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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from to
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Commission file number 0-10826
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BancorpSouth, Inc.
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(Exact name of registrant as specified in its charter)
Mississippi 64-0659571
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Mississippi Plaza
Tupelo, Mississippi 38801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 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 Continues 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, 1998, was approximately $906,901,000 based
on the closing sale price as reported on the New York Stock Exchange on January
31, 1998.
On March 16, 1998, the registrant had outstanding 22,330,782 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 21, 1998, 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, 1997
CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
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PART I
Item 1. - Business
General
The Company is a bank holding company with financial services
operations in Mississippi and Tennessee. Its principal subsidiary is
BancorpSouth Bank ("the Bank"). The Company's principal office is located at One
Mississippi Plaza, Tupelo, Mississippi 38801 and its telephone number is (601)
680-2000.
Description of Business
The Bank operates under the trade names Bank of Mississippi in
Mississippi and Volunteer Bank in Tennessee. The Bank has its principal office
in Tupelo, Lee County, Mississippi, and conducts a commercial banking and trust
business through 134 offices in 68 municipalities or communities in 44 counties
throughout Mississippi and western Tennessee. The Bank has grown through the
acquisition of other banks, the purchase of assets from federal regulators and
through the opening of new branches and offices. In addition, the Bank operates
consumer finance, credit life insurance and insurance agency subsidiaries. At
December 31, 1997, the Bank had total deposits of approximately $3.54 billion
and total assets of approximately $4.18 billion.
The Company, through its subsidiaries, provides a range of financial
services and products to individuals and small-to-medium size businesses.
Various types of checking accounts, both interest bearing and non-interest
bearing, are available. Savings accounts and certificates of deposit with a
range of maturities and interest rates are available to meet the needs of
customers. Other services include safe deposit and night depository facilities.
Limited 24-hour banking with automated teller machines is provided in most of
its principal markets. The Bank is an issuing bank for MasterCard and overdraft
protection is available to approved MasterCard holders maintaining checking
accounts with the Bank.
The Company offers a variety of services through the Bank's trust
department, including personal trust and estate services, certain employee
benefit accounts and plans, including individual retirement accounts, and
limited corporate trust functions.
At December 31, 1997, the Company and its subsidiaries employed 2,030
persons. The Company and its subsidiaries are not a party to any collective
bargaining agreements, and the Company believes employee relations are 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 not only with state and national commercial banks in its service areas
but also with 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 whole area served by the
Bank.
The principal areas of competition in the banking industry center on a
financial institution's ability and willingness to provide credit on a timely
and competitively priced basis, to offer a sufficient range of deposit and
investment opportunities at a competitive price and maturity, and to offer
personal and other services of sufficient quality and at competitive prices. The
Company and its subsidiaries believe they can compete effectively in all these
areas.
Regulation and Supervision
The following is a brief summary of the regulatory environment in which
the Company and its subsidiaries operate and is not designed to be a complete
discussion of all statutes and regulations affecting such operations, including
those statutes and regulation specifically mentioned herein.
The Company is a bank holding company and is registered as such with
the Board of Governors of the Federal Reserve System (the "FRB") and is subject
to regulation and supervision by the FRB. The Company is required to file with
the FRB annual reports and such other information as they may require. The FRB
may also conduct examinations of the Company.
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The Company is a legal entity which is separate and distinct from its
subsidiaries. There are various legal limitations on the extent to which the
Bank may extend credit, pay dividends or otherwise supply funds to the Company
or its affiliates. In particular, the Bank is subject to certain restrictions
imposed by federal law on any extensions of credit to the Company or, with
certain exceptions, other affiliates. Dividends to shareholders are paid from
dividends paid to the Company by its subsidiary, which are subject to approval
by the applicable regulatory authority.
The Bank is incorporated under the banking laws of the State of
Mississippi and is subject to the applicable provisions of Mississippi banking
laws rather than the National Bank Act. The Bank is subject to the supervision
of the Mississippi Department of Banking and Consumer Finance and to regular
examinations by that department. The deposits in the Bank are insured by the
Federal Deposit Insurance Corporation (the "FDIC") and, therefore, the Bank is
subject to the provisions of the Federal Deposit Insurance Act and to
examination by the FDIC. The Bank is not a member of the Federal Reserve System.
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 Bank's
deposits are in the Bank Insurance Fund (BIF), certain other of the Bank'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 FRB adopts from time to time. See Note 18 of Notes to
Consolidated Financial Statements included herein.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("IBBEA") was signed into law. Beginning September 29,
1996, 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. Beginning June 1, 1997, 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.
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
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officers, present savers and borrowers, builders, attorneys, walk-in customers
and, in some instances, other lenders. The Company has established disciplined
and systematic procedures for approving and monitoring loans that vary depending
on the size and nature of the loan.
Commercial Lending
The Company 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 Company 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 Company requires personal guaranties of its
commercial loans to offset the risks associated with such loans.
The Company has very little exposure as an agricultural lender. Crop
production loans are either fully supported by the collateral and financial
strength of the borrower or else a 90% loan guaranty is obtained through the
Farmers Home Administration on such loans.
Residential Consumer Lending
A portion of the Company's lending activities consists of the
origination of fixed and adjustable rate residential mortgage loans secured by
owner-occupied property located in the Company'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
Company's traditional banking facilities or from affordable storefront locations
in commercial buildings. In addition, the Company offers construction loans,
second mortgages home improvement loans and home equity lines of credit. The
Company's banking subsidiary has received an "outstanding" CRA rating from the
Federal Deposit Insurance Company after its most recent examination.
The company 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 bother 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 Company 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 Company will sell its mortgage loans of 15 or more
years in term in the secondary market. The sale to the secondary market allows
the Company to hedge against the interest rate risks related to such lending
operations. This brokerage arrangement allows the Company to accommodate its
clients' demands while eliminating the interest rate risk for the 15 to 30 year
period generally associated with such loans. After the sale of a loan, the
Company's only involvement is to act as a servicing agent.
The Company in most cases requires title, fire, extended casualty
insurance, and, where required by applicable regulations, flood insurance to be
obtained by the borrower. The Company 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 Company customarily include a "due on sale" clause giving the
Company 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 Company enforces due on sales
clauses. Borrowers are typically permitted to refinance or repay loans at their
option without penalty.
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Non-Residential Consumer Lending
Non-residential consumer loans made by the Company include loans for
automobiles, recreation vehicles, boats, personal (secured and unsecured) and
deposit account secured loans. In addition, the Company provides federally
insured or guaranteed student loans to students at major universities and
community colleges in the Company's market areas. The Company also conducts
various indirect lending activities through established retail companies in its
market areas. Non-residential consumer loans are attractive to the Company
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 Company also issues credit cards solicited on the basis of
applications received through referrals from the Company's bank branch networks.
The Company 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 rations, similar to
the credit policies applicable to other personal consumer loans. Historically,
the Company 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 Company 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
Company" market area.
Asset Quality
Management seeks to maintain a high quality of assets through
conservative underwriting and sound lending practices. Management intends to
follow this policy even though it may result in foregoing the funding of higher
yielding loans. While there is no assurance that the Company will not suffer
losses on its loans, management believes that the Company has in place adequate
underwriting and loan administration policies and personnel to manage the
associated risks prudently.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. Undesirable loans include loans
to provide initial equity and working capital to new businesses with no other
capital strength, loans secured by unregistered stock, loans for speculative
transactions in stock, land or commodity markets, loans to borrowers or the
taking of collateral outside the Company's market area, loans dependent on
secondary liens as primary collateral, and non-recourse loans. To the extent
risks are identified, additional precautions are taken in order to reduce the
Company's risk of loss. Commercial loans entail certain additional risks since
they usually involve large loan balances to single borrowers or a related group
of borrowers, resulting in a more concentrated loan portfolio. Further, since
their payment is usually dependent upon the successful operation of the
commercial enterprise, they also are subject to adverse conditions in the
economy.
The Board of Directors of the Company concentrates its efforts and
resources, and that of its management and lending officials, on loan review and
underwriting policies. Loan status and monitoring is handled through the
Company'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 Board of Directors.
Combined, these components are integral elements of the Company's loan program,
which has resulted in its loan portfolio performance to date. Nonetheless,
management maintains a cautious outlook in anticipating the potential effects of
uncertain economic conditions (both locally and nationally) and the possibility
of more stringent regulatory standards.
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Selected Statistical Information
Set forth below is certain selected statistical information relating to
the Company's business.
Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differentials
Net Interest Revenue, the difference between Interest Revenue and
Interest Expense, is the most significant component of the Company's earnings.
For internal analytical purposes, management adjusts Net Interest Revenue to a
"taxable equivalent" basis using an effective tax rate of 35% on tax exempt
items (primarily interest on municipal securities).
Another significant statistic in the analysis of Net Interest Revenue
is the effective interest differential, also called the net yield on earning
assets. The net yield on earning assets is net interest divided by total
interest-earning assets. Recognizing the importance of interest differential to
total earnings, management places great emphasis on managing interest rate
spreads. Although interest differential is affected by national, regional and
local economic conditions, including the level of credit demand and interest
rates, there are significant opportunities to influence interest differential
through appropriate loan and investment policies which are designed to maximize
interest differential while maintaining sufficient liquidity and availability of
"incremental funds" for purposes of meeting existing commitments and for
investment in lending and other investment opportunities that may arise.
The following table sets forth the average balances of assets and
liabilities and the average rates earned and paid for the three years ended
December 31, 1997. The table shows the various components of earning assets and
the sources used to fund these assets which are included in the effective
interest differential.
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Distribution of Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential
1997 1996 1995
------------------------------ ----------------------------- -----------------------------
(Taxable equivalent basis) Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ----- ------- -------- ----- ------- -------- -----
ASSETS (Dollars in thousands)
Interest bearing deposits in
other banks $ 8,018 $ 422 5.26% $ 12,313 $ 646 5.25% $ 15,974 $ 857 5.36%
Held-to-maturity securities:
U.S. treasury and agencies 417,029 27,366 6.56% 361,649 23,823 6.59% 398,194 28,152 7.07%
State and political
subdivisions (1) 155,673 11,226 7.21% 118,458 9,709 8.20% 118,493 10,517 8.88%
Other securities 15 0 0.00% 84 2 2.38% 4,228 168 3.97%
Available-for-sale
securities (2) 315,620 19,884 6.30% 231,040 14,400 6.23% 183,396 8,902 4.85%
Federal funds sold 82,724 4,410 5.33% 60,868 3,289 5.40% 39,451 2,205 5.59%
Loans (net of unearned
discount) (3) (4) (6) 2,598,315 245,652 9.45% 2,410,746 227,920 9.45% 2,146,967 204,397 9.52%
Mortgages held for sale 28,870 2,068 7.16% 27,729 1,917 6.91% 20,805 1,433 6.89%
---------- --------- ---------- ------- ---------- --------
Total interest earning
assets and revenue 3,606,264 311,028 8.62% 3,222,887 281,706 8.74% 2,927,508 256,631 8.77%
Other assets 286,369 266,537 256,363
Less: allowance for credit
losses (38,815) (36,503) (32,574)
---------- ---------- ----------
Total $3,853,818 $3,452,921 $3,151,297
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand - interest bearing $ 783,499 $ 24,550 3.13% $ 700,863 $ 20,426 2.91% $ 654,151 $ 17,733 2.71%
Savings 485,072 20,789 4.29% 371,514 14,930 4.02% 300,278 11,916 3.97%
Time 1,687,071 93,951 5.57% 1,526,564 83,390 5.46% 1,416,901 77,516 5.47%
Federal funds purchased and
securities under
repurchase agreements 32,070 1,594 4.97% 40,880 1,954 4.78% 40,845 2,084 5.10%
Other short-term borrowings (5) 1,892 116 6.13% 3,359 158 4.70% 4,706 299 6.35%
Long term debt 51,220 3,055 5.96% 80,619 5,647 7.00% 68,452 4,909 7.17%
---------- --------- ---------- -------- ---------- --------
Total interest bearing
liabilities and expense 3,040,824 144,055 4.74% 2,723,799 126,505 4.64% 2,485,333 114,457 4.61%
Demand deposits -
non-interest bearing 413,012 383,897 361,120
Other liabilities 55,816 45,476 36,449
---------- ---------- ----------
Total liabilities 3,509,652 3,153,172 2,882,902
Shareholders' equity 344,166 299,749 268,395
---------- ---------- ----------
Total $3,853,818 $3,452,921 $3,151,297
========== ========== ==========
Net interest revenue $ 166,973 $155,201 $142,174
========= ======== ========
Net yield on interest
earning assets 4.64% 4.81% 4.86%
==== ==== ====
1. Includes taxable equivalent adjustments of $2,756,000, $2,755,000 and
$3,026,000 in 1997, 1996 and 1995, respectively, using an effective tax
rate of 35%.
2. Includes taxable equivalent adjustment of $406,000, $281,000 and $581,000
in 1997, 1996 and 1995 using an effective tax rate of 35%.
3. Includes taxable equivalent adjustment of $773,000, $751,000 and $597,000
in 1997, 1996 and 1995, respectively, using an effective tax rate of 35%.
4. Interest expense includes interest paid on liabilities not included in
averages.
5. Non-accrual loans are immaterial for each of the years presented.
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Analysis of Changes in Effective Interest Differential
Net interest revenue may also be analyzed by segregating the rate and volume
components of interest revenue and interest expense. The table which follows
presents an analysis of rate and volume change in net interest from 1996 to 1997
and 1995 to 1996. Changes, which are not solely due to volume or rate, are
allocated to volume.
1997 OVER 1996 - INCREASE (DECREASE) 1996 OVER 1995 - INCREASE (DECREASE)
-------------------------------------- ---------------------------------------
(Taxable equivalent basis) Volume Rate Total Volume Rate Total
--------- --------- -------- -------- -------- ---------
(In thousands)
INTEREST REVENUE
Due from banks - interest bearing $ (226) $ 2 $ (224) $ (192) $ (19) $ (211)
Held-to-maturity securities:
U.S. Government agencies 3,634 (91) 3,543 (2,407) (1,922) (4,329)
State and political subdivisions 2,684 (1,167) 1,517 (3) (805) (808)
Other securities -- (2) (2) (99) (67) (166)
Available-for-sale securities 5,329 155 5,484 2,970 2,528 5,498
Federal funds sold 1,165 (44) 1,121 1,157 (73) 1,084
Loans (net of unearned discount) 17,733 (1) 17,732 24,939 (1,416) 23,523
Mortgages held for sale 82 69 151 479 5 484
-------- -------- -------- -------- -------- --------
Total 30,401 (1,079) 29,322 26,841 (1,766) 25,075
-------- -------- -------- -------- -------- --------
INTEREST EXPENSE
Demand deposits - interest bearing 2,589 1,535 4,124 1,361 1,332 2,693
Savings deposits 4,867 992 5,859 2,863 151 3,014
Time deposits 8,938 1,623 10,561 5,990 (116) 5,874
Federal funds purchased and
securities under
repurchase agreements (438) 78 (360) 2 (132) (130)
Other short-term borrowings (90) 48 (42) (63) (78) (141)
Long-term debt (1,753) (839) (2,592) 852 (114) 738
-------- -------- -------- -------- -------- --------
Total 14,113 3,437 17,550 11,005 1,043 12,048
-------- -------- -------- -------- -------- --------
Increase (Decrease) in Effective
Interest Differential $ 16,288 $ (4,516) $ 11,772 $ 15,836 $ (2,809) $ 13,027
======== ======== ======== ======== ======== ========
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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, 1997, 1996 and 1995:
December 31
--------------------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
U. S. Treasury securities $109,012 $ 91,340 $ 33,355
U. S. Government agency
securities 259,527 292,930 293,831
Taxable obligations of states
and political subdivisions 1,295 1,375 500
Tax exempt obligations of states
and political subdivisions 163,570 144,406 110,830
Other securities 15 15 787
-------- -------- --------
TOTAL $533,419 $530,066 $439,303
======== ======== ========
The following table shows the maturities and weighted average yields as
of the end of the latest period for each investment category presented above:
-----------------------------------------------------------------------------------------
U.S.
U.S. GOVERMENT STATES & WEIGHTED
TREASURY AGENCY POLITICAL OTHER AVERAGE
SECURITIES SECURITIES SUBDIVISIONS SECURITIES YIELD
----------------- --------------- ----------------- -------------- ----------------
(In thousands)
PERIOD TO MATURITY:
Maturing within
one year $ 12,087 $ 94,413 $ 16,865 $ -- 6.55%
Maturing after one
year but within
five years 94,939 154,908 104,525 -- 6.86%
Maturing after five
years but within
ten years 1,986 8,702 34,192 -- 6.97%
Maturing after ten
years -- 1,504 9,283 15 7.86%
-------- -------- -------- --------
TOTAL $109,012 $259,527 $164,865 $ 15
======== ======== ======== ========
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, 1997, 1996 and 1995:
December 31
----------------------------------------------------------
1997 1996 1995
----------------- ------------------ -----------------
(In thousands)
U. S. Treasury securities $105,373 $ 43,864 $ 51,241
U. S. Government agency
securities 240,040 129,515 127,488
Taxable obligations of states
and political subdivisions 228 503 3,337
Tax exempt obligations of states
and political subdivisions 11,258 12,567 20,000
Other securities 49,313 44,290 37,689
-------- -------- --------
TOTAL $406,212 $230,739 $239,755
======== ======== ========
The following table shows the maturities and weighted average yields as
of the end of the latest period for each investment category presented above:
---------------------------------------------------------------------------------------------------
U.S.
U.S. GOVERMENT STATES & WEIGHTED
TREASURY AGENCY POLITICAL OTHER AVERAGE
SECURITIES SECURITIES SUBDIVISIONS SECURITIES YIELD
---------------- ------------------ ----------------- ----------------- -----------------
(In thousands)
PERIOD TO MATURITY:
Maturing within
one year $ 24,953 $ 78,240 $ 1,961 $ 21,001 5.94%
Maturing after one
year but within
five years 75,161 121,400 4,348 11,875 6.40%
Maturing after five
years but within
ten years 5,259 67 3,722 13,552 6.57%
Maturing after ten
years -- 40,333 1,455 2,885 6.46%
-------- -------- -------- --------
TOTAL $105,373 $240,040 $ 11,486 $ 49,313
======== ======== ======== ========
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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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 each of the years indicated.
DECEMBER 31
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(In thousands)
Commercial &
agricultural (1) $ 266,112 $ 238,246 $ 223,225 $ 211,988 $ 203,798
Consumer & installment 823,356 744,456 695,127 633,692 510,538
Real estate mortgage (2) 1,571,137 1,407,841 1,314,935 1,151,666 1,013,446
Lease financing 172,436 149,104 121,617 81,816 60,781
Other 19,844 14,471 16,780 11,913 52,692
---------- ---------- ---------- ---------- ----------
Total gross loans $2,852,885 $2,554,118 $2,371,684 $2,091,075 $1,841,255
========== ========== ========== ========== ==========
(1) Including $13,550,000, $14,580,000, $17,388,000, $15,247,000 and
$15,588,000 in 1997, 1996, 1995, 1994 and 1993, respectively, of loans
classified as agricultural.
(2) Including $35,831,000, $38,406,000, $36,054,000, $29,838,000 and
$27,048,000 in 1997, 1996, 1995, 1994 and 1993, respectively, of loans
secured by or relating to agricultural land.
Maturity Distribution of Loans
The maturity distribution of the Company's loan portfolio is one factor
in management's evaluation of the risk characteristics of the loan portfolio.
The following table shows the maturity distribution of gross loans of the
Company as of December 31, 1997.
ONE YEAR ONE TO AFTER
OR LESS FIVE YEARS FIVE YEARS
---------- -------------- -----------
(In thousands)
Commercial
& agricultural $ 142,260 $ 99,116 $ 24,736
Consumer & installment 199,325 593,119 30,912
Real estate mortgages 556,246 762,772 252,119
Lease financing 58,748 110,729 2,959
Other 14,581 4,990 273.00
---------- ---------- ----------
Total gross loans $ 971,160 $1,570,726 $ 310,999
========== ========== ==========
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14
Sensitivity of Loans to Changes in Interest Rates
The interest sensitivity of the Company's loans is important in the
management of effective interest differential. The Company attempts to manage
the relationship between the rate sensitivity of its assets and liabilities to
produce an effective interest differential that is not significantly impacted by
the level of interest rates. The following table shows the interest sensitivity
of the Company's gross loans as of December 31, 1997.
December 31, 1997
FIXED VARIABLE
RATE RATE
---------- ---------
(In thousands)
Loan Portfolio
Due after one year $1,544,384 $337,341
========== ========
Nonaccrual, Past Due and Restructured Loans
Non-performing loans consist of both non-accrual loans and loans which
have been restructured (primarily in the form of reduced interest rates) because
of the borrower's weakened financial condition. The aggregate principal balance
of non-accrual loans was $4,008,000, $3,940,000, $1,592,000, $3,029,000 and
$4,072,000 at December 31, 1997, 1996, 1995, 1994 and 1993, respectively. The
aggregate principal balance of restructured loans was $659,000, $77,000, $7,000,
$1,448,000 and $4,018,000 at December 31, 1997, 1996, 1995, 1994 and 1993,
respectively. The total amount of interest earned on non-performing loans was
approximately $37,000, $13,000, $70,000, $214,000 and $277,000 in 1997, 1996,
1995, 1994 and 1993, respectively. The gross interest income that would have
been recorded under the original terms of those loans amounted to $128,000,
$167,000, $105,000, $353,000 and $611,000 in 1997, 1996, 1995, 1994 and 1993.
Accruing loans which were contractually past due 90 days or more for years ended
December 31, 1997, 1996, 1995, 1994 and 1993, amounted to $7,465,000,
$4,811,000, $5,148,000, $3,614,000 and $4,277,000, 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, 1997 and 1996 was $2,928,000 and
$3,306,000, respectively, with a valuation reserve of $927,000 and $995,000,
respectively. The average recorded investment in impaired loans during 1997 and
1996 was $2,523,000 and $2,603,000, respectively.
The Company's policy provides that loans, other than installment loans,
are generally placed in non-accrual status if, in management's opinion, payment
in full of principal or interest is not expected, or when payment of principal
or interest is more than 90 days past due, unless the loan is both well-secured
and in the process of collection.
In the normal course of business, management becomes aware of possible
credit problems in which borrowers exhibit potential for the inability to comply
with the contractual terms of their loans, but which do not currently meet the
criteria for disclosure as problem loans. Historically, some of these loans are
ultimately restructured or placed in non-accrual status. At December 31, 1997,
no loans were known to be potential problem loans.
At December 31, 1997, 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 market area.
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
14
15
predict loan losses with any certainty, management constantly reviews the
characteristics of the loan portfolio to determine its overall risk profile and
quality.
Constant attention to the quality of the loan portfolio is achieved by
a formal loan review process. The Board of Directors of the Company has
appointed a Loan Loss Reserve Valuation Committee (the Committee) which is
responsible for ensuring that the allowance for loan and leases losses (ALLL)
provides coverage of both known and inherent losses. The Committee considers
estimates of loss for individually-analyzed credits as well as factors such as
historical experience, changes in economic and business conditions and
concentrations of risk in determining the level of ALLL. The Committee meets a
least quarterly to the determine the amount of additions to the ALLL. The
Committee is composed of senior management from the Company's Loan
Administration, Lending and Finance Departments. In each period, the Committee
bases the ALLL on its loan classification system as well as an analysis of
general economic and business trends in the Company's geographic region and
nationally.
A key input for determining the amount of the ALLL is the Company's
loan classification system. The Company has a disciplined approach for assigning
credit ratings and classifications to individual credits. Each credit is
assigned a grade by the loan officer at origination that serves as a basis for
the credit analysis of the entire portfolio. Periodically, loan officers review
the status of each credit and update its grading. An independent Loan Review
Department (Loan Review) reviews the gradings assigned by the loan officer. Loan
Review is responsible for reviewing the credit rating and classification of
individual credits. They also assess trends in the overall portfolio, adherence
to internal credit policies and Loan Administration procedures and other factors
that may affect the overall adequacy of the ALLL. Throughout this on-going
process, management and the Committee are advised of the condition of individual
loans and of the quality profile of the entire loan portfolio for consideration
in establishing the ALLL.
Any loan or portion thereof which is classified as "loss" by regulatory
examiners or which is determined by management to be uncollectible because of
such factors as the borrower's failure to pay interest or principal, the
borrower's financial condition, economic conditions in the borrower's industry,
or the inadequacy of underlying collateral, is charged off.
The provision for credit losses charged to operating expense is an
amount which, in the judgment of management, is necessary to maintain the
allowance for credit losses at a level that is adequate to meet the present and
potential risks of losses on the Company's current portfolio of loans.
Management's judgment is based on a variety of factors which include the
Company's experience related to loan balances, charge-offs and recoveries,
scrutiny of individual loans and risk factors, results of regulatory agency
reviews of loans, and present and future economic conditions of the Company's
market area. Material estimates that are particularly susceptible to significant
change in the near term are a necessary part of this process. Future additions
to the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for credit losses. Such
agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
Management does not believe the allowance for credit losses can be
fragmented by category of loans with any precision that would be useful to
investors but is doing so in this report only in an attempt to comply with
disclosure requirements of regulatory agencies. The breakdown of the allowance
by loan category is based in part on evaluations of specific loans' past history
and on economic conditions within specific industries or geographical areas.
Accordingly, since all of these conditions are subject to change, the allocation
is not necessarily indicative of the breakdown of any future losses.
15
16
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 each of the years presented:
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
ALLOWANCE % OF LOANS ALLOWANCE % OF LOANS ALLOWANCE % OF LOANS ALLOWANCE % OF LOANS ALLOWANCE % OF LOANS
FOR TO TOTAL FOR TO TOTAL FOR TO TOTAL FOR TO TOTAL FOR TO TOTAL
CREDIT LOSS LOANS CREDIT LOSS LOANS CREDIT LOSS LOANS CREDIT LOSS LOANS CREDIT LOSS LOANS
----------- ----- ----------- ----- ----------- ----- ----------- ----- ----------- -----
(In thousands)
Commercial &
agricultural $ 2,985 9.33% $ 3,570 9.33% $ 3,290 9.41% $ 3,100 10.14% $ 3,020 11.07%
Consumer &
installment 14,760 28.86% 11,100 29.15% 10,413 29.31% 9,350 30.30% 7,620 27.73%
Real estate
mortgage 19,415 55.07% 20,532 55.12% 19,500 55.44% 17,090 55.08% 16,123 55.04%
Lease
financing 2,592 6.04% 2,070 5.84% 1,433 5.13% 1,290 3.91% 705 3.30%
Other 125 0.70% -- 0.56% -- 0.71% -- 0.57% -- 2.86%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
TOTAL $39,877 100.00% $37,272 100.00% $34,636 100.00% $30,830 100.00% $27,468 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
16
17
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, 1997.
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
LOANS
Average loans for the
period $ 2,598,315 $ 2,410,746 $ 2,146,967 $ 1,881,922 $ 1,675,048
=========== =========== =========== =========== ===========
ALLOWANCE FOR CREDIT
LOSSES
Balance, beginning
of period $ 37,272 $ 34,636 $ 30,830 $ 27,468 $ 24,116
Loans charged off:
Commercial & agricultural (678) (1,197) (448) (1,479) (374)
Consumer & installment (7,107) (5,969) (3,550) (3,146) (5,030)
Real estate mortgage (994) (808) (715) (1,217) (2,128)
Lease financing (48) (30) (1) (19) (144)
----------- ----------- ----------- ----------- -----------
Total loans charged off (8,827) (8,004) (4,714) (5,861) (7,676)
----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial & agricultural 214 427 99 1,539 169
Consumer & installment 1,205 1,163 1,084 1,271 1,326
Real estate mortgage 352 241 366 412 325
Lease financing 57 5 18 55 176
----------- ----------- ----------- ----------- -----------
Total recoveries 1,828 1,836 1,567 3,277 1,996
----------- ----------- ----------- ----------- -----------
Net charge-offs (6,999) (6,168) (3,147) (2,584) (5,680)
Provision charged to
operating expense 9,008 8,804 6,206 5,946 9,032
Acquisitions 596 -- 747 -- --
----------- ----------- ----------- ----------- -----------
Balance, end of period $ 39,877 $ 37,272 $ 34,636 $ 30,830 $ 27,468
=========== =========== =========== =========== ===========
RATIOS
Net charge-offs to
average loans 0.27% 0.26% 0.15% 0.14% 0.34%
=========== =========== =========== =========== ===========
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.
The following table shows the classification of deposits on an average
basis for the three years ended December 31, 1997.
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
Non-interest bearing
demand deposits $ 413,012 - $ 383,897 - $ 361,120 -
Interest bearing
demand deposits 783,499 3.13% 700,863 2.91% 654,151 2.71%
Savings 485,072 4.29% 371,514 4.02% 300,278 3.97%
Time 1,687,071 5.57% 1,526,564 5.46% 1,416,901 5.47%
---------- --------- ----------
TOTAL DEPOSITS $3,368,654 $2,982,838 $2,732,450
========== ========== ==========
Time deposits of $100,000 and over including certificates of deposits
of $100,000 and over at December 31, 1997, had maturities as follows:
DECEMBER 31, 1997
-----------------
(In thousands)
Three months or less $116,503
Over three months through six months 134,074
Over six months through twelve months 75,416
Over twelve months 129,967
--------
TOTAL $455,960
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19
Return on Equity and Assets
Return on average common equity, average assets, and the dividend
payout ratio are based on net income for the three years ended December 31,
1997, as presented below:
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
Return on average common equity 13.18% 14.31% 13.23%
Return on average assets 1.18 1.24 1.13
Dividend payout ratio 38.92 34.65 34.37
The Company's average common equity as a percent of average assets was
8.93%, 8.68% and 8.52% for 1997, 1996 and 1995, respectively.
Short-Term Borrowings
Time Deposits and Short-Term Debt
Certificates of deposit and other time deposits of $100,000 or more
amounting to approximately $455,960,000 and $399,123,000 were outstanding at
December 31, 1997 and 1996, respectively. Total interest expense relating to
certificate and other time deposits of $100,000 or more totaled approximately
$24,939,000, $19,728,000, and $17,386,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
For time deposits with a remaining maturity of more than one year at
December 31, 1997, the aggregate amount of maturities for each of the following
five years is presented in the following table:
MATURING IN AMOUNT
----------- ------
(In thousands)
1999 $229,092
2000 200,386
2001 41,791
2002 44,960
2003 398
Thereafter --------
Total $518,976
========
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20
Presented below is information relating to short-term debt for the
years ended December 31, 1997 and 1996:
END OF PERIOD DAILY AVERAGE MAXIMUM
------------------- ------------------- OUTSTANDING
INTEREST INTEREST OF ANY
BALANCE RATE BALANCE RATE MONTH END
------------------- ------------------- -----------
(Dollars in thousands)
1997:
Federal funds $152,450 6.9% $ 3,004 6.3% $152,450
purchased
Securities sold under
repurchase agreements 25,000 5.3% 29,066 4.8% 32,554
-------- ------- --------
Total $177,450 $32,070 $185,005
======== ======= ========
1996:
Federal funds
purchased $ 1,750 5.8% $ 4,266 5.0% $ 5,950
Securities sold under 31,886 4.8% 36,654 4.8% 40,030
-------- ------- --------
Total $ 33,636 $40,880 $ 45,980
======== ======= ========
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, 1997, the Bank had
established informal federal funds borrowing lines of credit aggregating
$584,000,000.
Item 2. - Properties
The physical properties of the Registrant are held in its subsidiaries
as follows:
a. BancorpSouth Bank - The main office is located at One
Mississippi Plaza in the central business district of Tupelo,
Mississippi in a seven-floor modern glass, concrete and steel
office building owned by the Bank. The Bank occupies
approximately 75% of the rentable space with the remainder
leased to various unaffiliated tenants.
The Bank owns 111 of its 134 branch banking facilities. The
remaining 23 branch banking facilities are occupied under
leases varying in length from one to 9 years. The Bank also
owns several buildings in the Hattiesburg, Mississippi area
(which provide space for certain of the its Southern Region
activities including warehouse requirements, mortgage lending,
trust services, lease servicing and central operations), an
operations center near the Tupelo, Mississippi Municipal
Airport, an office building in downtown Jackson, Mississippi
(which has approximately 86,000 square feet of space, of which
the Bank uses approximately two-thirds for banking activities
while leasing or holding for lease the remaining 28,000 square
feet) and an office building in downtown Gulfport, Mississippi
(which has approximately 85,000 square feet of space, of which
the Bank uses approximately 7,500 square feet for banking
activities while leasing or holding for lease the remaining
portion of the building).
The Bank considers all its buildings and leased premises to be
in good condition. The Bank also owns several parcels of
property acquired under foreclosure. Ownership of and rentals
on other real property by the Bank are not material.
b. Personal Finance Company - This wholly-owned subsidiary of the
Bank occupies 46 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 with
average annual rent of approximately $8,200. All these
premises are considered to be in good condition.
20
21
Item 3. - Legal Proceedings
The Company and its subsidiaries are defendants in various lawsuits
arising in the ordinary course of business. In the opinion of management, after
consultation with outside legal counsel, the outcome of these actions should not
have a material adverse effect on the financial condition of the Company and its
subsidiaries, taken as a whole.
Item 4. - Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of 1997.
Executive Officers of the Registrant
For information regarding executive officers of the Company, see "Item
10 Directors and Executive Officers of the Registrant" in this Report.
21
22
PART II
Item 5. - Market for the Registrant's Common Stock 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 from May 15, 1997 and as reported on the Nasdaq Stock Market
prior to May 15, 1997. The prices have been restated to reflect a two-for-one
stock split of the Company's common stock effected in the form of a 100% stock
dividend paid November 20, 1996.
1997: High Low
----- ---
4th quarter $48.3750 $35.1875
3rd quarter 36.0000 29.0000
2nd quarter 29.5000 26.5000
1st quarter 30.0000 26.5000
1996:
4th quarter $28.5000 $23.7500
3rd quarter 24.0000 21.5000
2nd quarter 25.7500 21.3750
1st quarter 25.5000 22.5000
Holders of Record
As of February 28, 1998, there were 7,697 shareholders of record of the
Company's common stock.
Dividends
The Company declared cash dividends totaling $0.79 per share during
1997, $0.70 during 1996 and $0.62 during 1995. Future dividends, if any, will
vary depending on the Company's profitability and anticipated capital
requirements. See "Item 1 Business - Regulation and Supervision".
22
23
Item 6. - Selected Financial Data
SELECTED FINANCIAL INFORMATION (UNAUDITED)
(Dollars in thousands, except per share amounts)
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Earnings Summary:
Interest revenue $ 307,094 $ 277,919 $ 252,427 $ 207,895 $ 193,869
Interest expense 144,055 126,505 114,457 85,029 78,715
---------- ---------- ---------- ---------- ----------
Net interest revenue 163,039 151,414 137,970 122,866 115,154
Provision for credit losses 9,008 8,804 6,206 5,946 9,032
---------- ---------- ---------- ---------- ----------
Net interest revenue, after provision
for credit losses 154,031 142,610 131,764 116,920 106,122
Other revenue 43,667 40,745 31,240 26,012 26,776
Other expense 131,988 118,472 111,750 99,372 93,176
---------- ---------- ---------- ---------- ----------
Income before income taxes and
effect of accounting change 65,710 64,883 51,254 43,560 39,722
Income taxes 20,360 22,000 15,750 12,832 10,216
---------- ---------- ---------- ---------- ----------
Income before effect of accounting change 45,350 42,883 35,504 30,728 29,506
Cummulative effect of change in
accounting for income taxes -- -- -- -- 3,429
---------- ---------- ---------- ---------- ----------
Net income $ 45,350 $ 42,883 $ 35,504 $ 30,728 $ 32,935
========== ========== ========== ========== ==========
Per Share Data:
Net income: Basic $ 2.04 $ 2.04 $ 1.70 $ 1.51 $ 1.66
Diluted 2.03 2.03 1.69 1.51 1.65
Cash dividends 0.79 0.70 0.62 0.555 0.54
Book value 16.18 15.01 13.72 12.44 11.82
Balance Sheet - Averages:
Total assets $3,853,818 $3,452,921 $3,151,297 $2,884,539 $2,659,785
Held-to-maturity securities 572,717 480,191 516,919 427,759 509,996
Available-for-sale securities 315,620 231,040 183,396 266,370 141,496
Loans, net of unearned discount 2,598,315 2,410,746 2,146,967 1,881,922 1,675,048
Total deposits 3,368,654 2,982,838 2,732,450 2,513,493 2,342,137
Long-term debt 47,539 55,778 73,625 67,416 24,508
Total shareholders' equity 344,166 299,749 268,395 240,929 218,504
Selected Ratios:
Return on average assets 1.18% 1.24% 1.13% 1.07% 1.24%
Return on average shareholders' equity 13.18% 14.31% 13.23% 12.75% 15.07%
23
24
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
BancorpSouth, Inc. is a bank holding company with commercial banking
operations in Mississippi and Tennessee. BancorpSouth Bank, the Company's
banking subsidiary is headquartered in Tupelo, Mississippi. The Bank operates
under the trade names Bank of Mississippi in Mississippi and Volunteer Bank in
Tennessee. The Bank and its consumer finance, credit life insurance and
insurance agency subsidiaries provide commercial banking, leasing, mortgage
origination and servicing, life insurance and trust services to corporate
customers, local governments, individuals and other financial institutions
through an extensive network of branches and offices located throughout
Mississippi and west Tennessee.
The following discussion provides certain information concerning the
consolidated financial condition and results of operations of the Company. For a
complete understanding of the following discussion, reference is made to the
Consolidated Financial Statements and Notes thereto presented elsewhere in this
Annual Report.
THREE YEARS ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS
Summary
The table below summarizes the Company's net income and returns on
average assets and average shareholders' equity for the years ended December 31,
1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
(In thousands, except per share amounts)
Net income $45,350 $42,883 $35,504
Net income per share: Basic $ 2.04 $ 2.04 $ 1.70
Diluted $ 2.03 $ 2.03 $ 1.69
Return on average assets 1.18% 1.24% 1.13%
Return on average shareholders' equity 13.18% 14.31% 13.23%
NET INTEREST REVENUE
Net interest revenue, principally interest earned on assets less
interest costs on liabilities, provides the Company with its principal source of
income. Since net interest revenue is affected by changes in the levels of
interest rates and the amount and composition of interest earning assets and
interest bearing liabilities, one of management's primary tasks is to balance
these interest sensitive components of assets and liabilities for the purpose of
maximizing net interest revenue while at the same time minimizing interest rate
risk to the Company.
24
25
The following table presents the average components of interest earning
assets and interest bearing liabilities for each year and their change,
expressed as a percentage, from each of the prior years:
1997 1996 1995
---------------------- ---------------------- ----------------------
AVERAGE % AVERAGE % AVERAGE %
BALANCE CHANGE BALANCE CHANGE BALANCE CHANGE
------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
Interest earning assets:
Deposits with other banks $ 8,018 -34.9% $ 12,313 -38.3% $ 19,970 +79.7%
Held-to-maturity securities 572,717 +19.3 480,191 -7.1 516,919 +20.8
Available-for-sale securities 315,620 +36.6 231,040 +26.0 183,396 -31.1
Federal funds sold 82,724 +35.9 60,868 +54.3 39,451 -9.2
Loans and leases, net of unearned 2,598,315 +7.8 2,410,746 +12.3 2,146,967 +14.1
Mortgages held for sale 28,870 +4.1 27,729 +33.3 20,805 -38.1
---------- ---------- ----------
Total interest earning assets $3,606,264 +11.9% $3,222,887 +10.1% $2,927,508 +9.9%
========== ========== ==========
Interest bearing liabilities:
Deposits $2,955,642 +13.7% $2,598,941 +9.6% $2,371,330 +10.3%
Federal funds purchased and
securities sold under
repurchase agreements 32,070 -21.6 40,880 +0.1 40,845 +11.3
Long-term debt 51,220 -36.5 80,619 +17.8 68,452 +17.6
Other 1,892 -43.7 3,359 -28.6 4,706 +29.7
---------- ---------- ----------
Total interest bearing liabilities $3,040,824 +11.6% $2,723,799 +9.6% $2,485,333 +10.6%
========== ========== ==========
Non-interest bearing deposits $ 413,012 +7.6% $ 383,897 +6.3% $ 361,120 -0.9%
========== ========== ==========
In 1997 the growth of loans and leases slowed as compared to prior
years. Loans and leases grew at faster rates than interest bearing deposits in
1996 and 1995; however, the Company's other funding sources, non-interest
bearing deposits, federal funds purchased and Federal Home Loan Bank advances,
were adequate to fund its asset growth during such periods.
The changes in the components of interest earning assets, interest
bearing liabilities, and non-interest bearing deposits resulted in the following
tax equivalent net interest revenue expressed as a percentage of average earning
assets for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Net interest margin 4.64% 4.81% 4.86%
The Company experienced a decrease in net interest margin in 1997 and
1996 as interest rates stabilized and volume growth in loans and leases slowed
in 1997. As short-term interest rates began to rise in 1995, the net interest
margin stabilized and then increased. The Company utilizes short-term,
intermediate-term and long-term borrowings from the Federal Home Loan Bank for
the purpose of funding asset growth. The Company has sought to lengthen the
maturity of deposits by actively seeking four and five-year certificates of
deposit with interest rates slightly above the relative market for such funds,
thereby reducing the net interest margin in all three years presented.
25
26
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, 1997:
1997 INTEREST RATE SENSITIVITY
DECEMBER 31, 1997
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 due from banks $ 6,465 $ -- $ -- $ --
Held-to-maturity securities 50,172 73,195 328,211 81,841
Available-for-sale securities 68,494 57,661 212,061 67,996
Loans & leases, net of unearned 850,002 376,642 1,401,788 130,595
Mortgages held for sale 39,134 -- -- --
----------- ----------- ----------- -----------
Total interest earning assets 1,014,267 507,498 1,942,060 280,432
----------- ----------- ----------- -----------
Interest bearing liabilities:
Interest bearing demand deposits & savings 611,267 232,624 544,801 --
Time deposits 418,043 760,055 502,754 2,749
Federal funds purchased & securities
sold under repurchase agreements 177,450 -- -- --
Long-term debt 807 2,413 34,916 9,403
Other 405 9 144 289
----------- ----------- ----------- -----------
Total interest bearing liabilities 1,207,972 995,101 1,082,615 12,441
----------- ----------- ----------- -----------
Interest sensitivity gap $ (193,705) $ (487,603) $ 859,445 $ 267,991
=========== =========== =========== ===========
Cumulative interest sensitivity gap $ (193,705) $ (681,308) $ 178,137 $ 446,128
=========== =========== =========== ===========
In the event interest rates decline after 1997, it is likely that the
Company will experience a slightly positive effect on net interest income in the
following one year period, as the cost of funds will decrease at a more rapid
rate than interest income on interest bearing assets. Conversely, in periods of
increasing interest rates, based on the current interest sensitivity gap, the
Company will experience decreased net interest income.
PROVISIONS FOR CREDIT LOSSES
The Company has an asset quality review staff which, with a committee
of senior officers, reviews the adequacy of the allowance for credit losses in
each accounting period. An amount is provided as a charge against current
income, based on this group's recommendation and senior management's approval,
to maintain the allowance for credit losses at a level sufficient to absorb
possible losses inherent in the existing loan and lease portfolios. This
provision is determined after examining potential losses in specific credits and
considering the general risks associated with lending functions such as current
and anticipated economic conditions, historical experience as related to losses,
changes in the mix of the loan portfolio and credits which bear substantial risk
of loss but which cannot be readily quantified. The process of determining the
adequacy of the provision requires that management make material estimates and
assumptions, which are particularly susceptible to significant change in the
near-term.
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27
The provision for credit losses, the allowance for credit losses as a
percentage of loans and leases outstanding at the end of each year and net
charge offs are shown in the following table:
1997 1996 1995
--------- ---------- ----------
(DOLLARS IN THOUSANDS)
Provision for credit losses $ 9,008 $ 8,804 $ 6,206
Allowance for credit losses as
a percent of loans and leases
outstanding at year end 1.45% 1.51% 1.51%
Net charge offs $ 6,999 $ 6,168 $ 3,147
Net charge offs as a percent
of average loans 0.27% 0.26% 0.15%
The provision for credit losses for 1997 increased 2.3% as compared to
the provision for 1996, principally as a result of the slower rate of growth in
the loan portfolio and an increase in losses in consumer based loans. The 1996
provision for credit losses increased from 1995's level by 41.9% as a result of
the growth in loans and an increase in loan losses, primarily in consumer based
loans. The 1995 provision for credit losses increased 4.4% from 1994's level as
a result of the growth in the loan portfolio.
OTHER REVENUE
The components of other revenue for the years ended December 31, 1997,
1996 and 1995 and the percentage change from the prior year are shown in the
following table:
1997 1996 1995
-------------------- -------------------- ---------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
Mortgage lending $ 7,596 -10.2% $ 8,460 +127.2% $ 3,723 +333.9%
Service charges 19,050 +6.9 17,828 +11.7 15,965 +10.6
Life insurance premiums 3,772 -13.0 4,337 +29.7 3,345 +1.4
Trust income 2,744 +5.3 2,606 +16.5 2,237 +19.4
Securities gains (losses), net 1,251 +377.5 262 +134.2 (765) -161.1
Other revenue 9,254 +27.6 7,252 +7.7 6,735 +15.4
-------- -------- --------
Total other revenue $ 43,667 +7.2% $ 40,745 +30.4% $ 31,240 +20.1%
======== ======== ========
Mortgage lending revenue decreased in 1997 principally as a result of a
decline in revenue related to mortgage servicing. Revenue from mortgage
servicing was $2,198,000 in 1997 compared to $3,097,000 in 1996. The decrease is
attributable to increased amortization of capitalized mortgage servicing rights
along with changes in the valuation allowance for impairment. 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.
Revenue from mortgage origination and secondary marketing was $5,398,000 in 1997
compared to $5,363,000 in 1996. The revenue produced by mortgage lending
activities increased in 1996 primarily as a result of declining interest rates
and growth in servicing income. In 1995, mortgage lending revenue rebounded from
the prior year's level as a result of stable interest rates and growth in
servicing income.
1997 1996 1995
------------------ ------------------- ----------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- ------ -------- ------ --------
(DOLLARS IN MILLIONS)
Mortgage loans serviced at year-end $1,324.0 +13.5% $1,166.8 +33.2% $876.0 +8.0%
Service charges on deposit accounts increased in 1997, 1996 and 1995
because of higher volumes of items processed as a result of increased economic
activity and growth in the number of demand deposit accounts. Trust income
increased 5.3% in 1997, 16.5% in 1996 and 19.4% in 1995. The trust business
experienced steady growth as evidenced by increases in the number
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28
of trust accounts and the value of assets under care (either managed or in
custody). Other revenue increased 27.6%, 7.7% and 15.4% in 1997, 1996 and 1995,
respectively. The increase in other revenue in 1997 was attributable to
increases in gains on the sale of equipment and facilities and fees relating to
greater usage of the Bank's debit card. The increases in 1996 and 1995 were
principally as a result of increases in fees for non-deposit related services.
OTHER EXPENSE
The components of other expense for the years ended December 31, 1997,
1996 and 1995 and the percentage change from the prior year are shown in the
following table:
1997 1996 1995
---------------------- --------------------- ---------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
Salary and employee benefits $ 65,761 +13.8% $ 57,806 +5.6% $ 54,739 +13.1%
Occupancy net of rental income 8,479 +1.8 8,331 +3.9 8,022 +5.3
Equipment 12,099 +24.1 9,752 +10.1 8,860 +18.7
Deposit insurance 488 -81.2 2,601 -23.8 3,412 -39.3
Other 45,161 +13.0 39,982 +8.9 36,717 +21.3
======== ======== ========
Total other expense $131,988 +11.4% $118,472 +6.0% $111,750 +12.5%
======== ======== ========
Increases in salary and employee benefits are primarily attributable to
incentives and salary increases, additional employees to staff the banking
locations added in each of the three years and the increased cost of employee
health care benefits. The Company's stock option plans contain a provision for
stock appreciation rights (SARs) which requires the recognition of expense for
stock price appreciation. In 1997 the Company's common stock price increased
approximately 75% which resulted in SARs expense of $6.1 million, as compared to
$1.9 million and $0.9 million in 1996 and 1995, respectively. In the event that
the market price of the Company's common stock continues to increase, additional
expense related to SARs could be incurred, which could have a material adverse
effect on the Company's results of operations. Occupancy and equipment expenses
have increased principally as a result of additional branch offices and upgrades
to the Company's internal operating systems.
Deposit insurance premiums decreased substantially in 1997, 1996 and
1995 as a result of lower insurance rates assessed by the Federal Deposit
Insurance Corporation (FDIC). Deposit insurance premiums are based upon the risk
assessment classification assigned to a bank by the FDIC. In 1996, a one-time
assessment on SAIF insured deposits was imposed which resulted in a pre-tax
payment of $1.9 million and reduced 1996 after-tax net income per share $0.05.
Other expense increased 13.0% in 1997 as a result of the out-sourcing
of certain computer programming expense, other equipment and software expense
and system enhancements.
Other expense increased 8.9% in 1996 as a result of expanded
telecommunications, systems enhancements, and credit card interchange fees, all
of which related to providing higher levels of convenient consumer oriented
banking services. Additionally, approximately $500,000 of unamortized expense
relating to the issuance of the Company's 9% Subordinated Capital Debentures was
charged against 1996 earnings as a result of the early extinguishment of the
debt issue in December 1996.
Other expense increased 21.3% in 1995 principally as a result of merger
expenses related to the Company's acquisitions. The expansion of the Company's
branch banking network also contributed to increases in all years presented.
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29
FINANCIAL CONDITION
LOANS
The Company's loan portfolio represents the largest single component of
its earning asset base. The following table indicates the average loans, year
end balances of the loan portfolio and the percentage increases for the years
presented:
1997 1996 1995
------------------- --------------------- ----------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- ------ -------- ------ --------
(DOLLARS IN MILLIONS)
Loans, net of unearned - average $2,598 +7.8% $2,411 +12.3% $2,147 +14.1%
Loans, net of unearned - year end 2,759 +11.7 2,469 +7.6 2,295 +13.3
The Company's loan portfolio continues to grow. The Company strives to
maintain a high-quality loan portfolio, forsaking growth for quality. The
Company's non-performing assets which are carried either in the loan account or
other assets on the consolidated balance sheets, were as follows at the end of
each year presented:
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Foreclosed properties $ 1,971 $ 1,835 $ 2,662
Non-accrual loans 4,008 3,940 1,592
Loans 90 days or more past due 7,465 4,811 5,148
Restructured loans 659 77 7
------- ------- -------
Total non-performing assets $14,103 $10,663 $ 9,409
======= ======= =======
Total non-performing assets as a percent of net loans 0.51% 0.43% 0.41%
======= ======= =======
The Company has not, as a matter of policy, participated in any highly
leveraged transactions nor made any loans or investments relating to corporate
transactions such as leveraged buyouts or leveraged recapitalizations. At
December 31, 1997, 1996 and 1995, 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 is to
some extent dependent upon the economic conditions prevailing in the market
area.
Included in non-performing assets above were loans the Company
considered impaired totaling $2,928,000, $3,306,000, and $1,774,000 in 1997,
1996 and 1995, respectively.
SECURITIES AND OTHER EARNING ASSETS
The securities portfolio is used to make various term investments,
provide a source of liquidity and to serve as collateral to secure certain types
of deposits. A portion of the Company's securities portfolio continues to be
tax-exempt. Investments in tax-exempt securities totaled $174.9 million at
December 31, 1997, compared to $157.0 million at the end of 1996. The Company
invests only in investment grade securities, with the exception of obligations
of Mississippi and Tennessee counties and municipalities, and avoids other high
yield non-rated securities and investments.
At December 31, 1997, the Company's available-for-sale securities
totaled $406.2 million. These securities, which are subject to possible sale,
are recorded at fair value. At December 31, 1997, 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, 1997
totaled $15.2 million. Net unrealized gains on held-to-maturity securities
comprised $7.9 million of that total, while net unrealized gains on
available-for-sale securities were $7.3 million.
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30
Net unrealized gains on investment securities as of December 31, 1996,
amounted to $10.7 million. Of that total, $7.0 million was attributable to
held-to-maturity securities and $3.7 to million available-for-sale securities.
These unrealized gains were a direct result of relatively stable intermediate
term interest rates during 1997 and 1996. Because the average maturity of
securities owned is relatively short, market value fluctuations due to interest
rate changes are softened and the impact of foregone earnings is reduced.
DEPOSITS
The following table presents the Company's average deposit mix and
percentage change for the years indicated:
1997 1996 1995
--------------------- --------------------- ---------------------
AVERAGE % AVERAGE % AVERAGE %
BALANCE CHANGE BALANCE CHANGE BALANCE CHANGE
------- ------ ------- ------ ------- ------
(DOLLARS IN MILLIONS)
Interest bearing deposits $2,955.6 +13.7% $2,598.9 +9.6% $2,371.3 +10.3%
Non-interest bearing deposits 413.0 +7.6 383.9 +6.3 361.1 -0.9
The Company's deposit mix continued to experience change in 1997. By
year end 1997, other time deposits showed an increase of 6.7% from the end of
1996, while interest bearing demand deposits increased by 15.9% and other
short-term savings accounts increased 34.4%. Non-interest bearing demand
deposits increased 3.9% from year end 1996 to year end 1997. Management is of
the opinion that the low interest rates paid on deposit accounts in 1996 and
1995 caused depositors to reduce the period over which they were willing to
commit their funds and shifted their deposits from longer term, fixed rate
instruments to daily savings and demand accounts, or even to seek alternative
non-bank investments. While that trend continued into 1997, the Company has
countered with a strategy of paying slightly above market rates for intermediate
term deposits. Deposits are the Company's primary source of funds to support its
earning assets. The Company's primary market areas provide the sources of
substantially all deposits for all periods presented.
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. The Company's traditional sources of
maturing loans, investment securities, mortgages held for sale, purchased
federal funds and base of core deposits seem adequate to meet 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 maturities. The matching of these assets and
liabilities has had the effect of reducing the Company's net interest margin.
On October 23, 1996 the Company announced that it would call for
redemption all of its outstanding 9% Subordinated Capital Debentures due in
1999. On December 30, 1996 the Company extinguished the debt by irrevocably
depositing with the trustee $24,508,000 in cash plus accrued and unpaid interest
from November 1, 1996 to redeem the debentures, which were redeemed on January
15, 1997.
CAPITAL RESOURCES
The Company is required to comply with the risk-based capital
guidelines established by the Board of Governors of the Federal Reserve System
(FRB). These guidelines apply a variety of weighting factors, which vary
according to the level of risk associated with the assets. Capital is measured
in two "Tiers": Tier I consists of paid-up share capital, including common stock
and disclosed reserves (retained earnings and related surplus in the case of
common stock), and Tier II consists of general allowance for losses on loans and
leases, "hybrid" debt capital instruments, and all or a portion of other
subordinated capital debt, depending upon remaining term to maturity. The
Company's Tier I capital and total capital, as a percentage of total
risk-adjusted assets, was 12.49% and 13.74%, respectively at December 31, 1997,
compared to 12.14% and 13.39%, respectively at December 31, 1996. Both ratios
exceed the required minimum levels for these ratios of 4% and 8%, respectively.
In addition, the Company's leverage capital ratio (Tier I capital divided by
total assets, less goodwill) was 8.82% at December 31, 1997 and 8.56% at
December 31, 1996, compared to the required minimum leverage capital ratio of
3%.
The FDIC's capital-based supervisory system for insured financial
institutions categorizes the capital position for banks into five categories,
ranging from well capitalized to critically undercapitalized. For a bank to
classify as "well capitalized", the
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31
Tier I risk-based capital, total risk-based capital and leverage capital ratios
must be at least 6%, 10% and 5%, respectively. The Company's bank subsidiary met
the criteria for the "well capitalized" category at December 31, 1997.
The Company has determined to 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 completed, will be
shares of the Company's common stock; however, transactions involving cash
consideration or other forms of consideration will not be excluded.
On August 28, 1996 the Company announced that it would purchase up to
$2.5 million of its outstanding common stock within the next year. As of
December 31, 1996 the Company had purchased 43,566 shares at a cost of $1.2
million. An additional 47,038 shares were purchased in the first quarter of 1997
at a cost of $1.3 million completing the announced purchase.
YEAR 2000
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches. The "Year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the Year 2000
compliance. During 1997, the Company developed a plan to deal with the Year 2000
problem and established a Year 2000 committee that consists of representatives
from the major functional areas of the Company. The committee has conducted a
comprehensive review of the Company's computer systems to identify the systems
that could be affected by the Year 2000 issue and has developed an
implementation plan to resolve potential problems. We have reviewed our core
mainframe systems and application subsystems and have obtained the Year 2000
compliant releases and are developing the installation and testing plan for each
of these applications. We have corresponded with our third party service
providers and other providers of software and hardware for certification of
their compliance with Year 2000 issues. It is anticipated that all reprogramming
efforts will be completed by December 31, 1998, allowing adequate time for
testing. Management has assessed the Year 2000 compliance expense and believe
that the related potential effect on the Company's business, financial condition
and results of operations should be immaterial. The Company is expensing all
costs associated with the Year 2000 as the costs are incurred.
FORWARD-LOOKING STATEMENTS
Statements contained in this Annual Report which are not historical in
nature are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include without limitation, those relating to the Company's future revenue,
earnings and profitability, growth, acquisition strategy, liquidity, loan loss
experience, competition, net interest income, capital resources and "Year 2000"
compliance. Such forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from
anticipated results. These risks and uncertainties include regulatory
constraints, changes in interest rates, competition from other financial
services companies, changes in the Company's operating or expansion strategy,
the general economy of the United States and the specific markets in which the
Company operates, ability to successfully integrate acquisitions, ability to
continue to attract and retain quality personnel and other factors as may be
identified from time to time in the Company's filings with the Securities and
Exchange Commission or in the Company's press releases.
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 maturites, 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
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32
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.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1997. 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 values 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.
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FAIR
PRINCIPAL AMOUNT MATURING/REPRICING IN: VALUE
RATE-SENSITIVE ASSETS: 1998 1999 2000 2001 2002 THEREAFTER TOTAL 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Fixed interest rate loans $1,264,278 $325,477 $419,607 $272,911 $383,793 $130,595 $2,796,661 $2,844,759
Average interest rate 9.26% 11.87% 9.38% 9.78% 9.25% 10.80% 9.70%
Variable interest rate loans $ 1,500 -- -- -- -- -- $ 1,500 $ 1,500
Average interest rate 8.54% -- -- -- -- -- 8.54%
Fixed interest rate securities $ 238,158 $246,502 $130,279 $117,360 $ 41,812 $149,837 $ 923,948 $ 931,956
Average interest rate 6.31% 6.65% 6.40% 6.78% 7.07% 6.85% 6.60%
Variable interest rate securities $ 11,364 -- $ 4,319 -- -- -- $ 15,683 $ 15,599
Average interest rate 4.85% -- 7.80% -- -- -- 5.66%
Other interest bearing assets $ 6,465 -- -- -- -- -- $ 6,465 $ 6,465
Average interest rate 5.20% -- -- -- -- -- 5.20%
Mortgage servicing rights (1) -- -- -- -- -- -- $ 14,071 $ 14,071
RATE-SENSITIVE LIABILITIES:
- ------------------------------------------------------------------------------------------------------------------------------------
Savings & interest bearing checking $ 843,891 $116,112 $116,094 $156,296 $156,299 -- $1,388,692 $1,528,065
Average interest rate 4.00% 2.98% 2.98% 2.94% 2.94% -- 3.59%
Fixed interest rate time deposits $1,178,098 $215,635 $200,379 $ 41,789 $ 44,951 $ 2,749 $1,683,601 $1,698,969
Average interest rate 5.41% 5.92% 6.22% 6.32% 6.53% 9.72% 5.63%
Fixed interest rate borrowings $ 3,252 $ 8,256 $ 13,285 $ 6,987 $ 6,532 $ 9,692 $ 48,004 $ 47,701
Average interest rate 5.99% 5.77% 6.00% 5.92% 5.88% 6.25% 5.98%
Variable interest rate borrowings $ 177,832 -- -- -- -- -- $ 177,832 $ 177,832
Average interest rate 7.49% -- -- -- -- -- 7.49%
RATE-SENSITIVE OFF BALANCE
SHEET ITEMS:
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments to extend
credit for single
family mortgage loans $ 28,033 -- -- -- -- -- $ 28,033 $ 27,971
Average interest rate 7.24% -- -- -- -- -- 7.24%
Forward contracts $ 21,000 -- -- -- -- -- $ 21,000 $ 20,958
Average interest rate 6.86% -- -- -- -- -- 6.86%
(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.
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34
Item 8. - Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
BANCORPSOUTH, INC. AND SUBSIDIARIES
DECEMBER 31
-----------------------------
1997 1996
----------- -----------
ASSETS (In thousands)
Cash and due from banks (Note 19) $ 286,307 $ 153,148
Interest bearing deposits with other banks 6,465 18,715
Held-to-maturity securities
(Note 4) (fair value
of $541,343 and $537,119) 533,419 530,066
Available-for-sale securities
(Note 5) (amortized cost
of $398,953 and $227,044) 406,212 230,739
Federal funds sold -- 70,300
Loans (Notes 6, 7, 13 and 16) 2,852,885 2,554,118
Less: Unearned discount 93,858 84,784
Allowance for credit losses 39,877 37,272
----------- -----------
Net loans 2,719,150 2,432,062
Mortgages held for sale 39,134 25,728
Premises and equipment, net (Note 8) 101,373 90,939
Accrued interest receivable 36,435 31,855
Other assets (Notes 11 and 17) 51,648 33,687
----------- -----------
TOTAL ASSETS $ 4,180,143 $ 3,617,239
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand:
Non-interest bearing $ 467,962 $ 450,470
Interest bearing 840,009 724,872
Savings 548,683 408,380
Other time (Note 9) 1,683,601 1,577,657
----------- -----------
Total deposits 3,540,255 3,161,379
Federal funds purchased and
securities sold under
repurchase agreements (Note 9) 177,450 33,636
Accrued interest payable 16,082 14,488
Other liabilities (Notes 11 and 12) 38,395 36,634
Long-term debt (Note 10) 47,539 55,778
----------- -----------
TOTAL LIABILITIES 3,819,721 3,301,915
----------- -----------
SHAREHOLDERS' EQUITY (NOTES 2, 14, AND 15)
Common stock, $2.50 par value
Authorized - 500,000,000 shares;
Issued - 22,396,021 and
21,164,265 shares at December 31,
1997 and 1996, respectively 55,990 52,911
Capital surplus 95,699 84,616
Unrealized gain on available-for-sale
securities, net of tax 4,482 2,280
Retained earnings 206,570 177,741
Treasury stock at cost (125,350 and 150,784 shares
at December 31, 1997 and 1996, respectively) (2,319) (2,224)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 360,422 315,324
----------- -----------
Commitments and contingent liabilities (Notes 6 and 19) -- --
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,180,143 $ 3,617,239
=========== ===========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME
BANCORPSOUTH, INC. AND SUBSIDIARIES
Years Ended December 31
---------------------------------------
1997 1996 1995
--------- --------- ---------
INTEREST REVENUE (In thousands, except per share amounts)
Loans receivable $ 244,880 $ 227,169 $ 203,800
Deposits with other banks 422 646 857
Federal funds sold 4,410 3,289 2,205
Held-to-maturity securities:
U.S. Treasury 7,159 4,268 3,977
U.S. Government agencies and corporations 20,207 19,555 24,175
Obligations of states and political subdivisions 8,470 6,954 7,491
Other -- 2 168
Available-for-sale securities 19,478 14,119 8,321
Mortgages held for sale 2,068 1,917 1,433
--------- --------- ---------
Total interest revenue 307,094 277,919 252,427
--------- --------- ---------
INTEREST EXPENSE
Deposits 139,290 118,746 107,165
Federal funds purchased and securities sold
under repurchase agreements 1,594 1,954 2,084
Other 3,171 5,805 5,208
--------- --------- ---------
Total interest expense 144,055 126,505 114,457
--------- --------- ---------
Net interest revenue 163,039 151,414 137,970
Provision for credit losses (Note 7) 9,008 8,804 6,206
--------- --------- ---------
Net interest revenue, after provision for credit losses 154,031 142,610 131,764
--------- --------- ---------
OTHER REVENUE
Mortgage lending 7,596 8,460 3,723
Service charges 19,050 17,828 15,965
Life insurance premiums 3,772 4,337 3,345
Trust income 2,744 2,606 2,237
Securities gains (losses), net 1,251 262 (765)
Other 9,254 7,252 6,735
--------- --------- ---------
Total other revenue 43,667 40,745 31,240
--------- --------- ---------
OTHER EXPENSE
Salaries and employee benefits (Notes 12 and 14) 65,761 57,806 54,739
Occupancy net of rental income 8,479 8,331 8,022
Equipment 12,099 9,752 8,860
Deposit insurance 488 2,601 3,412
Other 45,161 39,982 36,717
--------- --------- ---------
Total other expense 131,988 118,472 111,750
--------- --------- ---------
Income before income taxes 65,710 64,883 51,254
Income tax expense (Note 11) 20,360 22,000 15,750
--------- --------- ---------
NET INCOME $ 45,350 $ 42,883 $ 35,504
========= ========= =========
NET INCOME PER SHARE (NOTE 15): BASIC $ 2.04 $ 2.04 $ 1.70
========= ========= =========
DILUTED $ 2.03 $ 2.03 $ 1.69
========= ========= =========
See accompanying notes to consolidated financial statements.
35
36
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
COMMON STOCK UNREALIZED
----------------------- CAPITAL GAINS RETAINED TREASURY
SHARES AMOUNT SURPLUS (LOSSES), NET EARNINGS STOCK TOTAL
------------ --------- ---------- ------------ --------- --------- ---------
(Dollars in thousands,except per share amounts)
BALANCE, DECEMBER 31, 1994 10,163,104 $25,819 $79,008 $(1,702) $152,655 $ (2,928) $252,852
Shares issued:
Employee stock bonus plan (Note 14) 15,000 37 476 -- (513) -- --
Purchase business acquisitions 259,285 370 4,530 -- -- 1,894 6,794
Other shares issued 61,883 154 404 -- -- -- 558
Recognition of stock compensation -- -- -- -- 436 -- 436
Fractional shares redeemed in poolings (797) (1) (21) -- -- -- (22)
Purchase of stock warrants -- -- (6) -- -- -- (6)
Change in market valuation of
available-for-sale securities,
net of tax -- -- -- 4,182 -- -- 4,182
Net income -- -- -- -- 35,504 -- 35,504
Stock split effected in the form
of a stock dividend (Note 2) 10,498,805 26,385 -- -- (26,385) -- --
Cash dividends declared:
BancorpSouth, $.62 per share -- -- -- -- (11,278) -- (11,278)
Pooled acquisitions -- -- -- -- (925) -- (925)
----------- ------- ------- ------- -------- -------- --------
BALANCE, DECEMBER 31, 1995 20,997,280 52,764 84,391 2,480 149,494 (1,034) 288,095
Shares issued 62,151 147 225 -- -- 52 424
Recognition of stock compensation -- -- -- -- 83 -- 83
Purchase of treasury stock (45,950) -- -- -- -- (1,242) (1,242)
Change in market valuation of
available-for-sale securities,
net of tax -- -- -- (200) -- -- (200)
Net income -- -- -- -- 42,883 -- 42,883
Cash dividends declared,
$.70 per share -- -- -- -- (14,719) -- (14,719)
----------- ------- ------- ------- -------- -------- --------
BALANCE, DECEMBER 31, 1996 21,013,481 $52,911 $84,616 $ 2,280 $177,741 $ $2,224) $315,324
Shares issued:
Business combination (Note 3) 1,231,710 3,079 11,570 -- 962 -- 15,611
Other shares issued 76,687 -- (487) -- -- 1,352 865
Recognition of stock compensation -- -- -- -- 83 -- 83
Purchase of treasury stock (51,207) -- -- -- -- (1,447) (1,447)
Change in market valuation of
available-for-sale securities,
net of tax -- -- -- 2,202 -- -- 2,202
Net income -- -- -- -- 45,350 -- 45,350
Cash dividends declared,
$.79 per share -- -- -- -- (17,566) -- (17,566)
----------- ------- ------- ------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 22,270,671 $55,990 $95,699 $ 4,482 $206,570 $ (2,319) $360,422
=========== ======= ======= ======= ======== ======== ========
See accompanying notes to consolidated financial statements.
36
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31
----------------------------------------
1997 1996 1995
----------- ----------- ---------
(In thousands)
OPERATING ACTIVITIES:
Net income $ 45,350 $ 42,883 $ 35,504
Adjustment to reconcile net income to net
cash provided by operating
activities:
Provision for credit losses 9,008 8,804 6,206
Depreciation and amortization 11,134 9,630 8,448
Deferred taxes (979) 1,016 74
Amortization of intangibles 638 1,232 726
Amortization of debt securities premium
and discount, net 222 (47) (663)
Security losses (gains), net (1,251) (262) 765
Net deferred loan origination expense (3,318) (3,138) (2,624)
Increase in interest receivable (3,356) (2,863) (6,042)
Increase in interest payable 951 793 4,072
Proceeds from mortgages sold 329,042 258,255 150,572
Origination of mortgages for sale (342,448) (258,815) (163,415)
Other, net (1,084) (3,760) 4,457
--------- --------- ---------
Net cash provided by operating activities 43,909 53,728 38,080
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from calls and maturities of held-
to-maturity securities 243,161 105,464 145,071
Proceeds from calls and maturities of available-
for-sale securities 197,854 186,863 290,404
Proceeds from sales of held-to-maturity securities -- 755 931
Proceeds from sales of available-for-sale securities 17,444 26,855 11,708
Purchases of held-to-maturity securities (202,055) (196,696) (111,875)
Purchases of available-for-sale securities (377,714) (203,969) (261,322)
Net (increase) decrease in short-term investments 99,400 (34,850) (32,175)
Net increase in loans (262,531) (177,198) (269,328)
Purchases of premises and equipment (22,518) (20,877) (18,695)
Proceeds from sale of premises and equipment 2,874 791 480
Other, net (13,447) (4,775) (5,268)
--------- --------- ---------
Net cash used in investing activities (317,532) (317,637) (250,069)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits 277,090 297,766 264,943
Net increase (decrease) in short-term debt and other
liabilities 143,717 4,702 (28,478)
Advances on long-term debt -- 10,300 21,000
Repayment of long-term debt (8,239) (27,846) (14,792)
Issuance of common stock 383 217 506
Purchase of treasury stock (1,447) (1,242) --
Purchase of stock warrants -- -- (6)
Payment of cash dividends (16,972) (13,940) (10,062)
--------- --------- ---------
Net cash provided by financing activities 394,532 269,957 233,111
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 120,909 6,048 21,122
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 171,863 165,815 144,693
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 292,772 $ 171,863 $ 165,815
========= ========= =========
See accompanying notes to consolidated financial statements.
37
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANCORPSOUTH, INC. AND SUBSIDIARIES
DECEMBER 31, 1997, 1996 AND 1995
(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. Prior to June 20,
1997, Volunteer Bank (VOL) was a wholly-owned subsidiary of the Company. On that
date VOL was merged with and into Bank of Mississippi (BOM) and BOM's name was
changed to BancorpSouth Bank (BSB). All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain 1996 and 1995
amounts have been reclassified to conform with the 1997 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
$142,461,000, $125,712,000 and $110,385,000 and income taxes of $23,405,000,
$20,277,000 and $15,480,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Securities
Securities are classified as either held-to-maturity, trading or
available-for-sale.
Held-to-maturity securities are debt securities that the Company has
the ability and management has the positive intent to hold to maturity. They are
reported at amortized cost.
Trading securities are debt and equity securities that are bought and
held principally for the purpose of selling them in the near term. They are
reported at fair value, with unrealized gains and losses included in earnings.
The Company had no trading securities at December 31, 1997 and 1996.
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 to meet the present and potential risks of
losses on the Company's current portfolio of loans. Management's judgment is
based on a variety of factors which include the Company's experience related to
loan balances, charge-offs and recoveries, scrutiny of individual loans and risk
factors, results of regulatory agency reviews of loans, and present and future
economic conditions of the Company's market area. Material estimates that are
particularly susceptible to significant change in the near term are a necessary
part of this process. Future additions to the allowance may be necessary based
on changes in economic conditions. In addition, various regulatory agencies, as
an integral part
38
39
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.
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.
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 BSB's credit life insurance
subsidiaries, files a consolidated federal income tax return.
OTHER
Trust income is recorded on the cash basis as received, which does not
differ materially from the accrual basis.
(2) STOCK SPLIT
On November 20, 1995, the Company's two-for-one stock split effected in
the form of a 100% stock dividend resulted in the issuance of 10,495,805 new
shares of common stock. Information relating to earnings per share, dividends
per share and other share data has been retroactively adjusted to reflect this
stock split.
(3) ACQUISITIONS
On March 28, 1997, Iuka Guaranty Bank (IGB), a $117 million bank
headquartered in Iuka, Mississippi, was merged with and into BancorpSouth Bank.
Pursuant to the merger, each share of common stock of IGB was converted into
821.148667 shares of the Company's common stock. This transaction was accounted
for as a pooling of interests and IGB's results of operations are included in
the Company's financial statements for 1997. The financial statements for
periods prior to 1997 were not restated because the impact of the IGB
acquisition was not material.
39
40
(4) HELD-TO-MATURITY SECURITIES
A comparison of amortized cost and estimated fair values of
held-to-maturity securities as of December 31, 1997 and 1996 follows:
1997
------------------------------------------------
GROSS GROS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(In thousands)
U.S. Treasury $109,012 $ 1,533 $ 2 $110,543
U.S. Government agencies and corporations 259,527 2,263 306 261,484
Tax exempt obligations of states and
political subdivisions 163,570 5,297 872 167,995
Other 1,310 26 15 1,321
-------- -------- -------- --------
Total $533,419 $ 9,119 $ 1,195 $541,343
======== ======== ======== ========
1996
------------------------------------------------
GROSS GROS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(In thousands)
U.S. Treasury $ 91,340 $ 1,360 $ 3 $ 92,697
U.S. Government agencies and corporations 292,930 2,440 1,206 294,164
Tax exempt obligations of states and
political subdivisions 144,406 5,075 612 148,869
Other 1,390 1 2 1,389
-------- -------- -------- --------
Total $530,066 $ 8,876 $ 1,823 $537,119
======== ======== ======== ========
Gross gains of $640,000 and gross losses of $30,000 were recognized in
1997, gross gains of $267,000 and gross losses of $89,000 were recognized in
1996 and gross gains of $123,000 and gross losses of $389,000 were recognized in
1995 on held-to-maturity securities. Except for 1996, these gains and losses
were the result of held-to-maturity securities being called prior to maturity.
Included in the 1996 amounts is a gross gain of $1,000 and a gross loss of
$67,000 related to the sale of held-to-maturity securities with amortized cost
of $822,000. 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
$273,000,000 at December 31, 1997, 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, 1997 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.
1997
--------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
(In thousands)
Due in one year or less $123,365 $123,708
Due after one year through five years 354,372 359,127
Due after five years through ten years 44,880 46,035
Due after ten years 10,802 12,473
-------- --------
Total $533,419 $541,343
======== ========
40
41
(5) AVAILABLE-FOR-SALE SECURITIES
A comparison of amortized cost and estimated fair values of
available-for-sale securities as of December 31, 1997 and 1996 follows:
1997
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
(In thousands)
U.S. Treasury $103,948 $ 1,437 $ 12 $105,373
U.S. Government agencies and corporations 238,995 1,253 208 240,040
Tax exempt obligations of states and
political subdivisions 11,062 231 35 11,258
Preferred stock 21,000 -- -- 21,000
Other 23,948 4,664 71 28,541
-------- -------- -------- --------
Total $398,953 $ 7,585 $ 326 $406,212
======== ======== ======== ========
1996
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
(In thousands)
U.S. Treasury $ 43,702 $ 229 $ 67 $ 43,864
U.S. Government agencies and corporations 129,620 413 518 129,515
Tax exempt obligations of states and
political subdivisions 12,375 295 103 12,567
Preferred stock 22,000 -- -- 22,000
Other 19,347 3,459 13 22,793
-------- -------- -------- --------
Total $227,044 $ 4,396 $ 701 $230,739
======== ======== ======== ========
Gross gains of $661,000 and gross losses of $20,000 were recognized in
1997, gross gains of $277,000 and gross losses of $193,000 were recognized in
1996 and gross gains of $900,000 and gross losses of $1,399,000 were recognized
in 1995 on available-for-sale securities.
Available-for-sale securities with a carrying value of approximately
$165,000,000 at December 31, 1997, 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, 1997 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,
1997.
1997
-----------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------ -----------
(In thousands)
Due in one year or less $125,822 $126,155
Due after one year through five years 210,637 212,784
Due after five years through ten years 18,059 22,600
Due after ten years 44,435 44,673
-------- --------
Total $398,953 $406,212
======== ========
41
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(6) LOANS
A summary of loans classified by collateral type at December 31, 1997
and 1996 follows:
1997 1996
---------- ----------
(In thousands)
Commercial and agricultural $ 266,112 $ 238,246
Consumer and installment 823,356 744,456
Real estate mortgage 1,571,137 1,407,841
Lease financing 172,436 149,104
Other 19,844 14,471
---------- ----------
Total $2,852,885 $2,554,118
========== ==========
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 $4,008,000 and $3,940,000 at December 31, 1997 and
1996, respectively. Restructured loans totaled $659,000 and $77,000 at December
31, 1997 and 1996, respectively.
The total amount of interest earned on non-performing loans was
approximately $37,000, $13,000 and $70,000 in 1997, 1996 and 1995, respectively.
The gross interest income which would have been recorded under the original
terms of those loans amounted to $128,000, $167,000 and $105,000 in 1997, 1996
and 1995, 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, 1997 and 1996 was $2,928,000 and
$3,306,000, respectively, with a valuation reserve of $927,000 and $995,000,
respectively. The average recorded investment in impaired loans during 1997 and
1996 was $2,523,000 and $2,603,000, respectively.
(7) ALLOWANCE FOR CREDIT LOSSES
The following schedule summarized the changes in the allowance for
credit losses for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
------- ------- -------
(In thousands)
Balance at beginning of year $37,272 $34,636 $30,830
Provision charged to expense 9,008 8,804 6,206
Recoveries 1,828 1,836 1,567
Loans charged off (8,827) (8,004) (4,714)
Acquisitions 596 - 747
------- ------- -------
Balance at end of year $39,877 $37,272 $34,636
======= ======= =======
(8) PREMISES AND EQUIPMENT
A summary by asset classification at December 31, 1997 and 1996
follows:
42
43
ESTIMATED
USEFUL LIFE
YEARS 1997 1996
---------- -------- --------
(In thousands)
Cost
Land $ 13,416 $ 12,273
Buildings and improvements 20-50 71,452 69,074
Leasehold improvements 10-20 1,686 1,720
Equipment, furniture and fixtures 3-12 68,035 55,939
Construction in progress 8,893 7,262
-------- --------
163,482 146,268
Accumulated depreciation and amortization 62,109 55,329
-------- --------
Premises and equipment, net $101,373 $ 90,939
======== ========
(9) TIME DEPOSITS AND SHORT-TERM DEBT
Certificates of deposit and other time deposits of $100,000 or more
amounting to approximately $455,960,000 and $399,123,000 were outstanding at
December 31, 1997 and 1996, respectively. Total interest expense relating to
certificate and other time deposits of $100,000 or more totaled approximately
$24,939,000, $19,728,000, and $17,386,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
For time deposits with a remaining maturity of more than one year at
December 31, 1997, the aggregate amount of maturities for each of the following
five years is presented in the following table:
MATURING IN AMOUNT
----------- --------
(In thousands)
1999 $229,092
2000 200,386
2001 41,791
2002 44,960
2003 398
Thereafter 2,349
--------
Total $518,976
========
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44
Presented below is information relating to short-term debt for the
years ended December 31, 1997 and 1996:
END OF PERIOD DAILY AVERAGE MAXIMUM
------------------- ----------------- OUTSTANDING
INTEREST INTEREST AT ANY
BALANCE RATE BALANCE RATE MONTH END
------------------- ------------------ ------------
(Dollars in thousands)
1997:
Federal funds purchased $152,450 6.9% $ 3,004 6.3% $152,450
Securities sold under repurchase agreements 25,000 5.3% 29,066 4.8% 32,554
-------- ------- --------
Total $177,450 $32,070 $185,004
======== ======= ========
1996:
Federal funds purchased $ 1,750 5.8% $ 4,226 5.0% $5,950
Securities sold under repurchase agreements 31,886 4.8% 36,654 4.8% 40,030
-------- ------- --------
Total $ 33,636 $40,880 $ 45,980
======== ======= ========
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, 1997, the Company's
subsidiary bank had established informal federal funds borrowing lines of credit
aggregating $584,000,000.
(10) LONG-TERM DEBT
SUBORDINATED CAPITAL DEBENTURES
On November 22, 1989, the Company issued $25,000,000 of 9% subordinated
capital debentures due November 1, 1999. On December 30, 1996, the Company
extinguished the $24,508,000 of outstanding 9% debentures by transferring the
funds to an irrevocable trust for the repayment of principal and interest on the
debentures. The $489,000 loss on early extinguishment of this debt is included
in other expense for 1996. Included in interest expense is $2,291,000 for 1996
and $2,206,000 for 1995 related to the debentures.
FEDERAL HOME LOAN BANK ADVANCES
BSB has entered into a blanket floating lien security agreement with
the Federal Home Loan Bank (FHLB) of Dallas. Under the terms of this agreement,
BSB is required to maintain sufficient collateral to secure borrowings in an
aggregate amount of the lesser of 75 percent of the book value (unpaid principal
balance) of the borrower's first mortgage collateral or 35 percent of the
borrower's assets.
BSB has also entered into a blanket floating lien security agreement
with the FHLB of Cincinnati. Under the terms of this agreement, BSB is required
to maintain unencumbered, quality first mortgage loans in an amount equal to 150
percent of outstanding advances as collateral for those advances.
At December 31, 1997, the following FHLB fixed term advances were
repayable in monthly installments as follows:
FINAL DUE DATE INTEREST RATE AMOUNT
-------------- ------------- ------
(In thousands)
1998 5.63% $ 5,000
2000 5.47% - 6.55% 15,000
2001 5.21% - 7.03% 5,149
2002 5.75% 5,000
Thereafter 5.65% - 8.95% 17,390
-------
Total $47,539
=======
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45
(11) INCOME TAXES
Total income taxes for the years ended December 31, 1997, 1996 and 1995
were allocated as follows:
1997 1996 1995
-------- -------- --------
(In thousands)
Income from continuing operations $ 20,360 $ 22,000 $ 15,750
Shareholders' equity for unrealized gain
on available-for-sale securities 1,362 49 2,395
Shareholders' equity for stock option plans (400) -- --
-------- -------- --------
Total $ 21,322 $ 22,049 $ 18,145
======== ======== ========
The components of income tax expense attributable to continuing
operations are as follows for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
-------- -------- --------
(In thousands)
Current:
Federal $ 17,992 $ 18,944 $ 14,118
State 3,347 2,040 1,558
Deferred:
Federal (825) 824 13
State (154) 192 61
-------- -------- --------
Total $ 20,360 $ 22,000 $ 15,750
======== ======== ========
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:
1997 1996 1995
-------- -------- --------
(In thousands)
Tax expense at statutory rate $ 22,999 $ 22,709 $ 17,939
Increase (reduction) in taxes resulting from:
State income taxes net of federal tax benefit 2,075 1,451 1,052
Tax exempt interest revenue (2,802) (2,556) (2,718)
Dividend received deduction (118) (183) (378)
Tax over book loss on security transactions (166) (132) (520)
Other, net (1,628) 711 375
-------- -------- --------
Total $ 20,360 $ 22,000 $ 15,750
======== ======== ========
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The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are as follows:
1997 1996
------- -------
(In thousands)
Deferred tax assets:
Loans receivable, principally due to allowance
for credit losses $16,578 $14,495
Deferred liabilities principally due to
compensation arrangements and vacation accruals 6,251 3,839
Net operating loss carryforwards 263 328
------- -------
Total gross deferred tax assets 23,092 18,662
Less: valuation allowance -- --
------- -------
Deferred tax assets $23,092 $18,662
======= =======
Deferred tax liabilities:
Bank premises and equipment, principally due
to differences in depreciation and lease transactions $10,613 $10,881
Deferred assets, principally due to the capitalization
of excess servicing rights for financial reporting purposes 1,244 1,294
Investments, principally due to interest income recognition 1,888 1,723
Capitalization of mortgage servicing rights 3,209 --
Unrealized gains on available-for-sale securities 2,777 1,415
Other, net 7 12
------- -------
Total gross deferred liabilities 19,738 15,325
------- -------
Net deferred tax assets $ 3,354 $ 3,337
======= =======
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, 1997.
At December 31, 1997 the Company has net operating loss carryforwards
for federal income tax purposes of approximately $751,000 that are available to
offset future federal taxable income, subject to various limitations, through
2001.
(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 twenty-one. 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.
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Pension expense for the years ended December 31, 1997, 1996 and 1995 included
the following components:
1997 1996 1995
-------- -------- -------
(In thousands)
Service cost $ 1,271 $ 1,127 $ 785
Interest cost 1,297 1,290 1,001
Actual return on plan assets (4,662) (3,532) (3,637)
Net amortization and deferral 2,856 1,983 2,510
Cost of special termination benefits -- -- 464
------- ------- -------
Pension expense $ 762 $ 868 $ 1,123
======= ======= =======
The funded status of the Company's plan at December 31, 1997 and 1996 was as
follows:
1997 1996
-------- --------
(In thousands)
Plan assets at fair value (primarily in listed bonds and commingled funds) $ 26,124 $ 20,982
Actuarial present value of projected benefit obligations 18,975 19,498
-------- --------
Plan assets in excess of projected benefit obligation 7,149 1,484
Unrecognized net gain (5,693) (1,213)
Unrecognized prior service cost (1,164) (1,252)
Unrecognized net asset at January 1 (7) (9)
-------- --------
Prepaid (accrued) pension expense recorded in the financial statements $ 285 ($ 990)
======== ========
Actuarial present value of vested benefit obligations $ 10,871 $ 11,267
======== ========
Accumulated benefit obligations $ 12,278 $ 12,478
======== ========
The discount rates used in determining the actuarial present value of
the projected benefit obligation were 6.5% and 7.5% at December 31, 1997 and
1996, respectively. The rates of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation were
4% and 5% at December 31, 1997 and 1996, respectively. The expected long-term
rate of return on assets during 1997 and 1996 was 7.5%.
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 ten years. The amount accrued under the plan was
$148,000 in 1997, $124,000 in 1996 and $111,000 in 1995.
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 five percent of defined compensation) are
matched dollar-for-dollar by the Company. Under the terms of the plan,
contributions matched by the Company are used to purchase Company common stock
at prevailing market prices. Plan expense for the years ended December 31, 1997,
1996 and 1995 was $1,689,000, $1,555,000 and $1,495,000, respectively.
The BancorpSouth, Inc. Restoration Plan (Restoration Plan) provides for
the payment of retirement benefits to certain participants in the BancorpSouth,
Inc. Retirement Plan (Basic Plan). The Restoration Plan covers any employee
whose benefit under the Basic Plan is limited by the provisions of the Internal
Revenue Code of 1986 and any employee who elects to participate in the
BancorpSouth, Inc. Deferred Compensation Plan, thereby reducing his benefit
under the Basic Plan. Restoration Plan expense was $78,000 in 1997, $62,000 in
1996 and $48,000 in 1995.
(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.
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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, 1997
and 1996:
1997 1996
-------------------------- --------------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(In thousands)
Commercial and agricultural $ 266,112 $ 256,550 $ 238,246 $ 235,086
Consumer and installment 823,356 824,054 744,456 760,947
Real estate mortgage 1,571,137 1,520,646 1,407,841 1,394,210
All other 19,844 17,336 14,471 14,233
---------- ---------- ---------- ----------
Total $2,680,449 $2,618,586 $2,405,014 $2,404,476
========== ========== ========== ==========
Average maturity represents the expected average cash flow period,
which in some instances is different than the stated maturity. Management has
made estimates of fair value discount rates that are believed to be reasonable.
However, because there is no market for many of these financial instruments,
management has no basis to determine whether the fair value presented above
would be indicative of the value negotiated in an actual sale. New loan rates
were used as the discount rate on new loans of the same type, credit quality and
maturity.
DEPOSIT LIABILITIES
Under SFAS 107, the fair value of deposits with no stated maturity,
such as non-interest bearing demand deposits, savings, and NOW accounts, and
money market and checking accounts, is equal to the amount payable on demand as
of December 31, 1997 and 1996. 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, 1997 and 1996:
1997 1996
-------------------------- --------------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(In thousands)
Certificates of deposit:
Maturing or repricing in six months or less $ 743,583 $ 746,796 $ 704,344 $ 707,601
Maturing or repricing between six months and one year 434,519 436,910 278,496 280,089
Maturing or repricing between one and three years 86,812 87,962 438,806 445,561
Maturing or repricing beyond three years 418,687 427,301 156,011 159,455
---------- ---------- ---------- ----------
Total $1,683,601 $1,698,969 $1,577,657 $1,592,706
========== ========== ========== ==========
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LONG-TERM DEBT
The fair value of the Company's 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, 1997 and 1996:
1997 1996
------------------- -------------------
BOOK FAIR BOOK FAIR
FINAL DUE DATE VALUE VALUE VALUE VALUE
- -------------- ------- ------- -------- --------
(In thousands)
1997 $ - $ - $ 5,000 $ 4,996
1998 5,000 4,985 5,000 4,968
2000 15,000 14,947 15,000 14,917
2001 5,149 5,112 6,554 6,486
Thereafter 22,390 22,191 24,224 23,490
------- ------- ------- -------
Total $47,539 $47,235 $55,778 $54,857
======= ======= ======= =======
(14) STOCK INCENTIVE AND STOCK OPTION PLANS
During 1987, the Company issued 34,500 shares of common stock to a key
employee. The shares vested over a 10-year period subject to the Company meeting
certain performance goals and the compensation associated with this award was
recognized over the vesting period that ended during 1997.
During 1994, the Company issued 50,000 shares of common stock to a key
employee; 25,000 shares were awarded upon issuance and 25,000 shares were
awarded on November 21, 1995. The stock bonus agreement provided for a cash
bonus to the employee in an amount equal to the state and federal income and
employment tax liabilities incurred by the employee as a result of this stock
bonus award. The Company recorded compensation expense of $905,000 in 1995 with
regard to this stock bonus.
In 1995, the Company issued 30,000 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
24,000 at December 31, 1997. The compensation associated with this award is
being recognized over the 10-year period.
Key employees and directors of the Company and its subsidiaries have
been granted stock options and stock appreciation rights (SARs) under the
Company's 1990, 1994 and 1995 stock incentive plans. All options and SARs
granted pursuant to these plans have been at market value on the date of the
grant and are exercisable over periods of one to ten years. The Company recorded
$6,113,000, $1,907,000 and $947,000 in compensation expense in 1997, 1996 and
1995, respectively, related to the SARs because of the increase in market value
of its common stock. In 1995, pursuant to certain acquisitions, incentive and
non-qualified stock options were granted to employees and directors of the
companies being acquired in exchange for stock options that were outstanding at
the time those mergers were consummated. The number of shares and option prices
of shares authorized under the various stock option plans have been adjusted for
the two-for-one stock split effected in the form of a dividend discussed in Note
2.
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50
A summary of the status of the Company's stock option plans as of
December 31, 1997, 1996 and 1995, and changes during the years ended on those
dates is presented below:
1997 1996 1995
--------------------------- ------------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------- ----------- ------------- -------- ------------- --------- -------------
Outstanding at beginning
of year 742,930 $18.24 677,219 $15.65 542,442 $13.28
Granted 136,300 41.05 150,991 26.14 178,000 20.83
Exercised (113,858) 13.78 (85,280) 11.68 (43,223) 7.17
-------- ------- -------
Outstanding at end of year 765,372 22.96 742,930 18.24 677,219 15.65
======== ======= =======
Exercisable at year-end 481,059 479,268 424,852
======== ======= =======
The following table summarizes information about stock options at
December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- --------------------------------
RANGE OF NUMBER WEIGHTED-AVG WEIGHTED-AVG NUMBER WEIGHTED-AVG
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ------------- ---------------- -------------- ------------ ---------------
$ 4.94 to $ 7.16 5,742 5.4 years $ 6.00 5,742 $ 6.00
$ 8.21 to $12.99 120,378 4.0 11.15 120,378 11.15
$14.88 to $18.75 233,292 6.1 17.29 209,292 17.31
$22.13 to $27.25 293,651 8.5 24.60 145,647 23.74
$44.00 112,309 10.0 44.00 - -
------- -------
$ 4.94 to $44.00 765,372 7.3 22.96 481,059 17.58
======= =======
As allowed by SFAS No. 123, "Accounting for Stock Based Compensation",
the Company elected to continue to measure compensation cost relative to its
stock based compensation plans using Accounting Principles Board Opinion No. 25.
The pro forma net income and pro forma net income per share is not materially
different from net income and net income per share as reported.
(15) EARNINGS PER SHARE AND DIVIDEND DATA
The Company adopted SFAS No. 128, "Earnings per Share", effective for
financial statements for periods ending after December 15, 1997. All prior
period EPS data has been restated to conform with the provisions of this
Statement.
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
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51
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, 1997, 1996 and 1995.
1997 1996 1995
----------------------------------- ------------------------------------ ----------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- --------- ----------- ------------- --------
(In thousands, except per share amounts)
BASIC EPS
Income available to
common shareholders $45,350 22,213 $2.04 $42,883 20,995 $2.04 $35,505 20,874 $1.70
===== ===== =====
Effect of dilutive
stock options - 181 - 134 - 141
------- ------ ------- ------ ------- ------
DILUTED EPS
Income available
to common
shareholders
plus assumed
exercise $45,350 22,394 $2.03 $42,883 21,129 $2.03 $35,505 21,015 $1.69
======= ====== ===== ======= ====== ===== ======= ====== =====
Dividends to shareholders are paid from dividends paid to the Company
by its subsidiary bank which is subject to approval by the applicable state
regulatory authority. At December 31, 1997, the Company's subsidiary bank could
have paid dividends to the Company of $110,000,000 under current regulatory
guidelines.
(16) 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:
AMOUNT
-------------
(In thousands)
Loans outstanding at December 31, 1996 $21,435
New loans 2,158
Repayments (4,622)
Changes in directors and executive officers (179)
-------
Loans outstanding at December 31, 1997 $18,792
=======
(17) 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 morgage 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
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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.
The following is a summary of capitalized mortgage servicing rights,
net of accumulated amortization, and a valuation allowance for impairment:
1997 1996
-------- -------
(In thousands)
Balance at beginning of year $ 9,276 $ 5,051
Mortgage servicing rights capitalized 7,222 5,721
Amortization expense (1,803) (1,496)
------- -------
Balance at end of year 14,695 9,276
Valuation allowance (624) (200)
------- -------
Fair value at end of year $14,071 $ 9,076
======= =======
(18) REGULATORY MATTERS
Deposit insurance expense for 1996 includes a special assessment of
$1.9 million that was imposed by the Federal Deposit Insurance Corporation
(FDIC) on the Company's deposits in the Savings Association Insurance Fund
(SAIF). This non-recurring assessment was imposed by the Federal Deposit
Insurance Act of 1996 and was designed to recapitalize the SAIF. Approximately
90% of the Company's deposits are in the Bank Insurance Fund (BIF) and
approximately 10% of the Company's deposits which were acquired from thrifts
over the years, remain in the SAIF.
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 Federal Reserve Board (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
1) of a least 4% of risk-weighted assets, total capital of at least 8% of
risk-weighted assets and a minimum Tier 1 leverage ratio of 3% of adjusted
average assets. The regulations also define well capitalized levels of Tier 1,
total capital and Tier 1 leverage as 6%, 10% and 5%, respectively. The Company
had Tier 1, total capital and leverage above the well capitalized levels at
December 31, 1997 and 1996, respectively, as set forth in the following table:
1997 1996
---------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO
------------ --------- --------- --------
(Dollars in thousands)
Total Capital (to Risk-Weighted Assets) $388,165 13.74% $337,728 13.39%
Tier 1 Capital (to Risk-Weighted Assets) 352,792 12.49 306,135 12.14
Tier 1 Leverage Capital (to Average Assets) 352,792 8.82 306,135 8.56
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(19) COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
Rent expense was approximately $2,591,000 for 1997, $1,841,000 for 1996
and $1,658,000 for 1995. 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, 1997:
AMOUNT
-------------
(In thousands)
1998 $1,862
1999 1,632
2000 753
2001 428
2002 237
Thereafter 101
------
Total future minimum lease payments $5,013
======
MORTGAGE LOANS SERVICED FOR OTHERS
The Company services mortgage loans for others which are not included
in the accompanying financial statements. Included in the $1.2 billion of loans
serviced for investors is approximately $15 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, 1997, 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. Changes in the values of 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, 1997, the
contractual or notional amount of these forward contracts was approximately
$21,000,000. The Company's exposure under these commitments to sell mortgage
loans in the future is not material.
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, 1997, these included
approximately $30,609,000 for letters of credit, and approximately $574,693,000
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 and legal counsel, 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 $162,385,000 were maintained to satisfy Federal regulatory requirements
at December 31, 1997.
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(20) 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
----------------------
1997 1996
------- --------
(In thousands)
Assets
Cash on deposit with subsidiary banks $ 8,685 $ 8,209
Securities -- 1,210
Investment in subsidiaries 360,511 310,164
Other assets 5,717 3,717
-------- --------
Total assets $374,913 $323,300
======== ========
Liabilities and shareholders' equity
Total liabilities $ 14,491 $ 7,976
Shareholders' equity 360,422 315,324
-------- --------
Total liabilities and shareholders' equity $374,913 $323,300
======== ========
YEARS ENDED DECEMBER 31
---------------------------------
CONDENSED STATEMENTS OF INCOME 1997 1996 1995
------- --------- -------
(In thousands)
Dividends from subsidiaries $17,937 $41,582 $14,665
Management fees from subsidiaries 530 628 603
Other operating income 24 57 60
------- ------- -------
Total income 18,491 42,267 15,328
Operating expenses 5,591 4,280 3,243
------- ------- -------
Income before equity in undistributed earnings
of subsidiaries 12,900 37,987 12,085
Equity in undistributed earnings of subsidiaries 32,450 4,896 23,419
------- ------- -------
Net income $45,350 $42,883 $35,504
======= ======= =======
YEARS ENDED DECEMBER 31
---------------------------------
CONDENSED STATEMENTS OF CASHFLOWS 1997 1996 1995
-------- --------- -------
(In thousands)
Operating Activities:
Net income $ 45,350 $ 42,883 $35,504
Adjustments to reconcile net income
to net cash provided by operating activities (26,919) (919) (22,592)
------- -------- -------
Net cash provided by operating activities 18,431 41,964 12,912
Net cash used in financing activities (17,955) (39,473) (9,649)
-------- -------- -------
Increase in cash and cash equivalents 476 2,491 3,263
Cash and cash equivalents at beginning of year 8,209 5,718 2,455
-------- -------- -------
Cash and cash equivalents at end of year $ 8,685 $ 8,209 $ 5,718
======== ======== =======
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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, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BancorpSouth, Inc., and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
January 20, 1998
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SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(In thousands, except per share amounts)
QUARTER ENDED
----------------------------------------------
MAR 31 JUN 30 SEP 30 DEC 31
------- ------ ------- -------
1997
Interest revenue $73,092 $76,176 $77,825 $80,001
Net interest revenue 39,189 40,830 40,558 42,462
Provision for credit losses 1,481 2,168 2,476 2,883
Income before income taxes 17,299 18,219 16,726 13,466
Net income 11,636 12,251 11,601 9,862
Earnings per share (1): Basic 0.52 0.55 0.52 0.44
Diluted 0.52 0.55 0.52 0.44
Dividends per share 0.19 0.19 0.19 0.22
1996
Interest revenue $66,814 $68,108 $70,237 $72,760
Net interest revenue 36,256 37,183 38,371 39,604
Provision for credit losses 1,444 3,060 2,500 1,800
Income before income taxes 14,002 17,402 15,594 17,885
Net income 9,449 11,200 10,564 11,670
Earnings per share (1): Basic 0.45 0.53 0.50 0.56
Diluted 0.45 0.53 0.50 0.55
Dividends per share 0.17 0.17 0.17 0.19
1995
Interest revenue $58,668 $62,514 $64,921 $66,324
Net interest revenue 33,060 33,783 35,061 36,066
Provision for credit losses 1,298 1,240 2,057 1,611
Income before income taxes 11,624 12,933 13,740 12,957
Net income 7,905 8,869 9,544 9,186
Earnings per share (1): Basic 0.38 0.43 0.46 0.44
Diluted 0.38 0.42 0.45 0.43
Dividends per share 0.15 0.15 0.15 0.17
(1) Earnings per share have been restated for the effect of implementing, in the
quarter ended December 31, 1997, SFAS No. 128, "Earnings per Share".
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 caption "Election of Directors" in the Company's definitive
Proxy Statement for its 1998 annual meeting, 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 55
Directors and Chief
Executive Officer
of the Company and BancorpSouth
Bank; Director of
the Company
Charles J. McKee Executive Vice President of 66
the Company; Vice Chairman
and Director of BancorpSouth Bank
L. Nash Allen, Jr. Treasurer, and Chief 53
Financial Officer of
the Company; Executive
Vice President, Chief Financial
Officer and Cashier, BancorpSouth
Harry R. Baxter Vice Chairman and 53
Director of Marketing
of the Company and BancorpSouth Bank
Gary R. Harder Senior Vice President, Audit and 53
Loan Review of the Company and
BancorpSouth Bank
Michael W. Weeks Executive Vice President of the 49
Company and Vice Chairman of
BancorpSouth Bank
Michael L. Sappington Vice Chairman of 48
BancorpSouth Bank
Gregg Cowsert Executive Vice President of the 50
Company and Vice Chairman and
Chief Lending Officer of BancorpSouth
Bank
Cathy M. Robertson Executive Vice President of the 43
Company and BancorpSouth Bank
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58
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 served as President of the Bank from 1983 until April
1990 when he was named Chief Executive Officer of the Bank and the Company. He
has served as Chairman of the Board and Chief Executive Officer of the Bank and
the Company since April 1993.
Mr. McKee has served as Vice Chairman and as Executive Vice President
of the Bank during the last five years and as Executive Vice President of the
Company since April 1986. He has served as a director of BancorpSouth Bank since
1993. Mr. McKee retired from the Company as of December 31, 1997.
Mr. Allen has served as Senior Vice President and Executive Vice
President of the Bank during the past five years. He has served as Treasurer and
Chief Financial Officer of the Company during this same period.
Mr. Baxter joined the Bank in July 1986 as Senior Vice President and
Director of Marketing. He was named Executive Vice President and Director of
Marketing in August 1989 and named Vice Chairman in August 1996.
Mr. Harder served as First Vice President and Senior Vice
President--Loan Review, BancorpSouth Bank during the last five years. Since
October 1992 he has also served as First Vice President and then Senior Vice
President of the Company.
Mr. Weeks served as Vice-Chairman of the Board and Chief Executive
Officer of Volunteer Bank from January 24, 1995 to March 16, 1995 when he was
named Chairman of the Board and Chief Executive Officer of Volunteer Bank. He
continued in that role 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 since January 17, 1995. Prior
to his employment by the Company, Mr. Weeks served as a partner in the
accounting firm of KPMG Peat Marwick LLP.
Mr. Sappington has served as Executive Vice President and Vice Chairman
of the Bank during the last five years.
Mr. Cowsert joined the Bank in 1990 as Senior Vice President. He has
since served as Executive Vice President and was named Vice Chairman in August
1996. He also is Executive Vice President of the Company.
Ms. Robertson has served as First Vice President, Senior Vice President
and Executive Vice President of the Bank during 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 1998 annual meeting, 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 1998 annual meeting, 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 1998 annual meeting, and is
incorporated herein by reference.
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59
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 1998
annual meeting, 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. (1)
(b) Bylaws. (2)
(4) Specimen Common Stock Certificate. (3)
(10) (a) Stock Bonus Agreement between Bancorp of Mississippi,
Inc., and Aubrey B. Patterson, Jr., dated November 6, 1987 and
Escrow Agreement between Bank of Mississippi and Aubrey B.
Patterson, Jr., dated November 6, 1987. (4)(8)
(b) Form of deferred compensation agreement between Bancorp of
Mississippi, Inc. and certain key executives. (5)(8)
(c) 1994 Stock Incentive Plan. (3)(8)
(d) 1995 Non-Qualified Stock Option Plan for Non-Employee
Directors. (3)(8)
(e) Stock Bonus Agreement between BancorpSouth, Inc. and
Michael W. Weeks, dated January 17, 1995 and Escrow Agreement
between Bank of Mississippi and Michael W. Weeks dated January
17, 1995 (7)(8)
(f) Stock Bonus Agreement between BancorpSouth, Inc. and
Aubrey B. Patterson, Jr., dated January 20, 1998 and Escrow
Agreement between BancorpSouth Bank and Aubrey B. Patterson,
Jr., date March 20, 1998 (8)
(11) Statement re computation of per share earnings
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27.1) Financial Data Schedule 1997.
(27.2) Restated 1996 Financial Data Schedule.
(27.3) Restated 1995 Financial Data Schedule.
(28) Information regarding Bancorp of Mississippi, Inc., amended
and restated Salary Deferral-Profit Sharing Employee Stock
Ownership Plan. (6)(8)
(1) Filed as exhibits 3.1 and 3.2 to the Company's registration statement
on Form S-4 filed on January 6, 1995 (Registration No. 33-88274) and
incorporated by reference thereto.
(2) Filed as an exhibit to the Company's registration statement on Form 8-A
filed on May 13, 1997, and incorporated by reference thereto.
(3) Filed as an exhibit to the Company's 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 Form 10-K for the year ended
December 31, 1987 (file number 0-10826), and incorporated by reference
thereto.
(5) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1988 (file number 0-10826), and incorporated by reference
thereto.
(6) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1990 (file number 0-10826), and incorporated by reference
thereto.
(7) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1995 (file number 0-1-826), and incorporated by reference
thereto.
(8) Compensatory plans or arrangements.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
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61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BancorpSouth, Inc.
DATE: March 25, 1998 /s/ Aubrey B. Patterson
--------------------------------------------
Aubrey B. Patterson
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Aubrey B. Patterson Chairman of the Board, Chief Executive
- ------------------------------------- Officer (Principal Executive Officer)
Aubrey B. Patterson and Director March 25, 1998
/s/ L. Nash Allen, Jr. Treasurer and Chief Financial
- ------------------------------------- Officer (Principal Financial and
L. Nash Allen, Jr. Accounting Officer) March 25, 1998
/s/ S. H. Davis Director March 25, 1998
- -------------------------------------
S. H. Davis
/s/ Hassell H. Franklin Director March 25, 1998
- -------------------------------------
Hassell H. Franklin
/s/ Fletcher H. Goode Director March 25, 1998
- -------------------------------------
Fletcher H. Goode, M.D.
/s/ J. Louis Griffin, Jr. Director March 25, 1998
- -------------------------------------
J. Louis Griffin, Jr.
/s/ W. G. Holliman, Jr. Director March 25, 1998
- -------------------------------------
W. G. Holliman, Jr.
/s/ A. Douglas Jumper Director March 25, 1998
- -------------------------------------
A. Douglas Jumper
/s/ Turner O. Lashlee Director March 25, 1998
- -------------------------------------
Turner O. Lashlee
Director March 25, 1998
- -------------------------------------
Alan W. Perry
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62
/s/ Frank A. Riley Director March 25, 1998
- -------------------------------------
Frank A. Riley
/s/ Travis E. Staub Director March 25, 1998
- -------------------------------------
Travis E. Staub
/s/ Andrew R. Townes Director March 25, 1998
- -------------------------------------
Andrew R. Townes, DDS
/s/ Lowery A. Woodall Director March 25, 1998
- -------------------------------------
Lowery A. Woodall
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