-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TqLeb9V4ATQDLNhp8tkIqW9RxOvBRNsBCM6KnC8BVf2DM8mF2OougRT7bwdZ716+ msHkvl48LY29WlXZCusDFQ== 0000701853-98-000010.txt : 19981118 0000701853-98-000010.hdr.sgml : 19981118 ACCESSION NUMBER: 0000701853-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCORPSOUTH INC CENTRAL INDEX KEY: 0000701853 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 640659571 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12991 FILM NUMBER: 98750175 BUSINESS ADDRESS: STREET 1: ONE MISSISSIPPI PL CITY: TUPELO STATE: MS ZIP: 38801 BUSINESS PHONE: 6016802000 MAIL ADDRESS: STREET 1: PO BOX 789 CITY: TUPELO STATE: MS ZIP: 38802-0789 FORMER COMPANY: FORMER CONFORMED NAME: BANCORP OF MISSISSIPPI INC DATE OF NAME CHANGE: 19920703 10-Q 1 1 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 September 30, 1998 ---------------------------------------------- OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ------------------- Commission file number 0-10826 ------------------------------------------------------ BancorpSouth, Inc. - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Mississippi 64-0659571 - ------------------------------------------ --------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Mississippi Plaza, Tupelo, Mississippi 38801 - ------------------------------------------ --------------------------- (Address of principal executive offices) (Zip Code) 601/680-2000 - ----------------------------------------------------------------------------- (Registrant's telephone number, including area code) - ----------------------------------------------------------------------------- (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 September 30, 1998, the registrant had outstanding 44,662,106 shares of common stock, par value $2.50 per share. 2 BANCORPSOUTH, INC. CONTENTS PAGE PART I. Financial Information ITEM 1. Financial Statements (unaudited) Consolidated Condensed Balance Sheets September 30, 1998, and December 31,1997............. 3 Consolidated Condensed Statements of Income and Comprehensive Income Three and Nine Months Ended September 30, 1998 and 1997........................................ 4 Consolidated Condensed Statements of Cash Flows Nine Months Ended September 30, 1998 and 1997........ 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 5. Other Information.................................... 17 ITEM 6. Exhibits and Reports on Form 8-K .................... 17 FORWARD-LOOKING STATEMENTS Statements contained in this Report, which are not historical in nature, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements in the "Management's Discussion and Analysis of Financial Conditional and Results of Operations" regarding liquidity and capital resources. Such forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from anticipated results. These risks and uncertainties include regulatory constraints, changes in interest rates, competition from other financial services companies, changes in the Company's operation or expansion strategy, the general economy of the United States and the specific markets in which the Company operates, and other factors as may be identified from time to time in 3 the Company's filings with the Securities and Exchange Commission or in the Company's press releases. 4
PART I FINANCIAL INFORMATION BANCORPSOUTH, INC. Consolidated Condensed Balance Sheets (Unaudited) (In Thousands) September 30 December 31 1998 1997 ------------- ------------- ASSETS Cash and due from banks $134,977 $286,307 Interest bearing deposits with other banks 8,269 6,465 Held-to-maturity securities, at amortized cost 601,048 533,419 Available-for-sale securities, at fair market value 366,071 406,212 Federal funds sold 28,000 0 Loans 3,116,956 2,852,885 Less: Unearned discount 96,678 93,858 Allowance for credit losses 43,600 39,877 ------------- ------------- Net loans 2,976,678 2,719,150 Mortgages held for sale 41,327 39,134 Premises and equipment, net 105,563 101,373 Other assets 101,081 88,083 ------------- ------------- TOTAL ASSETS $4,363,014 $4,180,143 ============= ============= LIABILITIES Deposits: Demand: Non-interest bearing $481,692 $467,962 Interest bearing 815,989 840,009 Savings 635,208 548,683 Time 1,752,282 1,683,601 ------------- ------------- Total deposits 3,685,171 3,540,255 Federal funds purchased and securities sold under repurchase agreements 55,525 177,450 Long-term debt 170,123 47,539 Other liabilities 63,075 54,477 ------------- ------------- TOTAL LIABILITIES 3,973,894 3,819,721 SHAREHOLDERS' EQUITY Common stock 111,980 55,990 Capital surplus 96,099 95,699 Accumulated other comprehensive income Unrealized gain on available-for-sale securities 7,854 4,482 Retained earnings 174,670 206,570 Less cost of shares held in treasury (1,483) (2,319) ------------- ------------- TOTAL SHAREHOLDERS' EQUITY 389,120 360,422 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,363,014 $4,180,143 ============= ============= See accompanying notes to consolidated condensed financial statements.
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BANCORPSOUTH, INC. Consolidated Condensed Statements of Income and Comprehensive Income (Unaudited) (In thousands except for per share amounts) Three months ended Nine months ended September 30 September 30 --------------------------- ------------------------------ 1998 1997 1998 1997 ---------- ------------ ------------- ------------- INTEREST REVENUE: Interest & fees on loans $67,684 $61,201 $197,266 $178,523 Deposits with other banks 103 121 297 308 Interest on federal funds sold 536 1,090 1,728 3,755 Interest on held-to-maturity securities: U. S. Treasury 1,650 1,833 5,031 5,357 U. S. Government agencies & corporations 5,995 4,992 19,749 15,815 Obligations of states & political subdivisions 2,315 2,093 6,784 6,386 Interest and dividends on available-for-sale securities 5,606 5,189 17,286 13,501 Interest on mortgages held for sale 984 571 2,565 1,437 ---------- ------------ ------------- ------------- Total interest revenue 84,873 77,090 250,706 225,082 ---------- ------------ ------------- ------------- INTEREST EXPENSE: Interest on deposits 38,620 36,073 113,998 102,818 Interest on federal funds purchased & securities sold under repurchase agreements 347 403 1,239 1,242 Other interest expense 2,760 706 7,653 2,371 ---------- ------------ ------------- ------------- Total interest expense 41,727 37,182 122,890 106,431 ---------- ------------ ------------- ------------- Net interest revenue 43,146 39,908 127,816 118,651 Provision for credit losses 3,771 2,476 9,784 6,125 ---------- ------------ ------------- ------------- Net interest revenue, after provision for credit losses 39,375 37,432 118,032 112,526 ---------- ------------ ------------- ------------- OTHER REVENUE: Mortgage lending 2,556 1,887 7,776 5,665 Trust income 776 684 2,211 1,982 Service charges 5,067 4,861 14,759 13,933 Security gains (losses), net 69 430 244 641 Life insurance income 951 907 2,679 2,906 Other 2,526 2,264 7,599 7,084 ---------- ------------ ------------- ------------- Total other revenue 11,945 11,033 35,268 32,211 ---------- ------------ ------------- ------------- OTHER EXPENSE: Salaries and employee benefits 13,742 16,506 43,811 47,163 Net occupancy expense 2,265 2,169 6,466 6,256 Equipment expense 3,347 3,166 9,858 8,718 Deposit insurance premiums 154 146 462 343 Other 10,901 9,752 32,155 30,013 ---------- ------------ ------------- ------------- Total other expense 30,409 31,739 92,752 92,493 ---------- ------------ ------------- ------------- Income before income taxes 20,911 16,726 60,548 52,244 Income tax expense 6,990 5,125 20,230 16,756 ---------- ------------ ------------- ------------- Net income 13,921 11,601 40,318 35,488 Other comprehensive income 1,746 992 3,327 1,821 ---------- ------------ ------------- ------------- Comprehensive income $15,667 $12,593 $43,645 $37,309 ========== ============ ============= ============= Earnings per share: Basic $0.31 $0.26 $0.90 $0.80 ========== ============ ============= ============= Diluted $0.31 $0.26 $0.89 $0.79 ========== ============ ============= ============= Dividends declared per common share $0.11 $0.095 $0.33 $0.285 ========== ============ ============= ============= See accompanying notes to consolidated condensed financial statements.
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BANCORPSOUTH, INC. Consolidated Condensed Statements of Cash Flows (Unaudited) (In Thousands) Nine Months Ended September 30 ------------------------------ 1998 1997 ------------- ------------- Net cash provided by operating activities $55,095 $35,189 ------------- ------------- Investing activities: Proceeds from calls and maturities of held-to-maturity securities 477,148 193,350 Proceeds from calls and maturities of available-for-sale securities 115,083 138,512 Proceeds from sales of available-for-sale securities 26,600 7,949 Purchases of held-to-maturity securities (536,681) (152,553) Purchases of available-for-sale securities (95,421) (269,529) Net (increase) decrease in short-term investments (28,000) 40,400 Net increase in loans (264,618) (175,933) Purchases of premises and equipment (14,129) (18,194) Other (12,142) (11,365) ------------- ------------- Net cash used by investing activities (332,160) (247,363) ------------- ------------- Financing activities: Net increase in deposits 144,916 202,954 Net decrease in short-term borrowings and other liabilities (124,774) (6,753) Increase (decrease) in long-term debt 122,584 (7,657) Payment of cash dividends (14,714) (12,780) Exercise of stock options 130 381 Acquisition of treasury stock (603) (1,366) ------------- ------------- Net cash provided by financing activities 127,539 174,779 ------------- ------------- Decrease in cash and cash equivalents (149,526) (37,395) Cash and cash equivalents at beginning of period 292,772 171,863 ------------- ------------- Cash and cash equivalents at end of period $143,246 $134,468 ============= ============= See accompanying notes to consolidated condensed financial statements
7 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, 1997, 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 and nine-month periods ended September 30, 1998 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. and BancorpSouth Investment Services, Inc. NOTE 2 - LOANS The composition of the loan portfolio by collateral type is detailed below:
September 30 December 31 ------------------------------ ------------- 1998 1997 1997 ------------- ------------- ------------- (in thousands) Commercial and agricultural $ 277,299 $ 261,981 $ 266,112 Consumer and installment 871,332 799,823 823,356 Real estate mortgage: 1-4 Family 821,759 774,375 779,546 Other 710,470 757,854 791,591 Lease financing 197,108 158,217 172,436 Other 20,905 11,285 19,844 ------------- ------------- ------------- Total $ 2,898,873 $ 2,763,535 $ 2,852,885 ============= ============= =============
8 The following table presents information concerning non-performing loans:
September 30 December 31 1998 1997 ------------ ------------ (In thousands) Non-accrual loans $4,678 $4,008 Loans 90 days or more past due 6,093 7,465 Restructured loans 635 659 ------------ ------------ Total non-performing loans $11,406 $12,132 ============ ============
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 ---------------------------- ----------- 1998 1997 1997 ----------- ----------- ----------- (In thousands) Balance at beginning of period $39,877 $37,272 $37,272 Provision charged to expense 9,784 6,125 9,008 Recoveries 1,607 1,364 1,828 Loans charged off (7,668) (6,170) (8,827) Acquisitions - 596 596 ----------- ----------- ----------- Balance at end of period $43,600 $39,187 $39,877 =========== =========== ===========
NOTE 4 - PER SHARE DATA The Company adopted SFAS No. 128, "Earnings per Share", effective for financial statements ending after December 15, 1997. All prior period EPS data has been restated to conform with the provisions of this Statement. The computation of basic earnings per share is based on the weighted average number of common shares outstanding. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding plus the shares resulting from the assumed exercise of all outstanding stock options using the treasury stock 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. 9
Three Months Ended September 30, -------------------------------------------------------------------------------------------------- 1998 1997 ----------------------------------------------- ---------------------------------------------- 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 $13,921 44,573 $0.31 $11,600 44,425 $0.26 ============ ============ Effect of dilutive stock options - 470 - 365 ------------ ------------ ------------ ------------ Diluted EPS Income available to common shareholders plus assumed exercise $13,921 45,043 $0.31 $11,600 44,790 $0.26 ============ ============ ============ ============ ============ ============
Basic EPS Income available to common shareholders $40,318 44,558 $0.90 $35,487 44,413 $0.80 ============ ============ Effect of dilutive stock options - 500 - 332 ------------ ------------ ------------ ------------ Diluted EPS Income available to common shareholders plus assumed exercise $40,318 45,058 $0.89 $35,487 44,745 $0.79 ============ ============ ============ ============ ============ ============
NOTE 5 - COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". This statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements and is effective for fiscal years beginning after December 15, 1997. The purpose of reporting comprehensive income is to report a measure of all changes in equity of the Company that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. The components of other comprehensive income for the Company for the three month and nine month periods ended September 30, 1998 and 1997 were as follows: 10
Three months ended Nine months ended September 30 September 30 ------------------------- ------------------------- Net of tax: 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Unrealized holding gains arising during the period $ 1,761 $ 993 $ 3,372 $ 1,850 Less: reclassification adjustment for gains included in net income 15 1 45 29 ----------- ----------- ----------- ----------- Other comprehensive income $ 1,746 $ 992 $ 3,327 $ 1,821 =========== =========== =========== ===========
NOTE 6 - RECENT PRONOUNCEMENTS In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" was issued. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement is effective for fiscal years beginning after December 15, 1997. The Company intends to comply with this statement in 1998. In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" was issued. The statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable. In addition, the new statement requires additional information on changes in benefit obligations and fair value of plan assets and eliminates certain disclosures that are no longer useful. This statement is effective for fiscal years beginning after December 15, 1997. The Company intends to comply with this statement in 1998. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company intends to comply with this statement in 2000. NOTE 7 - STOCK SPLIT On March 25, 1998, the Company's Board of Directors declared a two-for- one stock split effected in the form of a 100% stock dividend payable on May 15, 1998 to shareholders of record on May 1, 1998. Information relating to earnings per share, dividends per share and other share data has been retroactively adjusted to reflect this stock split. 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 September 30, 1998 and 1997, found elsewhere in this report. On March 25, 1998, the Company's Board of Directors declared a two-for-one stock split effected in the form of a 100% stock dividend payable on May 15, 1998 to shareholders of record on May 1, 1998. Information relating to earnings per share, dividends per share and other share data has been retroactively adjusted to reflect this stock split. RESULTS OF OPERATIONS Net Income The Company's net income for the third quarter of 1998 was $13.92 million compared to $11.60 million in the third quarter of 1997. For the first nine months of 1998, net income was $40.32 million, an increase of 13.61% from $35.49 million for the same period of 1997. For the third quarter of 1998, basic and diluted earnings per common share were $0.31, compared to basic and diluted earnings per common share of $0.26 for the same period of 1997. For the first nine months of 1998, basic earnings per common share were $0.90 and diluted earnings per common share were $0.89, compared to basic earnings per common share of $0.80 and diluted earnings per common share of $0.79 for the same period of 1997. The annualized returns on average assets for the third quarter of 1998 and 1997 were 1.27% and 1.19%, respectively. For the nine months ended September 30, the annualized returns on average assets were 1.24% for 1998 and 1997. 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 $44.20 million for the three months ended September 30, 1998, compared to $40.84 million for the same period in 1997. For the nine months ended September 30, 1998 and 1997, net interest revenue was $131.01 million and $121.48 million, respectively. Earning assets averaged $4.12 billion in the third quarter and $4.07 billion for the first nine months of 1998, compared with $3.65 billion and $3.56 billion in the respective periods in 1997. Average interest-bearing liabilities were $3.50 billion in the third quarter and $3.46 billion for the first nine months of 1998, compared with $3.08 billion and $3.01 billion in the respective periods in 1997. Net interest revenue, expressed as a percentage of average earning assets, was 4.26% for the third quarter of 1998 as compared to 4.44% for the same period of 1997 and 4.30% for the first nine months of 1998 as compared to 4.56% for the same period of 1997. 12 Provision for Credit Losses The provision for credit losses charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for credit losses at a level that is adequate to meet the present and poten- tial risks of losses in the Company's current portfolio of loans. Management's judgment is based on a variety of factors which include the Company's experi- ence related to loan balances, charge-offs and recoveries, scrutiny of individual loans and risk factors, results of regulatory agency reviews of loans, and present and anticipated future economic conditions of the Company's market area. Material estimates that are particularly susceptible to significant change in the near term are a necessary part of this process. Future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses. 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. The provision for credit losses totaled $3.77 million for the third quarter of 1998 compared to $2.48 million for the same period of 1997. For the nine-month periods ended September 30, 1998 and 1997, the provision for credit losses totaled $9.78 million and $6.13 million, respectively. The increase in the provision for credit losses for 1998 compared to 1997 reflects the increased level of net loans charged off and the increased level of non- performing loans. Other Revenue Other revenue for the quarter ended September 30, 1998, totaled $11.95 million compared to $11.03 million for the same period of 1997, a 8.3% increase. For the nine months ended September 30, 1998 and 1997, other revenue was $35.27 million and $32.21 million, respectively, a 9.5% increase. The most significant change in other revenue was in mortgage lending where revenue of $7.78 million was recorded during the first nine months of 1998 compared to $5.67 million in the same period of 1997. Stable and relatively low mortgage rates during 1998 resulted in increased mortgage loan originations. Service charges on deposit accounts for the first nine months increased 5.9%. Trust income increased 11.6% during the first nine months of 1998 over the same period of 1997. Other Expense Other expense totaled $30.41 million for the third quarter of 1998, a 4.19% decrease from the same period of 1997. For the nine months ended September 30, 1998, other expenses totaled $92.75 million, a 0.28% increase over that for the same period during 1997. The most significant change in a component of other expense relates to the Company's stock option plans, expense for which is reported under the caption salaries and employee 13 benefits. Certain of the stock option plans contain a provision for stock appreciation rights (SARs) which require the recognition of expense for stock price appreciation. During 1998, the Company has recovered expense because of the decline in the Company's stock price from December 31, 1997. During the third quarter of 1998, expense recovery of $1,599,000 was recorded. For the nine month period ended September 30, 1998, expense recovery of $2,796,000 has been recorded. This compares to expense of $1,881,000 in the third quarter of 1997 and expense of $2,446,000 for the nine months ended September 30, 1997. Deposit insurance was $462,000 for the nine months ended 1998 compared to the same period last year of $343,000. 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 $6.99 million and $5.13 million for the third quarters of 1998 and 1997, respectively. For the nine month period ended September 30, 1998, income tax expense was $20.23 million compared to $16.76 million for the same period in 1997. 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, 1998 were $4.06 billion, or 93.2% of total assets, compared with $3.74 billion, or 89.6% at December 31, 1997. 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, 1998, were $601.0 million compared with $533.4 million at the end of 1997, a 12.7% increase. Available-for-sale securities were $366.1 million at September 30, 1998, compared to $406.2 million at December 31, 1997. 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 $3.02 billion at September 30, 1998, which represents a 9.5% increase from the December 31, 1997 total of $2.76 billion. At September 30, 1998, 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 14 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 0.38% of all loans outstanding at September 30, 1998, compared to 0.44% at the end of 1997. 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 present and potential risks of losses on its current portfolio of loans. Management's judgement is based on a variety of factors that include examining potential losses in specific credits and considering the general risks associated with lending functions such as current and anticipated 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. 15
September 30 December 31 ----------------------------------------------------------- ----------------------------- 1998 1997 1997 ----------------------------- ----------------------------- ----------------------------- 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 $3,972 8.90% $3,755 9.48% $2,985 9.33% Consumer and installment 15,532 27.95% 11,639 28.94% 14,760 28.86% Real estate mortgage 21,315 56.15% 21,777 55.44% 19,415 55.07% Lease financing 2,621 6.32% 2,016 5.73% 2,592 6.04% Other 160 0.67% - 0.41% 125 0.70% -------------- -------------- -------------- -------------- -------------- -------------- Total $43,600 100.00% $39,187 100.00% $39,877 100.00% ============== ============== ============== ============== ============== ==============
The following table provides an analysis of the allowance for credit losses for the periods indicated.
Twelve months ended Nine months ended September 30 December 31 ------------------------------ -------------- 1998 1997 1997 -------------- -------------- -------------- (dollars in thousands) Balance, beginning of period $39,877 $37,272 $37,272 Loans charged off: Commercial and agricultural (190) (216) (678) Consumer & installment (5,985) (5,390) (7,107) Real estate mortgage (1,418) (518) (994) Lease financing (75) (46) (48) -------------- -------------- -------------- Total loans charged off (7,668) (6,170) (8,827) -------------- -------------- -------------- Recoveries: Commercial and agricultural 155 195 214 Consumer & installment 1,330 830 1,205 Real estate mortgage 102 283 352 Lease financing 20 56 57 -------------- -------------- -------------- Total recoveries 1,607 1,364 1,828 -------------- -------------- -------------- Net charge-offs (6,061) (4,806) (6,999) Provision charged to operating expense 9,784 6,125 9,008 Acquistions - 596 596 -------------- -------------- -------------- Balance, end of period $43,600 $39,187 $39,877 ============== ============== ============== Average loans for period $2,872,173 $2,560,236 $2,598,315 ============== ============== ============== RATIOS: Net charge offs to average loans 0.21% 0.19% 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 16 deposits at the end of the third quarter of 1998 were $3.69 billion as compared to $3.54 billion at December 31, 1997, representing a 4.1% increase. Non-interest bearing deposits increased by $13.7 million while interest- bearing deposits grew $131.2 million from December 31, 1997 to September 30, 1998. The Company borrowed $125 million from the Federal Home Loan Bank during the first quarter of 1998. Of these funds, $50 million matures in 10 years, $50 million matures in 15 years and $25 million matures in 20 years. These borrowings were initially invested in short-term securities and are to be used by the Company over time to fund loans of similar maturities. LIQUIDITY Liquidity is the ability of the Company to fund the needs of its bor- rowers, 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 September 30, 1998, the Company's Tier 1 capital and total capital, as a percentage of total risk- adjusted assets, were 12.23% and 13.48%, 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 8.65% at September 30, 1998, 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 the systems for the Year 2000 compliance. During 1997, the Company developed a plan to deal with the Year 2000 problem and established a Year 2000 committee that consists of representatives from the major functional areas of the Company. The committee has conducted a comprehensive review of the Company's computer systems to identify the systems that could be affected by the Year 2000 issue and has developed an implementation plan to resolve potential problems. We have reviewed our core mainframe systems and application subsystems and have obtained the Year 2000 compliant releases and are developing the installation and testing plan for each of these applications. We have corresponded with our third party service providers and other providers of software and hardware for certification of their compliance with Year 2000 issues. It is 17 anticipated that all reprogramming efforts will be completed by December 31, 1998, allowing adequate time for testing. Management has assessed the Year 2000 compliance expense and 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the three months ended September 30, 1998, 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, 1997. 18 PART II OTHER INFORMATION ITEM 5. OTHER INFORMATION Pursuant to recent amendments to Rule 14a-4(c) under the Securities Exchange Act of 1934, as amended, discretionary voting authority conferred in proxies solicited by the Company's Board of Directors in connection with the Company's 1999 annual meeting of shareholders may be exercised with respect to any matter raised at the annual meeting, if the Company does not receive notice of the matter on or prior to February 7, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (27.1) Financial Data Schedule for the periods ended September 30, 1998. (27.2) Restated Financial Data Schedule for the periods ended September 30, 1997. (b) (1) A Current Report on Form 8-K was filed by the Company on July 10, 1998 reporting the signing of a definitive merger agreement whereby the Company would acquire Alabama Bancorp., Inc., located in Birmingham, Alabama. (2) A Current Report on Form 8-K was filed by the Company on September 3, 1998 reporting the signing of a definitive merger agreement whereby the Company would acquire The First Corporation, located in Opelika, Alabama. 19 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, 1998 /S/ L. Nash Allen, Jr. L. Nash Allen, Jr. Treasurer and Chief Financial Officer EX-27.1 2
9 9-MOS DEC-31-1998 JAN-1-1998 SEP-30-1998 134,977 8,269 28,000 0 601,048 601,048 601,048 3,020,278 43,600 4,363,014 3,685,171 55,525 63,075 170,123 111,980 0 0 277,140 4,363,014 197,266 31,564 21,876 250,706 113,998 122,890 127,816 9,784 244 92,752 60,548 60,548 0 0 43,645 0.90 0.89 4.30 4,678 6,093 635 0 39,877 7,668 1,607 43,600 43,600 0 0
EX-27.2 3
9 9-MOS DEC-31-1997 JAN-1-1997 SEP-30-1997 119,360 15,108 59,000 0 365,463 321,361 321,361 2,673,644 39,187 3,955,525 3,466,119 27,729 69,924 37,051 55,990 0 0 298,712 3,955,525 178,523 27,558 19,001 225,082 102,818 106,431 118,651 6,125 641 92,493 52,244 52,244 0 0 35,488 0.80 0.79 4.56 3,961 5,131 662 0 37,868 6,170 1,364 39,187 39,187 0 0
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