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 September 30, 2000
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 November 9, 2000, the Registrant had outstanding 84,153,060 shares of
common stock, par value $2.50 per share.
BANCORPSOUTH, INC.
CONTENTS
PART I. Financial Information
Page
ITEM 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
September 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Income
Three and Nine Months Ended
September 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 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 19
PART II. Other Information
ITEM 2. Changes in Securities and Use of Proceeds 20
ITEM 4. Matters Submitted to a Vote of Security Holders 20
ITEM 6. Exhibits and Reports on Form 8-K 20
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 and capital
resources. 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 and prevailing interest rates, government fiscal and
monetary policies, prevailing interest rates, effectiveness of the Company's
interest rate hedging strategies, changes in laws and regulations affecting
financial institutions, 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, 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.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
BANCORPSOUTH, INC.
Consolidated Condensed Balance Sheets
(Unaudited)
September 30, December 31,
2000 1999
------------ --------------
(In thousands)
ASSETS
Cash and due from banks $260,218 $329,553
Interest bearing deposits with other banks 13,089 12,058
Held-to-maturity securities, at amortized cost 1,169,635 1,031,062
Available-for-sale securities, at fair market value 1,505,148 1,080,063
Federal funds sold 75,000 110,875
Loans 5,990,074 5,626,043
Less: Unearned discount 67,510 84,082
Allowance for credit losses 78,100 74,232
------------ --------------
Net loans 5,844,464 5,467,729
Mortgages held for sale 34,105 37,513
Premises and equipment, net 186,577 171,867
Other assets 213,366 200,977
------------ --------------
TOTAL ASSETS $9,301,602 $8,441,697
============ ==============
LIABILITIES
Deposits:
Demand: Non-interest bearing $1,007,326 $966,491
Interest bearing 1,671,883 1,589,155
Savings 883,474 937,508
Time 3,825,389 3,573,491
------------ --------------
Total deposits 7,388,072 7,066,645
Short-term borrowings 868,035 346,427
Long-term debt 165,803 166,247
Other liabilities 112,865 105,267
------------ --------------
TOTAL LIABILITIES 8,534,775 7,684,586
------------ --------------
SHAREHOLDERS' EQUITY
Common stock 214,484 214,405
Capital surplus 70,464 71,777
Accumulated other comprehensive income (7,055) (14,149)
Retained earnings 515,086 486,540
Less cost of shares held in treasury (26,152) (1,462)
------------ --------------
TOTAL SHAREHOLDERS' EQUITY 766,827 757,111
------------ --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,301,602 $8,441,697
============ ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Income
(Unaudited)
Three months ended Nine months ended
September 30 September 30
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(In thousands except for per share amounts)
INTEREST REVENUE:
Loans receivable $134,283 $115,514 $385,828 $335,801
Deposits with other banks 260 246 970 957
Federal funds sold 691 859 3,308 4,970
Held-to-maturity securities:
U. S. Treasury 574 1,152 2,191 4,351
U. S. Government agencies & corporations 11,152 8,953 31,996 23,929
Obligations of states & political subdivisions 4,109 3,656 12,159 11,371
Other 64 61 269 162
Available-for-sale securities 21,564 18,360 56,448 54,471
Mortgages held for sale 628 884 2,471 2,667
----------- ----------- ----------- -----------
Total interest revenue 173,325 149,685 495,640 438,679
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 81,031 63,245 225,656 188,715
Short-term borrowings 4,531 2,484 11,415 5,625
Other 7,195 4,451 14,216 10,906
----------- ----------- ----------- -----------
Total interest expense 92,757 70,180 251,287 205,246
----------- ----------- ----------- -----------
Net interest revenue 80,568 79,505 244,353 233,433
Provision for credit losses 10,656 4,798 20,669 12,643
----------- ----------- ----------- -----------
Net interest revenue, after provision for
credit losses 69,912 74,707 223,684 220,790
----------- ----------- ----------- -----------
OTHER REVENUE:
Mortgage lending 2,493 3,727 8,973 14,823
Trust income 1,794 1,602 5,075 4,607
Service charges 10,213 9,295 29,545 26,497
Life insurance income 1,107 1,016 3,184 2,960
Security gains (losses), net (254) 118 (83) 4,332
Insurance service fees 3,717 3,293 11,189 10,293
Other 4,496 4,367 17,643 12,710
----------- ----------- ----------- -----------
Total other revenue 23,566 23,418 75,526 76,222
----------- ----------- ----------- -----------
OTHER EXPENSE:
Salaries and employee benefits 34,069 30,234 100,010 91,682
Net occupancy expense 4,647 4,317 13,504 12,375
Equipment expense 6,124 5,469 17,177 16,137
Telecommunications 1,868 1,573 5,193 5,078
Contribution to charitable foundation 4,146
Restructuring and merger-related 7,101 (150) 8,327 1,102
Other 22,798 17,781 60,350 56,156
----------- ----------- ----------- -----------
Total other expense 76,607 59,224 204,561 186,676
----------- ----------- ----------- -----------
Income before income taxes 16,871 38,901 94,649 110,336
Income tax expense 7,379 12,729 32,528 34,344
----------- ----------- ----------- -----------
Net income $9,492 $26,172 $62,121 $75,992
=========== =========== =========== ===========
Earnings per share: Basic $0.11 $0.31 $0.73 $0.89
=========== =========== =========== ===========
Diluted $0.11 $0.30 $0.73 $0.88
=========== =========== =========== ===========
Dividends declared per common share $0.13 $0.12 $0.39 $0.36
=========== =========== =========== ===========
<FN>
See accompanying notes to consolidated condensed financial statements.
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30
2000 1999
------------ -----------
(In thousands)
Net cash provided by operating activities $97,366 $109,074
Investing activities:
Proceeds from calls and maturities of
held-to-maturity securities 200,682 204,072
Proceeds from calls and maturities of
available-for-sale securities 564,487 1,094,952
Proceeds from sales of
held-to-maturity securities - 9,040
Proceeds from sales of
available-for-sale securities 25,042 52,356
Purchases of held-to-maturity securities (290,928) (379,118)
Purchases of available-for-sale securities (1,129,426) (1,030,678)
Net increase in short-term investments 35,875 82,370
Net increase in loans (484,171) (488,491)
Proceeds from sale of student loans 90,483 -
Purchases of premises and equipment (31,222) (17,006)
Proceeds from sale of premises and equipment 3,124 1,193
Other, net 75,107 (27,575)
------------ -----------
Net cash used by investing activities (940,947) (498,885)
------------ -----------
Financing activities:
Net increase in deposits 321,427 238,539
Net (decrease) increase in short-term
borrowings and other liabilities 503,745 185,505
Advances on long-term debt 17,150 -
Repayment of long-term debt (17,595) (29,503)
Acquisition of treasury stock (28,310) (857.00)
Payment of cash dividends (22,042) (28,811)
Exercise of stock options 902 51
------------ -----------
Net cash provided by financing activities 775,277 364,924
------------ -----------
Decrease in cash and cash equivalents (68,304) (24,887)
Cash and cash equivalents at beginning of
period 341,611 293,601
------------ -----------
Cash and cash equivalents at end of period $273,307 $268,714
============ ===========
<FN>
See accompanying notes to consolidated condensed financial statements.
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 and nine month periods ended September 30, 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., Eagle Premium Assistance
Corporation, 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:
September 30, December 31,
------------------------ ------------
2000 1999 1999
------------ ----------- ------------
(In thousands)
Commercial and agricultural $767,791 $754,539 $712,799
Consumer and installment 1,090,682 1,181,800 1,197,277
Real estate mortgage:
1-4 Family 1,550,766 1,385,773 1,429,193
Other 2,262,232 1,928,305 2,014,979
Lease financing 281,453 225,659 258,811
Other 37,150 27,564 12,984
------------ ----------- ------------
Total $5,990,074 $5,503,640 $5,626,043
============ =========== ============
The following table presents information concerning non-performing loans:
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
Non-accrual loans $21,171 $13,352
Loans 90 days or more past due 18,318 17,311
Restructured loans 913 1,125
------------- ------------
Total non-performing loans $40,402 $31,788
============= ============
NOTE 3 - ALLOWANCE FOR CREDIT LOSSES
The following schedule summarizes the changes in the allowance for credit
losses for the periods indicated:
Nine month periods Year ended
ended September 30, December 31,
------------------- ------------
2000 1999 1999
-------- --------- ------------
(In thousands)
Balance at beginning of period $74,232 $68,385 $68,385
Provision charged to expense 20,669 12,643 17,812
Recoveries 3,485 2,638 3,637
Loans charged off (20,286) (10,820) (16,602)
Acquisitions - 1,000 1,000
-------- --------- ------------
Balance at end of period $78,100 $73,846 $74,232
======== ========= ============
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.
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 September 30,
--------------------------------------------------------------------------------
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 $9,492 84,077 $0.11 $26,172 85,590 $0.31
======== ========
Effect of dilutive stock
options - 321 - 433
-------------- ------------ ---------------- ------------
Diluted EPS
Income available to
common shareholders
plus assumed exercise $9,492 84,398 $0.11 $26,172 86,023 $0.30
============== ============ ======== ================ ============ ========
Nine Months Ended September 30,
--------------------------------------------------------------------------------
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 $62,121 84,651 $0.73 $75,992 85,568 $0.89
======== ========
Effect of dilutive stock
options - 344 - 448
-------------- ------------ ---------------- ------------
Diluted EPS
Income available to
common shareholders
plus assumed exercise $62,121 84,995 $0.73 $75,992 86,016 $0.88
============== ============ ======== ================ ============ ========
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 September 30,
-------------------------------------------------------------
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 $18,652 ($7,134) $11,518 ($7,056) $2,699 ($4,357)
Less: Reclassification adjustment
for gains realized in net income (137) 52 (85) (31) 12 (19)
---------- --------- --------- --------- --------- ----------
Other comprehensive income (loss) $18,515 ($7,082) 11,433 ($7,087) $2,711 ($4,376)
========== ========= ========= =========
Net income 9,492 26,172
---------- ----------
Comprehensive income $20,925 $21,796
========== ==========
Nine months ended September 30,
-------------------------------------------------------------
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 $11,469 ($4,387) $7,082 ($6,060) $2,318 ($3,742)
Less: Reclassification adjustment
for gains realized in net income 20 (8) 12 (4,176) 1,597 (2,579)
---------- --------- --------- --------- --------- ----------
Other comprehensive income (loss) $11,489 ($4,395) 7,094 ($10,236) $3,915 ($6,321)
========== ========= ========= =========
Net income 62,121 75,992
---------- ----------
Comprehensive income $69,215 $69,671
========== ==========
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.
On August 31, 2000, the Company completed its merger with First United
Bancshares, Inc. The Company issued approximately 28.5 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 First United Bancshares, Inc.
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.
Results of operations and selected financial information by operating
segment for the three month periods ended September 30, 2000 and 1999 are
presented below:
General
Community Corporate
Banking and Other Total
----------- ----------- -------------
(In thousands)
Three Months Ended September 30, 2000
Results of Operations
Net interest revenue $66,752 $13,816 $80,568
Provision for credit losses 9,996 660 10,656
- -------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 56,756 13,156 69,912
Other revenue 13,832 9,734 23,566
Other expense 64,258 12,349 76,607
- -------------------------------------------------------------------------------------------
Income before income taxes 6,330 10,541 16,871
Income taxes 2,769 4,610 7,379
- -------------------------------------------------------------------------------------------
Net income $3,561 $5,931 $9,492
Selected Financial Information
Identifiable assets $8,699,321 $602,281 $9,301,602
Depreciation & amortization 5,210 529 5,739
Three Months Ended September 30, 1999
Results of Operations
Net interest revenue $66,018 $13,487 $79,505
Provision for credit losses 3,552 1,246 4,798
- -------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 62,466 12,241 74,707
Other revenue 13,981 9,437 23,418
Other expense 48,421 10,803 59,224
- -------------------------------------------------------------------------------------------
Income before income taxes 28,026 10,875 38,901
Income taxes 9,171 3,558 12,729
- -------------------------------------------------------------------------------------------
Net income $18,855 $7,317 $26,172
Selected Financial Information
Identifiable assets $7,725,948 $619,915 $8,345,863
Depreciation & amortization 4,785 417 5,202
Results of operations and selected financial information by operating
segment for the nine month periods ended September 30, 2000 and 1999 are
presented below:
General
Community Corporate
Banking and Other Total
----------- ----------- -------------
(In thousands)
Nine Months Ended September 30, 2000
Results of Operations
Net interest revenue $203,477 $40,876 $244,353
Provision for credit losses 19,215 1,454 20,669
- -------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 184,262 39,422 223,684
Other revenue 42,778 32,748 75,526
Other expense 167,493 37,068 204,561
- -------------------------------------------------------------------------------------------
Income before income taxes 59,547 35,102 94,649
Income taxes 20,465 12,063 32,528
- -------------------------------------------------------------------------------------------
Net income $39,082 23,039 $62,121
Selected Financial Information
Identifiable Assets $8,699,321 $602,281 $9,301,602
Depreciation & amortization 14,722 1,391 16,113
Nine Months Ended September 30, 1999
Results of Operations
Net interest revenue $193,608 $39,825 $233,433
Provision for credit losses 10,185 2,458 12,643
- -------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 183,423 37,367 220,790
Other revenue 45,114 31,108 76,222
Other expense 153,342 33,334 186,676
- -------------------------------------------------------------------------------------------
Income before income taxes 75,195 35,141 110,336
Income taxes 23,406 10,938 34,344
- -------------------------------------------------------------------------------------------
Net income $51,789 24,203 $75,992
Selected Financial Information
Identifiable Assets $7,726,948 $618,915 $8,345,863
Depreciation & amortization 14,184 1,180 15,364
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 September
30, 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 and 2000 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 reported diluted year-to-date earnings per share (including
restructuring, merger-related and other charges) of $0.73 and $0.88 for the
nine months ended September 30, 2000 and 1999, respectively, on earnings of
$62.12 million and $75.99 million, respectively. On a quarterly basis,
diluted earnings per share (including restructuring, merger-related and
other charges) were $0.11 and $0.30, respectively, for the quarters ended
September 30, 2000 and 1999. The annualized returns on average assets for
the nine months ended September 30, 2000 and 1999 were 0.96% and 1.26%,
respectively.
For the three months ended September 30, 2000 and 1999, the annualized
returns on average assets were 0.43% and 1.27%, respectively.
Diluted operating earnings per share were $0.86 and $0.89 for the nine month
periods ended September 30, 2000 and 1999, respectively. Operating
earnings, which consists of net income excluding restructuring, merger-
related and other charges, totaled $73.75 million for the nine months ended
September 30, 2000, a decrease of 4.18% from operating earnings of $76.97
million for the same period of 1999. Diluted operating earnings per share
were $0.24 and $0.30 for the quarters ended September 30, 2000 and 1999,
respectively.
Operating earnings totaled $20.21 million for the third quarter of 2000, a
decrease of 22.33% from $26.02 million in the third quarter of 1999.
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 $83.64 million for the three months ended September
30, 2000, compared to $82.21 million for the same period in 1999,
representing an increase of 1.74%. For the first nine months of 2000 and
1999, net interest revenue was $253.37 million and $242.26 million,
respectively, representing an increase of 4.59%. Earning assets averaged
$8.35 billion in the third quarter of 2000, compared with $7.72 billion in
the third quarter of 1999, representing an increase of 8.21%. Earning assets
for the first nine months of 2000 averaged $8.09 billion, compared to $7.53
billion in 1999, representing an increase of 7.44%. Average interest-bearing
liabilities were $7.09 billion in the third quarter of 2000, compared with
$6.49 billion in the third quarter of 1999, representing an increase of
9.25%. Average interest-bearing liabilities were $6.84 billion for the first
nine months of 2000 compared to $6.30 billion for the same period in 1999,
representing an increase of 8.51%.
Net interest revenue, expressed as a percentage of average earning assets,
was 3.98% for the third quarter of 2000 as compared to 4.23% for the same
period of 1999 and 4.18% for the first nine months of 2000, compared to
4.30% for the same period in 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 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 $10.66 million for the third quarter
of 2000 compared to $4.80 million for the same period of 1999, representing
an increase of 122.09%. For the nine-month periods ended September 30, 2000
and 1999, the provision for credit losses totaled $20.67 million and $12.64
million, respectively, representing an increase of 63.48%. During 2000 the
provision for credit losses increased primarily to reflect a charge of $6.11
million made in the third quarter of 2000 to provide for probable losses in
the loan portfolio acquired in the merger of First United utilizing
methodologies employed by the Company and as a result of the increase in non-
performing assets at First United. Loans charged off, net of recoveries,
increased approximately $10.24 million during the first nine months of 2000,
when compared to the same period of 1999, as the credit policies of First
United were conformed to those of the Company.
Other Revenue
- -------------
Other revenue for the quarter ended September 30, 2000 totaled $23.57
million, compared to $23.42 million for the same period of 1999, an increase
of 0.63%. For the nine months ended September 30, 2000 and 1999, other
revenue was $75.53 million and $76.22 million, respectively, a decrease of
0.91%. Revenue from mortgage lending activities decreased 33.11%, from
$3.73 million to $2.49 million, during the three months ended September 30,
2000 when compared to the same period of 1999. The decrease was primarily
due to higher mortgage interest rates during 2000, which resulted in
decreased mortgage loan originations when compared to the same periods of
1999. Service charge revenue increased 9.88%, from $9.30 million to $10.21
million, for the third quarter of 2000 when compared to the third quarter of
1999 and increased 11.51%, from $26.50 million to $29.55 million for the
nine months ended September 30, 2000 when compared to the same period of
1999. Insurance service fees increased 12.87%, from $3.29 million to $3.72
million, for the third quarter of 2000 when compared to the third quarter of
1999 and increased 8.70%, from $10.29 million to $11.19 million for the nine
months ended September 30, 2000 when compared to the same period 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 nine months ended September 30, 1999.
Other revenue for the first nine months of 2000 includes a $2.6 million gain
that resulted from the Bank's sale of $85.7 million in student loans in the
first quarter of 2000. The Bank continues to originate student loans and
intends to rebuild its portfolio of student loans.
Other Expense
- -------------
Other expense totaled $76.61 million for the third quarter of 2000, a 29.35%
increase from $59.22 million for the same period of 1999. For the nine
months ended September 30, 2000, other expense totaled $204.56 million, a
9.58% increase from $186.68 million for the same period in 1999. In the
third quarter of 2000, the Company recorded restructuring, merger-related
and other charges of approximately $9.28 million. This amount consisted of
termination and change of control payments ($2.01 million), professional
fees ($2.62 million), contract termination fees ($1.91 million) and other
miscellaneous costs ($2.74 million). Restructuring, merger-related and
other charges for the nine months ended September 30, 2000, totaled $10.50
million and consisted of termination and change of control payments ($2.01
million), professional fees ($3.67 million), contract termination fees
($1.91 million) and other miscellaneous costs ($2.91 million). The Company
had merger-related expenses of $1.1 million during the nine months ended
September 30, 1999. At September 30, 2000, the balance in accrued
restructuring, merger-related and other charges was $3.83 million, which
consisted of termination and change of control payments ($1.78 million),
professional fees ($40 thousand), contract termination fees ($1.91 million)
and other miscellaneous costs ($103 thousand).
A significant component of other expense in the nine months ended September
30, 1999 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.
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 $7.38 million and $12.73 million for the third
quarter of 2000 and 1999, respectively, a decrease of 42.03%. For the nine
month period ended September 30, 2000, income tax expense was $32.53 million
compared to $34.34 million for the same period in 1999, representing a
decrease of 5.27%. The effective tax rates for the third quarter of 2000
and 1999 were 43.74% and 32.72%, respectively, and 34.37% and 31.13% for the
nine months ended September 30, 2000 and 1999, respectively. The increases
in the effective tax rates were primarily due to nondeductible merger-
related charges.
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 September 30, 2000 were $8.72
billion, or 93.74% of total assets, compared with $7.81 billion, or 92.56%
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 September 30, 2000 were
$1.17 billion, compared with $1.03 billion at the end of 1999, a 13.44%
increase. Available-for-sale securities were $1.51 billion at September 30,
2000, compared to $1.08 billion at December 31, 1999, a 39.36% increase.
The increase in the securities portfolio is part of the Company's plan to
restructure its securities portfolio following the merger with First United.
Approximately $600 million in securities were purchased in the third quarter
of 2000 and funded with short-term borrowings from the Federal Home Loan
Bank. In the fourth quarter of 2000, approximately $680 million in
securities acquired from First United have been sold with a realized loss of
approximately $15.6 million and the proceeds have been used to pay of the
Federal Home Loan Bank borrowings.
The Bank's loan portfolio 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 $5.92
billion at September 30, 2000, which represents a 6.87% increase from the
December 31, 1999 total of $5.54 billion.
At September 30, 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 the Company's market area.
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
0.68% of all loans outstanding at September 30, 2000 and 0.57% 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 total
loans for each category in the loan portfolio for the dates indicated.
September 30, December 31,
------------------------------------------------------- --------------------------
2000 1999 1999
-------------------------- ---------------------------- --------------------------
ALLOWANCE ALLOWANCE ALLOWANCE
FOR % OF FOR % OF FOR % OF
CREDIT LOSSES TOTAL LOANS CREDIT LOSSES TOTAL LOANS CREDIT LOSSES TOTAL LOANS
------------- ------------- ------------- ------------- ------------- ------------
(Dollars in thousands)
Commercial and agricultural $20,508 12.82% $11,095 13.71% $11,127 12.67%
Consumer and installment 37,296 18.21% 25,075 21.47% 22,231 21.28%
Real estate mortgage 19,283 63.66% 32,234 60.22% 32,897 61.22%
Lease financing 686 4.70% 3,050 4.10% 3,196 4.60%
Other 327 0.61% 2,392 0.50% 4,781 0.23%
------------- ------------- ------------- ------------- ------------- ------------
Total $78,100 100.00% $73,846 100.00% $74,232 100.00%
============= ============= ============= ============= ============= ============
The following table provides an analysis of the allowance for credit losses
for the periods indicated.
Twelve months ended
Nine months ended December 31,
September 30,
-------------------------
2000 1999 1999
----------- ------------ -----------------
(Dollars in thousands)
Balance, beginning of period $74,232 $68,385 $68,385
Loans charged off:
Commercial and agricultural (5,171) (1,350) (2,565)
Consumer & installment (11,676) (8,169) (12,007)
Real estate mortgage (3,263) (1,286) (1,936)
Lease financing (176) (15) (94)
----------- ------------ -----------------
Total loans charged off (20,286) (10,820) (16,602)
----------- ------------ -----------------
Recoveries:
Commercial and agricultural 888 616 833
Consumer & installment 1,948 1,681 2,411
Real estate mortgage 626 311 334
Lease financing 23 30 59
----------- ------------ -----------------
Total recoveries 3,485 2,638 3,637
----------- ------------ -----------------
Net charge-offs (16,801) (8,182) (12,965)
Provision charged to operating expense 20,669 12,643 17,812
Acquisitions - 1,000 1,000
----------- ------------ -----------------
Balance, end of period $78,100 $73,846 $74,232
=========== ============ =================
Average loans for period $5,707,257 $5,129,560 $ 5,211,539
=========== ============ =================
RATIOS:
Net charge offs to average loans-annualized 0.39% 0.21% 0.25%
=========== ============ =================
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 September 30, 2000 were $7.39 billion as compared to $7.07
billion at December 31, 1999, representing a 4.55% increase. Non-interest
bearing demand deposits increased by $40.84 million, or 4.23%, from $966.49
million to $1.01 billion, while interest-bearing demand, savings and time
deposits grew $280.59 million, or 4.60%, from $6.10 billion to $6.38
billion, from December 31, 1999 to September 30, 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.
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 September 30, 2000, the
Company's Tier 1 capital and total capital, as a percentage of total risk-
adjusted assets, were 11.85% and 13.10%, 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 8.35% at September 30, 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 October 31, 2000, the Company acquired Texarkana First Financial
Corporation ("FFC"), through a merger of FFC into the Company
and a merger of FFC's subsidiary savings and loan association into the Bank,
in exchange for an aggregate of $37.5 million in cash. FFC, which had
approximately $216.0 million in total assets at June 30, 2000, was
headquartered in Texarkana, Arkansas and was the parent company for First
Federal Saving and Loan Association of Texarkana. The merger is being
accounted for as a purchase.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended September 30, 2000, there were no material
changes to the quantitative and qualitative disclosures about market risks
presented in the Annual Reports on Form 10-K for the year ended December 31,
1999, of the Company and of First United Bancshares, Inc. ("First United").
First United merged into the Company on August 31, 2000. Management
believes that the merger did not result in a material qualitative change in
the Company's market risk exposures.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ---------------------------------------------------
On October 10, 2000, the Company issued 95,000 shares of its common
stock to the sole shareholder of Pittman Insurance and Bonding, Inc. (the
"Pittman Agency"), an insurance agency operating in Jackson, Mississippi, in
connection with the merger of the Pittman Agency into a subsidiary of the
Company. These shares were offered and sold in reliance upon an exemption
from registration contained in Section 4(2) of the Securities Act of 1933.
No underwriters were used to accomplish this transaction.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
A special meeting of shareholders of the Company was held on Thursday,
August 24, 2000. At this meeting, the Company's shareholders voted on and
approved the Agreement and Plan of Merger, dated as of April 16, 2000, and
amended as of May 15, 2000, between First United Bancshares, Inc. and the
Company, which provided for the merger of First United Bancshares, Inc. with
and into the Company. The results of the vote was a follows:
Votes Cast Votes Cast Abstentions/
in Favor Against or Withheld Non Votes
---------- ------------------- ------------
40,671,687 430,681 203,479
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
(3.1) Restated Articles of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-4
(Registration No. 33-88274) filed on January 5, 1995, and
incorporated herein by reference)
(3.2) Amendment to Restated Articles of Incorporation of the Company
(filed as Exhibit 3.2 to the Company's Registration Statement on Form
S-4 (Registration No. 33-88274) filed on January 5, 1995, and
incorporated herein by reference)
(3.3) Bylaws of the Company (filed as Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 (file
No. 0-10826) and incorporated herein by reference
(27.1) Financial Data Schedule for the period ended September 30, 2000.
(27.2) Restated Financial Data Schedule for the period ended September 30,
1999.
(b) Reports on Form 8-K
A report on Form 8-K was filed July 24, 2000 reporting under Item 5, "Other
Events" and Item 7, "Financial Statements and Exhibits."
A report on Form 8-K was filed August 31, 2000 reporting under Item 5,
"Other Events" and Item 7, "Financial Statements and Exhibits."
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: November 13, 2000 /S/ L. Nash Allen, Jr.
----------------------------------
L. Nash Allen, Jr.
Treasurer and
Chief Financial Officer