan. (11)(12)
(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 Annual Report on Form 10-K for the year ended December 31, 1998
(file number 1-12991) and incorporated by reference thereto.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994
(file number 0-10826) and incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Annual Report on 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 Quarterly Report on Form 10-Q for the three months ended March 31, 1998
(file number 1-12991) and incorporated by reference thereto.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995
(file number 0-10826) and incorporated by reference thereto.
65
66
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31,
1997 (file number 1-12991), and incorporated by reference thereto.
(8) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the three months
ended March 31, 2000 (file number 1-12991) and incorporated by reference thereto.
(9) Filed as exhibits 10.3 and 10.4 to the Company's registration statement on Form S-4 filed June 14, 2000
(Registration No. 333-39326) and incorporated by reference thereto.
(10) Filed as an exhibit to the Company's Current Report on Form 8-K filed on July 24, 2000 (file number 1-12991)
and incorporated by reference thereto.
(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1990
(file number 0-10826) and incorporated by reference thereto.
(12) Compensatory plans or arrangements.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on November 22, 2000 reporting
under Item 5, "Other Events" and Item 7, "Financial Statements and Exhibits."
The Company filed amendments on Form 8-K/A on November 14, 2000 and November 15,
2000, reporting under Item 2, "Acquisition or Disposition of Assets," Item 5,
"Other Events," and Item 7, "Financial Statements and Exhibits."
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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 28, 2001 By: /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.
Chairman of the Board, Chief Executive
Officer (Principal Executive Officer)
/s/ Aubrey B. Patterson and Director March 28, 2001
- ---------------------------------------------
Aubrey B. Patterson
Treasurer and Chief Financial
Officer (Principal Financial and
/s/ L. Nash Allen, Jr. Accounting Officer) March 28, 2001
- ---------------------------------------------
L. Nash Allen, Jr.
/s/ Shed H. Davis Director March 28, 2001
- ---------------------------------------------
Shed H. Davis
/s/ Hassell H. Franklin Director March 28, 2001
- ---------------------------------------------
Hassell H. Franklin
/s/ W. G. Holliman, Jr. Director March 28, 2001
- ---------------------------------------------
W. G. Holliman, Jr..
/s/ A. Douglas Jumper Director March 28, 2001
- ---------------------------------------------
A. Douglas Jumper
/s/ James V. Kelley President, Chief Operating March 28, 2001
- --------------------------------------------- Officer and Director
James V. Kelley
/s/ Turner O. Lashlee Director March 28, 2001
- ---------------------------------------------
Turner O. Lashlee
/s/ R. Madison Murphy Director March 28, 2001
- ---------------------------------------------
R. Madison Murphy
/s/ Robert C. Nolan Director March 28, 2001
- ---------------------------------------------
Robert C. Nolan
68
/s/ W. Cal Partee, Jr Director March 28, 2001
- ---------------------------------------------
W. Cal Partee, Jr.
/s/ Alan W. Perry Director March 28, 2001
- ---------------------------------------------
Alan W. Perry
/s/ Travis E. Staub Director March 28, 2001
- ---------------------------------------------
Travis E. Staub
/s/ Andrew R. Townes Director March 28, 2001
- ---------------------------------------------
Andrew R. Townes, DDS