UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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----------------------------------------
Commission file number 0-10826
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BancorpSouth, Inc.
(Exact name of registrant as specified in its charter)
Mississippi 64-0659571
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Mississippi Plaza, Tupelo,Mississippi 38804
(Address of principal executive offices) (Zip Code)
(662) 680-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal year, if
changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
On May 9, 2000, the registrant had outstanding 56,299,681 shares of common
stock, par value $2.50 per share.
<PAGE 2>
BANCORPSOUTH, INC.
CONTENTS
PART I. Financial Information Page
ITEM 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
March 31, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Income
Three months ended March 31, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows
Three months ended March 31, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K 18
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report may not be based on historical
facts and are "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1993, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements may be
identified by reference to a future period(s) or by the use of forward-
looking terminology, such as "anticipate," "believe," "estimate," "expect,"
"may," "might," "will," "intend" and "would." These forward-looking
statements include, without limitation, those relating to the Company's
liquidity, allowance for credit losses, lending policy, capital resources and
pending merger transactions. We caution you not to place undue reliance on
the forward-looking statements contained in this Report, in that actual
results could differ materially from those indicated in such forward-looking
statements due to a variety of factors. These factors include, but are not
limited to, changes in economic conditions, government fiscal and monetary
policies, and prevailing interest rates, effectiveness of the Company's
interest rate hedging strategies, changes in laws and regulations affecting
financial institutions (including regulatory fees and capital requirements),
ability of the Company to effectively service loans, ability of the Company
to identify and integrate acquisitions and investment opportunities, changes
in the Company's operating or expansion strategy, geographic concentrations
of assets, availability of and costs associated with obtaining adequate and
timely sources of liquidity, dependence on existing sources of funding,
changes in consumer preferences, competition from other financial services
companies, failure or delay in obtaining shareholder or regulatory approval
of the proposed merger, failure to consummate the proposed merger and other
risks detailed from time to time in the Company's press releases and filings
with the Securities and Exchange Commission. We undertake no obligation to
update these forward-looking statements to reflect events or circumstances
that occur after the date of this Report.
<PAGE 3>
PART I
FINANCIAL INFORMATION
BANCORPSOUTH, INC.
Consolidated Condensed Balance Sheets
(Unaudited)
March 31, December 31,
2000 1999
------------- --------------
(In thousands)
ASSETS
Cash and due from banks $174,865 $217,270
Interest bearing deposits with other banks 13,975 5,411
Held-to-maturity securities, at amortized cost 890,083 840,754
Available-for-sale securities, at fair market value 331,741 345,284
Trading securities 373 472
Federal funds sold 77,000 65,000
Loans 4,187,382 4,131,418
Less: Unearned discount 73,067 77,886
Allowance for credit losses 56,821 55,557
------------- --------------
Net loans 4,057,494 3,997,975
Mortgages held for sale 31,893 37,521
Premises and equipment, net 130,522 129,054
Other assets 136,750 138,185
------------- --------------
TOTAL ASSETS $5,844,696 $5,776,926
============= ==============
LIABILITIES
Deposits:
Demand: Non-interest bearing $641,108 $614,567
Interest bearing 1,194,198 1,075,252
Savings 720,889 799,917
Time 2,419,340 2,325,679
------------- --------------
Total deposits 4,975,535 4,815,415
Short-term borrowings 147,981 242,989
Long-term debt 137,903 138,560
Other liabilities 89,165 82,562
------------- --------------
TOTAL LIABILITIES 5,350,584 5,279,526
------------- --------------
SHAREHOLDERS' EQUITY
Common stock 143,261 143,261
Capital surplus 89,164 90,990
Accumulated other comprehensive income (1,851) (95)
Retained earnings 275,425 264,707
Less cost of shares held in treasury (11,887) (1,463)
------------- --------------
TOTAL SHAREHOLDERS' EQUITY 494,112 497,400
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,844,696 $5,776,926
============= ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
<PAGE 4>
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Income
(Unaudited)
Three months ended
March 31,
-------------------------------
2000 1999
------------- ------------
INTEREST REVENUE:
Interest & fees on loans $90,571 $79,316
Deposits with other banks 121 151
Interest on federal funds sold 657 1,720
Interest on held-to-maturity securities:
U. S. Treasury 860 1,602
U. S. Government agencies & corporations 9,558 5,360
Obligations of states & political subdivisions 2,692 2,640
Interest and dividends on available-for-sale securities 5,113 7,700
Interest on mortgages held for sale 985 925
------------- ------------
Total interest revenue 110,557 99,414
------------- ------------
INTEREST EXPENSE:
Interest on deposits 49,897 43,648
Interest on short-term borrowings 1,759 613
Other interest expense 3,174 2,848
------------- ------------
Total interest expense 54,830 47,109
------------- ------------
Net interest revenue 55,727 52,305
Provision for credit losses 3,313 3,063
------------- ------------
Net interest revenue, after provision for
credit losses 52,414 49,242
------------- ------------
OTHER REVENUE:
Mortgage lending 2,787 4,835
Trust income 995 881
Service charges 6,290 5,702
Security gains (losses), net 18 4,289
Life insurance income 4,519 4,313
Other 6,883 3,078
------------- ------------
Total other revenue 21,492 23,098
------------- ------------
OTHER EXPENSE:
Salaries and employee benefits 24,422 21,358
Net occupancy expense 3,269 2,862
Equipment expense 4,395 4,263
Telecommunications 1,225 1,399
Contribution to charitable foundation - 4,146
Other 13,248 14,872
------------- ------------
Total other expense 46,559 48,900
------------- ------------
Income before income taxes 27,347 23,440
Income tax expense 9,193 6,575
------------- ------------
Net income $18,154 $16,865
============= ============
Earnings per share: Basic $0.32 $0.30
============= ============
Diluted $0.32 $0.29
============= ============
Dividends declared per common share $0.13 $0.12
============= ============
<FN>
See accompanying notes to consolidated condensed financial statements.
<PAGE 5>
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
--------------------------------
2000 1999
------------- -------------
(In thousands)
Net cash provided by operating activities $34,915 $40,850
------------- -------------
Investing activities:
Proceeds from calls and maturities of
held-to-maturity securities 96,981 47,200
Proceeds from calls and maturities of
available-for-sale securities 12,265 146,642
Proceeds from sales of
available-for-sale securities - 11,226
Purchases of held-to-maturity securities (145,608) (136,070)
Purchases of available-for-sale securities (1,558) (75,082)
Net increase in short-term investments (12,000) (71,790)
Net increase in loans (147,396) (76,558)
Proceeds from sale of student loans 90,483 -
Purchases of premises and equipment (5,455) (4,705)
Proceeds from sale of premises and equipment 2,646 289
Other, net (2,202) (12,088)
------------- -------------
Net cash used by investing activities (111,844) (170,936)
------------- -------------
Financing activities:
Net increase in deposits 160,120 114,081
Net decrease in short-term
borrowings and other liabilities (16,672) (2,362)
Decrease in long-term debt (80,657) (14,708)
Acquisition of treasury stock (12,386) -
Payment of cash dividends (7,453) (6,165)
Exercise of stock options 136 30
------------- -------------
Net cash provided by financing activities 43,088 90,876
------------- -------------
Decrease in cash and cash equivalents (33,841) (39,210)
Cash and cash equivalents at beginning of
period 222,681 188,266
------------- -------------
Cash and cash equivalents at end of period $188,840 $149,056
============= =============
<FN>
See accompanying notes to consolidated condensed financial statements.
<PAGE 6>
BANCORPSOUTH, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION AND
PRINCIPALS OF CONSOLIDATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the accounting policies in effect as of
December 31, 1999, as set forth in the annual consolidated financial
statements of BancorpSouth, Inc. (the "Company"), as of such date. In the
opinion of management, all adjustments necessary for a fair presentation of
the consolidated condensed financial statements have been included and all
such adjustments were of a normal recurring nature. The results of
operations for the three-month period ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
The consolidated condensed financial statements include the accounts of the
Company and its wholly-owned subsidiary, BancorpSouth Bank (the "Bank"), and
the Bank's wholly-owned subsidiaries, Century Credit Life Insurance Company,
Personal Finance Corporation, Valley Finance, Inc., BancorpSouth Insurance
Services of Mississippi, Inc., BancorpSouth Insurance Services of Tennessee,
Inc., BancorpSouth Insurance Services of Alabama, Inc. and BancorpSouth
Investment Services, Inc.
NOTE 2 - LOANS
The composition of the loan portfolio by collateral type is detailed below:
March 31, December 31,
--------------------------------- -------------
2000 1999 1999
------------ ------------ -------------
(In thousands)
Commercial and agricultural $394,602 $403,092 $371,169
Consumer and installment 888,809 927,870 978,013
Real estate mortgage:
1-4 Family 1,075,619 926,109 1,043,447
Other 1,550,583 1,253,097 1,471,126
Lease financing 262,339 210,823 254,868
Other 15,430 23,566 12,795
------------ ------------ -------------
Total $4,187,382 $3,744,557 $4,131,418
============ ============ =============
<PAGE 7>
The following table presents information concerning non-performing loans:
March 31, December 31,
2000 1999
---------- ----------
(In thousands)
Non-accrual loans $5,755 $5,150
Loans 90 days or more past due 15,317 14,378
Restructured loans 78 91
---------- ----------
Total non-performing loans $21,150 $19,619
========== ==========
NOTE 3 - ALLOWANCE FOR CREDIT LOSSES
The following schedule summarizes the changes in the allowance for credit
losses for the periods indicated:
Three month periods Year ended
ended March 31, December 31,
--------------------------- -------------
2000 1999 1999
----------- ----------- -----------
(In thousands)
Balance at beginning of period $55,557 $51,083 $51,083
Provision charged to expense 3,313 3,063 14,689
Recoveries 545 492 2,135
Loans charged off (2,594) (2,444) (12,350)
----------- ----------- -----------
Balance at end of period $56,821 $52,194 $55,557
=========== =========== ===========
NOTE 4 - PER SHARE DATA
The computation of basic earnings per share is based on the weighted average
number of common shares outstanding. The computation of diluted earnings per
share is based on the weighted average number of common shares outstanding
plus the shares resulting from the assumed exercise of all outstanding stock
options using the treasury stock method.
<PAGE 8>
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations for the
periods as shown.
Three Months Ended March 31,
---------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ---------------- ------------ -------------- ---------------- ------------
(In thousands, except per share amounts)
>
Basic EPS
Income available to
common shareholders $18,154 56,854 $0.32 $16,865 57,082 $0.30
============ ===========
Effect of dilutive stock
options - 353 - 442
------------- ---------------- -------------- ----------------
Diluted EPS
Income available to
common shareholders
plus assumed exercise $18,154 57,207 $0.32 $16,865 57,524 $0.29
============= ================ ============ ============== ================ ============
NOTE 5 - COMPREHENSIVE INCOME
The following table presents the components of other comprehensive income and
the related tax effects allocated to each component for the periods
indicated.
Three months ended March 31,
------------------------------------------------------------------------
2000 1999
----------------------------------- -----------------------------------
Before Tax Net Before Tax Net
tax (expense) of tax tax (expense) of tax
amount benefit amount amount benefit amount
----------- ---------- ---------- ----------- ---------- ----------
( In thousands)
>
Unrealized gains on securities
Unrealized gains (losses) arising
during holding period ($2,837) $1,085 ($1,752) ($6,429) $2,459 ($3,970)
Less: Reclassification adjustment
for gains realized in net income (7) 3 (4) (4,265) 1,631 (2,634)
----------- ---------- ---------- ----------- ---------- ----------
Other Comprehensive Income (Loss) ($2,844) $1,088 (1,756) ($10,694) $4,090 ($6,604)
=========== ========== =========== ==========
Net income 18,154 16,865
Comprehensive Income $16,398 $10,261
========== ==========
<PAGE 9>
NOTE 6 - BUSINESS COMBINATIONS
On February 26, 1999, the Company completed its merger with The HomeBanc
Corporation. The Company issued approximately 2.1 million shares of common
stock in the merger that was accounted for as a pooling of interests. The
Company's financial statements for all periods presented include the
consolidated accounts of The HomeBanc Corporation.
On June 30, 1999, the Company completed its merger with the Stewart Sneed
Hewes Group. The Company issued approximately 1.3 million shares of common
stock in the merger that was accounted for as a pooling of interests. The
Company's financial statements for all periods presented include the
consolidated accounts of the Stewart Sneed Hewes Group.
NOTE 7 - RECENT PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
established accounting and reporting standards for derivative instruments and
hedging activities and requires recognition of all derivatives as either
assets or liabilities measured at fair value. This statement will be adopted
for the year 2001. The impact of adopting the provisions of this statement
on the Company's financial position, results of operations and cash flow
subsequent to the effective date is not currently estimable and will depend
on the financial position of the Company and the nature and purpose of the
derivative instruments in use by management at that time.
NOTE 8 - SEGMENT REPORTING
The Company's principal activity is community banking, which includes
providing a full range of deposit products, commercial loans and consumer
loans. General corporate and other includes leasing, mortgage lending, trust
services, credit card activities, insurance services, investment services and
other activities not allocated to community banking.
<PAGE 10>
Results of operations and selected financial information by operating segment
for the three month periods ended March 31, 2000 and 1999 are presented
below:
General
Community Corporate
Banking and Other Total
------------- -------------- --------------
(In thousands)
Three Months Ended March 31, 2000
Results of Operations
Net interest revenue $41,760 $13,967 $55,727
Provision for credit losses 2,939 374 3,313
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 38,821 13,593 52,414
Other revenue 9,543 11,949 21,492
Other expense 34,159 12,400 46,559
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 14,205 13,142 27,347
Income taxes 4,775 4,418 9,193
- -------------------------------------------------------------------------------------------------------------------------
Net income $9,430 $8,724 $18,154
Selected Financial Information
Identifiable assets $5,292,005 $552,691 $5,844,696
Depreciation & amortization 3,554 419 3,973
Three Months Ended March 31, 1999
Results of Operations
- -------------------------------------------------------------------------------------------------------------------------
Net interest revenue $38,970 $13,335 $52,305
Provision for credit losses 2,441 622 3,063
Net interest income after provision for credit losses 36,529 12,713 49,242
Other revenue 13,041 10,057 23,098
Other expense 38,596 10,304 48,900
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,974 12,466 23,440
Income taxes 3,078 3,497 6,575
- -------------------------------------------------------------------------------------------------------------------------
Net income $7,896 $8,969 $16,865
Selected Financial Information
Identifiable assets $4,907,374 $581,857 $5,489,231
Depreciation & amortization 3,606 365 3,971
<PAGE 11>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion provides certain information concerning the
consolidated financial condition and results of operations of the Company.
This discussion should be read in conjunction with the unaudited consolidated
condensed financial statements for the periods ended March 31, 2000 and 1999,
found elsewhere in this Report. Financial information for all prior periods
presented have been restated to include the results of operations and
financial condition of entities acquired by the Company during 1999 in
mergers accounted for as poolings of interests. See Note 6 to the Company's
consolidated condensed financial statements included elsewhere in the Report
for additional information about these mergers.
RESULTS OF OPERATIONS
- ---------------------
Net Income
- ----------
The Company's net income for the first quarter of 2000 was $18.15 million, an
increase of 7.64% from $16.87 million in the first quarter of 1999. Basic and
diluted earnings per common share for the first quarter of 2000 were $0.32,
compared to basic and diluted earnings per common share of $0.30 and $0.29,
respectively, for the same period of 1999. The annualized return on average
assets for the first quarter of 2000 and 1999 was 1.25%.
Net Interest Revenue
- --------------------
Net interest revenue, the difference between interest earned on assets and
the cost of interest-bearing liabilities, is the largest component of the
Company's net income. For purposes of this discussion, all interest revenue
has been adjusted to a fully taxable equivalent basis. The primary items of
concern in managing net interest revenue are the mix and maturity balance
between interest-sensitive assets and liabilities.
Net interest revenue was $56.86 million for the three months ended March 31,
2000, compared to $53.74 million for the same period in 1999, representing an
increase of 5.8%. Earning assets averaged $5.43 billion in the first quarter
of 2000, compared with $5.06 billion in the first quarter of 1999,
representing an increase of 7.5%. Average interest-bearing liabilities were
$4.64 billion in the first quarter of 2000 compared with $4.27 billion in the
first quarter of 1999, representing an increase of 8.8%. Net interest
revenue, expressed as a percentage of average earning assets, was 4.21% for
the first quarter of 2000 as compared to 4.31% for the same period of 1999.
Provision for Credit Losses
- ---------------------------
The provision for credit losses is the cost of providing an allowance or
reserve for estimated probable losses on loans. The amount for each
accounting period is dependent upon many factors, including loan growth, net
charge-offs, changes in the composition of the loan portfolio, delinquencies,
management's assessment of loan portfolio quality, the value of collateral
and general economic factors. The process of determining the adequacy of the
provision requires that management make material estimates and assumptions
that are particularly susceptible to significant change. Future additions to
the allowance for credit losses may be necessary based upon changes in
<PAGE 12>
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for credit losses. These agencies may require the Company to
recognize changes to the allowance based on their judgments about information
available to them at the time of their examination.
The provision for credit losses totaled $3.31 million for the first quarter
of 2000 compared to $3.06 million for the same period of 1999, representing
an increase of 8.2%. The increase in provision for the first quarter of 2000
as compared to the same period of 1999 reflects the continuing growth in the
Company's loan portfolio.
Other Revenue
- -------------
Other revenue for the quarter ended March 31, 2000 totaled $21.5 million,
compared to $23.1 million for the same period of 1999, a decrease of 6.95%.
Revenue from mortgage lending activities decreased 42.4% during the three
months ended March 31, 2000 when compared to the same period of 1999. Higher
mortgage interest rates during the first three months of 2000 resulted in
decreased mortgage loan originations when compared to the same period of
1999. Service charge revenue increased 10.3% for the first quarter of 2000
when compared to the first quarter of 1999.
The Company established a charitable foundation in the first quarter of 1999.
Appreciated equity securities were contributed by the Company to initially
fund the foundation. This transaction resulted in one-time securities gains
of approximately $4.14 million, which are reflected in the results for the
three months ended March 31, 1999.
Other revenue for the first quarter of 2000 includes a $2.6 million gain that
resulted from the Bank's sale of $85.7 million in student loans. The Bank
continues to originate student loans and intends to rebuild its portfolio of
student loans that may result in subsequent periodic sales.
Other Expense
- -------------
Other expense totaled $46.6 million for the first quarter of 2000, a 4.8%
decrease from $48.9 million for the same period of 1999. A significant
component of this decrease was the contribution by the Company of appreciated
equity securities with an aggregate market value of approximately $4.15
million in connection with the Company's establishment of a charitable
foundation during the first quarter of 1999, as discussed in "Other Revenue"
above.
A significant change in other expense relates to the Company's stock option
plans, expense for which is reported in the Company's financial statements as
a component of the line item "salaries and employee benefits." Certain of the
Company's stock option plans contain a provision for stock appreciation
rights (SARs) which require the recognition of expense for Company stock
price appreciation or a reduction of expense in the event of a decline in the
Company's stock price. As a result of an increase in the Company's stock
price, an increase in salaries and employee benefits expense of approximately
$53,600 was recorded in the first quarter of 2000. This compares to a
reduction in expense of $1.2 million during the first quarter of 1999.
<PAGE 13>
The Company also recorded merger-related expense of $1.2 million during the
first quarter of 1999 related to the merger with The HomeBanc Corporation.
The other components of other expense reflect normal increases and general
inflation in the cost of services and supplies purchased by the Company.
Income Tax
- ----------
Income tax expense was $9.19 million and $6.58 million for the first quarter
of 2000 and 1999, respectively. The increase for the first three months of
2000 when compared to the same period of 1999 is primarily due to the $1.6
million tax benefit recorded in the first quarter of 1999 related to the
establishment of a charitable foundation discussed in "Other Revenue" and
"Other Expense" above.
FINANCIAL CONDITION
- -------------------
Earning Assets
- --------------
The percentage of earning assets to total assets measures the effectiveness
of management's efforts to invest available funds into the most efficient and
profitable uses. Earning assets at March 31, 2000 were $5.46 billion, or
93.4% of total assets, compared with $5.35 billion, or 92.6% of total assets,
at December 31, 1999.
The securities portfolio is used to make various term investments, to provide
a source of liquidity and to serve as collateral to secure certain types of
deposits. Held-to-maturity securities at March 31, 2000 were $890.1 million,
compared with $840.8 million at the end of 1999, a 5.9% increase. Available-
for-sale securities were $331.7 million at March 31, 2000, compared to $345.3
million at December 31, 1999, a 3.9% decrease.
The loan portfolio of the Company's bank subsidiary makes up the largest
single component of the Company's earning assets. The Bank's lending
activities include both commercial and consumer loans. Loan originations are
derived from a number of sources, including direct solicitation by the Bank's
loan officers, real estate broker referrals, mortgage loan companies, current
savers and borrowers, builders, attorneys, walk-in customers and, in some
instances, other lenders. The Bank has established disciplined and
systematic procedures for approving and monitoring loans that vary depending
on the size and nature of the loan. Loans, net of unearned discount, totaled
$4.11 billion at March 31, 2000, which represents a 1.5% increase from the
December 31, 1999 total of $4.05 billion.
At March 31, 2000, the Company did not have any concentrations 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 that 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 its market area.
<PAGE 14>
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 potential problem loans because management
currently does not have serious doubt as to the borrowers' ability to comply
with the loan terms. Historically, some of these loans are ultimately
restructured or placed in non-accrual status.
The Company's policy provides that loans, other than installment loans, are
generally placed on 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. Non-performing loans were
0.51% of all loans outstanding at March 31, 2000 and 0.48% of all loans
outstanding at December 31, 1999.
Allowance for Credit Losses
- ---------------------------
The Company attempts to maintain the allowance for credit losses at a level
that, in the opinion of management, is adequate to meet the estimated
probable losses on its current portfolio of loans. Management's judgement is
based on a variety of factors that include examining probable losses in
specific credits and considering the current risks associated with lending
functions such as current economic conditions, business trends in the
Company's region and nationally, 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. 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. These
agencies may require the Company to record changes 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 allocation of 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
allowance or losses. The following table presents (a) the allocation of the
allowance for credit losses by loan category and (b) the percentage of each
category in the loan portfolio to total loans for the dates indicated.
March 31, December 31,
--------------------------------------------------------------- ------------------------------
2000 1999 1999
------------------------------ ------------------------------- ------------------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOANS TO FOR LOANS TO FOR LOANS TO
CREDIT LOSSES TOTAL LOANS CREDIT LOSSES TOTAL LOANS CREDIT LOSSES TOTAL LOANS
-------------- -------------- --------------- -------------- --------------- -------------
(Dollars in thousands)
>
Commercial and agricultural $5,114 9.42% $4,362 10.76% $3,932 8.98%
Consumer and installment 33,013 21.23% 20,426 24.78% 19,586 23.67%
Real estate mortgage 15,342 62.72% 24,223 58.20% 28,761 60.87%
Lease financing 3,296 6.26% 3,019 5.63% 3,196 6.17%
Other 56 0.37% 164 0.63% 82 0.31%
-------------- -------------- --------------- -------------- --------------- -------------
Total $56,821 100.00% $52,194 100.00% $55,557 100.00%
============== ============== =============== ============== =============== =============
<PAGE 15>
The following table provides an analysis of the allowance for credit losses
for the periods indicated.
Twelve months ended
Three months ended March 31, December 31,
---------------------------------- --------------------
2000 1999 1999
-------------- ----------------- --------------------
(Dollars in thousands)
Balance, beginning of period $55,557 $51,083 $51,083
Loans charged off:
Commercial and agricultural (24) (19) (520)
Consumer & installment (2,185) (2,240) (10,438)
Real estate mortgage (293) (185) (1,326)
Lease financing (92) - (66)
-------------- ----------------- --------------------
Total loans charged off (2,594) (2,444) (12,350)
-------------- ----------------- --------------------
Recoveries:
Commercial and agricultural 47 53 304
Consumer & installment 431 380 1,595
Real estate mortgage 64 49 177
Lease financing 3 10 59
-------------- ----------------- --------------------
Total recoveries 545 492 2,135
-------------- ----------------- --------------------
Net charge-offs (2,049) (1,952) (10,215)
Provision charged to operating expense 3,313 3,063 14,689
-------------- ----------------- --------------------
Balance, end of period $56,821 $52,194 $55,557
============== ================= ====================
Average loans for period $ 4,072,824 $ 3,628,458 $ 3,799,799
============== ================= ====================
RATIOS:
Net charge offs to average loans-annualized 0.20% 0.22% 0.27%
============== ================= ====================
Deposits and Other Interest-bearing Liabilities
- -----------------------------------------------
Deposits originating within the communities served by the Bank continue to be
the Company's primary source of funding its earning assets. Total deposits
at the end of the first quarter of 2000 were $4.98 billion as compared to
$4.82 billion at December 31, 1999, representing a 3.3% increase. Non-
interest bearing demand deposits increased by $26.5 million, or 4.3%, while
interest-bearing demand, savings and time deposits grew $133.6 million, or
3.2%, from December 31, 1999 to March 31, 2000.
LIQUIDITY
- ---------
Liquidity is the ability of the Company to fund the needs of its borrowers,
depositors and creditors. The Company's traditional sources of liquidity
include maturing loans and investment securities, purchased federal funds and
its base of core deposits. Management believes these sources are adequate to
meet the Company's liquidity needs for normal operations.
<PAGE 16>
The Company continues to pursue a lending policy stressing adjustable rate
loans, in furtherance of its strategy for matching interest sensitive assets
with an increasingly interest sensitive liability structure.
CAPITAL RESOURCES
- -----------------
The Company is required to comply with the risk-based capital requirements of
the Board of Governors of the Federal Reserve System. These requirements
apply a variety of weighting factors, which vary according to the level of
risk associated with the particular assets. At March 31, 2000, the Company's
Tier 1 capital and total capital, as a percentage of total risk-adjusted
assets, were 11.11% and 12.40%, respectively. Both ratios exceed the
required minimum levels for these ratios of 4.0% and 8.0%, respectively. In
addition, the Company's Tier 1 leverage capital ratio (Tier 1 capital divided
by total assets, less goodwill) was 8.22% at March 31, 2000, compared to the
required minimum Tier 1 leverage capital ratio of 3%.
The Company's current capital position continues to provide it with a level
of resources available for the acquisition of depository institutions and
businesses closely related to banking in the event opportunities arise.
RECENT DEVELOPMENTS
- -------------------
On April 10, 2000, the Company entered into a merger agreement with First
United Bancshares, Inc. ("First United"), whereby First United would merge
into the Company and First United's subsidiary banks would merge into the
Bank. The merger agreement provides that, upon completion of the proposed
merger, shareholders of First United would be issued 1.125 shares of the
Company's common stock in exchange for each share of First United common
stock. The merger is subject to, among other things, approval by applicable
banking regulatory authorities and by the shareholders of the Company and
First United. Management anticipates that the transaction will be completed
during the third quarter of 2000, and that it will be accounted for as a
pooling of interests. In connection with execution of the merger agreement,
the Company and First United each granted to the other an option to purchase
up to 19.9% of its outstanding shares of common stock in certain
circumstances.
First United is a bank holding company headquartered in El Dorado, Arkansas,
whose common stock is quoted on the Nasdaq Stock Market under the symbol
"UNTD." First United reports that, as of December 31, 1999, it had
approximately $2.7 billion in assets and $2.25 billion in deposits, and that
it owned 11 subsidiary banks and one trust company with banking locations in
39 communities in Arkansas, Louisiana and Texas.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended March 31, 2000, there were no material changes
to the quantitative and qualitative disclosures about market risks presented
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
<PAGE 17>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
(10.1) Amendment to Stock Bonus Agreement, dated as of January 30, 2000,
between the Company and Aubrey B. Patterson
(27.1) Financial Data Schedule for the period ended March 31, 2000.
(b) Reports on Form 8-K
A report on Form 8-K was filed January 28, 2000 reporting under Item 5,
"Other Events" and Item 7, "Financial Statements and Exhibits".
<PAGE 18>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BancorpSouth, Inc.
--------------------------------
(Registrant)
DATE: May 12, 2000 /S/ L. Nash Allen, Jr.
--------------------------------
L. Nash Allen, Jr.
Treasurer and
Chief Financial Officer