1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1999
------------------------
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.
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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 (IRS Employer
incorporation or organization) Identification No.)
One Mississippi Plaza, Tupelo, Mississippi 38801
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(Address of principal executive offices) (Zip Code)
601/680-2000
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(Registrant's telephone number, including area code)
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(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 March 31, 1999, the registrant had outstanding 55,958,150 shares of
common stock, par value $2.50 per share.
2
BANCORPSOUTH, INC.
CONTENTS
PART I. Financial Information Page
ITEM 1 Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
March 31, 1999 and December 31,1998..................... 3
Consolidated Condensed Statements of Income and
Comprehensive (Loss) Income
Three Months Ended March 31, 1999 and 1998.............. 4
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998.............. 5
Notes to Consolidated Condensed Financial Statements.... 6
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 10
ITEM 3 Quantitative and Qualitative Disclosures About
Market Risk............................................. 16
PART II. Other Information
ITEM 6 Exhibits and Reports on Form 8-K........................ 17
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," and "would." These forward-looking statements include,
without limitation, those relating to the Company's future growth,
revenue, profitability, liquidity, lending policy, capital resources and
Year 2000 compliance. 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, economic
conditions, government fiscal and monetary policies, prevailing interest
rates, effectiveness of the Company's interest rate hedging strategies,
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, Year 2000 compliance, other factors generally
understood to affect the financial results of financial service
companies and other risks detailed from time to time in the Company's
press releases and filings with the Securities and Exchange Commission.
3
PART I
FINANCIAL INFORMATION
BANCORPSOUTH, INC.
Consolidated Condensed Balance Sheets
(Unaudited)
(In Thousands)
March 31, December 31,
1999 1998
----------- ------------
ASSETS
Cash and due from banks $142,080 $175,354
Interest bearing deposits with other banks 9,783 6,632
Held-to-maturity securities, at amortized cost 736,408 647,846
Available-for-sale securities, at fair market value 494,523 549,767
Federal funds sold 195,000 115,040
Loans 3,744,557 3,561,406
Less: Unearned discount 86,418 92,705
Allowance for credit losses 52,264 49,618
----------- ------------
Net loans 3,605,875 3,419,083
Mortgages held for sale 50,000 63,354
Premises and equipment, net 127,296 120,446
Other assets 123,604 106,219
----------- ------------
TOTAL ASSETS $5,484,569 $5,203,741
=========== ============
LIABILITIES
Deposits:
Demand: Non-interest bearing $598,518 $614,529
Interest bearing 1,157,809 1,043,780
Savings 808,726 801,357
Time 2,141,765 1,982,257
----------- ------------
Total deposits 4,706,818 4,441,923
Federal funds purchased and securities
sold under repurchase agreements 67,413 64,554
Long-term debt 168,012 178,318
Other liabilities 65,506 62,589
----------- ------------
TOTAL LIABILITIES 5,007,749 4,747,384
----------- ------------
SHAREHOLDERS' EQUITY
Common stock 140,129 134,879
Capital surplus 104,361 104,620
Accumulated other comprehensive income 4,570 8,669
Retained earnings 228,825 209,544
Less cost of shares held in treasury (1,065) (1,355)
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 476,820 456,357
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,484,569 $5,203,741
=========== ============
<FN>
See accompanying notes to consolidated condensed financial statements.
4
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Income and Comprehensive (Loss) Income
(Unaudited)
Three months ended
March 31,
----------------------
(In thousands except for per share amounts) 1999 1998
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INTEREST REVENUE:
Interest & fees on loans $79,316 $72,929
Deposits with other banks 98 99
Interest on federal funds sold 1,720 568
Interest on held-to-maturity securities:
U. S. Treasury 1,601 1,721
U. S. Government agencies & corporations 5,360 6,818
Obligations of states & political subdivisions 2,640 2,277
Interest and dividends on available-for-sale securities 7,683 8,111
Interest on mortgages held for sale 925 666
---------- ----------
Total interest revenue 99,343 93,189
---------- ----------
INTEREST EXPENSE:
Interest on deposits 43,648 42,126
Interest on federal funds purchased & securities
sold under repurchase agreements 613 662
Other interest expense 2,693 2,533
---------- ----------
Total interest expense 46,954 45,321
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Net interest revenue 52,389 47,868
Provision for credit losses 3,063 3,123
---------- ----------
Net interest revenue, after provision for
credit losses 49,326 44,745
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OTHER REVENUE:
Mortgage lending 4,835 2,435
Trust income 881 861
Service charges 5,702 5,691
Security gains (losses), net 4,288 167
Life insurance income 971 818
Other 3,472 3,012
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Total other revenue 20,149 12,984
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OTHER EXPENSE:
Salaries and employee benefits 19,944 17,928
Net occupancy expense 2,803 2,534
Equipment expense 4,154 3,614
Telecommunications 1,345 1,103
Contributions 4,146 -
Other 14,542 10,762
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Total other expense 46,934 35,941
---------- ----------
Income before income taxes 22,541 21,788
Income tax expense 6,231 7,256
---------- ----------
Net income 16,310 14,532
Other comprehensive (loss) income (4,099) 1,433
---------- ----------
Comprehensive income $12,211 $15,965
========== ==========
Earnings per share: Basic $0.29 $0.27
========== ==========
Diluted $0.29 $0.27
========== ==========
Dividends declared per common share $0.12 $0.11
========== ==========
<FN>
See accompanying notes to consolidated condensed financial statements.
5
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In Thousands)
Three Months Ended
March 31,
--------------------------
1999 1998
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Net cash provided by operating activities $37,589 $7,552
---------- ----------
Investing activities:
Proceeds from calls and maturities of
held-to-maturity securities 50,890 97,845
Proceeds from calls and maturities of
available-for-sale securities 145,116 59,204
Proceeds from sales of
available-for-sale securities 11,205 26,600
Purchases of held-to-maturity securities (139,537) (334,674)
Purchases of available-for-sale securities (103,834) (112,313)
Net (increase) decrease in short-term investments (79,960) (51,096)
Net increase in loans (188,789) (143,007)
Purchases of premises and equipment (4,540) (4,596)
Other (3,986) 12,320
---------- ----------
Net cash used by investing activities (313,435) (449,717)
---------- ----------
Financing activities:
Net increase in deposits 264,895 299,803
Net decrease in short-term
borrowings and other liabilities 742 (140,110)
Increase (decrease) in long-term debt (13,781) 124,194
Payment of cash dividends (6,163) (6,177)
Exercise of stock options 30 5
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Net cash provided by financing activities 245,723 277,715
---------- ----------
Decrease in cash and cash equivalents (30,123) (164,450)
Cash and cash equivalents at beginning of
period 181,986 314,466
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Cash and cash equivalents at end of period $151,863 $150,016
========== ==========
<FN>
See accompanying notes to consolidated condensed financial statements
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, 1998, 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,
1999 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, 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,
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1999 1998 1998
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(in thousands)
Commercial and agricultural $403,092 $356,252 $365,716
Consumer and installment 927,870 879,535 905,413
Real estate mortgage:
1-4 Family 926,109 850,093 886,696
Other 1,253,097 1,025,974 1,167,447
Lease financing 210,823 180,644 210,559
Other 23,566 18,510 25,575
---------- ---------- ----------
Total $3,744,557 $3,311,008 $3,561,406
========== ========== ==========
7
The following table presents information concerning non-
performing loans:
March 31, December 31,
1999 1998
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(In thousands)
Non-accrual loans $8,312 $6,152
Loans 90 days or more past due 8,838 9,654
Restructured loans 119 713
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Total non-performing loans $17,269 $16,519
========== ==========
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,
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1999 1998 1998
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(In thousands)
Balance at beginning of period $49,618 $42,988 $42,988
Provision charged to expense 3,063 3,123 15,014
Recoveries 492 506 2,396
Loans charged off (2,375) (2,621) (11,932)
Acquisitions 1,466 1,152 1,152
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Balance at end of period $52,264 $45,148 $49,618
========= ========= =========
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.
8
Three Months Ended March 31,
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1999 1998
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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 $16,310 55,830 $0.29 $14,532 53,151 $0.27
====== ======
Effect of dilutive stock
options - 441 - 629
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Diluted EPS
Income available to
common shareholders
plus assumed exercise $16,310 56,271 $0.29 $14,532 53,780 $0.27
========== ============= ====== =========== ============= ======
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,
----------------------------------------------------------------------
1999 1998
----------------------------------- ---------------------------------
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 ($2,311) $860 ($1,451) $2,274 ($738) $1,536
Less: Reclassification adjustment
for gains realized in net income (4,288) 1,640 (2,648) (167) 64 (103)
---------- ----------- --------- ---------- --------- ---------
Other Comprehensive Income ($6,599) $2,500 ($4,099) $2,107 ($674) $1,433
========== =========== ========= ========== ========= =========
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 which was accounted for as a
pooling of interests. As a result of this transaction, the Company
restated its financial statements to include The HomeBanc Corporation
as of January 1, 1999. Financial statements for prior years were not
restated, as the changes would have been immaterial.
NOTE 7 - RECENT PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" established
accounting and reporting standards for derivative instruments and
hedging activities and requires recognition of all derivatives as
9
either assets or liabilities measured at fair value. This statement
will be adopted for the year 2000 and is not expected to have a
material effect on the Company's financial condition or results of
operations.
NOTE 8 - STOCK SPLIT
A two-for-one stock split effected in the form of a 100% stock
dividend was paid on May 15, 1998. Certain 1998 information relating
to earnings per share, dividends per share and other share data has
been retroactively adjusted to reflect this stock split.
NOTE 9 - 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 and other activities not allocated to
community banking.
Results of operations and selected financial information by operating
segment for the quarters ended March 31, 1999 and 1998 are presented below:
General
Community Corporate
(In thousands) Banking and Other Total
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March 31, 1999
Results of Operations
Net interest revenue $ 38,970 $13,419 $52,389
Provision for credit losses 2,441 622 3,063
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Net interest income after provision for 36,529 12,797 49,326
Other revenue 13,041 7,108 20,149
Other expense 38,596 8,338 46,934
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Income before income taxes 10,974 11,567 22,541
Income taxes 3,034 3,197 6,231
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Net income 7,940 8,370 16,310
Selected Financial Information
Identifiable Assets 4,912,780 571,789 5,484,569
Depreciation & amortization 3,606 337 3,943
=======================================================================================
March 31, 1998
Results of Operations
Net interest revenue $ 35,559 $12,309 $47,868
Provision for credit losses 2,682 441 3,123
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Net interest income after provision for 32,877 11,868 44,745
Other revenue 8,499 4,485 12,984
Other expense 29,232 6,709 35,941
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Income before income taxes 12,144 9,644 21,788
Income taxes 4,044 3,212 7,256
- ---------------------------------------------------------------------------------------
Net income 8,100 6,432 14,532
Selected Financial Information
Identifiable Assets 4,484,962 524,752 5,009,714
Depreciation & amortization 3,197 281 3,478
10
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, 1999 and 1998, found
elsewhere in this report.
RESULTS OF OPERATIONS
- ---------------------
Net Income
- ----------
The Company's net income for the first quarter of 1999 was
$16.31 million, an increase of 12.2% from $14.53 million in the
first quarter of 1998. Basic and diluted earnings per common
share for the first quarter of 1999 were $0.29, compared to basic
and diluted earnings per common share of $0.27 for the same period
of 1998, an increase of 7.4%. The annualized returns on average
assets for the first quarter of 1999 and 1998 were 1.21% and
1.20%, respectively.
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 $53.46 million for the three months
ended March 31, 1999, compared to $48.95 million for the same
period in 1998. Earning assets averaged $5.05 billion in the first
quarter of 1999, compared with $4.56 billion in the first quarter
of 1998. Average interest-bearing liabilities were $4.26 billion
in the first quarter of 1999 compared with $3.88 billion in the
first quarter of 1998.
Net interest revenue, expressed as a percentage of average
earning assets, was 4.29% for the first quarter of 1999 as
compared to 4.35% for the same period of 1998.
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 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
additions to the allowance based on their judgments about
information available to them at the time of their examination.
11
The provision for credit losses totaled $3.06 million for the
first quarter of 1999 compared to $3.12 million for the same
period of 1998. This small decrease in provision for the first
quarter of 1999 as compared to 1998 reflects the small decrease in
net charge-offs during the first quarter of 1999 as compared to
the same period in 1998.
Other Revenue
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Other revenue for the quarter ended March 31, 1999, totaled
$20.15 million compared to $12.98 million for the same period of
1998, an increase of 55.2%. 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. The other significant
change in other revenue was in mortgage lending where revenue of
$4.84 million was recorded during the first quarter of 1999
compared to $2.44 million in the same period of 1998, a 98.7%
increase. Stable and relatively low mortgage rates during 1999
resulted in increased mortgage loan originations. Also, market
conditions during the first quarter of 1999 allowed for the
reversal of previously recorded impairment related to the
Company's mortgage servicing rights.
Other Expense
- -------------
Other expense totaled $46.93 million for the first quarter of
1999, a 30.6% increase from $35.94 million the same period of
1998. A significant component of this increase 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.
Another significant change in other expense relates to the
Company's stock option plans, expense for which is reported under
the caption salaries and employee benefits. Certain of the 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 stock price. At March 31, 1999, the Company's
common stock had declined by approximately 12.9% from year-end
1998. As a result of this decline in value, a reduction in expense
of $1.15 million was recorded in the first quarter of 1999. This
compares to the recognition of $780,000 in expense during the
first quarter of 1998.
The Company also recorded merger related expense of $1.05
million during the first quarter of 1999 related to the merger
with The HomeBanc Corporation. The charge to operating expense
consisted of termination and change of control payments ($0.5
million), professional fees ($0.5 million) and miscellaneous cost
($0.05 million).
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 $6.23 million and $7.26 million for
the first quarters of 1999 and 1998, respectively. The decrease
for the first quarter of 1999 was due to the $1.6 million tax
benefit related to the establishment of a charitable foundation
discussed in "Other Revenue" and "Other Expense" above.
12
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, 1999 were $5.14 billion, or 93.8% of total assets,
compared with $4.85 billion, or 93.2%, at December 31, 1998.
The securities portfolio is used to make various term invest-
ments, to provide a source of liquidity and to serve as collateral
to secure certain types of deposits. Held-to-maturity securities
at March 31, 1999 were $736.4 million compared with $647.8 million
at the end of 1998, a 13.7% increase. Available-for-sale
securities were $494.5 million at March 31, 1999, compared to
$549.8 million at December 31, 1998.
The loan portfolio of the Company's bank subsidiary makes up
the largest single component of the Company's earning assets. The
Company's lending activities include both commercial and consumer
loans. Loan originations are derived from a number of sources
including direct solicitation by the Company's loan officers, real
estate broker referrals, mortgage loan companies, 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. Loans, net of
unearned discount, totaled $3.66 billion at March 31, 1999, which
represents a 5.5% increase from the December 31, 1998 total of
$3.47 billion.
At March 31, 1999, 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.
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 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 0.47% of all
loans outstanding at March 31, 1999 and 0.48% at December 31,
1998.
Allowance for Credit Losses
- ---------------------------
The Company attempts to maintain the allowance for credit
losses at a level which, 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 general 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 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 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 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,
--------------------------------------------------------------- ------------------------------
1999 1998 1998
------------------------------- ------------------------------ ------------------------------
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 $4,362 10.76% $4,216 10.76% $3,865 10.27%
Consumer and installment 20,356 24.78% 17,536 26.56% 18,926 25.42%
Real estate mortgage 24,363 58.20% 20,643 56.66% 23,875 57.68%
Lease financing 3,019 5.63% 2,601 5.46% 2,802 5.91%
Other 164 0.63% 152 0.56% 150 0.72%
-------------- ------------ -------------- ------------ -------------- -------------
Total $52,264 100.00% $45,148 100.00% $49,618 100.00%
============== ============ ============== ============ ============== =============
The following table provides an analysis of the allowance for
credit losses for the periods indicated.
14
Twelve months ended
Three months ended March 31, December 31,
----------------------------
1999 1998 1998
----------- ----------- -----------
(dollars in thousands)
Balance, beginning of period $49,618 $42,988 $42,988
Loans charged off:
Commercial and agricultural (19) (342) (1,462)
Consumer & installment (2,171) (1,900) (8,657)
Real estate mortgage (185) (335) (1,738)
Lease financing - (44) (75)
----------- ----------- -----------
Total loans charged off (2,375) (2,621) (11,932)
----------- ----------- -----------
Recoveries:
Commercial and agricultural 53 126 422
Consumer & installment 380 302 1,790
Real estate mortgage 49 60 164
Lease financing 10 18 20
----------- ----------- -----------
Total recoveries 492 506 2,396
----------- ----------- -----------
Net charge-offs (1,883) (2,115) (9,536)
Provision charged to operating expense 3,063 3,123 15,014
Acquisitions 1,466 1,152 1,152
----------- ----------- -----------
Balance, end of period $52,264 $45,148 $49,618
=========== =========== ===========
Average loans for period $3,628,458 $3,188,521 $3,312,635
=========== =========== ===========
RATIOS:
Net charge offs to average loans-annualized 0.21% 0.27% 0.29%
=========== =========== ===========
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
1999 were $4.71 billion as compared to $4.44 billion at December
31, 1998, representing a 6.0% increase. Non-interest bearing
deposits decreased by $16.0 million, or 2.6%, while interest-
bearing deposits grew $280.9 million from December 31, 1998 to
March 31, 1999.
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 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 March 31, 1999, the Company's Tier 1
capital and total capital, as a percentage of total risk-adjusted
assets, were 11.70% and 12.96%, respectively. Both ratios exceed
the required minimum levels for these ratios of 4.0% and 8.0%,
respectively. In addition, the Company's leverage capital ratio
(Tier 1 capital divided by total assets, less goodwill) was 8.45%
at March 31, 1999, compared to the required minimum leverage
capital ratio of 4%.
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.
YEAR 2000
- ---------
The Company is utilizing both internal and external resources
to identify, correct or reprogram, and test its systems for Year
2000 compliance. We are conducting our efforts in accordance with
Federal Financial Institutions Examination Council (FFIEC)
guidelines and have met their guidelines for completing testing of
our in-house mission critical systems and for testing third party
service bureau systems. We will continue testing throughout 1999.
Management has assessed the Year 2000 compliance expense and
believes that the related potential effect on the Company's
business, financial condition and results of operations will be
immaterial. The Company is expensing all costs associated with
the Year 2000 as the costs are incurred.
The risks associated with the Company's Year 2000 compliance
include those related to critical business partners, such as
customers, vendors, suppliers and utility providers, and their
ability to effectively address their own Year 2000 issues. These
risks include failure of voice and data communication systems,
failure of utility providers such as water, gas and electricity,
excessive cash withdrawals at year-end 1999, out-of-service ATMs,
delayed cash couriers and inaccessibility of external data
sources. Risks associated with the Company's internal operations
include inability to access and process data and information,
failure of time locks and security systems, inability to meet
customers' demands for cash and the inability to process
electronic transactions for the Company and its customers.
The Company continues to refine and test its contingency
plans and evaluate the most reasonably likely worst case scenario,
which would include any failure of third party service providers
to be Year 2000 compliant. Contingency plans will include items
such as having an alternative source of power for our corporate
operations center in the event that commercial power sources
experience outages, providing paper based reports to our network
of branches to allow customer service in the event of telephone or
data line outages, and the use of remote item processing sites in
dispersed geographical areas to allow for continued processing of
customer transactions.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
During the three months ended March 31, 1999, there were no
material changes to the quantitative and qualitative disclosures
about market risks presented in the Company's Annual Report or
Form 10-K for the year ended December 31, 1998.
17
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
(10.1) Change of Control Agreement for Aubrey Patterson.
(10.2) Change of Control Agreement for Michael Sappington.
(10.3) Change of Control Agreement for Harry Baxter.
(10.4) Change of Control Agreement for Gregg Cowsert.
(27.1) Financial Data Schedule for the period ended March 31, 1999.
(b)(1) A Current Report on Form 8-K was filed by the Company on
January 6, 1999 regarding the merger with HomeBanc Corporation
located in Guntersville, Alabama.
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 14, 1999 /S/ L. Nash Allen, Jr.
----------------------------
L. Nash Allen, Jr.
Treasurer and