-----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, TmMrpT/LNEfddB9eGtUZ/aeS1awg9wcaJ6gO7FqjMPJwJVsysmQie8RSwP53yl8O GLEmPr23CmFusVLiB14D3A== 0000950144-97-003361.txt : 19970401 0000950144-97-003361.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003361 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10826 FILM NUMBER: 97568884 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-K 1 BANCORP, INC. FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1996 or ----------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996) 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 (I.R.S. Employer Identification No.) incorporation or organization) One Mississippi Plaza Tupelo, Mississippi 38801 - --------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (601) 680-2000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered -------------------------- -------------------------- NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $2.50 PAR VALUE - ------------------------------------------------------------------------------- (Title of Class) (Cover Page Continues on Next Page) 2 (Continued from Cover Page) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 31, 1997, was approximately $532,909,000 based on the closing sale price as reported on the Nasdaq Stock Market. On March 14, 1997, the registrant had outstanding 22,227,705 shares of Common Stock, par value $2.50 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996, are incorporated by reference into Part II of this Report. Portions of the definitive Proxy Statement used in connection with Registrant's Annual Meeting of Shareholders to be held April 22, 1997, are incorporated by reference into Part III of this Report. 2 3 BANCORPSOUTH, INC. FORM 10-K For the Fiscal Year Ended December 31, 1996 CONTENTS
PART I Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 19 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 20 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . 20 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. . . . . . . . . . . . .21 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. . . . . . 22 Item 8. Financial Statements and Supplementary Data . . . . . . . 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . 22 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . .23 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . .25 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . .26 Item 13. Certain Relationships and Related Transactions . . . . . .26 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .27
3 4 PART I Item 1. - Business General The Company is a bank holding company with commercial banking in Mississippi and Tennessee. Its principal subsidiaries are Bank of Mississippi ("BOM") and Volunteer Bank ("VOL"). The Company's principal office is located at One Mississippi Plaza, Tupelo, Mississippi 38801 and its telephone number is (601) 680-2000. Description of Business BOM has its principal office in Tupelo, Lee County, Mississippi, and conducts a general commercial banking and trust business through 101 offices in 50 municipalities or communities in 32 counties throughout Mississippi. BOM has grown through the acquisition of other banks, the purchase of assets from federal regulators and through the opening of new branches and offices. In addition, BOM operates consumer finance and credit life insurance subsidiaries. At December 31, 1996, BOM had total deposits of approximately $2.45 billion and total assets of approximately $2.80 billion. VOL has its principal office in Jackson, Madison County, Tennessee, and conducts a general commercial banking and trust business through 30 offices in 16 municipalities or communities in 12 counties in west Tennessee. VOL has grown through the acquisition of other banks and through the opening of new branches and offices. In addition, VOL operates consumer finance and credit life insurance subsidiaries. At December 31, 1996, VOL had total deposits of approximately $720 million and total assets of approximately $828 million. The Company, through its subsidiaries, provides a range of financial services to individuals and small-to-medium size businesses. Various types of checking accounts, both interest bearing and non-interest bearing, are available. Savings accounts and certificates of deposit with a range of maturities and interest rates are available to meet the needs of customers. Other services include safe deposit and night depository facilities. Limited 24-hour banking with automated teller machines is provided in most of its principal markets. BOM is an issuing bank for MasterCard and overdraft protection is available to approved MasterCard holders maintaining checking accounts with the Company's subsidiary banks. The Company offers a variety of services through the trust departments of its subsidiary banks, including personal trust and estate services, certain employee benefit accounts and plans, including individual retirement accounts, and limited corporate trust functions. At December 31, 1996, the Company and its subsidiaries employed 1,932 persons. The Company and its subsidiaries are not a party to any collective bargaining agreements, and employee relations are deemed to be good. Competition 4 5 Vigorous competition exists in all major areas where the Company is engaged in business. The Company's subsidiary banks compete for available loans and depository accounts not only with state and national commercial banks in their respective areas but also with savings and loan associations, insurance companies, credit unions, money market mutual funds, automobile finance companies and financial services companies. None of these competitors is dominant in the whole area served by the Company's subsidiary banks. The principal areas of competition in the banking industry center on a financial institution's ability and willingness to provide credit on a timely and competitively priced basis, to offer a sufficient range of deposit and investment opportunities at a competitive price and maturity, and to offer personal and other services of sufficient quality and at competitive prices. The Company and its subsidiaries believe they can compete effectively in all these areas. Regulation and Supervision The following is a brief summary of the regulatory environment in which the Registrant and its subsidiaries operate and is not designed to be a complete discussion of all statutes and regulations affecting such operations, including those statutes and regulation specifically mentioned herein. The Company is a bank holding company and is registered as such with the Board of Governors of the Federal Reserve System (the "FRB") and is subject to regulation and supervision by the FRB. The Company is required to file with the FRB annual reports and such other information as they may require. The FRB may also conduct examinations of the Company. The Company is a legal entity which is separate and distinct from its subsidiaries. There are various legal limitations on the extent to which the subsidiary banks may extend credit, pay dividends or otherwise supply funds to the Company or its affiliates. In particular, the subsidiary banks are subject to certain restrictions imposed by federal law on any extensions of credit to the Company or, with certain exceptions, other affiliates. Dividends to shareholders are paid from dividends paid to the Company by its subsidiaries which are subject to approval by the applicable regulatory authorities. BOM and VOL are incorporated under the banking laws of the States of Mississippi and Tennessee, respectively, and accordingly are subject to the applicable provisions of state banking laws rather than the National Bank Act. BOM is subject to the supervision of the Mississippi Department of Banking and Consumer Finance and to regular examinations by that department. VOL is subject to the supervision of the Tennessee Department of Financial Institutions and to regular examinations by that department. The deposits in BOM and VOL are insured by the Federal Deposit Insurance Corporation (the "FDIC") and, therefore, each bank is subject to the provisions of the Federal Deposit Insurance Act and to examination by the FDIC. Neither bank is a member of the Federal Reserve System. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") permits among other things the acquisition by bank holding companies of savings associations, irrespective of their financial condition, and increased the deposit insurance premiums for banks 5 6 and savings associations. FIRREA also provides that commonly controlled federally insured financial institutions must reimburse the FDIC for losses incurred by the FDIC in connection with the default of another commonly controlled financial institution or in connection with the provision of FDIC assistance to such a commonly controlled financial institution in danger of default. Reimbursement liability under FIRREA is superior to any obligations to shareholders of such federally insured institutions (including a bank holding company such as the Company if it were to acquire another federally insured financial institution), arising as a result of their status as a shareholder of a reimbursing financial institution. The Company and its subsidiary banks are subject to the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). This statute provides for increased funding for the FDIC's deposit insurance fund and expanded the regulatory powers of federal banking agencies to permit prompt corrective actions to resolve problems of insured depository institutions through the regulation of banks and their affiliates, including bank holding companies. The provisions are designed to minimize the potential loss to depositors and to FDIC insurance funds if financial institutions default on their obligations to depositors or become in danger of default. Among other things, FDICIA provides a framework for a system of supervisory actions based primarily on the capital levels of financial institutions. FDICIA also provides for a risk-based deposit insurance premium structure. The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institutions poses to its deposit insurance fund. While most of the Company's deposits are in the Bank Insurance Fund (BIF), certain other of the Company's deposits which were acquired from thrifts over the years remain in the Savings Association Insurance Fund (SAIF). Deposit insurance rates for 1997 for the Company's deposits in BIF have been assessed at zero while deposits insurance rates for 1997 for the Company's deposits in SAIF will continue at the rate of 23 cents per $100 of insured deposits. The Company is required to comply with the risk-based capital guidelines which the FRB adopted in January 1989, and to other tests relating to capital adequacy which the FRB adopts from time to time. See Note 17 of Notes to Consolidated Financial Statements on page 37 of the Company's 1996 Annual Report to Shareholders incorporated herein by reference. In September 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA") was signed into law. Beginning September 29, 1995, IBBEA permits adequately capitalized and managed bank holding companies to acquire control of banks in states other than their home states, subject to federal regulatory approval, without regard to whether such a transaction is prohibited by the laws of any state. IBBEA permits states to continue to require that an acquired bank have been in existence for a certain minimum time period which may not exceed five years. A bank holding company may not, following an interstate acquisition , control more than 10% of the nation's total amount of bank deposits or 30% of bank deposits in the relevant state (unless the state enacts legislation to raise the 30% limit). States retain the ability to adopt legislation to effectively lower the 30% limit. Beginning June 1, 1997, federal banking regulators may approve merger transactions involving banks located in different states, without regard to laws of any state prohibiting such transactions; except that, mergers may not be approved with respect to banks located in states that, prior to June 1, 1997, enacted legislation 6 7 prohibiting mergers by banks located in such state with out-of-state institutions. Federal banking regulators may permit an out-of-state bank to open new branches in another state if such state has enacted legislation permitting interstate branching. Affiliated institutions are authorized to accept deposits for existing accounts, renew time deposits and close and service loans for affiliated institutions without being deemed an impermissible branch of the affiliate. The Company has applied for permission from the various regulators to merge BOM and VOL into one bank as soon as practicable after the June 1, 1997 effective date of the law which allows such transactions. 7 8 Selected Statistical Information Set forth below is certain selected statistical information relating to the Company's business. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differentials Net Interest Revenue, the difference between Interest Revenue and Interest Expense, is the most significant component of the Company's earnings. For internal analytical purposes, management adjusts Net Interest Revenue to a "taxable equivalent" basis using an effective tax rate of 35% on tax exempt items (primarily interest on municipal securities). Another significant statistic in the analysis of Net Interest Revenue is the effective interest differential, also called the net yield on earning assets. The net yield on earning assets is net interest divided by total interest-earning assets. Recognizing the importance of interest differential to total earnings, management places great emphasis on managing interest rate spreads. Although interest differential is affected by national, regional and local economic conditions, including the level of credit demand and interest rates, there are significant opportunities to influence interest differential through appropriate loan and investment policies which are designed to maximize interest differential while maintaining sufficient liquidity and availability of "incremental funds" for purposes of meeting existing commitments and for investment in lending and other investment opportunities that may arise. The following table sets forth the average balances of assets and liabilities and the average rates earned and paid for the three years ended December 31, 1996. The table shows the various components of earning assets and the sources used to fund these assets which are included in the effective interest differential. 8 9 Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential
1996 1995 --------------------------- -------------------------- (Taxable equivalent basis) Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- -------- ------ ------- -------- ------- ASSETS (Dollars in thousands) Interest bearing deposits in other banks $ 12,313 $ 646 5.25% $ 15,974 $ 857 5.36% Held-to-maturity securities: U.S. treasury and agencies 361,649 23,823 6.59% 398,194 28,152 7.07% State and political subdivisions (1) 118,458 9,709 8.20% 118,493 10,517 8.88% Other securities 84 2 2.38% 4,228 168 3.97% Available-for-sale securities (2) 231,040 14,400 6.23% 183,396 8,902 4.85% Federal funds sold 60,868 3,289 5.40% 39,451 2,205 5.59% Loans (net of unearned discount) (3) (4) (6) 2,410,746 227,920 9.45% 2,146,967 204,397 9.52% Mortgages held for sale 27,729 1,917 6.91% 20,805 1,433 6.89% ---------- --------- ---------- -------- Total interest earning assets and revenue 3,222,887 281,706 8.74% 2,927,508 256,631 8.77% Other assets 266,537 256,363 Less: alowance for credit losses (36,503) (32,574) ---------- ---------- Total $3,452,921 $3,151,297 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - interest bearing $ 700,863 $ 20,426 2.91% $654,151 $ 17,733 2.71% Savings 371,514 14,930 4.02% 300,278 11,916 3.97% Time 1,526,564 83,390 5.46% 1,416,901 77,516 5.47% Federal funds purchased and securities under repurchase agreements 40,880 1,954 4.78% 40,845 2,084 5.10% Other short-term borrowings (5) 3,359 158 4.70% 4,706 299 6.35% Long term debt 80,619 5,647 7.00% 68,452 4,909 7.17% ---------- --------- ---------- -------- Total interest bearing liabilities and expense 2,723,799 126,505 4.64% 2,485,333 114,457 4.61% Demand deposits - non-interest bearing 383,897 361,120 Other liabilities 45,476 36,449 ---------- ---------- Total liabilities 3,153,172 2,882,902 Shareholders' equity 299,749 268,395 ---------- ---------- Total $3,452,921 $3,151,297 ========== ========== Net interest revenue $ 155,201 $142,174 ========= ======== Net yield on interest earning assets 4.81% 4.86% ===== ===== 1994 ------------------------- (Taxable equivalent basis) Average Yield/ Balance Interest Rate ------- -------- ------ ASSETS (Dollars in thousands) Interest bearing deposits in other banks $ 11,112 $ 660 5.94% Held-to-maturity securities: U.S. treasury and agencies 315,429 18,642 5.91% State and political subdivisions (1) 107,774 10,325 9.58% Other securities 4,556 270 5.93% Available-for-sale securities (2) 266,370 13,974 5.25% Federal funds sold 43,437 1,756 4.04% Loans (net of unearned discount) (3) (4) (6) 1,881,922 163,902 8.71% Mortgages held for sale 33,620 2,400 7.14% ---------- -------- Total interest earning assets and revenue 2,664,220 211,929 7.95% Other assets 249,064 Less: alowance for credit losses (28,745) ---------- Total $2,884,539 ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - interest bearing $ 618,929 $ 16,320 2.64% Savings 292,908 9,515 3.25% Time 1,237,205 53,435 4.32% Federal funds purchased and securities under repurchase agreements 36,686 1,338 3.65% Other short-term borrowings (5) 15,145 968 6.39% Long term debt 46,673 3,453 7.40% ---------- -------- Total interest bearing liabilities and expense 2,247,546 85,029 3.78% Demand deposits - non-interest bearing 364,451 Other liabilities 31,613 ---------- Total liabilities 2,643,610 Shareholders' equity 240,929 ---------- Total $2,884,539 ========== Net interest revenue $126,900 ======== Net yield on interest earning assets 4.76% =====
1. Includes taxable equivalent adjustments of $2,755,000, $3,026,000 and $3,112,000 in 1996, 1995 and 1994, respectively, using an effective tax rate of 35%. 2. Includes taxable equivalent adjustment of $281,000, $581,000 and $747,000 in 1996, 1995 and 1994 using an effective ax rate of 35%. 3. Includes fees on loans of $4,249,000 in 1994. 4. Includes taxable equivalent adjustment of $751,000, $597,000 and $175,000 in 1996, 1995 and 1994, respectively, using an effective tax rate of 35%. 5. Interest expense includes interest paid on liabilities not included in averages. 6. Non-accrual loans are immaterial for each of the years presented. 9 10 Analysis of Changes in Effective Interest Differential Net interest revenue may also be analyzed by segregating the rate and volume components of interest revenue and interest expense. The table which follows presents an analysis of rate and volume change in net interest from 1995 to 1996 and 1994 to 1995. Changes which are not solely due to volume or rate are allocated to volume.
1996 OVER 1995 - INCREASE (DECREASE) 1995 OVER 1994 - INCREASE (DECREASE) ------------------------------------ ------------------------------------ (Taxable equivalent basis) Volume Rate Total Volume Rate Total ----------- ---------- ---------- ----------- ----------- ---------- (In thousands) INTEREST REVENUE Due from banks - interest bearing ($ 192) ($ 19) ($ 211) $ 261 ($ 64) $ 197 Held-to-maturity securities: U.S. Government agencies (2,407) (1,922) (4,329) 5,851 3,659 9,510 State and political subdivisions (3) (805) (808) 951 (759) 192 Other securities (99) (67) (166) (13) (89) (102) Available-for-sale securities 2,970 2,528 5,498 (4,028) (1,044) (5,072) Federal funds sold 1,157 (73) 1,084 (223) 672 449 Loans (net of unearned discount) 24,939 (1,4160 23,523 25,233 15,262 40,495 Mortgages held for sale 479 5 484 (883) (840 (967) ------- ------- ------- ------- ------- ------- Total 26,844 (1,769) 25,075 27,149 17,553 44,702 ------- ------- ------- ------- ------- ------- INTEREST EXPENSE Demand deposits - interest bearing 1,361 1,331 2,693 955 458 1,413 Savings deposits 2,883 151 3,014 292 2,109 2,401 Time deposits 5,900 (116) 5,874 9,831 14,250 24,081 Federal funds purchased and securities under repurchase agreements 2 (132) (130) 212 534 746 Other short-term borrowings 963) (79) (141) (663) (6) (669) Long-term debt 852 (114) 738 1,562 (106) 1,456 ------- ------- ------- ------- ------- ------- Total 11,005 1,043 12,048 12,169 17,239 29,428 ------- ------- ------- ------- ------- ------- Increase (Decrease) in Effective Interest Differential $ 15,839 ($ 2,812) $ 13,027 $ 14,960 $ 314 $ 15,274 ======= ======= ======= ======= ======= =======
10 11 Investment Portfolio Held-to-Maturity Securities The following table shows the amortized cost of held-to-maturity securities at December 31, 1996, 1995 and 1994:
December 31 ------------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) U. S. Treasury securities $ 91,340 $ 33,355 $ 59,793 U. S. Government agency securities 292,930 293,831 376,708 Taxable obligations of states and political subdivisions 1,375 500 - Tax exempt obligations of states and political subdivisions 144,406 110,830 112,915 Other securities 15 787 3,416 -------- -------- -------- TOTAL $530,066 $439,303 $552,832 ======== ======== ========
The following table shows the maturities and weighted average yields as of the end of the latest period for each investment category presented above:
December 31, 1996 U.S. U.S. GOVERMENT STATES & WEIGHTED TREASURY AGENCY POLITICAL OTHER AVERAGE SECURITIES SECURITIES SUBDIVISIONS SECURITIES YIELD ---------- ---------- ------------ ---------- ------- (In thousands) PERIOD TO MATURITY: Maturing within one year $ 1,437 $130,803 $ 21,406 $ - 7.00% Maturing after one year but within five years 87,919 146,847 66,749 15 6.89% Maturing after five years but within ten years 1,984 12,208 47,797 - 7.22% Maturing after ten years - 3,072 9,829 - 8.36% ------- -------- -------- ------- TOTAL $91,340 $292,930 $145,781 $ 15 ======= ======== ======== =======
The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a taxable equivalent basis using a 35% tax rate. 11 12 Available-for-Sale Securities The following table shows the book value of available-for-sale securities at December 31, 1996, 1995 and 1994:
December 31 ------------------------------------- 1996 1995 1994 -------- --------- -------- (In thousands) U. S. Treasury securities $ 43,864 $ 51,241 $ 30,429 U. S. Government agency securities 129,515 127,488 67,607 Taxable obligations of states and political subdivisions 503 3,337 - Tax exempt obligations of states and political subdivisions 12,567 20,000 30,234 Other securities 44,290 37,689 65,759 -------- -------- -------- TOTAL $230,739 $239,755 $194,029 ======== ======== ========
The following table shows the maturities and weighted average yields as of the end of the latest period for each investment category presented above:
December 31, 1996 ----------------------------------------------------------------- U.S. U.S. GOVERMENT STATES & WEIGHTED TREASURY AGENCY POLITICAL OTHER AVERAGE SECURITIES SECURITIES SUBDIVISIONS SECURITIES YIELD ---------- ---------- ------------ ---------- -------- (In thousands) PERIOD TO MATURITY: Maturing within one year $11,427 $65,789 $4,518 $22,000 5.93% Maturing after one year but within five years 32,437 52,627 6,613 7,748 6.39% Maturing after five years but within ten years - 1,672 503 14,542 6.54% Maturing after ten years - 9,427 1,436 - 7.57% ------- -------- ------- ------- TOTAL $43,864 $129,515 $13,070 $44,290 ======= ======== ======= =======
The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a taxable equivalent basis using a 35% tax rate. 12 13 Loan Portfolio The Company's loans are widely diversified by borrower and industry. The following table shows the composition of loans by collateral type of the Company at December 31 for the years indicated.
DECEMBER 31 ----------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ----------- ---------- ---------- (In thousands) Commercial & agricultural (1)(2) $238,246 $223,225 $211,988 $203,798 $382,233 Consumer & installment 744,456 695,127 633,692 510,538 501,627 Real estate mortgage 1,407,841 1,314,935 1,151,666 1,013,446 692,467 Lease financing 149,104 121,617 81,816 60,781 51,325 Other 14,471 16,780 11,913 52,692 22,594 ---------- ---------- ---------- ---------- ---------- Total gross loans $2,554,118 $2,371,684 $2,091,075 $1,841,255 $1,650,246 ========== ========== ========== ========== ==========
(1) Including $14,580,000, $17,388,000, $15,247,000, $15,588,000 and $18,197,000 in 1996, 1995, 1994, 1993 and 1992, respectively, of loans classified as agricultural. (2) Including $38,406,000, $36,054,000, $29,838,000, $27,048,000 and $20,364,000 in 1996, 1995, 1994, 1993 and 1992, respectively, of loans secured by or relating to agricultural land. Maturity Distribution of Loans The maturity distribution of the Company's loan portfolio is one factor in management's evaluation of the risk characteristics of the loan portfolio. The following table shows the maturity distribution of gross loans of the Company as of December 31, 1996.
ONE YEAR ONE TO AFTER OR LESS FIVE YEARS FIVE YEARS ----------- ------------- ---------- (In thousands) Commercial & agricultural $135,694 $ 83,425 $ 19,127 Consumer & installment 188,123 549,052 7,281 Real estate mortgages 526,681 656,907 224,253 Lease financing 48,385 100,716 3 Other 10,049 4,422 0.00 -------- ---------- -------- Total gross loans $908,932 $1,394,522 $250,664 ======== ========== ========
13 14 Sensitivity of Loans to Changes in Interest Rates The interest sensitivity of the Company's loans is important in the management of effective interest differential. The Company attempts to manage the relationship between the rate sensitivity of its assets and liabilities to produce an effective interest differential that is not significantly impacted by the level of interest rates. The following table shows the interest sensitivity of the Company's gross loans as of December 31, 1996. December 31, 1996 FIXED VARIABLE RATE RATE ----- -------- (In thousands) Loan Portfolio Due after one year $1,281,961 $363,225 ========== ======== Nonaccrual, Past Due and Restructured Loans See Note 5 of Notes to Consolidated Financial Statements on page 28 of the Company's 1996 Annual Report to Shareholders incorporated herein by reference. The aggregate principal balance of non-accrual loans was $3,940,000, $1,592,000, $3,029,000, $4,072,000 and $10,742,000 at December 31, 1996, 1995, 1994, 1993 and 1992, respectively. The aggregate principal balance of restructured loans was $77,000, $7,000, $1,448,000, $4,018,000 and $2,045,000 at December 31, 1996, 1995, 1994, 1993 and 1992, respectively. Accruing loans which were contractually past due 90 days or more for years ended December 31, 1996, 1995, 1994, 1993 and 1992, amounted to $4,811,000, $5,148,000, $3,614,000, $4,277,000 and $8,523,000, respectively. The Company's policy provides that loans are placed in non-accrual status if any of the following criteria are met: (1) a loan is determined to be a loss of any amount as to principal or interest; (2) a loan has a deficiency balance; (3) receipt of notice of bankruptcy with regards to a borrower; or (4) a loan involves repossession of property and it is reasonably assumed that there will be a loss. In the normal course of business, management becomes aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans, but which do not currently meet the criteria for disclosure as problem loans. Historically, some of these loans are ultimately restructured or placed in non-accrual status. At December 31, 1996, no loans were known to be potential problem loans. At December 31, 1996, the Company did not have any concentration of loans in excess of 10% of total loans outstanding. Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. However, the Company does conduct business in a geographically concentrated area. The ability of the Company's borrowers to repay loans is to some extent dependent upon the economic conditions prevailing in the market area. 14 15 Summary of Loan Loss Experience In the normal course of business, the Company assumes risks in extending credit. The Company manages these risks through its lending policies, loan review procedures and the diversification of its loan portfolio. Although it is not possible to predict loan losses with any certainty, management constantly reviews the characteristics of the loan portfolio to determine its overall risk profile and quality. Constant attention to the quality of the loan portfolio is achieved by a formal loan review process. Throughout this on-going process, management is advised of the condition of individual loans and of the quality profile of the entire loan portfolio. Any loan or portion thereof which is classified as "loss" by regulatory examiners or which is determined by management to be uncollectible because of such factors as the borrower's failure to pay interest or principal, the borrower's financial condition, economic conditions in the borrower's industry, or the inadequacy of underlying collateral, is charged off. The provision for credit losses charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for credit losses at a level that is adequate to meet the present and potential risks of losses on the Company's current portfolio of loans. Management's judgment is based on a variety of factors which include the Company's experience related to loan balances, charge-offs and recoveries, scrutiny of individual loans and risk factors, results of regulatory agency reviews of loans, and present and future economic conditions of the Company's market area. Material estimates that are particularly susceptible to significant change in the near term are a necessary part of this process. Future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Management does not believe the allowance for credit losses can be fragmented by category of loans with any precision that would be useful to investors but is doing so in this report only in an attempt to comply with disclosure requirements of regulatory agencies. The breakdown of the allowance by loan category is based in part on evaluations of specific loans' past history and on economic conditions within specific industries or geographical areas. Accordingly, since all of these conditions are subject to change, the allocation is not necessarily indicative of the breakdown of any future losses. 15 16 The following table presents (a) the breakdown of the allowance for credit losses by loan category and (b) the percentage of each category in the loan portfolio to total loans at December 31 for the years presented:
1996 1995 1994 ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF FOR LOANS TO FOR LOANS TO FOR LOANS TO CREDIT LOSS TOTAL LOANS CREDIT LOSS TOTAL LOANS CREDIT LOSS TOTAL LOANS =========== =========== =========== =========== =========== =========== (In thousands) Commercial & agricultural $3,570 9.33% $3,290 9.41% $3,100 10.14% Consumer & installment 11,100 29.15% 10,413 29.31% 9,350 30.30% Real estate mortgage 20,532 55.12% 19,500 55.44% 17,090 55.08% Lease financing 2,070 5.84% 1,433 5.13% 1,290 3.91% Other - 0.56% - 0.71% - 0.57% ------ ------ ------ ------ ------ ------ TOTAL $37,272 100.00% $34,636 100.00% $30,830 100.00% ====== ====== ====== ====== ====== ======
1993 1992 ALLOWANCE % OF ALLOWANCE % OF FOR LOANS TO FOR LOANS TO CREDIT LOSS TOTAL LOANS CREDIT LOSS TOTAL LOANS =========== ----------- ----------- ----------- Commercial & agricultural $3,020 11.07% $5,550 23.16% Consumer & installment 7,620 27.73% 7,355 30.40% Real estate mortgage 16,123 55.04% 10,426 41.96% Lease financing 705 3.30% 785 3.11% Other - 2.86% - 1.37% ------ ------ ------ ------ TOTAL $27,468 100.00% $24,116 100.00% ====== ====== ====== ======
16 17 The following table sets forth certain information with respect to the Company's loans (net of unearned discount) and the allowance for credit losses for the five years ended December 31, 1996.
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) LOANS Average loans for the period $ 2,410,746 $ 2,146,967 $ 1,881,922 $ 1,675,048 $ 1,550,745 =========== =========== =========== =========== =========== ALLOWANCE FOR CREDIT LOSSES Balance, beginning of period 34,636 30,830 27,468 24,116 21,106 Loans charged off: Commercial & agricultural (1,197) (448) (1,479) (374) (1,662) Consumer & installment (5,969) (3,550) (3,146) (5,030) (5,214) Real estate mortgage (808) (715) (1,217) (2,128) (4,810) Lease financing (30) (1) (19) (144) (169) ----------- ----------- ----------- ----------- ----------- Total loans charged off (8,004) (4,714) (5,861) (7,676) (11,855) ----------- ----------- ----------- ----------- ----------- Recoveries: Commercial & agricultural 427 99 1,539 169 348 Consumer & installment 1,163 1,084 1,271 1,326 1,409 Real estate mortgage 241 366 412 325 169 Lease financing 5 18 55 176 96 ----------- ----------- ----------- ----------- ----------- Total recoveries 1,836 1,567 3,277 1,996 2,022 ----------- ----------- ----------- ----------- ----------- Net charge-offs (6,168) (3,147) (2,584) (5,680) (9,833) Provision charged to operating expense 8,804 6,206 5,946 9,032 12,843 Acquisitions -- 747 -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, end of period $ 37,272 $ 34,636 $ 30,830 $ 27,468 $ 24,116 =========== =========== =========== =========== =========== RATIOS Net charge-offs to average loans 0.26% 0.15% 0.14% 0.34% 0.63% =========== =========== =========== =========== ===========
17 18 Deposits Deposits represent the principal source of funds for the Company. The distribution and market share of deposits by type of deposit and by type of depositor are important considerations in the Company's assessment of the stability of its funds sources and its access to additional funds. Furthermore, management shifts the mix and maturity of the deposits depending on economic conditions and loan and investment policies in an attempt, within set policies, to minimize cost and maximize effective interest differential. The following table shows the classification of deposits on an average basis for the three years ended December 31, 1996.
YEARS ENDED DECEMBER 31 -------------------------------------------------------------------------------- 1996 1995 1994 -------------------------------------------------------------------------------- Average Average Average Average Average Average Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- (Dollars in thousands) Non-interest bearing demand deposits $ 383,897 -- $ 361,120 -- $ 364,451 -- Interest bearing demand deposits 700,863 2.91% 654,151 2.71% 618,929 2.64% Savings 371,514 4.02% 300,278 3.97% 292,908 3.25% Time 1,526,564 5.46% 1,416,901 5.47% 1,237,205 4.32% ---------- ---------- ---------- TOTAL DEPOSITS $2,982,838 $2,732,450 $2,513,493 ========== ========== ==========
Time deposits of $100,000 and over including certificates of deposits of $100,000 and over at December 31, 1996, had maturities as follows:
DECEMBER 31, 1996 ----------------- (In thousands) Three months or less $111,204 Over three months through six months 96,670 Over six months through twelve months 54,377 Over twelve months 136,872 -------- TOTAL $399,123 ========
18 19 Return on Equity and Assets Return on average common equity, average assets, and the dividend payout ratio are based on net income for the three years ended December 31, 1996, as presented below:
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ---- ---- Return on average common equity 14.31% 13.23% 12.75% Return on average assets 1.24 1.13 1.07 Dividend payout ratio 34.65 34.37 32.69
The Company's average common equity as a percent of average assets was 8.68%, 8.52% and 8.35% for 1996, 1995 and 1994, respectively. Short-Term Borrowings See Note 8 of Notes to Consolidated Financial Statements on pages 29 and 30 of the Company's 1996 Annual Report to Shareholders incorporated herein by reference. Item 2. - Properties The physical properties of the Registrant are held in its subsidiaries as follows: a. Bank of Mississippi - The main office of the BOM is located at One Mississippi Plaza in the central business district of Tupelo in a seven-floor modern glass, concrete, and steel office building owned by BOM. BOM occupies approximately 75% of the rentable space in the building with the remainder leased to various unaffiliated tenants. BOM owns 78 of its 101 branch banking facilities. The remaining 23 branch banking facilities are occupied under leases varying in length from one to 12 years. BOM also owns several buildings in the Hattiesburg, Mississippi, area (which provide space for certain of BOM's Southern Region activities including warehouse requirements, mortgage lending, trust services, lease servicing and central operations), an operations center near the Tupelo Municipal Airport (which provides operational support for VOL as well), an office building in downtown Jackson, Mississippi (which has approximately 86,000 square feet of space, of which BOM uses approximately two-thirds for banking activities while leasing or holding for lease the remaining 28,000 square feet) and an office building in downtown Gulfport, Mississippi (which has approximately 85,000 square feet of space, of which BOM uses approximately 7,500 square feet for banking activities while leasing or holding for lease the remaining portion of the building). 19 20 BOM considers all its buildings and leased premises to be in good condition. BOM also owns several parcels of property acquired under foreclosure. Ownership of and rentals on other real property by BOM are not material. b. Volunteer Bank - The main office of VOL is located at One Jackson Place in the central business district of Jackson, Tennessee in a building owned by VOL. VOL owns 22 of its 30 branch banking facilities. The remaining 8 branch banking facilities are occupied under leases varying in length from one to 30 years. VOL considers all its building and leased premises to be in good condition. VOL also owns several parcels of property acquired under foreclosure. Ownership of and rentals on other real property by VOL are not material. c. Personal Finance Company - This wholly-owned subsidiary of BOM occupies 36 leased offices, with the unexpired terms varying in length from one to five years. The average size of these leased offices is approximately 1,000 square feet with average annual rent of approximately $8,000. All these premises are considered to be in good condition. d. TC Finance, Inc.- This wholly-owned subsidiary of VOL occupies 9 leases offices with the unexpired terms varying in length from one to five years. Item 3. - Legal Proceedings The Company and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. In the opinion of management, after consultation with outside legal counsel, the outcome of these actions should not have a material adverse effect on the financial condition of the Company and its subsidiaries, taken as a whole. Item 4. - Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the fourth quarter of 1996. 20 21 PART II Item 5. - Market for the Registrant's Common Stock and Related Stockholder Matters Market for Common Stock The common stock of the Company trades on The Nasdaq Stock Market under the symbol BOMS. The following table sets forth the range of closing sale prices of the Company's common stock as reported on The Nasdaq Stock Market. The prices have been restated to reflect the effect of the two-for-one stock split effected in the form of a 100% stock dividend paid November 20, 1995.
1996: High Low ---- --- 4th quarter $ 28.25 $ 23.75 3rd quarter 24.00 21.50 2nd quarter 25.00 21.50 1st quarter 25.50 21.125 1995: 4th quarter $23.875 $ 20.25 3rd quarter 20.875 19.375 2nd quarter 20.00 18.00 1st quarter 18.00 16.25
Holders of Record As of February 28, 1997, there were 7,655 shareholders of record of the Company's common stock. Dividends The Company declared cash dividends totaling $0.70 per share during 1996, $0.62 during 1995 and $0.555 during 1994. Future dividends, if any, will vary depending on the Company's profitability and anticipated capital requirements. Item 6. - Selected Financial Data The information under the caption "Selected Financial Information" on page 11 of the Company's 1996 Annual Report to Shareholders is incorporated herein by reference. The Company's long-term debt at December 31, 1996, totaled $55,778,000, at December 31, 1995, totaled $73,624,000, at December 31, 1994, totaled $67,416,000, at December 31, 1993, totaled $24,508,000 and totaled $32,541,000 at December 31, 1992. 21 22 Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 13 through 20 of the Company's 1996 Annual Report to Shareholders is incorporated herein by reference. Item 8. - Financial Statements and Supplementary Data The following consolidated financial statements of the Company and its subsidiaries, the report of independent auditors thereon, and the quarterly data (unaudited), appearing in the Company's 1996 Annual Report to Shareholders, are incorporated herein by reference. Consolidated Balance Sheets on page 21. Consolidated Statements of Income on page 22. Consolidated Statements of Shareholders' Equity on page 23. Consolidated Statements of Cash Flows on page 24. Notes to Consolidated Financial Statements on pages 25 through 39. Report of Independent Auditors on page 40. Summary of Quarterly Results (Unaudited) on page 12. Item 9. - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no disagreements with the Company's independent accountants and auditors on any matter of accounting principles or practices or financial statement disclosure. 22 23 PART III Item 10. - Directors and Executive Officers of the Registrant Information concerning the directors and nominees of the Company appears under the caption "Election of Directors" on pages 1 through 4 of the Company's definitive Proxy Statement for its 1997 annual meeting, and is incorporated herein by reference. Executive Officers of Registrant Information follows concerning the executive officers of the Company who are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934.
Name Offices Held Age - ---- ------------ --- Aubrey B. Patterson Chairman of the Board of 54 Directors and Chief Executive Officer of the Company and Bank of Mississippi; Director of the Company; Director of Volunteer Bank Charles J. McKee Executive Vice President 65 of the Company; Vice Chairman, Bank of Mississippi; Director of Bank of Mississippi and Volunteer Bank L. Nash Allen, Jr. Treasurer, and Chief 52 Financial Officer of the Company; Executive Vice President, Bank of Mississippi Kenneth R. Wilburn Executive Vice President, 50 Loan Administration of the Company and Bank of Mississippi
23 24 Harry R. Baxter Vice Chariman and 52 Director of Marketing of the Company and Bank of Mississippi Gary R. Harder Senior Vice President, Audit 52 and Loan Review of the Company and Bank of Mississippi Michael W. Weeks Chairman of the Board of 48 Directors and Chief Executive Officer of Volunteer Bank; Executive Vice President of the Company Michael L. Sappington Vice Chairman 47 Bank of Mississippi Gregg Cowsert Vice Chairman and Chief 49 Lending Officer Bank of Mississippi James Threadgill Executive Vice President 42 Bank of Mississippi
None of the executive officers of the Company are related by blood, marriage, or adoption. There are no arrangements or understandings between any of the executive officers and any other person pursuant to which the individual named above was or is to be selected as an officer. The executive officers of the Company are elected by the Board of Directors at its first meeting following the annual meeting of shareholders, and they hold office until the next annual meeting or until their successors are duly elected and qualified. Mr. Patterson served as President of the Bank of Mississippi from 1983 until April 1990 when he was named Chief Executive Officer of the Bank of Mississippi and the Company. He has served as Chairman of the Board and Chief Executive Officer of the Bank of Mississippi and the Company since April 1993. Following the merger with VBS on August 31, 1993, he served as a director of VBS and he has served as a director of Volunteer Bank since its formation on December 31, 1993. Mr. McKee has served as Vice Chairman and as Executive Vice President of the Bank of Mississippi during the last five years and as Executive Vice President of the Company since April, 1986. He has served as a director of Bank of Mississippi since 1993, as a director of VBS from 24 25 August 31 to December 31, 1992, and as a director of Volunteer Bank since its formation on December 31, 1992. Mr. Allen has served as Senior Vice President and Executive Vice President of the Bank of Mississippi during the past five years. He has served as Treasurer of the Company during this same period. Mr. Wilburn served as Senior Vice President-Loan Administration, Bank of Mississippi, until January 1988, when his designation was changed to Executive Vice President-Loan Administration. Since October 1992, he has also served as Executive Vice President of the Company. Mr. Baxter joined the Bank of Mississippi in July 1986, as Senior Vice President and Director of Marketing. He was named Executive Vice President and Director of Marketing in August 1989 and named Vice Chariman in August 1996. Mr. Harder served as First Vice President and Senior Vice President-Loan Review, Bank of Mississippi during the last five years. Since October, 1992 he has also served as First Vice President and then Senior Vice President of the Company. Mr. Weeks served as Vice-Chairman of the Board and Chief Executive Officer of Volunteer Bank from January 24, 1995 to March 16, 1995 when he was named Chairman of the Board and Chief Executive Officer of Volunteer Bank. He has served as Executive Vice President of the Company since January 17, 1995. Prior to his employment by the Company, Mr. Weeks served as a partner in the accounting firm of KPMG Peat Marwick LLP. Mr. Sappington joined First Mississippi National Bank in 1977 which was later merged with Bank of Mississippi in 1987. He has served as Senior Vice President and Executive Vice President. He was named Vice Chairman in August, 1996. Mr. Cowsert joined the Bank of Mississippi in 1990 as Senior Vice President. He has since served as Executive Vice President and was named Vice Chairman in August, 1996. Mr. Threadgill joined Bank of Mississippi in 1987 as Assistant Vice President. He has since served as Vice President, Community Bank President and was named Executive Vice President in August, 1996. Item 11. - Executive Compensation Information concerning the remuneration of executive officers of the Company appears under the caption "Executive Compensation" on pages 7 through 13 of the Company's definitive Proxy Statement for its 1997 annual meeting , and is incorporated herein by reference. Information concerning the remuneration of directors of the Company appears under the caption 25 26 "Compensation of Directors" on page 3 of the Company's definitive Proxy Statement for its 1997 annual meeting, and is incorporated herein by reference. Item 12. - Security Ownership of Certain Beneficial Owners and Management Information concerning the security ownership of certain beneficial owners and directors and executive officers of the Company appears under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 5 and 6 of the Company's definitive Proxy Statement for its 1997 annual meeting, and is incorporated herein by reference. Item 13. - Certain Relationships and Related Transactions Information concerning certain relationships and related transactions with management and others appears under the caption "Certain Relationships and Related Transactions" on page 15 of the Company's definitive Proxy Statement for its 1997 annual meeting, and is incorporated herein by reference. 26 27 PART IV Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Consolidated Financial Statements: The following have been incorporated herein from the Company's 1996 Annual Report to Shareholders: -Report of Independent Auditors -Consolidated balance sheets as of December 31, 1996, and 1995. -Consolidated statements of income for the three years ended December 31, 1996. -Consolidated statements of shareholders' equity for the three years ended December 31, 1996. -Consolidated statements of cash flows for the three years ended December 31, 1996. -Notes to consolidated financial statements for the three years ended December 31, 1996. (a) 2. Consolidated Financial Statement Schedules: All schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. (a) 3. Exhibits: (3)(a) Articles of incorporation, as amended. (1) (b) Bylaws. (2) (4) Specimen Common Stock Certificate. (3) (10)(a) Stock Bonus Agreement between Bancorp of Mississippi, Inc., and Aubrey B. Patterson, Jr., dated November 6, 1987, and Escrow Agreement between Bank of Mississippi and Aubrey B. Patterson, Jr., dated November 6, 1987. (4)(9) (b) Form of deferred compensation agreement between Bancorp of Mississippi, Inc. and certain key executives. (5)(9) (c) 1995 Stock Incentive Plan. (3)(9) (d) 1995 Non-Qualified Stock Option Plan for Non-Employee Directors. (3)(9) (e) Stock Bonus Agreement between BancorpSouth, Inc. and Michael W. Weeks, dated January 17, 1995 and Escrow Agreement between Bank of Mississippi and Michael W. Weeks dated January 17, 1995 (8)(9) (11) Statement re computation of per share earnings. (13)(a) Managements' Discussion and Analysis of Financial Condition and Results of Operations on pages 13 through 20 of the 1996 Annual Report to Shareholders. (6) (b) Consolidated Financial Statements and Notes thereto and Independent Auditors Report on pages 21 through 40 of the 1996 Annual Report to Shareholders. (6) 27 28 (c) Summary of Quarterly Results on page 12 of the 1996 Annual Report to Shareholders. (6) (d) Selected Financial Information on page 11 of the 1996 Annual Report to Shareholders. (6) (22) Subsidiaries of the Registrant. (23) Consent of Independent Accountants. (27) Financial Data Schedule (for SEC use only). (28) Information regarding Bancorp of Mississippi, Inc., amended and restated Salary Deferral-Profit Sharing Employee Stock Ownership Plan. (7)(9) (1) Filed as exhibits 3.1 and 3.2 to the Company's registration statement on Form S-4 filed on January 6, 1995 (Registration No. 33-88274) and incorporated by reference thereto. (2) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1985 (file number 0-10826), and incorporated by reference thereto. (3) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1994 (file number 0-10826), and incorporated by reference thereto. (4) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1987 (file number 0-10826), and incorporated by reference thereto. (5) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1988 (file number 0-10826), and incorporated by reference thereto. (6) Furnished for the information of the Commission only and not deemed "filed" as part of this Report on Form 10-K except for those portions which are specifically incorporated herein by reference. (7) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1990 (file number 0-10826), and incorporated by reference thereto. (8) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1995 (file number 0-1-826), and incorporated by reference thereto. (9) Compensatory plans or arrangements. (b) Reports on Form 8-K: A current report on Form 8-K dated October 8, 1996 was filed with the Securities and Exchange Commission during the fourth quarter of 1996 reporting an event under Item 5-Other Events. 28 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BancorpSouth, Inc. DATE: March 26, 1997 /s/ Aubrey B. Patterson ----------------------------------- Aubrey B. Patterson Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Chairman of the Board, Chief Executive Officer (Principal Executive Officer) /s/ Aubrey B. Patterson and Director March 26, 1997 - ------------------------------ Aubrey B. Patterson Treasurer (Principal Financial and /s/ Nash Allen, Jr. Accounting Officer) March 26, 1997 - ------------------------------ L. Nash Allen, Jr. Director March 26, 1997 - ------------------------------ S. H. Davis Director March 26, 1997 - ------------------------------ Hassell Franklin Director March 26, 1997 - ------------------------------ Fletcher H. Goode, M.D. Director March 26, 1997 - ------------------------------ J. Louis Griffin, Jr. Director March 26, 1997 - ------------------------------ W. G. Holliman, Jr. Director March 26, 1997 - ------------------------------ Douglas Jumper
29 30 /s/ Turner O. Lashlee Director March 26, 1997 - ------------------------------ Turner O. Lashlee /s/ Alan W. Perry Director March 26, 1997 - ------------------------------ Alan W. Perry Director March 26, 1997 - ------------------------------ Frank A. Riley Director March 26, 1997 - ------------------------------ Travis E. Staub Director March 26, 1997 - ------------------------------ Andrew R. Townes, DDS Director March 26, 1997 - ------------------------------ Lowery A. Woodall
30 EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31, ------------------------------------------------ (Dollars in thousands except per share amounts.) 1996 1995 1994 ----------- ----------- ----------- PRIMARY - ------- Average common shares outstanding 21,027,669 20,874,336 10,158,346 Stock options-treasury stock method 185,735 141,070 28,361 2-for-1 stock split effected in the form of a 100% stock dividend paid November 20, 1995 -- -- 10,186,707 ----------- ----------- ----------- Average primary shares outstanding 21,213,404 21,015,406 20,373,414 =========== =========== =========== Net income $ 42,883 $ 35,504 $ 30,728 =========== =========== =========== Per share amount $ 2.02 $ 1.69 $ 1.51 =========== =========== =========== FULLY DILUTED - ------------- Average common shares outstanding 21,027,669 20,874,336 10,158,346 Stock options-treasury stock method 239,051 141,070 36,661 2-for-1 stock split effected in the form of a 100% stock dividend paid November 20, 1995 -- -- 10,195,007 ----------- ----------- ----------- Average fully diluted shares outstanding 21,266,720 21,015,406 20,390,014 =========== =========== =========== Net income $ 42,883 $ 35,504 $ 30,728 =========== =========== =========== Per share amount $ 2.02 $ 1.69 $ 1.51 =========== =========== ===========
EX-13.A 3 MANAGEMENT'S DISCUSSION AND ANALYSIS 1 EXHIBIT 13(a) Managements' Discussion and Analysis of Financial Condition and Results of Operations 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BancorpSouth, Inc. (the Company) is a bank holding company with commercial banking operations in Mississippi and Tennessee. Bank of Mississippi (BOM), the Company's Mississippi banking subsidiary is headquartered in Tupelo, Mississippi. Volunteer Bank (VOL), the Company's Tennessee banking subsidiary is headquartered in Jackson, Tennessee. BOM and its consumer finance and credit life insurance subsidiaries provide commercial banking, leasing, mortgage origination and servicing and trust services to corporate customers, local governments, individuals and other financial institutions through an extensive network of branches and offices located throughout the State of Mississippi. VOL and its consumer finance and credit life insurance subsidiaries provide similar banking services in West Tennessee. The following discussion provides certain information concerning the consolidated financial condition and results of operations of the Company. For a complete understanding of the following discussion, reference is made to the Consolidated Financial Statements and Notes thereto presented elsewhere in this Annual Report. THREE YEARS ENDED DECEMBER 31, 1996 RESULTS OF OPERATIONS Summary The table below summarizes the Company's net income and returns on average assets and average shareholders' equity for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- (In thousands, except per share amounts) Net income $ 42,883 $ 35,504 $ 30,728 Net income per share: $ 2.02 $ 1.69 $ 1.51 Return on average assets 1.24% 1.13% 1.07% Return on average shareholders' equity 14.31% 13.23% 12.75%
NET INTEREST REVENUE Net interest revenue, principally interest earned on assets less interest costs on liabilities, provides the Company with its principal source of income. Since net interest revenue is affected by changes in the levels of interest rates and the amount and composition of interest earning assets and interest bearing liabilities, one of management's primary tasks is to balance these interest sensitive components of assets and liabilities for the purpose of maximizing net interest revenue while at the same time minimizing interest rate risk to the Company. 3 The following table presents the average components of interest earning assets and interest bearing liabilities for each year and their change, expressed as a percentage, from each of the prior years:
1996 1995 1994 ------------------- ------------------- -------------------- AVERAGE % AVERAGE % AVERAGE % BALANCE CHANGE BALANCE CHANGE BALANCE CHANGE ------- ------ ------- ------ ------- ------ Interest earning assets: (DOLLARS IN THOUSANDS) Deposits with other banks $ 12,313 -38.3% $ 19,970 +79.7% $ 11,112 -24.9% Held-to-maturity securities 480,191 -7.1% 516,919 +20.8% 427,759 -16.1% Available-for-sale securities 231,040 +26.0% 183,396 -31.1% 266,370 +88.3% Federal funds sold 60,868 +54.3% 39,451 -9.2% 43,437 -11.0% Loans and leases, net of unearned 2,410,746 +12.3% 2,146,967 +14.1% 1,881,922 +12.4% Mortgages held for sale 27,729 +33.3% 20,805 -38.1% 33,620 -38.7% ---------- ----- ---------- ----- ---------- ----- Total interest earning assets $3,222,887 +10.1% $2,927,508 +9.9% $2,664,220 +9.0% ========== ===== ========== ===== ========== ===== Interest bearing liabilities: Deposits $2,598,941 +9.6% $2,371,330 +10.3% $2,149,042 +6.7% Federal funds purchased and securities sold under repurchase agreements 40,880 +0.1% 40,845 +11.3% 36,686 +4.3% Long-term debt 80,619 +17.8% 68,452 +17.6% 58,191 +67.6% Other 3,359 -28.6% 4,706 +29.7% 3,627 +11.1% ---------- ----- ---------- ----- ---------- ----- Total interest bearing liabilities $2,723,799 +9.6% $2,485,333 +10.6% $2,247,546 +7.7% ========== ===== ========== ===== ========== ===== Non-interest bearing deposits $ 383,897 +6.3% $ 361,120 -0.9% $ 364,451 +11.3% ========== ===== ========== ===== ========== =====
In 1996 loans and leases continued as the most significant growth components of interest earning assets. Loans and leases grew at faster rates than interest bearing deposits in 1996, 1995 and 1994; however, the Company's other funding sources, non-interest bearing deposits, federal funds purchased and Federal Home Loan Bank advances, were adequate to fund its asset growth. The changes in the components of interest earning assets, interest bearing liabilities, and non-interest bearing deposits resulted in the following tax equivalent net interest revenue expressed as a percent of average earning assets for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Net interest margin 4.81% 4.86% 4.76%
The Company experienced a decrease in net interest margin in 1996 as interest rates stabilized. As short-term interest rates began to rise in 1995, the net interest margin stabilized and then increased. The Company began in 1994 to utilize short-term, intermediate-term and long-term borrowings from the Federal Home Loan Bank for the purpose of funding asset growth. The Company has sought to lengthen the maturity of deposits by actively seeking four and five-year certificates of deposit with interest rates slightly above the relative market for such funds, thereby reducing the net interest margin in all three years presented. 2 4 INTEREST RATE SENSITIVITY The interest sensitivity gap is the difference between the maturity or repricing scheduling of interest sensitive assets and interest sensitive liabilities for a given period of time. A prime objective of asset/liability management is to maximize net interest margin while maintaining a reasonable mix of interest sensitive assets and liabilities. The following table sets forth the Company's interest rate sensitivity at December 31, 1996:
INTEREST RATE SENSITIVITY DECEMBER 31, 1996 MATURING OR REPRICING -------------------------------------------------------------- 91 DAYS OVER 1 0 TO 90 TO YEAR TO OVER DAYS 1 YEAR 5 YEARS 5 YEARS ---------- --------- -------- -------- (IN THOUSANDS) Interest earning assets: Interest bearing deposits due from banks $ 18,715 $ - $ - $ - Federal funds sold 70,300 - - - Held-to-maturity securities 31,054 122,594 303,517 72,901 Available-for-sale securities 46,651 57,081 99,427 27,580 Loans & leases, net of unearned 823,938 338,850 1,201,638 104,908 Mortgages held for sale 25,728 - - - ---------- --------- -------- -------- Total interest earning assets 1,016,386 518,525 1,604,582 205,389 ---------- --------- --------- -------- Interest bearing liabilities: Interest bearing demand deposits & savings 440,575 215,968 476,708 - Time deposits 393,463 588,461 592,260 3,473 Federal funds purchased & securities sold under repurchase agreements 32,753 883 - - Long-term debt 812 7,726 31,648 15,592 Other 947 44 300 371 ---------- --------- --------- -------- Total interest bearing liabilities 868,550 813,082 1,100,916 19,436 ---------- --------- --------- -------- Interest sensitivity gap $ 147,836 ($294,557) $ 503,666 $185,953 ========== ========= ========= ======== Cumulative interest sensitivity gap $ 147,836 ($146,721) $ 356,945 $542,898 ========== ========= ========= ========
In the event interest rates decline after 1996, it is likely that the Company will experience a slightly positive effect on net interest income in the following one year period, as the cost of funds will decrease at a more rapid rate than interest income on interest bearing assets. Conversely, in periods of increasing interest rates, based on the current interest sensitivity gap, the Company will experience decreased net interest income. PROVISIONS FOR CREDIT LOSSES The Company has an asset quality review staff which, with a committee of senior officers, reviews the adequacy of the allowance for credit losses in each accounting period. An amount is provided as a charge against current income, based on this group's recommendation and senior management's approval, to maintain the allowance for credit losses at a level sufficient to absorb possible losses inherent in the existing loan and lease portfolios. This provision is determined after examining potential losses in specific credits and considering the general risks associated with lending functions such as current and anticipated economic conditions, historical experience as related to losses, changes in the mix of the loan portfolio and credits which bear substantial risk of loss but which cannot be readily quantified. The process of determining the adequacy of the provision requires that management make material estimates and assumptions which are particularly susceptible to significant change in the near-term. 3 5 The provision for credit losses, the allowance for credit losses as a percent of loans and leases outstanding at the end of each year and net charge offs are shown in the following table:
1996 1995 1994 ---- ---- ---- (DOLLARS IN THOUSANDS) Provision for credit losses $ 8,804 $ 6,206 $ 5,946 Allowance for credit losses as a percent of loans and leases outstanding at year end 1.51% 1.51% 1.52% Net charge offs $ 6,168 $ 3,147 $ 2,584 Net charge offs as a percent of average loans .26% .15% .14%
The 1996 provision for credit losses increased from 1995's level by 41.9% as a result of the growth in loans and an increase in loan losses, primarily in consumer based loans. The 1995 provision for credit losses increased 4.4% from 1994's level as a result of the growth in the loan portfolio. The provision for credit losses for 1994 was 34.2% less than the provision for the previous year principally as a result of an improvement in general economic conditions as evidenced by the lowest level of net loans charged off in recent history. OTHER REVENUE The components of other revenue for the years ended December 31, 1996, 1995 and 1994 and the percentage change from the prior year are shown in the following table:
1996 1995 1994 ------------------- ------------------- ------------------ AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------ -------- ------- --------- ------- -------- (DOLLARS IN THOUSANDS) Mortgage lending $ 8,460 +127.2% $ 3,723 +333.9% $ 858 -72.1% Service charges 17,828 +11.7% 15,965 +10.6% 14,439 +9.4% Life insurance premiums 4,337 +29.7% 3,345 +1.4% 3,300 +7.9% Trust income 2,606 +16.5% 2,237 +19.4% 1,873 +5.5% Securities gains (losses), net 262 +134.2% (765) -161.1% (293) -140.1% Other revenue 7,252 +7.7% 6,735 +15.4% 5,835 +18.2% -------- -------- -------- Total other revenue $ 40,745 +30.4% $ 31,240 +20.1% $ 26,012 -2.9% ======== ======== ========
Mortgage lending revenue in 1996 represents $4,235,000 gain on sale of mortgage loans and $4,225,000 from servicing mortgage loans. The revenue produced by mortgage lending activities increased in 1996 primarily as a result of declining interest rates and growth in servicing income. In 1995, mortgage lending revenue rebounded from 1994's level as a result of stable interest rates and growth in servicing income. In 1994, mortgage lending was impacted by losses incurred on the sale of mortgages in an unfavorable secondary market. The Company's mortgage loan servicing portfolio has continued to increase as indicated in the following table:
1996 1995 1994 ------------------- ------------------ ----------------- AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------ -------- ------ -------- ------ -------- (DOLLARS IN MILLIONS) Mortgage loans serviced at year-end $1,033.9 +18.0% $ 876.0 +8.0% $ 811.3 +11.4%
Service charges on deposit accounts increased in 1996 and 1995 because of higher volumes of items processed as a result of increased economic activity. Trust income increased 16.5% in 1996, 19.4% in 1995 and 5.5% in 1994. The trust business experienced steady growth as evidenced by increases in the number of trust 4 6 accounts and the value of assets under care (either managed or in custody). Other revenue increased 7.7% and 15.4% in 1996 and 1995, respectively, principally as a result of increases in fees for non-deposit related services. OTHER EXPENSE The components of other expense for the years ended December 31, 1996, 1995 and 1994 and the percentage change from the prior year are shown in the following table:
1996 1995 1994 ------------------- ------------------ ----------------- AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------ -------- ------ -------- ------ -------- (DOLLARS IN THOUSANDS) Salary and employee benefits $ 57,806 +5.6% $ 54,739 +13.1% $ 48,413 +5.3% Occupancy net of rental income 8,331 +3.9% 8,022 +5.3% 7,616 +0.9% Equipment 9,752 +10.1% 8,860 +18.7% 7,463 +15.6% Deposit insurance premiums 2,601 -23.8% 3,412 -39.3% 5,621 +9.4% Other 39,982 +8.9% 36,717 +21.3% 30,259 +7.8% -------- -------- -------- Total other expense $118,472 +6.0% $111,750 +12.5% $ 99,372 +6.6% ======== ======== ========
Increases in salary and employee benefits are primarily attributable to incentives and salary increases, additional employees to staff the banking locations added in each of the three years and the increased cost of employee health care benefits. Occupancy and equipment expenses have increased principally as a result of additional branch offices and upgrades to the Company's internal operating systems. Deposit insurance premiums decreased substantially in 1996 and 1995 as a result of lower rates in the insurance assessment rate of the Federal Deposit Insurance Corporation (FDIC) which were based upon the risk assessment classification assigned to it by the FDIC. Deposit insurance rates for 1996 for the Company's deposits in the Bank Insurance Fund (BIF) were assessed at zero. Certain other of the Company's deposits, which were acquired from thrifts, remained in the Savings Association Insurance Fund (SAIF) and continued to experience assessments for 1996 at the rate of 23 cents per $100 of insured deposits, the same rate experienced in all three years. In 1996, a one-time assessment on SAIF insured deposits was imposed which resulted in a pre-tax payment of $1.9 million and reduced 1996 after-tax net income per share $0.05. Other expenses increased 8.9% in 1996 as a result of expanded telecommunications, systems enhancements, and credit card interchange fees, all of which related to providing higher levels of convenient consumer oriented banking services. Additionally, approximately $500,000 of unamortized expense relating to the issuance of the Company's 9% Subordinated Capital Debentures was charged against 1996 earnings as a result of the early extinguishment of the debt issue in December 1996. Other expenses increased 21.3% in 1995 principally as a result of merger expenses related to the Company's acquisitions. The expansion of the Company's branch banking network also contributed to increases in all years presented. 5 7 FINANCIAL CONDITION LOANS The Company's loan portfolio represents the largest single component of its earning asset base. The following table indicates the average loans, year end balances of the loan portfolio and the percentage increases for the years presented:
1996 1995 1994 -------------------- -------------------- ------------------ AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE -------- -------- -------- -------- ------ -------- (DOLLARS IN MILLIONS) Loans, net of unearned - average $ 2,411 +12.3% $ 2,147 +14.1% $ 1,882 +12.4% Loans, net of unearned - year end $ 2,469 +7.6% $ 2,295 +13.3% $ 2,026 +13.4%
The Company's loan portfolio continues to grow. The Company strives to maintain a high-quality loan portfolio, forsaking growth for quality. The Company's non-performing assets, which were less than 0.5% of net loans for all years presented and which are carried either in the loan account or other assets on the consolidated balance sheets, were as follows at the end of each year presented:
1996 1995 1994 ---- ---- ---- (IN THOUSANDS) Foreclosed properties $ 1,835 $2,662 $1,757 Non-accrual loans 3,940 1,592 3,029 Loans 90 days or more past due 4,811 5,148 3,614 Restructured loans 77 7 1,448 ------- ------ ------ Total non-performing assets $10,663 $9,409 $9,848 ======= ====== ======
The Company has not, as a matter of policy, participated in any highly leveraged transactions nor made any loans or investments relating to corporate transactions such as leveraged buyouts or leveraged recapitalizations. At December 31, 1996 and 1995, the Company did not have any concentration of loans in excess of 10% of loans outstanding. Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. Included in non-performing assets above were loans the Company considered impaired totaling $4,164,000, $1,774,000 and $3,029,000 in 1996, 1995 and 1994, respectively. SECURITIES AND OTHER EARNING ASSETS The securities portfolio is used to make various term investments, provide a source of liquidity and to serve as collateral to secure certain types of deposits. A portion of the Company's securities portfolio continues to be tax-exempt. Investments in tax-exempt securities totaled $157.0 million at December 31, 1996, compared to $134.7 million at the end of 1995. The Company invests only in investment grade securities, with the exception of obligations of Mississippi and Tennessee counties and municipalities, and avoids other high yield non-rated securities and investments. At December 31, 1996, the Company's available-for-sale securities totaled $230.7 million. These securities, which are subject to possible sale, are recorded at fair value. At December 31, 1996, the Company held no securities whose decline in fair value was considered other than temporary. Net unrealized gains on investment securites as of December 31, 1996 totaled $10.7 million. Net unrealized gains on held-to-maturity securities comprised $7.0 million of that total while net unrealized gains on available-for-sale securities were $3.7 million. Net unrealized gains on investment securities as of December 31, 1995, amounted to $12.6 million. Of that total, $8.8 million was attributable to held-to-maturity securities and $3.8 million available-for-sale securities. 6 8 These unrealized gains were a direct result of relatively stable intermediate term interest rates during 1996 and 1995. Because the average maturity of securities owned is relatively short, market value fluctuations due to interest rate changes are softened and the impact of foregone earnings is reduced. DEPOSITS The following table presents the Company's average deposit mix and percentage change for the years indicated:
1996 1995 1994 ------------------- ------------------ ----------------- AVERAGE BALANCE % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------- -------- ------ -------- ------ -------- (DOLLARS IN MILLIONS) Interest bearing deposits $2,598.9 +9.6% $2,371.3 +10.3% $2,149.0 +6.7% Non-interest bearing deposits $ 383.9 +6.3% $ 361.1 -0.9% $ 364.5 +11.3%
The Company's deposit mix continued to experience change in 1996. By year end 1996, other time deposits showed an increase of 7.2% from the end of 1995, while interest bearing demand deposits increased by 9.0% and other short-term savings accounts increased 22.5%. Non-interest bearing demand deposits increased 14.5% from year end 1995 to year end 1996. Management is of the opinion that the low interest rates paid on deposit accounts in 1996 and 1995 caused depositors to reduce the period over which they were willing to commit their funds and shifted their deposits from longer term, fixed rate instruments to daily savings and demand accounts, or even to seek alternative non-bank investments. While that trend continued into 1996, the Company has countered with a strategy of paying slightly above market rates for intermediate term deposits. Deposits are the Company's primary source of funds to support its earning assets. The Company's primary market areas provide the sources of substantially all deposits for all periods presented. LIQUIDITY The Company's goal is to provide adequate funds to meet changes in loan demand or any potential increase in the normal level of deposit withdrawals. This goal is accomplished primarily by maintaining sufficient short-term liquid assets coupled with consistent growth in core deposits in order to fund earning assets and to maintain the availability of unused capacity to acquire funds in national and local capital markets. The Company's traditional sources of maturing loans, investment securities, mortgages held for sale, purchased federal funds and base of core deposits seem adequate to meet liquidity needs for normal operations. In 1994, the Company's two subsidiary banks initiated relationships with the Federal Home Loan Bank which provided an additional source of liquidity to fund term loans with borrowings of matched maturities. The matching of these assets and liabilities has had the effect of reducing the Company's net interest margin. On October 23, 1996 the Company announced that it would call for redemption all of its outstanding 9% Subordinated Capital Debentures due in 1999. On December 30, 1996 the Company extinguished the debt by irrevocably depositing with the trustee $24,508,000 in cash plus accrued and unpaid interest from November 1, 1996 to redeem the debentures on January 15, 1997. CAPITAL RESOURCES The Company is required to comply with the risk-based capital guidelines established by the Board of Governors of the Federal Reserve System (FRB). These guidelines apply a variety of weighting factors which vary according to the level of risk associated with the assets. Capital is measured in two "Tiers": Tier I consists of paid-up share capital, including common stock and disclosed reserves (retained earnings and related surplus in the case of common stock), and Tier II consists of general allowance for losses on loans and leases, "hybrid" debt capital instruments, and all or a portion of other subordinated capital debt, depending upon remaining term to maturity. The Company's Tier I capital and total capital, as a percentage of total risk-adjusted assets, was 12.14% and 13.39%, respectively at December 31, 1996, compared to 12.11% and 13.97% at December 31, 1995. Both ratios exceed the required minimum levels for these ratios of 4% and 8%, respectively. In addition, the Company's leverage capital ratio (Tier I capital divided by total assets, less goodwill) was 8.56% at December 31, 1996 and 8.56% at December 31, 1995, compared to the required minimum leverage capital ratio of 3%. 7 9 The FDIC's capital-based supervisory system for insured financial institutions categorizes the capital position for banks into five categories, ranging from well capitalized to critically undercapitalized. For a bank to classify as "well capitalized", the Tier I risk-based capital, total risk-based capital and leverage capital ratios must be at least 6%, 10% and 5%, respectively. Each of the Company's bank subsidiaries meet the criteria for the "well capitalized" category at December 31, 1996. The Company has determined to pursue acquisition transactions of depository institutions and businesses closely related to banking which further the Company's business strategies. The Company anticipates that the consideration for substantially all of these transactions, if completed, will be shares of the Company's Common Stock; however, transactions involving cash consideration or other forms of consideration will not be excluded. On August 28, 1996 the Company announced that it would purchase up to $2.5 million of its outstanding common stock within the next year. As of December 31, 1996 the Company had purchased 43,566 shares at a cost of $1.2 million. The shares were held as treasury stock except those shares re-issued to satisfy the exercise of options to purchase common stock. 8 EX-13.B 4 CONSOLIDATED FINANICAL STATMENTS 1 EXHIBIT 13(b) Consolidated Financial Statements and Notes thereto and Report of Independent Auditors 2
CONSOLIDATED BALANCE SHEETS BANCORPSOUTH, INC. AND SUBSIDIARIES DECEMBER 31 ---------------------------- 1996 1995 ----------- ----------- ASSETS (IN THOUSANDS) Cash and due from banks (Note 18) $ 153,148 $ 149,923 Interest bearing deposits with other banks 18,715 15,892 Held-to-maturity securities (Note 3) (fair value of $537,119 and $448,075) 530,066 439,303 Available-for-sale securities (Note 4) (amortized cost of $227,044 and $235,909) 230,739 239,755 Federal funds sold 70,300 35,450 Loans (Notes 5, 6 and 15) 2,554,118 2,371,684 Less: Unearned discount 84,784 76,518 Allowance for credit losses 37,272 34,636 ------------ ------------ Net loans 2,432,062 2,260,530 Mortgages held for sale 25,728 25,168 Premises and equipment, net (Note 7) 90,939 81,240 Accrued interest receivable 31,855 28,992 Other assets (Notes 10 and 16) 33,687 29,906 ------------ ------------ TOTAL ASSETS $ 3,617,239 $ 3,306,159 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand: Non-interest bearing $ 450,470 $ 393,417 Interest bearing 724,872 665,313 Savings 408,380 333,436 Other time (Note 8) 1,577,657 1,471,446 ------------ ------------ Total deposits 3,161,379 2,863,612 Federal funds purchased and securities sold under repurchase agreements (Note 8) 33,636 35,848 Accrued interest payable 14,488 13,695 Other liabilities (Notes 10 and 11) 36,634 31,285 Long-term debt (Note 9) 55,778 73,624 ------------ ------------ TOTAL LIABILITIES 3,301,915 3,018,064 ------------ ------------ SHAREHOLDERS' EQUITY (Notes 2, 13, and 14) Common stock, $2.50 par value Authorized - 500,000,000 shares; Issued - 21,164,265 and 21,105,664 shares at December 31, 1996 and 1995, respectively 52,911 52,764 Capital surplus 84,616 84,391 Unrealized gain on available-for-sale securities, net of tax 2,280 2,480 Retained earnings 177,741 149,494 Treasury stock at cost (150,784 and 108,384 shares at December 31, 1996 and 1995, respectively) (2,224) (1,034) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 315,324 288,095 ------------ ------------ Commitments and contingent liabilities (Notes 5 and 18) -- -- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,617,239 $ 3,306,159 ============ ============
See accompanying notes to consolidated financial statements. 1 3
CONSOLIDATED STATEMENTS OF INCOME BANCORPSOUTH, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 31 -------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ INTEREST REVENUE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Loans receivable $ 227,169 $ 203,800 $ 163,727 Deposits with other banks 646 857 660 Federal funds sold 3,289 2,205 1,756 Held-to-maturity securities: U.S. Treasury 4,268 3,977 2,063 U.S. Government agencies and corporations 19,555 24,175 16,579 Obligations of states and political subdivisions 6,954 7,491 7,213 Other 2 168 270 Available-for-sale securities 14,119 8,321 13,227 Mortgages held for sale 1,917 1,433 2,400 ----------- ----------- ----------- Total interest revenue 277,919 252,427 207,895 ----------- ----------- ----------- INTEREST EXPENSE Deposits 118,746 107,165 79,270 Federal funds purchased and securities sold under repurchase agreements 1,954 2,084 1,338 Other 5,805 5,208 4,421 ----------- ----------- ----------- Total interest expense 126,505 114,457 85,029 ----------- ----------- ----------- Net interest revenue 151,414 137,970 122,866 Provision for credit losses (Note 6) 8,804 6,206 5,946 ----------- ----------- ----------- Net interest revenue, after provision for credit losses 142,610 131,764 116,920 ----------- ----------- ----------- Other Revenue Mortgage lending 8,460 3,723 858 Service charges 17,828 15,965 14,439 Life insurance premiums 4,337 3,345 3,300 Trust income 2,606 2,237 1,873 Securities gains (losses), net 262 (765) (293) Other 7,252 6,735 5,835 ----------- ----------- ----------- Total other revenue 40,745 31,240 26,012 ----------- ----------- ----------- OTHER EXPENSE Salaries and employee benefits (Notes 11 and 13) 57,806 54,739 48,413 Occupancy net of rental income 8,331 8,022 7,616 Equipment 9,752 8,860 7,463 Deposit insurance premiums 2,601 3,412 5,621 Other 39,982 36,717 30,259 ----------- ----------- ----------- Total other expense 118,472 111,750 99,372 ----------- ----------- ----------- Income before income taxes 64,883 51,254 43,560 Income tax expense (Note 10) 22,000 15,750 12,832 ----------- ----------- ----------- Net Income $ 42,883 $ 35,504 $ 30,728 =========== =========== =========== NET INCOME PER SHARE (Note 14) $ 2.02 $ 1.69 $ 1.51 =========== =========== ===========
See accompanying notes to consolidated financial statements. 2 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY BANCORPSOUTH, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 COMMON STOCK UNREALIZED ---------------------- CAPITAL GAINS RETAINED TREASURY SHARES AMOUNT SURPLUS (LOSSES), NET EARNINGS STOCK TOTAL ----------- -------- -------- ------------- -------- -------- --------- (DOLLARS IN THOUSANDS) BALANCE, DECEMBER 31, 1993 10,031,190 $ 25,395 $ 77,493 -- $ 132,346 ($2,067) $ 233,167 Impact at January 1, 1994 of change in accounting principle, net of tax (Note 1) -- -- -- 2,573 -- -- 2,573 Shares issued: Employee stock bonus plan (Note 13) 25,000 63 750 -- (813) -- -- Conversion of warrants 119,665 299 908 -- -- -- 1,207 Other shares issued 25,103 62 341 -- -- -- 403 Recognition of stock compensation -- -- -- -- 438 -- 438 Purchase of treasury stock (37,854) -- -- -- -- (861) (861) Purchase of stock warrants -- -- (484) -- -- -- (484) Change in market valuation of available-for-sale securities, net of tax -- -- -- (4,275) -- -- (4,275) Net income -- -- -- -- 30,728 -- 30,728 Cash dividends declared: BancorpSouth, at $.555 per share -- -- -- -- (8,754) -- (8,754) Pooled acquistions -- -- -- -- (1,290) -- (1,290) ----------- -------- -------- ------- --------- ------- --------- BALANCE, DECEMBER 31, 1994 10,163,104 25,819 79,008 (1,702) 152,655 (2,928) 252,852 Shares issued: Employee stock bonus plan (Note 13) 15,000 37 476 -- (513) -- -- Purchase business acquisitions 259,285 370 4,530 -- -- 1,894 6,794 Other shares issued 61,883 154 404 -- -- -- 558 Recognition of stock compensation -- -- -- -- 436 -- 436 Fractional shares redeemed in poolings (797) (1) (21) -- -- -- (22) Purchase of stock warrants -- -- (6) -- -- -- (6) Change in market valuation of available-for-sale securities, net of tax -- -- -- 4,182 -- -- 4,182 Net income -- -- -- -- 35,504 -- 35,504 Stock split effected in the form of a stock dividend (Note 2) 10,498,805 26,385 -- -- (26,385) -- -- Cash dividends declared: BancorpSouth, at $.62 per share -- -- -- -- (,278) -- (11,278) Pooled acquisitions -- -- -- -- (925) -- (925) ----------- -------- -------- ------- --------- ------- --------- BALANCE, DECEMBER 31, 1995 20,997,280 52,764 84,391 2,480 149,494 (1,034) 288,095 Shares issued 62,151 147 225 -- -- 52 424 Recognition of stock compensation -- -- -- -- 83 -- 83 Purchase of treasury stock (45,950) -- -- -- -- (1,242) (1,242) Change in market valuation of available-for-sale securities, net of tax -- -- -- (200) -- -- (200) Net income -- -- -- -- 42,883 -- 42,883 Cash dividends declared: BancorpSouth, at $.70 per share -- -- -- -- (14,719) -- (14,719) ----------- -------- -------- ------- --------- ------- --------- BALANCE, DECEMBER 31, 1996 21,013,481 $ 52,911 $ 84,616 $ 2,280 $ 177,741 ($2,224) $ 315,324 =========== ======== ======== ======= ========= ======= =========
See accompanying notes to consolidated financial statements. 3 5
CONSOLIDATED STATEMENTS OF CASH FLOWS BANCORPSOUTH, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 31 ----------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- OPERATING ACTIVITIES: (IN THOUSANDS) Net income $ 42,883 $ 35,504 $ 30,728 Adjustment to reconcile net income to net cash (used) provided by operating activities: Provision for credit losses 8,804 6,206 5,946 Depreciation and amortization 9,630 8,448 6,952 Deferred taxes 1,016 74 3,313 Amortization of intangibles 1,232 726 583 Amortization of debt securities premium and discount, net (47) (663) 1,483 Security losses (gains), net (262) 765 293 Net deferred loan origination expense (3,138) (2,624) (2,087) Increase in interest receivable (2,863) (6,042) (4,699) Increase in interest payable 793 4,072 2,119 Proceeds from mortgages sold 258,255 150,572 266,911 Origination of mortgages for sale (258,815) (163,415) (182,192) Other, net (3,760) 4,457 (46) ----------- ----------- ----------- Net cash provided by in operating activities 53,728 38,080 129,304 ----------- ----------- ----------- INVESTING ACTIVITIES: Proceeds from calls and maturities of held- to-maturity securities 105,464 145,071 72,358 Proceeds from calls and maturities of available- for-sale securities 186,863 290,404 498,144 Proceeds from sales of held-to-maturity securities 755 931 994 Proceeds from sales of available-for-sale securities 26,855 11,708 19,070 Purchases of held-to-maturity securities (196,696) (111,875) (253,423) Purchases of available-for-sale securities (203,969) (261,322) (423,712) Net increase (decrease) in short-term investments (34,850) (32,175) 27,676 Net increase in loans (177,198) (269,328) (240,538) Purchases of premises and equipment (20,877) (18,695) (10,050) Proceeds from sale of premises and equipment 791 480 103 Other, net (4,775) (5,268) (2,914) ----------- ----------- ----------- Net cash used in investing activities (317,637) (250,069) (312,292) ----------- ----------- ----------- FINANCING ACTIVITIES: Net increase in deposits 297,766 264,943 132,384 Net increase (decrease) in short-term debt and other liabilities 4,702 (28,478) 26,448 Advances on long-term debt 10,300 21,000 43,093 Repayment of long-term debt (27,846) (14,792) (9,432) Issuance of common stock 217 506 404 Purchase of treasury stock (1,242) -- (861) Purchase of stock warrants -- (6) (484) Proceeds from warrant conversion, net -- -- 1,207 Payment of cash dividends (13,940) (10,062) (7,669) ----------- ----------- ----------- Net cash provided by financing activities 269,957 233,111 185,090 ----------- ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 6,048 21,122 2,102 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 165,815 144,693 142,591 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 171,863 $ 165,815 $ 144,693 =========== =========== ===========
See accompanying notes to consolidated financial statements. 4 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BANCORPSOUTH, INC. AND SUBSIDIARIES DECEMBER 31, 1996, 1995 AND 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of BancorpSouth, Inc. (the Company) have been prepared in conformity with generally accepted accounting principles and prevailing practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period reported. Actual results could differ significantly from those estimates. The Company and its subsidiaries are engaged in the business of banking and activities closely related to banking. The Company and its subsidiaries are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies. The following is a summary of the more significant accounting and reporting policies. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Bank of Mississippi (BOM) and Volunteer Bank (VOL). Prior to December 13, 1996, Laurel Federal Savings and Loan Association (LF) was a wholly-owned subsidiary of the Company. On that date LF was merged with and into BOM. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain 1995 and 1994 amounts have been reclassified to conform with the 1996 presentation. CASH FLOW STATEMENTS Cash equivalents include cash and amounts due from banks including interest bearing deposits with other banks. The Company paid interest of $125,712,000, $110,385,000 and $82,910,000 and income taxes of $20,277,000, $15,480,000 and $8,505,000 for the years ended December 31, 1996, 1995 and 1994, respectively. During 1994, the Company implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" issued by the Financial Accounting Standards Board (FASB), increasing shareholders' equity by $2,573,000. See Note 3 regarding the reclassification from held-to-maturity securities to available-for-sale securities during 1995 which resulted in increasing shareholders' equity by $390,000. See Note 13 related to the stock bonus plan. SECURITIES Securities are classified as either held-to-maturity, trading or available-for-sale. Held-to-maturity securities are debt securities that the Company has the ability and management has the positive intent to hold to maturity. They are reported at amortized cost. Trading securities are debt and equity securities that are bought and held principally for the purpose of selling them in the near term. They are reported at fair value, with unrealized gains and losses included in earnings. The Company had no trading securities at December 31, 1996 and 1995. Available-for-sale securities are debt and equity securites not classified as either held-to-maturity securities or trading securities. They are reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in a separate component of shareholders'equity until realized. Gains and losses on securities are determined on the identified certificate basis. Amortization of premium and accretion of discount are computed using the interest method. Changes in the valuation of securities which are considered other than temporary are recorded as losses in the period recognized. 5 7 LOANS Loans are recorded at the face amount of the notes reduced by collections of principal. Loans include net unamortized deferred origination costs. Unearned discount on discount-basis consumer loans is recognized as income using a method which approximates the interest method. Interest is recorded monthly as earned on all other loans. Where doubt exists as to the collectibility of the loans, interest income is recorded as payment is received. PROVISION AND ALLOWANCE FOR CREDIT LOSSES The provision for credit losses charged to expense is an amount which, in the judgment of management, is necessary to maintain the allowance for credit losses at a level that is adequate to meet the present and potential risks of losses on the Company's current portfolio of loans. Management's judgment is based on a variety of factors which include the Company's experience related to loan balances, charge-offs and recoveries, scrutiny of individual loans and risk factors, results of regulatory agency reviews of loans, and present and future economic conditions of the Company's market area. Material estimates that are particularly susceptible to significant change in the near term are a necessary part of this process. Future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. MORTGAGES HELD FOR SALE Mortgages held for sale are recorded at lower of aggregate cost or market as determined by outstanding commitments from investors or current investor yield requirements. PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation and amortization, computed using straight-line and accelerated methods, are charged to expense over the shorter of the lease term or the estimated useful lives of the assets. Costs of major additions and improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. OTHER REAL ESTATE OWNED Real estate acquired in settlement of loans is carried at the lower of cost or fair value, less selling cost. Fair value is based on independent appraisals and other relevant factors. At the time of acquisition, any excess of cost over fair value is charged to the allowance for credit losses. Gains and losses realized on sale are included in other revenue. PENSION EXPENSE The Company maintains a non-contributory defined benefit pension plan that covers all employees who qualify as to age and length of service. Net periodic pension expense is actuarially determined. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company, with the exception of BOM's credit life insurance subsidiary and VOL's credit life insurance subsidiary, files a consolidated federal income tax return. 6 8 RECENT PRONOUNCEMENTS SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", issued June 1996 and amended by SFAS No. 127, issued December 1996, provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. Management believes the adoption of the above-mentioned Statement will not have a material impact on the Company's consolidated financial statement. OTHER Trust income is recorded on the cash basis as received, which does not differ materially from the accrual basis. (2) STOCK SPLIT On November 20, 1995, the Company's two-for-one stock split effected in the form of a 100% stock dividend resulted in the issuance of 10,495,805 new shares of common stock. Information relating to earnings per share, dividends per share and other share data has been retroactively adjusted to reflect this stock split. (3) HELD-TO-MATURITY SECURITIES A comparison of amortized cost and estimated fair values of held-to-maturity securities as of December 31, 1996 and 1995 follows:
1996 ------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------- -------- -------- -------- (IN THOUSANDS) U.S. Treasury $ 91,340 $ 1,360 $ 3 $ 92,697 U.S. Government agencies and corporations 292,930 2,440 1,206 294,164 Tax exempt obligations of states and political subdivisions 144,406 5,075 612 148,869 Other 1,390 1 2 1,389 -------- -------- -------- -------- Total $530,066 $ 8,876 $ 1,823 $537,119 ======== ======== ======== ========
1995 ------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------- -------- -------- -------- (IN THOUSANDS) U.S. Treasury $ 33,355 $ 1,698 $ 10 $ 35,043 U.S. Government agencies and corporations 293,831 5,603 771 298,663 Tax exempt obligations of states and political subdivisions 111,330 3,297 1,052 113,575 Other 787 7 -- 794 -------- -------- -------- -------- Total $439,303 $ 10,605 $ 1,833 $448,075 ======== ======== ======== ========
Gross gains of $267,000 and gross losses of $89,000 were recognized in 1996, gross gains of $123,000 and gross losses of $389,000 were recognized in 1995 and gross gains of $67,000 and gross losses of $181,000 were recognized in 1994 on held-to-maturity securities. Except for 1996, these gains and losses were the result of held-to-maturity securities being called prior to maturity. Included in the 1996 amounts is a gross gain of $1,000 and a gross loss of $67,000 related to the sale of held-to-maturity securities with amortized cost of $822,000. The decision to sell these securities was based on the deteriorating credit quality of the issuer. Held-to-maturity securities with a carrying value of approximately $326,000,000 at December 31, 1996, were pledged to secure public and trust funds on deposit and for other purposes. On November 15, 1995, the FASB issued a special report pertaining to the implementation of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Concurrent with the issuance of the report but 7 9 not later than December 31, 1995, the FASB allowed for a reassessment of the appropriateness of the classification of securities held at that time and to account for any resulting reclassification at fair value. Reclassifications from the held-to-maturity category that were a result of this one-time assessment would not call into question the intent of the Company to hold other debt securities until maturity in the future. Based upon this guidance, the Company transferred securities with an amortized cost of $59,069,000 and an estimated fair value of $59,698,000 to the available-for-sale category with a resulting unrealized gain of $629,000. The amortized cost and estimated fair value of held-to-maturity securities at December 31, 1996 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1996 ------------------------------ ESTIMATED AMORTIZED FAIR COST VALUE -------------- ------------- (IN THOUSANDS) Due in one year or less $ 153,646 $ 154,202 Due after one year through five years 301,530 305,102 Due after five years through ten years 61,989 62,861 Due after ten years 12,901 14,954 ------------ ------------ Total $ 530,066 $ 537,119 ============ ============
8 10 (4) AVAILABLE-FOR-SALE SECURITIES A comparison of amortized cost and estimated fair values of available-for-sale securities as of December 31, 1996 and 1995 follows:
1996 ------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- --------- -------- --------- (IN THOUSANDS) U.S. Treasury $ 43,702 $ 229 $ 67 $ 43,864 U.S. Government agencies and corporations 129,620 413 518 129,515 Tax exempt obligations of states and political subdivisions 12,375 295 103 12,567 Preferred stock 22,000 -- -- 22,000 Other 19,347 3,459 13 22,793 -------- -------- -------- -------- Total $227,044 $ 4,396 $ 701 $230,739 ======== ======== ======== ========
1995 ------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------- --------- --------- --------- (IN THOUSANDS) U.S. Treasury $ 50,626 $ 683 $ 68 $ 51,241 U.S. Government agencies and corporations 127,087 1,143 742 127,488 Tax exempt obligations of states and political subdivisions 23,212 444 315 23,341 Preferred stock 19,500 -- -- 19,500 Other 15,484 2,756 55 18,185 -------- -------- -------- -------- Total $235,909 $ 5,026 $ 1,180 $239,755 ======== ======== ======== ========
Gross gains of $277,000 and gross losses of $193,000 were recognized in 1996, gross gains of $900,000 and gross losses of $1,399,000 were recognized in 1995 and gross gains of $170,000 and gross losses of $349,000 were recognized in 1994 on available-for-sale securities. Available-for-sale securities with a carrying value of approximately $96,000,000 at December 31, 1996, were pledged to secure public and trust funds on deposit and for other purposes. The amortized cost and estimated fair value of available-for-sale securities at December 31, 1996 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Equity securities are considered as maturing after 10 years unless they have a repricing feature. Securities which reprice periodically are considered as maturing on the first repricing date subsequent to December 31, 1996.
1996 ----------------------------- ESTIMATED AMORTIZED FAIR COST VALUE ------------ ------------ (IN THOUSANDS) Due in one year or less $ 103,894 $ 103,734 Due after one year through five years 99,098 99,425 Due after five years through ten years 13,298 16,717 Due after ten years 10,754 10,863 ------------ ------------ Total $ 227,044 $ 230,739 ============ ============
9 11 (5) LOANS A summary of loans classified by collateral type at December 31, 1996 and 1995 follows:
1996 1995 ----------- ----------- (IN THOUSANDS) Commercial and agricultural $ 238,246 $ 223,225 Consumer and installment 744,456 695,127 Real estate mortgage 1,407,841 1,314,935 Lease financing 149,104 121,617 Other 14,471 16,780 ------------ ------------ Total $ 2,554,118 $ 2,371,684 ============ ============
Non-performing loans consist of both non-accrual loans and loans which have been restructured (primarily in the form of reduced interest rates) because of the borrower's weakened financial condition. The aggregate principal balance of non-accrual loans was $3,940,000 and $1,592,000 at December 31, 1996 and 1995, respectively. Restructured loans totaled $77,000 and $7,000 at December 31, 1996 and 1995, respectively. The total amount of interest earned on non-performing loans was approximately $13,000, $70,000 and $214,000 in 1996, 1995 and 1994, respectively. The gross interest income which would have been recorded under the original terms of those loans amounted to $167,000, $105,000 and $353,000 in 1996, 1995 and 1994, respectively. Loans considered impaired, under SFAS No.114, as amended by SFAS No. 118, are loans which, based on current information and events, it is probable that the creditor will be unable to collect all amount due according to the contractual terms of the loan agreement. The Company's recorded investment in loans considered impaired at December 31, 1996 and 1995 was $4,164,000 and $1,774,000, respectively, with a valuation reserve of $1,209,000 and $580,000, respectively. The average recorded investment in impaired loans during 1996 and 1995 was $3,315,000 and $1,741,000, respectively. 10 12 (6) ALLOWANCE FOR CREDIT LOSSES The following schedule summarized the changes in the allowance for credit losses for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ----------- ----------- ---------- (IN THOUSANDS) Balance at beginning of year $ 34,636 $ 30,830 $ 27,468 Provision charged to expense 8,804 6,206 5,946 Recoveries 1,836 1,567 3,277 Loans charged off (8,004) (4,714) (5,861) Acquisitions -- 747 -- ----------- ----------- ----------- Balance at end of year $ 37,272 $ 34,636 $ 30,830 =========== =========== ===========
(7) PREMISES AND EQUIPMENT A Summary by asset classification at December 31, 1996 and 1995 follows:
ESTIMATED USEFUL LIFE YEARS 1996 1995 ----------- -------- --------- (IN THOUSANDS) Cost Land $ 12,273 $ 12,756 Buildings and improvements 20-50 69,074 61,943 Leasehold improvements 10-20 1,720 1,608 Equipment, furniture and fixtures 3-12 55,939 48,486 Construction in progress 7,262 5,044 -------- -------- 146,268 129,837 Accumulated Depreciation and Amortization 55,329 48,597 -------- -------- Premises and Equipment, net $ 90,939 $ 81,240 ======== ========
(8) TIME DEPOSITS AND SHORT-TERM DEBT Certificates of deposit and other time deposits of $100,000 or more amounting to approximately $399,123,000 and $334,915,000 were outstanding at December 31, 1996 and 1995, respectively. Total interest expense relating to certificate and other time deposits of $100,000 or more totaled approximately $19,728,000, $17,386,000 and $10,582,000 for the years ended December 31, 1996, 1995 and 1994, respectively. For time deposits with a remaining maturity of more than one year at December 31, 1996, the aggregate amount of maturities for each of the following five years is presented in the following table:
MATURING IN AMOUNT - ----------- --------- (IN THOUSANDS) 1998 $324,963 1999 133,648 2000 134,966 2001 17,693 2002 986 Thereafter 2,494 -------- Total $614,750 --------
11 13 Presented below is information relating to short-term debt for the years ended December 31, 1996 and 1995:
END OF PERIOD DAILY AVERAGE MAXIMUM ---------------- ------------------ OUTSTANDING INTEREST INTEREST AT ANY BALANCE RATE BALANCE RATE MONTH END --------------- ----------------- --------- (DOLLARS IN THOUSANDS) 1996: Federal funds purchased $ 1,750 5.8% $ 4,226 5.0% $ 5,950 Securities sold under repurchase agreements 31,886 4.8% 36,654 4.8% 40,030 ------- ------- ------- Total $33,636 $40,880 $45,980 ======= ======= ======= 1995: Federal funds purchased $ 3,850 5.2% $ 5,747 6.7% $11,474 Securities sold under repurchase agreements 31,998 4.8% 35,098 4.8% 39,345 ------- ------- ------- Total $35,848 $40,845 $50,819 ======= ======= =======
Federal funds purchased generally mature the day following the date of purchase while securities sold under repurchase agreements generally mature within 30 days from the date of sale. At December 31, 1996, the Company's subsidiary banks had established informal federal funds borrowing lines of credit aggregating $208,500,000. (9) LONG-TERM DEBT SUBORDINATED CAPITAL DEBENTURES On November 22, 1989, the Company issued $25,000,000 of 9% subordinated capital debentures due November 1, 1999. The 9% debentures were redeemable at the option of the Company in whole or in part at par on or after November 1, 1996. On December 30, 1996, the Company extinguished the $24,508,000 of outstanding 9% debentures by transferring the funds to an irrevocable trust for the repayment of principal and interest on the debentures. The $489,000 loss on early extinguishment of this debt is included in other expense for 1996. Included in interest expense is $2,291,000 for 1996 and $2,206,000 for 1995 and 1994, respectively. 12 14 FEDERAL HOME LOAN BANK ADVANCES BOM has entered into a blanket floating lien security agreement with the Federal Home Loan Bank (FHLB) of Dallas. Under the terms of this agreement, BOM is required to maintain sufficient collateral to secure borrowings in an aggregate amount of the lesser of 65 percent of the book value (unpaid principal balance) of the borrower's first mortgage collateral or 35 percent of the borrower's assets. VOL has entered into a blanket floating lien security agreement with the FHLB of Cincinnati. Under the terms of this agreement, VOL is required to maintain unencumbered, quality first mortgage loans in an amount equal to 150 percent of outstanding advances as collateral for those advances. At December 31, 1996, the following FHLB fixed term advances were repayable in monthly installments as follows:
FINAL DUE DATE INTEREST RATE AMOUNT -------------- ------------- ------ (IN THOUSANDS) 1997 5.95% $ 5,000 1998 5.63% 5,000 2000 5.47% - 6.55% 15,000 2001 5.21% - 7.03% 6,554 Thereafter 5.70% - 8.95% 24,224 ------- Total $55,778 =======
(10) INCOME TAXES Total income taxes for the years ended December 31, 1996, 1995 and 1994 were allocated as follows:
1996 1995 1994 ----------- ------------ ----------- (IN THOUSANDS) Income from continuing operations $ 22,000 $ 15,750 $ 12,832 Shareholders' equity for unrealized gain (loss) on available-for-sale securities 49 2,395 (1,139) ----------- ------------ ----------- Total $ 22,049 $ 18,145 $ 11,693 =========== =========== ===========
The components of income tax expense attributable to continuing operations are as follows for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ----------- ----------- ----------- Current: (IN THOUSANDS) Federal $ 18,944 $ 14,118 $ 8,224 State 2,040 1,558 1,295 Deferred: Federal 824 13 3,002 State 192 61 311 ----------- ------------ ----------- Total $ 22,000 $ 15,750 $ 12,832 =========== =========== ===========
13 15 Income tax expense differs from the amount computed by applying the U.S. federal income tax rate of 35% to income before income taxes due to the following:
1996 1995 1994 ------------ ----------- ----------- (IN THOUSANDS) Tax expense at statutory rate $ 22,709 $ 17,939 $ 15,246 Increase (reduction) in taxes resulting from: State income taxes net of federal tax benefit 1,451 1,052 1,044 Tax exempt interest revenue (2,556) (2,718) (2,796) Dividend received deduction (183) (378) (497) Tax over book loss on security transactions (132) (520) (100) Non-deductible merger expenses 39 490 41 Other, net 672 (115) (106) ----------- ----------- ----------- Total $ 22,000 $ 15,750 $ 12,832 =========== =========== ===========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are as follows:
1996 1995 ------------ ------------- Deferred tax assets: (IN THOUSANDS) Loans receivable, principally due to allowance for credit losses $ 14,495 $ 15,985 Deferred liabilities principally due to compensation arrangements and vacation accruals 3,839 2,939 Other, net -- 105 Net operating loss carryforwards 328 395 ------------ ------------ Total gross deferred tax assets 18,662 19,424 Less: valuation allowance -- -- ------------ ------------ Deferred tax assets $ 18,662 $ 19,424 ============ ============ Deferred tax liabilities: Bank premises and equipment, principally due to differences in depreciation and lease transactions $ 10,881 $ 10,439 Deferred assets, principally due to the capitalization of excess servicing rights for financial reporting purposes 1,294 2,432 Investments, principally due to interest income recognition 1,723 767 Unrealized gains on available-for-sale securities 1,415 1,366 Other, net 12 18 ------------ ------------ Total gross deferred liabilities 15,325 15,022 ------------ ------------ Net deferred tax assets $ 3,337 $ 4,402 ============ ============
Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences existing at December 31, 1996. 14 16 At December 31, 1996 the Company has net operating loss carryforwards for federal income tax purposes of approximately $939,000 that are available to offset future federal taxable income, subject to various limitations, through 2001. (11) PENSION AND PROFIT SHARING PLANS The Company maintains a noncontributory and trusteed defined benefit pension plan covering substantially all full-time employees who have at least one year of service and have attained the age of twenty-one. Benefits are based on years of service and the employee's compensation. The Company's funding policy is to contribute to the pension plan the amount required to fund benefits expected to be earned for the current year and to amortize amounts related to prior years using the projected unit credit cost method. The difference between the pension cost included in current income and the funded amount is included in other assets or other liabilities, as appropriate. Actuarial assumptions are evaluated periodically. Pension expense for the years ended December 31, 1996, 1995 and 1994 included the following components:
1996 1995 1994 ----------- ----------- ----------- (IN THOUSANDS) Service cost $ 1,127 $ 785 $ 1,035 Interest cost 1,290 1,001 1,081 Actual return on plan assets (3,532) (3,637) 31 Net amortization and deferral 1,983 2,510 (1,200) Cost of special termination benefits -- 464 -- ----------- ----------- ----------- Pension expense $ 868 $ 1,123 $ 947 =========== =========== ===========
The funded status of the Company's plan at December 31, 1996 and 1995 was as follows:
1996 1995 ------------- ------------ (IN THOUSANDS) Plan assets at fair value (primarily in listed bonds and commingled funds) $ 20,982 $ 19,234 Actuarial present value of projected benefit obligations 19,498 17,433 ------------ ------------ Projected benefit obligation less than plan assets 1,484 1,801 Unrecognized net gain (1,213) (1,507) Unrecognized prior service cost (1,252) (1,341) Unrecognized net obligation at January 1 (9) (10) ------------ ------------ Accrued pension expense recorded in the financial statements ($ 990) ($ 1,057) ============ ============ Actuarial present value of vested benefit obligations $ 11,267 $ 7,214 ============ ============ Accumulated benefit obligations $ 12,478 $ 11,285 ============ ============
The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% for 1996 and 1995. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5% for 1996 and 1995. The expected long-term rate of return on assets during 1996 and 1995 was 7.5%. The Company has a non-qualified supplemental retirement plan for certain key employees. Benefits commence when the employee retires and are payable over a period of ten years. The amount accrued under the plan was $124,000 in 1996, $111,000 in 1995 and $93,000 in 1994. The Company has a deferred compensation plan (commonly referred to as a 401(k) Plan), whereby employees may contribute a portion of their compensation, as defined, subject to the limitation as established in Section 415 of the Internal Revenue Code. Employee contributions (up to five percent of defined compensation) are matched dollar-for-dollar by the Company. Under the terms of the plan, contributions matched by the Company are used to purchase 15 17 Company common stock at prevailing market prices. Plan expense for the years ended December 31, 1996, 1995 and 1994 was $1,555,000, $1,495,000 and $1,402,000, respectively. In December 1993, the Company adopted the BancorpSouth, Inc. Restoration Plan (Restoration Plan) to provide for the payment of retirement benefits to certain participants in the BancorpSouth, Inc. Retirement Plan (Basic Plan). The Restoration Plan covers any employee whose benefit under the Basic Plan is limited by the provisions of the Internal Revenue Code of 1986 and any employee who elects to participate in the BancorpSouth, Inc. Deferred Compensation Plan, thereby reducing his benefit under the Basic Plan. Restoration Plan expense was $62,000 in 1996, $48,000 in 1995 and $36,000 in 1994. (12) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS 107, "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Company's financial instruments. SECURITIES The carrying amounts for short-term securities approximate fair value because of their short-term maturity (90 days or less) and present no unexpected credit risk. The fair value of most longer-term securities is estimated based on market prices or dealer quotes. See Note 3, Held-to-Maturity Securities, and Note 4, Available-for-Sale Securities for fair values. LOANS Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, consumer and installment and real estate mortgage. The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. The following table presents information for loans at December 31, 1996 and 1995: .
1996 1995 ------------------------- --------------------------- BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ----------- ----------- ----------- ------------ (IN THOUSANDS) Commercial and agricultural $ 238,246 $ 235,086 $ 223,225 $ 224,129 Consumer and installment 744,456 760,947 695,127 708,100 Real estate mortgage 1,407,841 1,394,210 1,314,935 1,295,090 All other 14,471 14,233 16,780 16,780 ----------- ----------- ----------- ----------- Total $ 2,405,014 $ 2,404,476 $ 2,250,067 $ 2,244,099 =========== =========== =========== ===========
Average maturity represents the expected average cash flow period, which in some instances is different than the stated maturity. Management has made estimates of fair value discount rates that is believed to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the fair value presented above would be indicative of the value negotiated in an actual sale. New loan rates were used as the discount rate on new loans of the same type, credit quality and maturity. For lower graded loans, the discount rate was based on yields of bonds of similar credit risk and maturity. 16 18 DEPOSIT LIABILITIES Under SFAS 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, and NOW accounts, and money market and checking accounts, is equal to the amount payable on demand as of December 31, 1996 and 1995. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities. The following table presents information for certificates of deposit at December 31, 1996 and 1995:
1996 1995 ------------------------- -------------------------- BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ----------- ----------- ----------- ----------- Certificates of deposit: (IN THOUSANDS) Maturing or repricing in six months or less $ 704,344 $ 707,601 $ 755,204 $ 757,639 Maturing or repricing between six months and one year 278,496 280,089 345,987 347,679 Maturing or repricing between one and three years 438,806 445,561 288,709 292,169 Maturing or repricing beyond three years 156,011 159,455 81,546 84,766 ----------- ----------- ----------- ----------- Total $ 1,577,657 $ 1,592,706 $ 1,471,446 $ 1,482,253 =========== =========== =========== ===========
LONG-TERM DEBT At December 31, 1995, subordinated capital debentures with a book value of $24,508,000 had an estimated fair value of $24,265,000. The fair value of the Company's FHLB advances is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently available for advances of similar maturities. The following table presents information on the FHLB advances at December 31, 1996 and 1995:
1996 1995 ------------------------- -------------------------- BOOK FAIR BOOK FAIR FINAL DUE DATE VALUE VALUE VALUE VALUE - -------------- ----------- ------------ ------------ ------------ (IN THOUSANDS) 1997 $ 5,000 $ 4,996 $ 5,000 $ 5,024 1998 5,000 4,968 5,000 5,001 2000 15,000 14,917 10,000 10,257 Thereafter 30,778 29,976 29,116 29,548 ----------- ----------- ----------- ----------- Total $ 55,778 $ 54,857 $ 49,116 $ 49,830 =========== =========== =========== ===========
(13) STOCK INCENTIVE AND STOCK OPTION PLANS During 1987, the Company issued 34,500 shares of common stock to a key employee. The shares vest over a 10-year period subject to the Company meeting certain performance goals. The unearned shares are held in escrow and totaled 3,450 at December 31, 1996. The compensation associated with this award is being recognized over the 10-year period. During 1994, the Company issued 50,000 shares of common stock to a key employee; 25,000 shares were awarded upon issuance and 25,000 shares were awarded on November 21, 1995. The stock bonus agreement provided for a cash bonus to the employee in an amount equal to the state and federal income and employment tax liabilities incurred by the employee as a result of this stock bonus award. The Company recorded compensation expense of $905,000 and $753,000 in 1995 and 1994, respectively, with regard to this stock bonus. In 1995, the Company issued 30,000 shares of common stock to a key employee. The shares vest over a 10-year period subject to the Company meeting certain performance goals. The unearned shares are held in escrow and totaled 27,000 at December 31, 1996. The compensation associated with this award is being recognized over the 10-year period. Key employees and directors of the Company and its subsidiaries have been granted stock options and stock appreciation rights (SARs) under the Company's 1990, 1994 and 1995 stock incentive plans. All options and SARs granted pursuant to these plans have been at market value on the date of the grant and are exercisable over periods of 17 19 one to ten years. The Company recorded $1,907,000, $947,000 and $106,000 in compensation expense in 1996, 1995 and 1994, respectively, related to the SARs because of the increase in market value of its common stock. In 1995, pursuant to certain acquisitions, incentive and non-qualified stock options were granted to employees and directors of the companies being acquired in exchange for stock options that were outstanding at the time those mergers were consummated. The number of shares and option prices of shares authorized under the various stock option plans have been adjusted for the two-for-one stock split effected in the form of a dividend discussed in Note 2. A summary of the status of the Company's stock option plans as of December 31, 1996, 1995 and 1994, and changes during the years ended on those dates is presented below:
1996 1995 1994 ------------------- ---------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXCERCISE OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE - -------- ------- --------- ------- --------- --------- ------- Outstanding at beginning of year 677,219 $15.65 542,442 $13.28 558,009 $12.99 Granted 148,991 26.14 178,000 20.83 24,150 14.88 Exercised (85,280) 11.68 (43,223) 7.17 (37,072) 10.09 Expired or cancelled - - - - (2,645) 13.09 ------- ------- ------- Outstanding at end of year 740,930 18.22 677,219 15.65 542,442 13.28 ======= ======= ======= Exerciseable at year-end 479,268 424,852 135,711 ======= ======= =======
The following table summarizes information about stock options at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ ----------------------------------- RANGE OF NUMBER WEIGHTED-AVG WEIGHTED-AVG NUMBER WEIGHTED-AVG EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ---------------------- --------------- ----------------- ----------------- ---------------- ----------------- $4.94 to $7.16 26,031 6.3 years $ 5.88 26,031 $ 5.88 $8.21 to $12.99 146,808 4.9 10.95 146,808 10.95 $14.88 to $18.75 295,100 7.1 17.28 265,100 17.30 $22.13 to $26.50 272,991 9.5 24.32 41,329 22.13 ------- ------- $4.94 to $26.50 740,930 7.5 18.22 479,268 15.15 ======= =======
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation on January 1, 1996 and elected to continue to measure compensation cost relative to its stock based compensation plans using Accounting Principles Board Opinion No. 25. The pro forma net income and pro forma net income per share is not materially different from net income and net income per share as reported. (14) PER SHARE AND DIVIDEND DATA Net income per share is based on the weighted average number of shares of the Company's common stock and common stock equivalents outstanding. Common stock and common stock equivalents have been adjusted for all periods presented for the two-for-one stock split effected in the form of a 100% stock dividend (see Note 2). The computation of earnings per share is based on this adjusted weighted average number of common shares outstanding and the assumed exercise of all outstanding stock options using the treasury stock method (21,213,404 in 1996, 21,015,406 in 1995 and 20,373,414 in 1994). 18 20 Dividends to shareholders are paid from dividends paid to the Company by its subsidiary banks which are subject to approval by the applicable state regulatory authorities. At December 31, 1996, the Company's subsidiary banks could have paid dividends to the Company aggregating $92,000,000 under current regulatory guidelines. (15) RELATED PARTY TRANSACTIONS The Company has made, and expects in the future to continue to make in the ordinary course of business, loans to directors and executive officers of the Company and their affiliates. In management's opinion, these transactions with directors and executive officers were made on substantially the same terms as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present any other unfavorable features. An analysis of such outstanding loans is as follows:
AMOUNT ------------ (IN THOUSANDS) Loans outstanding at December 31, 1995 $ 17,275 New loans 15,458 Repayments (11,250) Changes in directors and executive officers (48) ----------- Loans outstanding at December 31, 1996 $ 21,435 ===========
(16) CAPITALIZED MORTGAGE SERVICING RIGHTS In May 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights," was issued which is an amendment to SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." The Company elected in the fourth quarter to adopt this statement as of January 1, 1995. The effect of implementing SFAS No. 122 was not material to the consolidated financial statements. The primary difference between SFAS No. 122 and SFAS No. 65, as they relate to the Company, is the accounting treatment for in-house originated mortgage servicing rights (OMSRs). Substantially all of the Company's originations are in-house, whereby the underlying loans are funded and closed by the Company. SFAS No. 122, among other provisions, requires the recognitions of OMSRs, as well as purchased mortgage servicing rights (PMSRs), as assets by allocating the total cost incurred between the loan and the servicing rights based on their relative fair values. Under SFAS No. 65, the cost of OMSRs was included with the cost of the related loans and written off against income when the loans were sold. PMSRs were previously recorded as assets under SFAS No. 65. Also under the new Statement, all capitalized morgage servicing rights are evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their fair value. In measuring impairment, the carrying amount must be stratified based on one or more predominant risk characteristics of the underlying loans. Impairment is recognized through a valuation allowance for each individual stratum. Under SFAS No. 65, the impairment evaluation could be made using either discounted or undiscounted cash flows with no required level of disaggregation specified. Any impairment was recorded directly against the asset. SFAS No. 122 does not change the provisions of SFAS No. 65 related to the recognition and amortization of excess servicing rights. The following is a summary of capitalized mortgage servicing rights, net of accumulated amortization, and a valuation allowance for impairment:
1996 1995 ------------ ------------ (IN THOUSANDS) Balance at beginning of year $ 5,051 $ 3,608 Mortgage servicing rights capitalized 5,721 2,100 Amortization expense (1,496) (657) ------------ ------------ Balance at end of year 9,276 5,051 Valuation allowance (200) (401) ------------ ------------ Fair value at end of year $ 9,076 $ 4,650 ============ ============
19 21 The value of pre-SFAS no. 122 PMSRS is established using a discounted cash flow analysis. these pmsrs are being amortized using an accelerated method over the estimated life of the net servicing income. the value of post-sfas no. 122 PMSRS and OMSRS is established by allocating the total costs incurred between the loan and the servicing rights based on their relative fair values. to determine the fair value of the servicing rights created, the company uses a valuation model that calculates the present value of future cash flows. the significant assumptions utilized by the valuation model are prepayment assumptions based upon dealer consensus and discount rates based upon market indices at the date of determination. post-SFAS no. 122 implementation PMSRS and OMSRS are being amortized in proportion to and over the period of the estimated net servicing income. A quarterly value impairment analysis is performed using a discounted methodology that is disaggregated by predominant risk characteristics. the company has determined those risk characteristics to include: Note rate and term and loan type based on 1) loan guarantee (i.e. conventional or government) and 2) interest characteristic (i.e. fixed-rate or adjustable-rate). (17) REGULATORY MATTERS A special assessment of $1.9 million was imposed in 1996 by the Federal Deposit Insurance Corporation (FDIC) on the Company's deposits in the Savings Association Insurance Fund (SAIF). This non-recurring assessment was imposed by Federal Deposit Insurance Act of 1996 and was designed to recapitalize the SAIF. Under the FDIC's current risk-based premium policy, deposit insurance rates for 1997 for the Company's deposits in the Bank Insurance Fund (BIF) have been assessed at zero. However, certain other of the Company's deposits which were acquired from thrifts over the years remain in the SAIF and will continue to be assessed for 1997 at the rate of $0.23 per $100 of insured deposits, the same rate as 1996. The company is subject to various regulatory capital requirements administered by the federal and state banking agencies. failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the company's financial statements. under capital adequacy guidelines and the regulatory framework for prompt corrective action, the company must meet specific capital guidelines that involve quantitative measures of the company's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by the Federal Reserve Board (FRB) to ensure capital adequacy require the company to maintain minimum capital amounts and ratios (risk-based capital ratios). All banking companies are required to have core capital (Tier 1) of a least 4% of risk-weighted assets, total capital of at least 8% of risk-weighted assets and a minimum Tier 1 leverage ratio of 3% of adjusted average assets. the regulations also define well capitalized levels of Tier 1, total capital and Tier 1 leverage as 6%, 10% and 5%, respectively. The Company had Tier 1, total capital and leverage above the well capitalized levels at December 31, 1996 and 1995, respectively, as set forth in the following table:
1996 1995 ------------------- -------------------- AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- (DOLLARS IN THOUSANDS) Total Capital (to Risk-Weighted Assets) $337,728 13.39% $324,645 13.96% Tier 1 Capital (to Risk-Weighted Assets) 306,135 12.14 281,355 12.11 Tier 1 Leverage Capital (to Average Assets) 306,135 8.56 281,355 8.56
20 22 (18) COMMITMENTS AND CONTINGENT LIABILITIES LEASES Rent expense was approximately $1,841,000 for 1996, $1,658,000 for 1995 and $1,717,000 for 1994. Future minimum lease payments for all non-cancelable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 1996:
AMOUNT ------ (IN THOUSANDS) 1997 $2,108 1998 1,941 1999 1,395 2000 1,258 2001 469 Thereafter 556 ------ Total future minimum lease payments $7,727 ======
MORTGAGE LOANS SERVICED FOR OTHERS The Company services mortgage loans for others which are not included in the accompanying financial statements. Included in the $1.03 billion of loans serviced for investors is approximately $299.1 million of primary recourse servicing where the Company is responsible for any losses incurred in the event of nonperformance by the mortgagor. The Company's exposure to credit loss in the event of such nonperformance is the unpaid principal balance at the time of default. This exposure is limited by the underlying collateral which consists of single family residences and either federal or private mortgage insurance. FORWARD CONTRACTS Forward contracts are agreements to purchase or sell securities at a future specific date at a specific price or yield. Risks arise from the possibility that counterparties may be unable to meet the term of their contracts and from movements in securities values and interest rates. At December 31, 1996, the Company had obligations under forward contracts consisting of commitments to sell mortgage loans originated or purchased by the Company into the secondary market at a future date. These obligations are entered into by the Company in order to establish the interest rate at which it can offer mortgage loans to its customers. Changes in the values of morgage loans held for sale by the Company for delivery into the secondary market are recorded at the lower of cost or market. As of December 31, 1996, the contractual or notional amount of these forward contracts was approximately $39,836,000. The Company's exposure under these commitments to sell mortgage loans in the future is not material. LENDING COMMITMENTS In the normal course of business, there are outstanding various commitments and other arrangements for credit which are not reflected in the consolidated balance sheets. As of December 31, 1996, these included approximately $26,117,000 for letters of credit, and approximately $514,314,000 for interim mortgage financing, construction credit, credit card and revolving and line of credit arrangements. No significant credit losses are expected from these commitments and arrangements. LITIGATION Various legal claims have arisen in the normal course of business, including claims against entities to which the Company is successor as a result of business combinations. In the opinion of management and legal counsel, the ultimate resolution of these claims will have no material effect on the Company's consolidated financial position. RESTRICTED CASH BALANCE Aggregate reserves (in the form of deposits with the Federal Reserve Bank) of $2,032,000 were maintained to satisfy Federal regulatory requirements at December 31, 1996. 21 23 (19) CONDENSED FINANCIAL STATEMENT INFORMATION OF BANCORPSOUTH, INC. (PARENT COMPANY ONLY) The following condensed unaudited financial information reflects the accounts and transactions of BancorpSouth, Inc. (parent company only) for the dates indicated:
CONDENSED BALANCE SHEETS DECEMBER 31 ------------------------------ 1996 1995 ------------ ------------- Assets (IN THOUSANDS) Cash on deposit with subsidiary banks $ 8,209 $ 5,718 Securities 1,210 1,233 Investment in subsidiaries 310,164 305,331 Other assets 3,717 1,375 ------------ ------------ Total assets $ 323,300 $ 313,657 ============ ============ Liabilities and shareholders' equity Long-term debt $ -- $ 24,508 Other liabilities 7,976 1,054 ------------ ------------ Total liabilities 7,976 25,562 Shareholders' equity 315,324 288,095 ------------ ------------ Total liabilities and shareholders' equity $ 323,300 $ 313,657 ============ ============
YEARS ENDED DECEMBER 31 --------------------------------------------- CONDENSED STATEMENTS OF INCOME 1996 1995 1994 ----------- ------------ ------------ (IN THOUSANDS) Dividends from subsidiaries $ 41,582 $ 14,665 $ 12,279 Management fees from subsidiaries 628 603 1,282 Other operating income 57 60 60 ----------- ----------- ----------- Total income 42,267 15,328 13,621 Operating expenses 4,280 3,243 3,128 ----------- ----------- ----------- Income before equity in undistributed earnings of subsidiaries 37,987 12,085 10,493 Equity in undistributed earnings of subsidiaries 4,896 23,419 20,235 ----------- ----------- ----------- Net income $ 42,883 $ 35,504 $ 30,728 =========== =========== =========== YEARS ENDED DECEMBER 31 -------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS 1996 1995 1994 ----------- ------------ ----------- (IN THOUSANDS) Operating Activities: Net income $ 42,883 $ 35,504 $ 30,728 Adjustments to reconcile net income to net cash provided by operating activities (919) (22,592) (25,589) ----------- ----------- ----------- Net cash provided by operating activities 41,964 12,912 5,139 Net cash provided by investing activities -- -- 900 Net cash used in financing activities (39,473) (9,649) (6,844) ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents 2,491 3,263 (805) Cash and cash equivalents at beginning of year 5,718 2,455 3,260 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 8,209 $ 5,718 $ 2,455 =========== =========== ===========
22 24 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders BancorpSouth, Inc.: We have audited the consolidated balance sheets of BancorpSouth, Inc., and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BancorpSouth, Inc., and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 1, the Company changed its method of accounting for securities to adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", in 1994. Memphis, Tennessee January 24, 1997 EX-13.C 5 SUMMARY OF QUARTERLY RESULTS 1 EXHIBIT 13(c) Summary of Quarterly Results 2 SUMMARY OF QUARTERLY RESULTS (UNAUDITED) (In thousands, except per share amounts)
QUARTER ENDED ------------------------------------------------------- MAR 31 JUN 30 SEP 30 DEC 31 ------- ------- ------- ------- 1996: Interest revenue $66,814 $68,108 $70,237 $72,760 Net interest revenue 36,256 37,183 38,371 39,604 Provision for credit losses 1,444 3,060 2,500 1,800 Income before income taxes 14,002 17,402 15,594 17,885 Net income 9,449 11,200 10,564 11,670 Earnings per share 0.45 0.53 0.50 0.55 Dividends per share 0.17 0.17 0.17 0.19 1995: Interest revenue $58,668 $62,514 $64,921 $66,324 Net interest revenue 33,060 33,783 35,061 36,066 Provision for credit losses 1,298 1,240 2,057 1,611 Income before income taxes 11,624 12,933 13,740 12,957 Net income 7,905 8,869 9,544 9,186 Earnings per share 0.38 0.42 0.45 0.43 Dividends per share 0.15 0.15 0.15 0.17 1994: Interest revenue $48,000 $50,419 $53,261 $56,215 Net interest revenue 28,636 29,677 31,471 33,082 Provision for credit losses 1,114 1,479 1,822 1,531 Income before income taxes 9,398 9,663 11,926 12,573 Net income 6,789 7,070 8,003 8,866 Earnings per share 0.33 0.35 0.39 0.44 Dividends per share 0.135 0.135 0.135 0.15
EX-13.D 6 SELECTED FINANICAL DATA 1 EXHIBIT 13 (d) Selected Financial Information 2 SELECTED FINANCIAL INFORMATION (UNAUDITED) (Dollars in thousands, except per share amounts)
YEARS ENDED DECEMBER 31 ------------------------------------------------------ 1996 1995 1994 1993 1992 -------- ------- -------- -------- -------- Earnings Summary: Interest revenue $ 277,919 $252,427 $ 207,895 $ 193,869 $ 202,920 Interest expense 126,505 114,457 85,029 78,715 92,143 -------- ------- -------- -------- -------- Net interest revenue 151,414 137,970 122,866 115,154 110,777 Provision for credit losses 8,804 6,206 5,946 9,032 12,843 -------- ------- -------- -------- -------- Net interest revenue, after provision for credit losses 142,610 131,764 116,920 106,122 97,934 Other revenue 40,475 31,240 26,012 26,776 23,767 Other expense 118,472 111,750 99,372 93,176 89,779 -------- ------- -------- -------- -------- Income before income taxes and effect of accounting change 64,883 51,254 43,560 39,722 31,922 Applicable income taxes 22,000 15,570 12,832 10,216 9,048 --------- ------- -------- -------- -------- Income before effect of accounting change 42,883 35,504 30,728 29,506 22,874 Cumulative effect of change in accounting for income taxes - - - 3,429 - --------- ------- --------- -------- -------- Net income $ 42,883 $ 35,504 $ 30,728 $ 32,935 $ 22,874 ========= ======== ========= ======== ======== Per Share Data: Net income $ 2.02 $ 1.69 $ 1.51 $ 1.49 $ 1.33 Cash dividends 0.70 0.62 0.555 0.54 0.51 Book value 15.01 13.72 12.44 11.82 10.56 Balance Sheet - Averages: Total assets $3,452,921 $3,151,297 $2,884,539 $2,659,785 $2,503,499 Held-to-maturity securities 480,191 516,919 427,759 509,996 619,510 Available-for-sale securities 231,040 183,396 266,370 141,496 - Loans, net of unearned discount 2,410,746 2,146,967 1,881,922 1,657,048 1,550,745 Total deposits 2,982,838 2,732,450 2,513,493 2,342,137 2,210,934 Total sharesholders' equity 299,749 268,395 240,929 218,504 185,925 Selected Ratios: Return on average assets 1.24% 1.13% 1.07% 1.24% 0.91% Return on average shareholders' equity 14.31% 13.23% 12.75% 15.07% 12.30%
11 EX-22 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 22 SUBSIDIARIES OF THE REGISTRANT
Jurisdiction Holder of Name Of Incorporation Outstanding Stock ---- ---------------- ----------------- Bank of Mississippi Mississippi BancorpSouth, Inc. Volunteer Bank Tennessee BancorpSouth, Inc. Personal Finance Corporation Mississippi Bank of Mississippi Century Credit Life Insurance Company Mississippi Bank of Mississippi TC Finance, Inc. Tennessee Volunteer Bank West Tennessee Life Insurance Company Tennessee Volunteer Bank
All of the above subsidiaries are wholly owned except West Tennessee Life Insurance Company of which Volunteer Bank owns 96% of the outstanding voting shares and 76% of the voting power and are included in the consolidated financial statements of the registrant. EX-23 8 ACCOUNTANTS CONSENT 1 EXHIBIT 23 ACCOUNTANTS' CONSENT The Board of Directors BancorpSouth, Inc.: We consent to incorporation by reference in the Registration Statement (No. 33-3009) on Form S-3 and the Registration Statement (No. 2-88488) on Form S-8 of BancorpSouth, Inc. of our report dated January 24, 1997, relating to the consolidated balance sheets of BancropSouth, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report is incorporated by reference in the 1996 annual report on Form 10-K of BancorpSouth, Inc. Our report refers to a change in accounting principles related to the adoption in 1994 of the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. KPMG Peat Marwick LLP Memphis, Tennessee March 28, 1997 EX-27 9 FINANICAL DATA SCHEDULE
9 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 153,148 18,715 70,300 0 530,066 530,066 537,119 2,469,334 37,272 3,617,239 3,161,379 33,636 51,122 55,778 0 0 52,911 262,413 3,617,239 227,169 30,779 19,971 277,919 118,746 126,505 151,414 8,804 262 118,472 64,883 42,883 0 0 42,883 2.02 2.02 4.81 3,940 4,811 77 0 34,636 8,004 1,836 37,272 37,272 0 0
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