-----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, KAHxaqGIDopmLZz5qXVL+VTmSfv/f0SzENNpDSFWwCq7GVkl7aJe+xmtk/urf+Rk zU4FlsCrbn+0IQ0lkxl5Tg== 0000950144-01-004455.txt : 20010409 0000950144-01-004455.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950144-01-004455 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 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: SEC FILE NUMBER: 001-12991 FILM NUMBER: 1588421 BUSINESS ADDRESS: STREET 1: ONE MISSISSIPPI PL CITY: TUPELO STATE: MS ZIP: 38804 BUSINESS PHONE: 6626802000 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 g67862e10-k.txt BANCORPSOUTH,INC. 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 For the fiscal year ended December 31, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to ___________ Commission file number 1-12991 ------- 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 38804 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (662) 680-2000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ----------------------------- --------------------------- Common stock, $2.50 par value New York Stock Exchange Common stock purchase rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $2.50 PAR VALUE COMMON STOCK PURCHASE RIGHTS - -------------------------------------------------------------------------------- (Title of Class) 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. [ ] (Cover Page Continued on Next Page) 2 (Continued from Cover Page) The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 31, 2001, was approximately $1,061,000,000 based on the closing sale price as reported on the New York Stock Exchange on such date. On January 31, 2001, the registrant had outstanding 84,080,479 shares of Common Stock, par value $2.50 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement used in connection with Registrant's Annual Meeting of Shareholders to be held April 24, 2001, are incorporated by reference into Part III of this Report. 3 BANCORPSOUTH, INC. FORM 10-K For the Fiscal Year Ended December 31, 2000 CONTENTS PART I Item 1. Business.............................................................. 4 Item 2. Properties............................................................ 20 Item 3. Legal Proceedings..................................................... 22 Item 4. Submission of Matters to a Vote of Security Holders............................................................... 22 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters................................................. 22 Item 6. Selected Financial Data............................................... 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.................................. 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk............ 36 Item 8. Financial Statements and Supplementary Data........................... 38 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 61 PART III Item 10. Directors and Executive Officers of the Registrant............................................................ 62 Item 11. Executive Compensation.................................................. 63 Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 63 Item 13. Certain Relationships and Related Transactions.......................... 64 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................... 65
4 PART I Item 1. - Business General BancorpSouth, Inc. (the "Company") is a bank holding company with commercial banking and financial services operations in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. Its principal subsidiary is BancorpSouth Bank (the "Bank"). At December 31, 2000, the Company and its subsidiaries had total assets of approximately $9.04 billion and total deposits of approximately $7.48 billion. The Company's principal office is located at One Mississippi Plaza, Tupelo, Mississippi 38804 and its telephone number is (662) 680-2000. Description of Business The Bank has its principal office in Tupelo, Lee County, Mississippi, and conducts a general commercial banking and trust business through 247 offices in 129 municipalities or communities in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. The Bank has grown through the acquisition of other banks, the purchase of assets from federal regulators and through the opening of new branches and offices. The Bank and its subsidiaries provide a range of financial services to individuals and small-to-medium size businesses. The Bank operates investment services, consumer finance, credit life insurance and insurance agency subsidiaries which engage in investment brokerage services, consumer lending, credit life insurance sales and sales of other insurance products. The Bank's trust department offers a variety of services including personal trust and estate services, certain employee benefit accounts and plans, including individual retirement accounts, and limited corporate trust functions. At December 31, 2000, the Company and its subsidiaries had 3,869 full-time equivalent employees. The Company and its subsidiaries are not a party to any collective bargaining agreements, and employee relations are considered to be good. Competition Vigorous competition exists in all major areas where the Company is engaged in business. The Bank competes for available loans and depository accounts with state and national commercial banks as well as 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 entire area served by the Bank. 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 Company 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 regulations specifically mentioned herein. The Company is a bank holding company and is registered as such under the Bank Holding Company Act of 1956 (the "Bank Holding Company Act") with the Board of Governors of the Federal Reserve System (the "Federal Reserve") and is subject to regulation and supervision by the Federal Reserve. The Company is required to file with the Federal Reserve annual reports and such other information as it may require. The Federal Reserve may also conduct examinations of the Company. 4 5 The Bank is incorporated under the banking laws of the State of Mississippi and is subject to the applicable provisions of Mississippi banking laws. The Bank is subject to the supervision of the Mississippi Department of Banking and Consumer Finance and to regular examinations by that department. Deposits in the Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC") and, therefore, the Bank is subject to the provisions of the Federal Deposit Insurance Act and to examination by the FDIC. The Bank is not a member of the Federal Reserve. 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 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 the Bank 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 institution 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). The Company is required to comply with the risk-based capital guidelines established by the FRB, and to other tests relating to capital adequacy which the Federal Reserve adopts from time to time. See Note 19 to the Company's Consolidated Financial Statements included in this Report. 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 Bank may extend credit, pay dividends or otherwise supply funds to the Company or its affiliates. In particular, the Bank is subject to certain restrictions imposed by federal law on any extensions of credit of the Company or, with certain exceptions, other affiliates. The primary source of funds for dividends paid to the Company's shareholders is dividends paid to the Company by the Bank. Various federal and state laws limit the amount of dividends that the Bank may pay to the Company without regulatory approval. Under Mississippi law, the Bank must obtain written approval of the Commissioner of the Mississippi Department of Banking and Consumer Finance prior to paying any dividend on the Bank's common stock. Under FDICIA, the Bank may not pay any dividends, if after paying the dividend, it would be undercapitalized under applicable capital requirements. The FDIC also has the authority to prohibit the Bank from engaging in business practices which the FDIC considers to be unsafe or unsound, which, depending on the financial condition of the Bank, could include the payment of dividends. In additions, the Federal Reserve has the authority to prohibit the payment of dividends by bank holding companies if their actions constitute unsafe or unsound practices. In 1985, the Federal Reserve issued a policy statement on the payment of cash dividends by bank holding companies, which outlined the Federal Reserve's view that a bank holding company that is experiencing earnings weaknesses or other financial pressures should not pay cash dividends that 5 6 exceed its net income, that are inconsistent with its capital position or that could only be funded in ways that weaken its financial health, such as by borrowing or selling assets. The Federal Reserve indicated that, in some instances, it may be appropriate for a bank holding company to eliminate its dividends. In September 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA") was signed into law. 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. 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 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 federal Gramm-Leach-Bliley Act of 1999 (the "GLBA") was signed into law on November 12, 1999. Under the GLBA, banks are no longer prohibited by the Glass-Steagall Act from associating with a company engaged principally in securities activities. The GLBA also permits bank holding companies to elect to become a "financial holding company," which would expand the powers of the bank holding company. Financial holding company powers relate to financial activities that are determined by the Federal Reserve to be financial in nature, incidental to an activity that is financial in nature, or complementary to a financial activity (provided that the complementary activity does not pose a safety and soundness risk). The GLBA itself defines certain activities as financial in nature, including lending activities, underwriting and selling insurance, providing financial or investment advice, underwriting, dealing and making markets in securities and merchant banking. In order to qualify as a financial holding company, a bank holding company's depository subsidiaries must be both well capitalized and well managed, and must have at least a satisfactory rating under the Community Reinvestment Act. The bank holding company must also declare its intention to become a financial holding company to the Federal Reserve and certify that its depository subsidiaries meet the capitalization and management requirements. The repeal of the Glass-Steagall Act provisions and the availability of financial holding company powers became effective on March 11, 2000. The GLBA establishes the Federal Reserve as the umbrella regulator of financial holding companies, with subsidiaries of the financial holding company being more specifically regulated by other regulatory authorities, such as the Securities and Exchange Commission ("SEC"), the Commodity Futures Trading Commission and state securities and insurance regulators, based upon the subsidiaries' particular activities. The GLBA also provides for minimum federal standards of privacy to protect the confidentiality of the personal financial information of customers and to regulate use of such information by financial institutions. A bank holding company that does not elect to become a financial holding company remains subject to the Bank Holding Company Act. Management believes that the Company currently meets the requirements to make an election to become a financial holding company under the GLBA. The Community Reinvestment Act of 1997 ("CRA") and its implementing regulations are intended to encourage regulated financial institutions to meet the credit need of their local community or communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of such financial institutions. The regulations provide that the appropriate regulatory authority will assess CRA reports in connection with applications for establishment of domestic branches, acquisitions of banks or mergers involving bank holding companies. An unsatisfactory CRA rating may serve as a basis to deny an application to acquire or establish a new bank, to establish a new branch or to expand banking services. At December 31, 2000, the Company had a "satisfactory" CRA rating. The Equal Credit Opportunity Act requires non-discrimination in banking services. The federal enforcement agencies have recently cited institutions for red-lining (refusing to extend credit to residents of a specific geographic area known to be comprised predominantly of minorities) or reverse red-lining (extending credit to minority applicants on terms less favorable than those offered to non-minority applicants). Violations can result in the assessment of substantial civil penalties. 6 7 The Bank's insurance subsidiaries are regulated by the insurance regulatory authorities and applicable laws and regulations of the states in which they operate. The Bank's investment services subsidiary is a registered adviser under the Investment Advisers Act of 1940 and is regulated by the SEC. Lending Activities The Company's lending activities include both commercial and consumer loans. Loan originations are derived from a number of sources including real estate broker referrals, mortgage loan companies, direct solicitation by the Company's loan officers, existing depositors and borrowers, builders, attorneys, walk-in customers and, in some instances, other lenders. The Company has established disciplined and systematic procedures for approving and monitoring loans that vary depending on the size and nature of the loan. Commercial Lending The Bank offers a variety of commercial loan services including term loans, lines of credit, equipment and receivable financing and agricultural loans. A broad range of short-to-medium term commercial loans, both secured and unsecured are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisition and development of real estate and improvements), and the purchase of equipment and machinery. At times, the Company also makes construction loans to real estate developers for the acquisition, development and construction of residential subdivisions. Commercial loans are granted based on the borrower's ability to generate cash flow to support its debt obligations and other cash related expenses. A borrower's ability to repay commercial loans is substantially dependent on the success of the business itself and on the quality of its management. As a general practice, the Bank takes as collateral a security interest in any available real estate, equipment, inventory, receivables or other personal property, although such loans may also be made infrequently on an unsecured basis. Generally, the Bank requires personal guaranties of its commercial loans to offset the risks associated with such loans. The Bank has had very little exposure as an agricultural lender. Crop production loans have been either fully supported by the collateral and financial strength of the borrower, or else a 90% loan guaranty has been obtained through the Farmers Home Administration on such loans. Residential Consumer Lending A portion of the Bank's lending activities consists of the origination of fixed and adjustable rate residential mortgage loans secured by owner-occupied property located in the Bank's primary market areas. Home mortgage lending is unique in that a broad geographic territory may be serviced by originators working from strategically placed offices either within the Bank's traditional banking facilities or from affordable storefront locations in commercial buildings. In addition, the Bank offers construction loans, second mortgage home improvement loans and home equity lines of credit. The Bank finances the construction of individual, owner-occupied houses on the basis of written underwriting and construction loan management guidelines. First mortgage construction loans are made to solvent and competent contractors on both a pre-sold and a "speculation" basis. Such loans are also made to qualified individual borrowers and are generally supported by a take-out commitment from a permanent lender. The Bank makes residential construction loans to individuals who intend to erect owner occupied housing on a purchased parcel of real estate. The construction phase of these loans have certain risks, including the viability of the contractor, the contractor's ability to complete the project and changes in interest rates. In most cases, the Bank will sell its mortgage loans with terms of 15 years or more in the secondary market. The sale to the secondary market allows the Bank to hedge against the interest rate risks related to such lending operations. This brokerage arrangement allows the Bank to accommodate its clients' demands while eliminating the interest rate risk 7 8 for the 15 to 30 year period generally associated with such loans. After the sale of a loan, the Bank's only involvement is to act as a servicing agent. The Bank in most cases requires title, fire, extended casualty insurance, and, where required by applicable regulations, flood insurance to be obtained by the borrower. The Bank maintains its own errors and omissions insurance policy to protect against loss in the event of failure of a mortgagor to pay premiums on fire and other hazard insurance policies. Mortgage loans originated by the Bank customarily include a "due on sale" clause giving the Bank the right to declare a loan immediately due and payable in the event, among other matters, that the borrower sells or otherwise disposes of the real property subject to a mortgage. In general, the Bank enforces due on sales clauses. Borrowers are typically permitted to refinance or repay loans at their option without penalty. Non-Residential Consumer Lending Non-residential consumer loans made by the Bank include loans for automobiles, recreation vehicles, boats, personal (secured and unsecured) and deposit account secured loans. In addition, the Bank provides federally insured or guaranteed student loans to students at universities and community colleges in the Bank's market areas. The Bank also conducts various indirect lending activities through established retail companies in its market areas. Non-residential consumer loans are attractive to the Bank because they typically have a shorter term and carry higher interest rates than that charged on other types of loans. Non-residential consumer loans, however, do pose additional risks of collectability when compared to traditional types of loans granted by commercial banks such as residential mortgage loans. The Bank also issues credit cards solicited on the basis of applications received through referrals from the Bank's branches. The Bank generally has a small portfolio of credit card receivables outstanding. Credit card lines are underwritten using conservative credit criteria, including past credit history and debt-to-income ratios, similar to the credit policies applicable to other personal consumer loans. Historically, the Bank believes that its credit card losses have been well below industry norms. Consumer loans are granted based on employment and financial information solicited from prospective borrowers as well as credit records collected from various reporting agencies. Stability of the borrower, willingness to pay and credit history are the primary factors to be considered. The availability of collateral is also a factor considered in making such a loan. The Bank seeks collateral that can be assigned and has good marketability with a clearly adequate margin of value. The geographic area of the borrower is another consideration, with preference given to borrowers in the Bank's primary market areas. Other Financial Services The Bank's consumer finance subsidiaries extend consumer loans to individuals and entities that may not satisfy the Bank's lending standards, and operate in 54 offices located in 52 communities in Mississippi, Tennessee and Alabama. The Bank's insurance service subsidiaries serve as agents in the sale of title insurance, commercial lines of insurance, and a full line of property and casualty, life, health and employee benefits products and services and operates in Mississippi, Tennessee and Alabama. The Bank's investment services subsidiary provides brokerage, investment advisory and asset management services, and operates in eight communities in Mississippi, Tennessee and Alabama. See Note 20 to the Company's Consolidated Financial Statements included elsewhere in this Report for financial information about each segment of the Company, as defined by generally accepted accounting principles. Asset Quality Management seeks to maintain a high quality of assets through conservative underwriting and sound lending practices. Management intends to follow this policy even though it may result in foregoing the funding of higher yielding loans. While there is no assurance that the Company will not suffer losses on its loans, management believes that the 8 9 Company has in place adequate underwriting and loan administration policies and personnel to manage the associated risks prudently. In an effort to maintain the quality of the loan portfolio, management seeks to minimize higher risk types of lending. Undesirable loans include loans to provide initial equity and working capital to new businesses with no other capital strength, loans secured by unregistered stock, loans for speculative transactions in stock, land or commodity markets, loans to borrowers or the taking of collateral outside the Company's primary market areas, loans dependent on secondary liens as primary collateral, and non-recourse loans. To the extent risks are identified, additional precautions are taken in order to reduce the Company's risk of loss. Commercial loans entail certain additional risks since they usually involve large loan balances to single borrowers or a related group of borrowers, resulting in a more concentrated loan portfolio. Further, since payment of these loans is usually dependent upon the successful operation of the commercial enterprise, the risk of loss with respect to these loans may increase in the event of adverse conditions in the economy. The Board of Directors of the Bank focuses much of its efforts and resources, and that of the Bank's management and lending officials, on loan review and underwriting policies. Loan status and monitoring is handled through the Bank's Loan Administration Department. Weak financial performance is identified and monitored using past due reporting, the internal loan rating system, loan review reports, the various loan committee functions, and periodic Asset Quality Rating Committee meetings. Senior loan officers have established a review process with the objective of quickly identifying, evaluating and initiating necessary corrective action for substandard loans. The results of loan reviews are reported to the Audit Committee of the Company's and the Bank's Board of Directors. This process is an integral element of the Bank's loan program. Nonetheless, management maintains a cautious outlook in anticipating the potential effects of uncertain economic conditions (both locally and nationally) and the possibility of more stringent regulatory standards. Recent Acquisitions On August 31, 2000, First United Bancshares, Inc. ("First United") merged into the Company in a transaction accounted for as a pooling of interests. In connection with that merger, the Company issued 1.125 shares of its common stock in exchange for each outstanding share of First United common stock, or a total of approximately 28,489,225 shares of the Company's common stock. First United was an Arkansas corporation and registered bank holding company headquartered in El Dorado, Arkansas. Through its 11 subsidiary banks and subsidiary trust company, First United conducted a commercial banking, trust and insurance business in 69 offices in portions of Arkansas, Louisiana and Texas. As of June 30, 2000, First United and its subsidiaries had total assets of approximately $2.7 billion and total deposits of approximately $2.2 billion. First United's subsidiary banks were (i) The First National Bank of El Dorado, based in El Dorado, Arkansas, (ii) First National Bank of Magnolia, based in Magnolia, Arkansas, (iii) Merchants and Planters Bank, N.A. of Camden, based in Camden, Arkansas, (iv) The City National Bank of Fort Smith, based in Fort Smith, Arkansas, (v) The Bank of North Arkansas, based in Melbourne, Arkansas, (vi) FirstBank, based in Texarkana, Texas, (vii) First United Bank, based in Stuttgart, Arkansas, (viii) Fredonia State Bank, based in Nacogdoches, Texas, (ix) City Bank & Trust of Shreveport, based in Shreveport, Louisiana, (x) Citizens National Bank of Hope, based in Hope, Arkansas, and (xi) First Republic Bank, based in Rayville, Louisiana, and First United's subsidiary trust company was First United Trust Company, N.A., based in El Dorado, Arkansas. Each of these subsidiaries were merged into BancorpSouth Bank on August 31, 2000. On October 10, 2000, Kilgore, Seay and Turner, Inc., a general insurance agency based in Jackson, Mississippi, merged into BancorpSouth Insurance Services, Inc., a subsidiary of the Bank, in exchange for cash totaling $2.2 million. The transaction was accounted for as a purchase. On October 10, 2000, Pittman Insurance and Bonding, Inc., a general insurance agency based in Jackson, Mississippi, merged into BancorpSouth Insurance Services, Inc., in exchange for 95,000 shares of the Company's common stock and cash totaling $865,000. The transaction was accounted for as a purchase. On October 31, 2000, Texarkana First Financial Corporation ("Texarkana First Financial") merged into the Company in exchange for cash totaling $37.5 million. The transaction was accounted for as a purchase. Texarkana First Financial was a Texas corporation and single thrift holding company based in Texarkana, Arkansas. Its subsidiary, 9 10 First Federal Savings and Loan Association of Texarkana ("First Federal"), a federally chartered stock savings and loan association, operated through a main office and five branch offices in Texarkana, Ashdown, DeQueen, Hope and Nashville, Arkansas and Texarkana, Texas. First Federal merged into BancorpSouth Bank on October 31, 2000. As of June 30, 2000, Texarkana First Financial and its subsidiary had total assets of approximately $216.0 million and total deposits of approximately $157.6 million. Selected Statistical Information Set forth in this section below is certain selected statistical information relating to the Company's business. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differentials See "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations -- Net Interest Revenue" included herein for information regarding the distribution of assets, liabilities and shareholders' equity, and interest rates and interest differentials. Analysis of Changes in Effective Interest Differential See "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations -- Net Interest Revenue" included herein for information regarding the analysis of changes in effective interest differential. 10 11 Investment Portfolio Held-to-Maturity Securities The following table shows the amortized cost of held-to-maturity securities at December 31, 2000, 1999 and 1998:
December 31, --------------------------------------------- 2000 1999 1998 ---------- ---------- --------- (In thousands) U.S. Treasury securities $ 22,019 $ 74,786 $107,039 U.S. Government agency securities 826,353 619,955 441,392 Taxable obligations of states and political subdivisions 13,949 11,812 11,275 Tax exempt obligations of states and political subdivisions 326,808 324,509 313,788 Other securities -- -- -- ---------- ---------- -------- TOTAL $1,189,129 $1,031,062 $873,494 ========== ========== ========
The following table shows the maturities and weighted average yields as of the end of the latest period for the investment categories presented above:
December 31, 2000 ----------------------------------------------------------------------- U.S. U.S. Government States & Weighted Treasury Agency Political Other Average Securities Securities Subdivisions Securities Yield ---------- ----------- ------------ ---------- -------- (Dollars in thousands) Period to Maturity: Maturing within one year $ 4,987 $221,909 $ 65,682 -- 6.10% Maturing after one year but within five years 17,032 489,350 186,788 -- 6.62% Maturing after five years but within ten years -- 74,807 75,874 -- 6.98% Maturing after ten years -- 40,287 12,413 -- 6.47% ------- -------- -------- ------ TOTAL $22,019 $826,353 $340,757 -- ======= ======== ======== ======
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, 2000, 1999 and 1998:
December 31, ---------------------------------------------------------- 2000 1999 1998 -------- ---------- ---------- (In thousands) U.S. Treasury securities $ 26,621 $ 97,559 $ 166,922 U.S. Government agency securities 689,612 843,544 907,766 Taxable obligations of states and political subdivisions 9,601 8,923 7,565 Tax exempt obligations of states and political subdivisions 64,521 74,306 83,128 Other securities 67,045 56,203 108,734 -------- ---------- ---------- TOTAL $857,400 $1,080,535 $1,274,115 ======== ========== ==========
The following table shows the maturities and weighted average yields as of the end of the latest period for the investment categories presented above:
December 31, 2000 -------------------------------------------------------------------------------------------------- U.S. U.S. Government State & Weighted Treasury Agency Political Other Average Securities Securities Subdivisions Securities Yield ---------- ---------- ------------- ----------- --------- (Dollars in thousands) Period to Maturity: Maturing within one year $19,238 $ 68,766 $13,205 $ 6,024 6.39% Maturing after one year but within five years 7,383 411,059 26,102 57,365 6.88% Maturing after five years but within ten years -- 144,167 30,665 2,687 7.09% Maturing after ten years -- 65,620 4,150 969 7.41% ------- -------- ------- ------- TOTAL $26,621 $689,612 $74,122 $67,045 ======= ======== ======= =======
The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a taxable equivalent basis using a 35% tax rate. See "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Securities and Other Earning Assets." 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. See "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Loans."
December 31, ------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (In thousands) Commercial & agricultural $ 757,885 $ 712,799 $ 721,001 $ 662,857 $ 573,425 Consumer & installment 1,065,324 1,197,277 1,133,218 1,099,151 1,001,434 Real estate mortgage 4,027,751 3,444,172 2,943,774 2,544,102 2,259,169 Lease financing 288,884 258,811 211,367 173,245 150,187 Other 21,238 12,984 26,669 26,242 20,599 ---------- ---------- ---------- ---------- ---------- Total gross loans $6,161,082 $5,626,043 $5,036,029 $4,505,597 $4,004,814 ========== ========== ========== ========== ==========
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, 2000.
One Year One to After or Less Five Years Five Years ---------- ------------ ---------- (In thousands) Commercial & agricultural $ 405,018 $ 313,763 $ 39,104 Consumer & installment 468,998 587,043 9,283 Real estate mortgages 1,490,532 2,064,437 472,782 Lease financing 92,415 184,349 12,120 Other 16,720 4,095 423 ---------- ---------- -------- Total gross loans $2,473,683 $3,153,687 $533,712 ========== ========== ========
13 14 Sensitivity of Loans to Changes in Interest Rates The interest sensitivity of the Company's loan portfolio 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, 2000.
December 31, 2000 --------------------------------- Fixed Variable Rate Rate --------- -------- (In thousands) Loan Portfolio Due after one year $3,444,421 $242,978 ========== ========
Non-Accrual, Past Due and Restructured Loans 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 Company's non-performing loans were as follows at the end of each period presented.
December 31 ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (In thousands) Non-accrual loans $15,572 $13,352 $13,406 $ 9,124 $10,649 Loans 90 days or more past due 25,732 17,311 13,120 12,476 9,063 Restructured loans 879 1,125 1,781 1,975 2,894 ------- ------- ------- ------- ------- Total gross loans $42,183 $31,788 $28,307 $23,575 $22,606 ======= ======= ======= ======= =======
The total amount of interest earned on non-performing loans was approximately $263,000, $212,000 and $228,000 in 2000, 1999 and 1998, respectively. The gross interest income that would have been recorded under the original terms of those loans amounted to $878,000, $626,000 and $612,000 in 2000, 1999 and 1998, respectively. Loans considered impaired under Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure," are loans which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company's recorded investment in loans considered impaired at December 31, 2000 and 1999 was $14,669,000 and $7,916,000, respectively, with a valuation reserve of $5,639,000 and $2,074,000, respectively. The average recorded investment in impaired loans during 2000 and 1999 was $21,769,000 and $17,620,000, respectively. The Company's policy provides that loans, other than installment loans, are generally placed in non-accrual status if, in management's opinion, payment in full of principal or interest is not expected, or when payment of principal or interest is more than 90 days past due, unless the loan is both well-secured and in the process of collection. 14 15 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, 2000, no loans were known to be potential problem loans. At December 31, 2000, 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 Company's market area. 15 16 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 certainty, management continuously reviews the characteristics of the loan portfolio to determine its overall risk profile and quality. Attention is paid to the quality of the loan portfolio through a formal loan review process. The Board of Directors of the Bank has appointed a Loan Loss Reserve Valuation Committee (the "Loan Loss Committee") that is responsible for ensuring that the allowance for credit losses provides coverage of both known and inherent losses. The Committee considers estimates of loss for individually analyzed credits as well as factors such as historical experience, changes in economic and business conditions and concentrations of risk in determining the level of the allowance for credit losses. The Committee meets a least quarterly to determine the amount of additions to the allowance for credit losses. The Committee is composed of senior management from the Bank's Loan Administration, Lending and Finance departments. In each period, the Committee bases the allowance for credit losses on its loan classification system as well as an analysis of general economic and business trends in our region and nationally. A key input for determining the amount of the allowance for loan losses is the Company's loan classification system. The Company has a disciplined approach for assigning credit ratings and classifications to individual loans. Each loan is assigned a grade by the loan officer at origination that serves as a basis for the credit analysis of the entire portfolio. Periodically, loan officers review the status of each loan and update its grading. The grades assigned by the loan officer are reviewed by an independent Loan Review Department. The Loan Review Department is responsible for reviewing the credit rating and classification of individual loans. The Loan Review Department also assesses trends in the overall portfolio, adherence to internal credit policies and Loan Administration procedures and other factors that may affect the overall adequacy of the allowance for credit losses. Throughout this on-going process, management and the Loan Loss Committee are advised of the condition of individual loans and of the quality profile of the entire loan portfolio for consideration in establishing the allowance for credit losses. 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 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 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 losses. 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: 16 17
2000 1999 1998 1997 1996 ------------------ ------------------- ------------------- ------------------ ------------------ ALLOW- ALLOW- ALLOW- ALLOW- ALLOW- ANCE % OF ANCE % OF ANCE % OF ANCE % OF ANCE % OF FOR LOANS TO FOR LOANS TO FOR LOANS TO FOR LOANS TO FOR LOANS TO CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL LOSS LOANS LOSS LOANS LOSS LOANS LOSS LOANS LOSS LOANS ------- --------- ------- --------- ------ -------- ------- -------- ------ -------- (Dollars in thousands) Commercial & agricultural $12,259 12.30% $11,127 12.67% $ 7,840 14.32% $ 8,015 14.71% $ 8,454 14.32% Consumer & installment 23,702 17.29% 22,231 21.28% 21,421 22.50% 19,187 24.40% 15,773 25.01% Real estate mortgage 37,279 65.38% 32,897 61.22% 28,887 58.45% 25,508 56.47% 25,271 56.42% Lease financing 3,290 4.69% 3,196 4.60% 2,802 4.20% 2,592 3.85% 2,070 3.75% Other 5,200 0.34% 4,781 0.23% 7,435 0.53% 6,630 0.58% 5,089 0.51% ------- ------ ------- ------ ------- ------ ------- ------ ------- ------- TOTAL $81,730 100.00% $74,232 100.00% $68,385 100.00% $61,932 100.01% $56,657 100.01% ======= ====== ======= ====== ======= ====== ======= ====== ======= =======
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, 2000. See "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Provision for Credit Losses and Allowance for Credit Losses."
2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) LOANS Average loans for the period $ 5,791,569 $ 5,211,539 $ 4,710,847 $ 4,155,013 $ 3,788,681 =========== =========== =========== =========== =========== ALLOWANCE FOR CREDIT LOSSES Balance, beginning of period $ 74,232 $ 68,385 $ 61,932 $ 56,657 54,058 Loans charged off: Commercial & agricultural (5,974) (2,565) (4,504) (2,753) (2,936) Consumer & installment (14,203) (12,007) (11,793) (10,652) (10,088) Real estate mortgage (4,082) (1,936) (2,745) (2,379) (1,766) Lease financing (347) (94) (75) (50) (30) ----------- ----------- ----------- ----------- ----------- Total loans charged off (24,606) (16,602) (19,117) (15,834) (14,820) ----------- ----------- ----------- ----------- ----------- Recoveries: Commercial & agricultural 1,843 833 1,408 1,632 1,491 Consumer & installment 2,443 2,411 3,120 2,140 2,561 Real estate mortgage 646 334 560 576 504 Lease financing 40 59 20 57 5 ----------- ----------- ----------- ----------- ----------- Total recoveries 4,972 3,637 5,108 4,405 4,561 ----------- ----------- ----------- ----------- ----------- Net charge-offs (19,634) (12,965) (14,009) (11,429) (10,259) Provision charged to operating expense 26,166 17,812 19,310 15,682 11,643 Acquisitions 966 1,000 1,152 1,022 1,215 ----------- ----------- ----------- ----------- ----------- Balance, end of period $ 81,730 $ 74,232 $ 68,385 $ 61,932 $ 56,657 =========== =========== =========== =========== =========== RATIOS Net charge-offs to average loans 0.34% 0.25% 0.30% 0.28% 0.27% =========== =========== =========== =========== ===========
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. See "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Deposits." The following table shows the classification of deposits on an average basis for the three years ended December 31, 2000.
Year Ended December 31 -------------------------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------------------------- Average Average Average Average Average Average Amount Rate Amount Rate Amount Rate ------- ------- ------- ------- ------- ------- (Dollars in thousands) Non-interest bearing demand deposits $ 967,823 -- $ 934,169 -- $ 861,421 -- Interest bearing demand deposits 1,672,466 3.24% 1,585,545 2.86% 1,454,694 2.99% Savings deposits 874,707 4.45% 956,056 3.78% 844,557 3.96% Time deposits 3,758,003 5.78% 3,376,833 5.19% 3,280,353 5.50% ---------- ---------- ---------- Total deposits $7,272,999 $6,852,603 $6,441,025 ========== ========== ==========
Time deposits of $100,000 and over, including certificates of deposits of $100,000 and over, at December 31, 2000, had maturities as follows:
DECEMBER 31, 2000 ----------------- (In thousands) Three months or less $ 419,661 Over three months through six months 249,110 Over six months through twelve months 436,201 Over twelve months 282,554 ---------- TOTAL $1,387,526 ==========
18 19 Return on Equity and Assets Return on average equity, return on average assets and dividend payout ratios based on net income for the three years ended December 31, 2000, are presented below:
Year Ended December 31, ----------------------------------------------- 2000 1999 1998 ----- ----- ---- Return on average equity 9.76% 13.89% 12.95% Return on average assets 0.85 1.26 1.16 Dividend payout ratio 60.23 41.18 43.69
The Company's average equity as a percentage of average assets was 8.70%, 9.06% and 9.00% for 2000, 1999 and 1998, respectively. In 2000, the Company's return on average equity (which is calculated by dividing net income by average shareholders' equity) and return on average assets (which is calculated by dividing net income by average total assets) decreased, and its dividend payout ratio (which is calculated by dividing dividends declared per share by net income per share) increased primarily due to significant restructuring, merger-related and other charges incurred during 2000 in connection with the merger of First United Bancshares, Inc. into the Company on August 31, 2000. See "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Summary." Short-Term Borrowings The Company uses borrowed funds as an additional source of funds for growth in earning assets. Short-term borrowings consist of federal funds purchased, flexible repurchase agreements purchased, securities sold under repurchase agreements and short-term Federal Home Loan Bank advances. The following table sets forth, for the periods indicated, certain information about short-term borrowings and the components thereof: 19 20
DECEMBER 31 DAILY AVERAGE MAXIMUM -------------------- --------------------- OUTSTANDING INTEREST INTEREST AT ANY BALANCE RATE BALANCE RATE MONTH END -------- -------- ----------- -------- ------------ (Dollars in thousands) 2000: Federal funds purchased $ -- -- $ 29,859 6.3% $ 71,500 Flexible repurchase agreements 198,925 5.6% 25,804 5.7% 202,300 Securities sold under repurchase agreements 304,502 5.6% 253,152 5.3% 304,502 Short-term Federal Home Loan Bank advances -- -- 136,792 6.8% 570,000 -------- ---------- ---------- Total $503,427 $ 445,607 $1,148,302 ======== ========== ========== 1999: Federal funds purchased $ 20,100 4.6% $ 19,589 4.9% $ 23,600 Securities sold under repurchase agreements 237,327 4.2% 114,121 6.5% 237,327 Short-term Federal Home Loan Bank advances 89,000 6.0% 57,922 5.5% 115,000 -------- ---------- ---------- Total $346,427 $ 191,632 $ 375,927 ======== ========== ========== 1998: Federal funds purchased $ 9,075 5.0% $ 9,656 5.1% $ 22,790 Securities sold under repurchase agreements 134,347 4.7% 110,033 4.9% 125,267 Short-term Federal Home Loan Bank advances 1,046 5.1% 1,098 5.5% 1,322 -------- ---------- ---------- Total $144,468 $ 120,787 $ 51 $ 149,379 ======== ========== ==========
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 the sale. At December 31, 2000, the Bank has established informal federal funds borrowing lines of credit aggregating $1.49 billion. The Bank has entered into a blanket floating lien security agreement with the Federal Home Loan Bank of Dallas. Under the terms of this agreement, the Bank is required to maintain sufficient collateral to secure borrowings in an aggregate amount of the lesser of 75% of the book value (unpaid principal balance) of the borrower's first mortgage collateral or 35% of the borrower's assets. Item 2. - Properties The physical properties of the Company are held by its subsidiaries as follows: a. BancorpSouth Bank - The main office is located at One Mississippi Plaza in the central business district of Tupelo, Mississippi in a seven-floor modern glass, concrete and steel office building owned by the Bank. The Bank occupies approximately 80% of the rentable space, with the remainder leased to various unaffiliated tenants. The Bank owns 208 of its 236 branch banking facilities. The remaining 28 branch banking facilities are occupied under leases with unexpired terms ranging from one to seven years. The Bank also owns other buildings that provide space for computer operations, lease servicing, mortgage lending, warehouse needs and other general purposes. The Bank considers all its buildings and leased premises to be in good condition. The Bank also owns several parcels of property acquired under foreclosure. Ownership of and rentals on other real property by the Bank are not material. 20 21 b. Personal Finance Corporation - This wholly-owned subsidiary of the Bank occupies 45 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. All of these premises are considered to be in good condition. c. BancorpSouth Insurance Services, Inc. - This wholly-owned subsidiary of the Bank owns seven of the nine offices it occupies. It leases two offices that have unexpired terms varying in length from one to three years. 21 22 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 and results of operations 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 2000. Executive Officers of the Company For information regarding executive officers of the Company, see "Item 10. - Directors and Executive Officers of the Registrant" in this Report. PART II Item 5. - Market for the Registrant's Common Equity and Related Stockholder Matters Market for Common Stock The common stock of the Company trades on the New York Stock Exchange under the symbol "BXS." The following table sets forth, for the periods indicated, the range of sale prices of the Company's common stock as reported on the New York Stock Exchange.
High Low ----------- ----------- 2000 Fourth $ 14.88 $ 11.88 Third 15.31 13.81 Second 17.25 14.00 First 16.63 14.00 1999 Fourth $ 17.50 $ 16.31 Third 19.38 15.38 Second 19.13 15.81 First 19.44 15.75
Holders of Record As of February 28, 2001, there were 10,348 shareholders of record of the Company's common stock. Dividends The Company declared cash dividends totaling $0.53 per share during 2000, $0.49 during 1999 and $0.45 during 1998. Future dividends, if any, will vary depending on the Company's profitability, anticipated capital requirements and applicable federal and state regulations. See "Item 1. - Business - Regulation and Supervision" and Note 15 to the Company's Consolidated Financial Statements included elsewhere in this Report. 22 23 Item 6. - Selected Financial Data SELECTED FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Earnings Summary: (Dollars in thousands, except per share amounts) Interest revenue $ 674,035 $ 596,670 $ 574,414 $ 523,770 $ 476,862 Interest expense 346,883 280,150 277,104 246,945 222,806 ---------- ---------- ---------- ---------- ---------- Net interest revenue 327,152 316,520 297,310 276,825 254,056 Provision for credit losses 26,166 17,812 19,310 15,682 11,643 ---------- ---------- ---------- ---------- ---------- Net interest revenue, after provision for credit losses 300,986 298,708 278,000 261,143 242,413 Other revenue 85,578 100,321 85,418 77,835 71,388 Other expense 274,227 251,882 232,928 225,199 198,360 ---------- ---------- ---------- ---------- ---------- Income before income taxes 112,337 147,147 130,490 113,779 115,441 Income tax expense 37,941 44,736 42,249 34,141 37,031 ---------- ---------- ---------- ---------- ---------- Net income $ 74,396 $ 102,411 $ 88,241 $ 79,638 $ 78,410 ========== ========== ========== ========== ========== Per Share Data: Net income: Basic $ 0.88 $ 1.20 $ 1.04 $ 0.96 $ 0.98 Diluted 0.88 1.19 1.03 0.96 0.98 Cash dividends 0.53 0.49 0.45 0.395 0.35 Book value 9.40 8.84 8.44 7.72 7.08 Balance Sheet - Year End Balances: Total assets $9,044,034 $8,441,697 $7,899,655 $7,207,205 $6,398,872 Total securities 2,046,529 2,111,597 2,147,609 2,032,644 1,793,779 Loans, net of unearned discount 6,095,315 5,541,961 4,935,668 4,400,643 3,909,003 Total deposits 7,480,920 7,066,645 6,720,906 6,102,882 5,553,941 Total shareholders' equity 789,576 757,111 723,162 639,012 566,183 Selected Ratios: Return on average assets 0.85% 1.26% 1.16% 1.17% 1.27% Return on average equity 9.76% 13.89% 12.95% 12.97% 14.78%
23 24 SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
QUARTER ENDED ------------------------------------------------------- Mar 31 Jun 30 Sept 30 Dec 31 - -------------------------------------------------------------------------------------------------------- 2000 (In thousands, except per share amounts) Interest revenue $158,729 $163,586 $173,325 $178,395 Net interest revenue 81,328 82,458 80,567 82,799 Provision for credit losses 4,615 5,398 10,656 5,497 Income before income taxes 39,267 38,510 16,871 17,689 Net income 26,645 25,984 9,492 12,275 Earnings per share: Basic 0.31 0.31 0.11 0.15 Diluted 0.31 0.31 0.11 0.15 Dividends per share 0.13 0.13 0.13 0.14 - -------------------------------------------------------------------------------------------------------- 1999 Interest revenue $143,449 $145,545 $149,685 $157,991 Net interest revenue 76,234 77,694 79,505 83,087 Provision for credit losses 3,751 4,094 4,798 5,169 Income before income taxes 35,130 36,304 38,902 36,811 Net income 24,988 24,832 26,172 26,419 Earnings per share: Basic 0.29 0.29 0.31 0.31 Diluted 0.29 0.29 0.30 0.31 Dividends per share 0.12 0.12 0.12 0.13 - -------------------------------------------------------------------------------------------------------- 1998 Interest revenue $140,201 $144,411 $145,429 $144,373 Net interest revenue 72,957 74,481 74,986 74,886 Provision for credit losses 4,048 4,793 5,602 4,867 Income before income taxes 34,451 34,732 33,300 28,007 Net income 23,619 23,570 21,799 19,253 Earnings per share: Basic 0.28 0.28 0.26 0.23 Diluted 0.28 0.28 0.25 0.22 Dividends per share 0.11 0.11 0.11 0.12
24 25 ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is a bank holding company headquartered in Tupelo, Mississippi. The Bank, the Company's banking subsidiary, has commercial banking operations in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. The Bank and its consumer finance, credit life insurance, insurance agency and brokerage subsidiaries provide commercial banking, leasing, mortgage origination and servicing, life insurance, brokerage and trust services to corporate customers, local governments, individuals and other financial institutions through an extensive network of branches and offices. 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, you should refer to the Consolidated Financial Statements and Notes thereto presented elsewhere in this Report. On August 31, 2000, First United Bancshares, Inc. merged into the Company in a transaction accounted for as a pooling of interests. All prior period financial information has been restated as if this merger had been in effect for all periods presented. For additional information about this merger, refer to Note 3 to the Consolidated Financial Statements included elsewhere in this Report. THREE YEARS ENDED DECEMBER 31, 2000 RESULTS OF OPERATIONS SUMMARY The table below summarizes the Company's net income, return on average assets and return on average equity for the years ended December 31, 2000, 1999 and 1998. The table also summarizes certain restructuring, merger-related and other charges, and presents the Company's results of operations for 2000, 1999 and 1998 excluding these charges.
(Dollars in thousands, except per share amounts) 2000 1999 1998 -------- -------- -------- AS REPORTED: Net income $ 74,396 $102,411 $ 88,241 Net income per share: Basic $ 0.88 $ 1.20 $ 1.04 Diluted $ 0.88 $ 1.19 $ 1.03 Return on average assets 0.85% 1.26% 1.16% Return on average equity 9.76% 13.89% 12.95% RESTRUCTURING, MERGER-RELATED AND OTHER CHARGES (NET OF TAX): Securities losses related to restructuring of acquired securities portfolio $ 9,685 $ -- $ -- Merger-related charges 7,445 976 3,095 Provision for credit losses 3,770 -- -- Other charges 1,605 -- 1,380 -------- -------- -------- Total $ 22,505 $ 976 $ 4,475 Per share: Basic $ 0.27 $ 0.01 $ 0.05 Diluted $ 0.26 $ 0.01 $ 0.05 EXCLUDING RESTRUCTURING, MERGER-RELATED AND OTHER CHARGES: Net income $ 96,901 $103,387 $ 92,716 Net income per share: Basic $ 1.15 $ 1.21 $ 1.09 Diluted $ 1.14 $ 1.20 $ 1.08 Return on average assets 1.11% 1.27% 1.23% Return on average equity 12.72% 13.99% 13.61%
NET INTEREST REVENUE Net interest revenue increased 3.3% to $339.2 million in 2000 from $328.4 million in 1999, which represented an increase of 6.6% from $308.2 million in 1998. Net interest revenue is the difference between interest revenue earned from earning assets such as loans, leases and securities, and interest expense paid on liabilities such as deposits and borrowings, and continues to provide the Company with its principal source of revenue. Net interest revenue is affected by the general level of interest rates, changes in interest rates and by changes in the amount and composition of interest 25 26 earning assets and interest bearing liabilities. The Company's long-term objective is to manage those assets and liabilities to maximize net interest revenue, while balancing interest rate, credit, liquidity and capital risks. For purposes of the following discussion, revenue from tax-exempt loans and investment securities has been adjusted to fully taxable equivalent amounts, using an effective tax rate of 35%. Interest income increased 12.7% to $686.1 million in 2000 from $608.6 million in 1999, which represented an increase of 4.0% from $585.3 million in 1998. The increase in interest income during 2000 was attributable to a 7.6% increase in average interest earning assets to $8.2 billion in 2000, and an increase in the yield of those assets of 38 basis points to 8.38% in 2000. The increase in interest income during 1999 was attributable to a 7.3% increase in average interest earning assets to $7.6 billion during 1999, which was partially offset by a decrease in the yield of those assets of 25 basis points to 8.00% in 1999. Interest expense increased 23.8% to $346.9 million in 2000 from $280.2 million in 1999, which represented an increase of 1.1% from $277.1 million in 1998. The increase in interest expense during 2000 was attributable to an 8.6% increase in average interest bearing liabilities to $6.9 billion in 2000, and an increase in the average rate paid on those liabilities of 61 basis points to 5.01% in 2000. The increase in interest expense during 1999 was attributable to a 7.4% increase in average interest bearing liabilities to $6.4 billion in 1999, which was partially offset by a decrease in the average rate paid on those liabilities of 27 basis points to 4.40% in 1999. The relative performance of the lending and deposit-raising functions is frequently measured by two calculations - net interest margin and net interest rate spread. Net interest margin is determined by dividing fully-taxable equivalent net interest revenue by average earning assets. Net interest rate spread is the difference between the average fully-taxable equivalent yield earned on interest earning assets and the average rate paid on interest bearing liabilities. Net interest margin is generally greater than the net interest rate spread due to the additional income earned on those assets funded by non-interest bearing liabilities, or free funding, such as demand deposits and shareholders' equity. Net interest margin for 2000 was 4.14%, a decline of 18 basis points from 4.32% for 1999, which represented a decline of three basis points from 4.35% for 1998. Net interest rate spread for 2000 was 3.37%, a decline of 23 basis points from 3.60% for 1999, which represented an increase of two basis points from 3.58% for 1998. The decline in net interest margin and net interest rate spread in 2000 was due to the significant increase in funding cost which was not offset by the smaller increase in asset yield. The Company experienced significant growth in average interest earning assets and average interest bearing liabilities during the three years ended December 31, 2000. Average interest earning assets increased 7.6% during 2000, 7.3% during 1999 and 12.1% during 1998, due to increases in the Company's loan and securities portfolios. Average interest bearing liabilities increased 8.6% during 2000, 7.4% during 1999 and 12.5% during 1998, due to increases in the Company's deposits and short-term borrowings. 26 27 The following table presents average interest earning assets, average interest bearing liabilities, net interest income, net interest margin and net interest rate spread for the three years ended December 31, 2000. Each of the measures is reported on a fully-taxable equivalent basis.
2000 1999 1998 ---------------------------- ------------------------------ ------------------------------ (Taxable equivalent basis) Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate -------- -------- ---- --------- -------- ---- --------- -------- ---- ASSETS (Dollars in thousands) Loans (net of unearned income)(1)(2) $5,791,569 $527,618 9.11% $5,211,539 $459,593 8.82% $4,710,847 $434,812 9.23% Mortgages held for sale 39,461 3,111 7.88% 51,602 3,638 7.05% 52,581 3,470 6.60% Held to maturity securities: Taxable 796,125 49,086 6.17% 670,051 39,007 5.82% 665,219 38,908 5.85% Non-taxable(3) 325,027 24,108 7.42% 315,206 23,072 7.32% 280,558 21,236 7.57% Available-for-sale securities: Taxable 1,040,875 68,740 6.60% 1,108,558 67,939 6.13% 1,108,293 70,123 6.33% Non-taxable(4) 73,829 6,011 8.14% 88,364 7,163 8.11% 87,929 6,724 7.65% Federal funds sold and short term investments 119,752 7,440 6.21% 162,578 8,135 5.00% 187,735 10,037 5.35% ---------- -------- ---- ---------- -------- ----- ---------- -------- ---- Total interest earning assets and revenue 8,186,638 686,114 8.38% 7,607,898 608,547 8.00% 7,093,162 585,310 8.25% Other assets 646,878 604,718 547,420 Less: allowance for credit losses (77,042) (73,420) (65,712) ---------- --------- ---------- Total $8,756,474 $8,139,196 $7,574,870 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - interest bearing $1,672,466 $ 54,226 3.24% $1,585,545 $45,380 2.86% $1,454,694 $ 43,528 2.99% Savings 874,707 38,947 4.45% 956,056 36,145 3.78% 844,557 33,453 3.96% Time 3,758,003 217,191 5.78% 3,376,833 175,229 5.19% 3,280,353 180,324 5.50% Federal funds purchased, securities sold under repurchase agreements and other short-term borrowings(5) 454,089 26,742 5.89% 270,185 13,748 5.09% 157,773 9,216 5.84% Long-term debt 164,683 9,776 5.94% 185,632 9,652 5.20% 199,205 10,584 5.31% ---------- -------- ---------- -------- ---------- -------- Total interest bearing liabilities and expense 6,923,948 346,882 5.01% 6,374,251 280,154 4.40% 5,936,582 277,105 4.67% Demand deposits - non-interest bearing 967,823 934,169 861,421 Other liabilities 102,819 93,250 95,384 ---------- ---------- ---------- Total liabilities 7,994,590 7,401,670 6,893,387 Shareholders' equity 761,884 737,526 681,483 ---------- ---------- ---------- Total $8,756,474 $8,139,196 $7,574,870 ========== ========== ========== Net interest revenue $339,232 $328,393 $308,205 ======== ======== ======== Net interest margin 4.14% 4.32% 4.35% Net interest rate spread 3.37% 3.60% 3.58% Interest bearing liabilities to interest earning assets 84.58% 83.78% 83.69%
- ------------- (1) Includes taxable equivalent adjustment of $1,538,000, $1,293,000 and $1,110,000 in 2000, 1999 and 1998, respectively, using an effective tax rate of 35%. (2) Non-accrual loans are immaterial for each of the years presented. (3) Includes taxable equivalent adjustments of $8,438,000, $8,092,000 and $7,433,000 in 2000, 1999 and 1998, respectively, using an effective tax rate of 35%. (4) Includes taxable equivalent adjustment of $2,103,000, $2,492,000 and $2,353,000 in 2000, 1999 and 1998, respectively, using an effective tax rate of 35%. (5) Interest expense includes interest paid on liabilities not included in averages. 27 28 Net interest revenue may also be analyzed by segregating the rate and volume components of interest revenue and interest expense. The table that follows presents an analysis of rate and volume change in net interest revenue from 1999 to 2000 and from 1998 to 1999. Changes that are not solely due to volume or rate have been allocated to volume.
2000 OVER 1999 -- INCREASE 1999 OVER 1998 -- INCREASE (DECREASE) (DECREASE) ---------------------------- ---------------------------- (TAXABLE EQUIVALENT BASIS) VOLUME RATE TOTAL VOLUME RATE TOTAL - -------------------------- ------- -------- ------- ------- -------- ------- INTEREST REVENUE Loans (net of unearned income)......... $52,841 $ 15,184 $68,025 $44,155 $(19,374) $24,781 Mortgages held for sale................ (957) 430 (527) (69) 237 168 Held to maturity securities: Taxable.............................. 7,773 2,306 10,079 281 (182) 99 Non-taxable.......................... 728 308 1,036 2,536 (700) 1,836 Available-for-sale securities: Taxable.............................. (4,470) 5,271 801 16 (2,200) (2,184) Non-taxable.......................... (1,183) 31 (1,152) 35 404 439 Federal funds sold and short term investments.......................... (2,661) 1,966 (695) (1,259) (643) (1,902) ------- -------- ------- ------- -------- ------- Total........................ 52,071 25,496 77,567 45,695 (22,458) 23,237 ------- -------- ------- ------- -------- ------- INTEREST EXPENSE Demand -- interest bearing........... 2,818 6,028 8,846 3,745 (1,893) 1,852 Savings.............................. (3,622) 6,424 2,802 4,215 (1,523) 2,692 Time................................. 22,029 19,933 41,962 5,006 (10,101) (5,095) Federal funds purchased, securities sold under repurchase agreements and other short-term borrowings.......... 10,830 2,164 12,994 5,720 (1,188) 4,532 Long-term debt......................... (1,244) 1,368 124 (706) (226) (932) ------- -------- ------- ------- -------- ------- Total........................ 30,811 35,917 66,728 17,980 (14,931) 3,049 ------- -------- ------- ------- -------- ------- Increase (decrease) in effective interest differential................ $21,260 $(10,421) $10,839 $27,715 $ (7,527) $20,188 ======= ======== ======= ======= ======== =======
28 29 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, 2000.
INTEREST RATE SENSITIVITY 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 with banks $ 11,687 $ -- $ -- $ -- Federal funds sold & repurchase agreements 212,925 -- -- -- Held-to-maturity securities 102,383 190,195 692,950 203,601 Available-for-sale securities 52,490 54,746 497,395 252,769 Loans, net of unearned discount 2,098,956 588,806 2,879,638 527,915 Mortgages held for sale 27,820 -- -- -- -------------- -------------- ------------- ------------- Total interest earning assets 2,506,261 833,747 4,069,983 984,285 -------------- -------------- ------------- ------------- Interest bearing liabilities: Interest bearing demand deposits & savings 535,488 294,389 1,180,872 596,120 Time deposits 879,972 1,843,294 1,137,980 2,997 Federal funds purchased & securities sold under repurchase agreements 503,427 -- -- -- Long-term debt 109 10,084 5,528 136,328 Other 821 144 547 1,022 -------------- -------------- ------------- ------------- Total interest bearing liabilities 1,919,817 2,147,911 2,324,927 736,467 -------------- -------------- ------------- ------------- Interest rate sensitivity gap $ 586,444 $ (1,314,164) $ 1,745,056 $ 247,818 ============== ============== ============= ============= Cumulative interest sensitivity gap $ 586,444 $ (727,720) $ 1,017,336 $ 1,265,154 ============== ============== ============= =============
In the event interest rates decline after 2000, based on this interest rate sensitivity gap, it is likely that the Company would 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 earning assets. Conversely, in periods of increasing interest rates, based on this interest rate sensitivity gap, the Company would likely experience decreased net interest income. It should be noted that the balances shown in the table above are for a specific point in time and may not be reflective of positions at other times during the year or in subsequent periods. Allocations to specific interest rate sensitivity periods are based on the earlier of maturity or repricing dates. PROVISIONS FOR CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES The provision for credit losses is the annual cost of providing an allowance or reserve for estimated probable losses on loans. The amount for each year is dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management's assessment of loan portfolio quality, the value of collateral and general economic factors. The process of determining the adequacy of the provision requires that management make material estimates and assumptions that are particularly susceptible to significant change. See "Item 1. - Business." When determining the adequacy of the allowance for credit losses, management considers changes in the size and character of the loan portfolio, changes in non-performing and past due loans, historical loan loss experience, the existing risk of individual loans, concentrations of loans to specific borrowers or industries and existing economic conditions. The allowance for credit losses for commercial loans is based principally upon the Company's loan 29 30 classification system. The Company has a disciplined approach for assigning credit ratings and classifications to individual credits. Each credit is assigned a grade by the relevant loan officer, which serves as a basis for the credit analysis of the entire portfolio. The grade assigned considers the borrower's creditworthiness, collateral values, cash flows and other factors. An independent loan review department is responsible for reviewing the credit rating and classification of individual credits and assessing trends in the portfolio, adherence to internal credit policies and procedures and other factors that may affect the overall adequacy of the allowance. The loan review department is supplemented by regulatory agencies that provide an additional level of review. The loss factors assigned to each classification are based upon the attributes (loan to collateral values, borrower creditworthiness, etc.) of the loans typically assigned to each grade. Management periodically reviews the loss factors assigned in light of the general economic environment and overall condition of the loan portfolio and modifies the loss factors assigned to each classification as deemed appropriate. The allowance for credit losses for the consumer loan portfolio is based upon delinquencies and historic loss rates. The overall allowance includes a component representing the results of other analyses intended to insure that the allowance is adequate to cover other probable losses inherent in the portfolio. This component considers analyses of changes in credit risk resulting from the differing underwriting criteria in acquired loan portfolios, industry concentrations, changes in the mix of loans originated, overall credit criteria and other economic indicators. The provision for credit losses, the allowance for credit losses as a percentage of loans outstanding at the end of 2000, 1999 and 1998 and net charge-offs for those years are shown in the following table:
2000 1999 1998 -------------- -------------- -------------- (DOLLARS IN THOUSANDS) Provision for credit losses $26,166 $17,812 $19,310 Allowance for credit losses as a percentage of loans outstanding at year end 1.34% 1.34% 1.39% Net charge-offs $19,634 $12,965 $14,009 Net charge-offs as a percentage of average loans 0.34% 0.25% 0.30%
The provision for credit losses for 2000 increased 46.9% from the provision for 1999 and reflects a one-time charge of $6.1 million made to provide for probable losses in the loan portfolio acquired in the merger with First United Bancshares, Inc., and to reflect differences in underwriting standards at the acquired company. In part, these differences in underwriting standards also led to a 51.4% increase in net charge-offs during 2000 and increases in internal credit ratings and classifications of the Company's overall loan portfolio at December 31, 2000. The provision for credit losses for 1999 decreased 7.8% from the provision for 1998, principally as result of a 7.5% decrease in net charge-offs during 1999. In all years presented, increases in consumer based loans were the principal contributors to the higher levels of net charge-offs. OTHER REVENUE The components of other revenue for the years ended December 31, 2000, 1999 and 1998 and the percentage change from the prior year are shown in the following table:
2000 1999 1998 ---------------------------- ----------------------------- ---------------------------- AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------------- --------- ------------- ---------- ------------- --------- (DOLLARS IN THOUSANDS) Mortgage lending $ 10,874 -40.5% $ 18,289 +32.4% $ 13,816 +74.6% Service charges 40,472 +10.9 36,503 +7.9 33,835 +4.3 Life insurance premiums 4,300 +8.2 3,975 +8.8 3,655 -3.1 Trust income 6,700 +4.7 6,400 +9.6 5,841 +5.7 Securities gains (losses), net (15,632) N/M 4,416 +224.0 1,363 -1.4 Insurance commissions 16,034 +18.1 13,573 +8.8 12,475 +22.5 Other 22,830 +33.0 17,165 +18.9 14,433 -13.2 ------------- ------------- ------------- Total other revenue $ 85,578 -14.7% $ 100,321 +17.4% $ 85,418 +9.7% ============= ============= =============
30 31 Mortgage lending revenue consists principally of revenue generated by originating loans and by servicing loans for others. The origination process, which includes secondary marketing of loans originated, produced revenue of $8,183,000, $11,256,000 and $13,724,000 for 2000, 1999 and 1998, respectively. Historically, origination volumes have varied as mortgage interest rates have changed. Rising mortgage interest rates have generally resulted in a decrease in the volume of originations, while falling mortgage interest rates have generally resulted in an increased volume of originations. The servicing process includes the actual servicing of loans and the recognition of changes in the valuation of capitalized mortgage servicing rights. Capitalized mortgage servicing rights are evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their fair value. The servicing process generated revenue of $2,691,000 in 2000, $7,034,000 in 1999 and $92,000 in 1998. The fluctuation in servicing revenue is primarily due to changes in the valuation of capitalized mortgage servicing rights. Lower mortgage rates in 2000 resulted in impairment expense of $1.0 million. Rising mortgage interest rates during 1999 resulted in the recovery of $3.3 million during 1999 of previously recorded impairment. This compares to the recognition of $4.1 million in impairment expense during 1998. The following table presents the principal amount of mortgage loans serviced at December 31, 2000, 1999 and 1998 and the percentage change from the previous year end.
2000 1999 1998 ----------------------- ----------------------- ------------------------ AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------- --------- ------- -------- --------- -------- (DOLLARS IN MILLIONS) Mortgage loans serviced $2,217.0 +6.3% $2,085.2 +13.6% $1,836.0 +25.9%
Service charges on deposit accounts increased in 2000, 1999 and 1998 because of higher volumes of items processed as a result of greater economic activity, growth in the number of deposit accounts and rate increases. Life insurance premium revenue increased 8.2% in 2000 and 8.8% in 1999, as compared to a decline 3.1% during 1998. Trust income increased 4.7% in 2000, 9.6% in 1999 and 5.7% in 1998, as a result of increases in the number of trust accounts and the value of assets under care (either managed or in custody). In 2000, the Company restructured the securities portfolio acquired through the August 31, 2000 merger with First United Bancshares, Inc. by selling approximately $680 million of securities and reinvesting the net proceeds in higher yielding securities, which resulted in securities losses of $15.7 million in 2000. In 1999, the Company established a charitable foundation and contributed appreciated equity securities to initially fund the foundation. This transaction resulted in one-time securities gains of approximately $4.14 million, which are reflected in the results for 1999. Revenue from insurance commissions grew steadily during 2000, 1999 and 1998, as the Company continued to expand those products and services. The increases in the other component of other revenue in 2000 and 1999 were primarily attributable to fees generated from brokerage and annuity sales, as well as increased analysis charges and debit card net interchange. OTHER EXPENSE The components of other expense for the years ended December 31, 2000, 1999 and 1998 and the percentage change from the prior year are shown in the following table.
2000 1999 1998 ----------------------------- ---------------------------- -------------------------- AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------------- --------- ------------- --------- ------------- --------- (DOLLARS IN THOUSANDS) Salaries and employee benefits $ 133,855 +7.3% $ 124,750 +9.0% $ 114,443 -3.0% Occupancy, net 18,343 +8.4 16,918 +7.5 15,736 -1.7 Equipment 24,137 +11.7 21,618 +7.5 20,103 +5.6 Telecommunications 7,234 +1.9 7,096 +18.5 5,987 +42.7 Merger-related 9,215 +656.6 1,218 -65.9 3,577 +574.9 Other 81,443 +1.4 80,282 +9.9 73,082 +8.3 ------------- ------------- ------------- Total other expense $ 274,227 +8.9% $ 251,882 +8.1% $ 232,928 +3.4% ============= ============= =============
Salaries and employee benefits expense for 2000, 1999 and 1998 included increases in salaries and employee benefits due to incentive payments and salary increases, increases in the cost of employee heath care benefits and the hiring of employees to staff the banking locations added during those years; however, salaries and employee benefits expense for all three years were impacted by changes in stock appreciation rights (SARs) expense, which is included in salaries and employee benefits expense. The Company previously granted SARs to certain of its employees, which 31 32 requires the Company to recognize an expense in the event of an increase in the market price of the Company's common stock or a reduction of expense in the event of a decline in the market price of the Company's common stock. In 2000, the Company's common stock price declined by approximately 25.3%, in 1999 the Company's common stock price declined by approximately 9.9% and in 1998 the Company's common stock price declined by approximately 24%. As a result of these declines in value, reductions in expense of $1,844,000, $956,000 and $2.7 million were recorded in 2000, 1999 and 1998, respectively. At December 31, 2000, the Company had approximately 475,000 SARs outstanding. Based on that amount, a dollar increase in the Company's stock price would result in $475,000 in SAR expense while a dollar decrease in the Company's stock price would result in a $475,000 reduction in SAR expense. Occupancy and equipment expenses increased in 2000 and 1999 principally as a result of additional branch offices and upgrades to the Company's internal operating systems. Telecommunications expense increased significantly during 1999 and 1998 as a result of expanded voice and data networks and expansion of the Bank's call center, all of which related to providing higher levels of convenient consumer oriented banking services. The increase during 1999 in the other component of other expense was primarily attributable to a contribution of appreciated equity securities with an aggregate market value of $4.14 million to a charitable foundation established by the Company in 1999. As a direct result of the Company's merger activity, merger-related and other costs of $9.2 million, $1.2 million and $3.6 million were recorded in 2000, 1999 and 1998, respectively. These merger-related and other costs included termination and change of control payments, contract termination charges, professional fees, elimination of duplicate facilities charges and other charges. At December 31, 2000, approximately $3.1 million in accrued charges related to merger activity were unpaid. These consisted primarily of termination and change of control payments related to mergers in 2000 and the cost of abandonment of a duplicate headquarters facility acquired in the 1998 merger with Merchants Capital Corporation. The Company has formulated, documented and approved plans with respect to termination and change of control payments and expects to make these payments during 2001. The duplicate headquarters facility has been abandoned and is listed for sale. FINANCIAL CONDITION LOANS The Company's loan portfolio represents the largest single component of the Company's earning asset base, comprising 70.7% of average earning assets during 2000. See "Item 1. - Business." The following table indicates the average loans, year end balances of the loan portfolio and the percentage increases for the years presented.
2000 1999 1998 -------------------------- ------------------------- ------------------------- AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ----------- ---------- ---------- --------- ---------- --------- (DOLLARS IN MILLIONS) Loans, net of unearned - average $5,791.6 +11.1% $5,211.5 +10.6% $4,710.8 +13.4% Loans, net of unearned - year end 6,095.3 +10.0 5,542.0 +12.3 4,935.7 +12.2
Despite significant increases in the Company's loan portfolio, quality is stressed in the Company's lending policy as opposed to growth. The Company's nonperforming assets, 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.
2000 1999 1998 ------- ------- ------- (DOLLARS IN THOUSANDS) Foreclosed properties $ 7,893 $11,182 $ 8,530 Non-accrual loans 15,572 13,352 13,406 Loans 90 days or more past due 25,732 17,311 13,120 Restructured loans 879 1,125 1,781 ------- ------- ------- Total non-performing assets $50,076 $42,970 $36,837 ======= ======= ======= Total non-performing assets as a percentage of net loans 0.82% 0.78% 0.75% ======= ======= =======
The increase in the Company's non-performing assets in 2000 reflects a general slow down in the overall economy of the region serviced by the Company. The Company has not, as a matter of policy, participated in any highly 32 33 leveraged transactions nor made any loans or investments relating to corporate transactions such as leveraged buyouts or leveraged recapitalizations. At December 31, 2000, 1999 and 1998, 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. However, the Company does conduct business in a geographically concentrated area. The ability of the Company's borrowers to repay loans may be dependent upon the economic conditions prevailing in the market area. Included in non-performing assets above were loans the Company considered impaired totaling $14,669,000, $7,916,000 and $11,908,000 at December 31, 2000, 1999 and 1998, respectively. SECURITIES AND OTHER EARNING ASSETS The securities portfolio is used to make various term investments, to provide a source of liquidity and to serve as collateral to secure certain types of deposits and borrowings. A portion of the Company's securities portfolio continues to be tax exempt. Investments in tax exempt securities totaled $414.9 million at December 31, 2000, compared to $419.6 million at the end of 1999. The Company invests only in investment grade securities, with the exception of obligations of certain counties and municipalities within the Company's market area, and avoids other high yield nonrated securities and investments. See "Item 1. - Business - Investment Portfolio." At December 31, 2000, the Company's available-for-sale securities totaled $857.4 million. These securities, which are subject to possible sale, are recorded at fair value. At December 31, 2000, the Company held no securities whose decline in fair value was considered other than temporary. Net unrealized gains on investment securities as of December 31, 2000 totaled $35.1 million. Net unrealized gains on held-to-maturity securities comprised $10.5 million of that total, while net unrealized gains on available-for-sale securities were $24.6 million. Net unrealized losses on investment securities as of December 31, 1999 totaled $43.5 million. Of that total, $21.8 million was attributable to held-to-maturity securities and $21.7 million to available-for-sale securities. In the fourth quarter of 2000, the Company restructured the securities portfolio acquired in the August 31, 2000 merger with First United Bancshares, Inc. by selling approximately $680 million of securities and reinvesting the net proceeds in higher yielding securities. DEPOSITS Deposits are the Company's primary source of funds to support its earning assets. The Company has been able to effectively compete for deposits in its primary market areas. See "Item 1. - Business - Deposits." The following table presents the Company's average deposit mix and percentage change for the years indicated.
2000 1999 1998 ---------------------- --------------------- -------------------- AVERAGE % AVERAGE % AVERAGE % BALANCE CHANGE BALANCE CHANGE BALANCE CHANGE ------------- ------- --------- ------ ---------- ------ (DOLLARS IN MILLIONS) Interest bearing deposits $6,305.2 +6.5% $5,918.4 +6.1% $5,579.6 +10.4% Non-interest bearing deposits 967.8 +3.6 934.2 +8.5 861.4 +7.7 ----------- ---------- ---------- Total average deposits $7,273.0 +6.1 $6,852.6 +6.4 $6,441.0 +10.0 =========== ========== ==========
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. Management believes that the Company's traditional sources of maturing loans, investment securities, mortgages held for sale, purchased federal funds and base of core deposits are adequate to meet the Company's liquidity needs for normal operations. The Company maintains a relationship with the Federal Home Loan Bank, which provides an additional source of liquidity to fund term loans with borrowings of matched or longer maturities. The matching of these assets and liabilities has had the effect of reducing the Company's net interest margin. See "-- Deposits" and "Item 1 - Business - Short Term Borrowings." 33 34 CAPITAL RESOURCES The Company is required to comply with the riskbased capital guidelines established by the Board of Governors of the Federal Reserve System. 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 paidup 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. Total capital is the sum of Tier I and Tier II capital. The Company's Tier I capital and total capital, as a percentage of total riskadjusted assets, was 11.31% and 12.56%, respectively, at December 31, 2000, compared to 12.75% and 14.02%, respectively at December 31, 1999. Both ratios exceeded the required minimum levels for these ratios of 4% and 8%, respectively, for each period. In addition, the Company's Tier 1 leverage capital ratio (Tier I capital divided by total assets, less goodwill) was 8.10% at December 31, 2000 and 8.83% at December 31, 1999, compared to the required minimum leverage capital ratio of 3%. The FDIC's capitalbased 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 riskbased capital, total risk-based capital and leverage capital ratios must be at least 6%, 10% and 5%, respectively. The Bank met the criteria for the "well capitalized" category at December 31, 2000. The Company may 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 any, would be shares of the Company's common stock; however, transactions involving cash consideration or other forms of consideration may also be considered. BUSINESS RISKS Certain statements contained in the Annual Report may not be based on historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by their reference to a future period or periods or by the use of forward-looking terminology, such as "anticipate", "believe", "estimate", "expect", "foresee", "may", "might", "will", "would" or "intend." These forward-looking statements include, without limitation, those relating to the expansion and prospects of products and services, integration and impact of recent acquisitions, effects of technology, shareholder value, prospects for 2001, the Company's future growth, revenue, profitability, assets, opportunities and success, dividends, legal proceedings, net interest revenue, interest rate sensitivity, liquidity, market risk and acquisitions. We caution you not to place undue reliance on the forward-looking statements contained in this Report, in that actual results could differ materially form those indicated in such forward-looking statements, due to a variety of factors. These factors include, but are not limited to changes in economic conditions and government fiscal and monetary policies, fluctuations in prevailing interest rates, effectiveness of the Company's interest rate hedging strategies, laws and regulations affecting financial institutions, the ability of the Company to compete with other financial services companies, the ability of the Company to identify, consummate, and integrate acquisitions and investment opportunities, the ability of the Company to operate and integrate new technology, the ability of the Company to manage its growth and effectively serve an expanding customer and market base, the ability of the Company to provide competitive products and services, changes in the Company's operating or expansion strategy, geographic concentration of the Company's assets, availability of and costs associated with obtaining adequate and timely sources of liquidity, the ability of the Company to attract, train, and retain qualified personnel, the ability of the Company to effectively market its services and products, the Company's dependence on existing sources of funding, changes in consumer preferences, unexpected operating results or outcome of legal proceedings, other factors generally understood to affect the financial results of financial services companies, and other risks detailed from time to time in the Company's press releases and filings with the Securities and Exchange Commission. We undertake no obligation to update the forward-looking statements to reflect events or circumstances that occur after the date of this Report. Our Operations are Subject to Extensive Governmental Regulation. BancorpSouth, Inc. is a registered bank holding company under the Bank Holding Company Act of 1956, and BancorpSouth Bank is a Mississippi state banking corporation. Accordingly, both are subject to extensive governmental regulation, legislation and control. These laws limit the manner in which we operate, including the amount of loans we can originate, interest we can charge on loans and fees we can charge for certain services. We cannot predict whether, or 34 35 the extent to which, the government and governmental organizations may change any of these laws or controls. We also cannot predict how any of these changes would adversely affect our business and prospects. We Compete with Other Bank Holding Companies, Banks and Financial Services Companies. The banking business is extremely competitive in our service areas in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. We compete, and will compete, with well established banks, credit unions and other financial institutions, several of which have significantly greater resources and lending limits than do we. Some of these competitors provide certain services that we do not provide. Rising Interest Rates May Result in Higher Interest Rates Being Paid on Interest Bearing Deposits Than Are Charged on Outstanding Loans. If interest rates rise, we may pay interest on our customers' interest bearing deposits and our other liabilities at rates higher than the interest rates paid to us by our customers on outstanding loans that were made when interest rates were at a lower level. This situation would result in a negative interest rate spread with respect to those loans and cause an adverse effect on our earnings. This adverse effect would increase if interest rates continued to rise while we had outstanding loans payable at fixed rates that could not be adjusted to a higher interest rate. Our Growth Strategy Includes Risks That Could Have an Adverse Effect on Our Financial Performance. A material element of our growth strategy is the acquisition of additional banks and bank holding companies in order to achieve greater economies of scale. We cannot assure you that the current level of growth opportunities will continue to exist, that we will be able to acquire banks and bank holding companies that satisfy our criteria or that any such acquisition will be on terms favorable to us. Further, our growth strategy will require that we continue to hire qualified personnel, while concurrently expanding our managerial and operational infrastructure. We cannot assure you that we will be able to hire and retain qualified personnel or that we will be able to successfully expand our infrastructure to accommodate future growth. As a result of these factors, we may not realize the expected economic benefits associated with our acquisitions. This could have a material adverse effect on our financial performance. Our Stock Price May Fluctuate. The stock market has, from time to time, experienced extreme price and volume fluctuations, which often have been unrelated to the operating performance of particular companies. Any announcement with respect to the banking industry, market conditions or any variance in our revenues or earnings from levels generally expected by securities analysts for a given period could have an immediate and significant effect on the trading price of our common stock. Issuing Additional Shares of Our Common Stock to Acquire Other Banks and Bank Holding Companies May Result in Dilution for Existing Shareholders. In connection with our growth strategy, we have issued, and may issue in the future, shares of our common stock to acquire additional banks and bank holding companies. Resales of substantial amounts of common stock in the public market and the potential of such sales could adversely affect the prevailing market price of our common stock and impair our ability to raise additional capital through the sale of equity securities. We usually must pay an acquisition premium above the fair market value of acquired assets for the acquisition of banks and bank holding companies. Paying this acquisition premium, in addition to the dilutive effect of issuing additional shares, may also adversely affect the prevailing market price of our common stock. Monetary Policies and Economic Factors May Limit Our Ability to Attract Deposits or Make Loans. The monetary policies of federal regulatory authorities, particularly the Board of Governors of the Federal Reserve System, and economic conditions in our service area and the United States generally, affect our ability to attract deposits and extend loans. We cannot predict either the nature or timing of any changes in these monetary policies and economic conditions, or their impact on our financial performance. The banking business is subject to various material business risks, which may become more acute in periods of economic slowdown or recession. During such periods, foreclosures generally increase, and such conditions also could lead to a potential decline in deposits and demand for loans. This could adversely affect our financial performance. Diversification in Types of Financial Services May Adversely Affect Our Financial Performance. As part of our business strategy, we have in the past diversified, and may further diversify, our lines of business into areas that are not traditionally associated with the banking business. We now offer insurance and investment 35 36 services through wholly-owned subsidiaries of BancorpSouth Bank. As a result, we must now manage the investment of additional capital and the significant involvement of our senior management to develop and integrate the insurance and investment services subsidiaries with our traditional banking operations. We offer no assurances that we will be able to develop and integrate these new services without adversely effecting our financial performance. Our Ability to Declare and Pay Dividends is Limited by Law. We derive our income primarily from dividends received from owning BancorpSouth Bank's common stock. Federal and state law limits the Bank's ability to declare and pay dividends. In addition, the Board of Governors of the Federal Reserve System may impose restrictions on our ability to declare or pay dividends on our common stock. Our Subsidiaries May Be Sued for Large Punitive Damages in Connection with Increased Litigation Against Financial Services Companies in Our Market Areas. In some states in which we operate, there has been a trend toward increased class action lawsuits and other litigation against financial services companies in connection with lending and other financial transactions. These actions tend to seek punitive damages for transactions that involve relatively small amounts of actual damages. Some of these actions have resulted in large settlements or awards of punitive damages. Some of our subsidiaries are defendants in similar lawsuits in which the plaintiffs are seeking substantial punitive damages. Legislation and court decisions in some states may limit the amount of punitive damages that can be recovered in legal proceedings; however, we cannot predict the effect of such legislation and court precedent at this time. Anti-takeover Provisions May Prevent a Change of Our Control. Our governing documents and certain agreements to which we are a party contain several provisions which make a change in control difficult to accomplish, and may discourage a potential acquirer. These include a shareholder rights plan or "poison pill," a classified or "staggered' Board, change in control agreements with members of management and supermajority voting requirements. These anti-takeover provisions may have an adverse effect on the market for our common stock. Limited Geographic Area Increases Our Risk From Economic Downturn. We conduct business in the limited geographic area of Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. An economic downturn in the economies of these states or the southern region of the United States could adversely affect our financial performance, particularly our ability to attract deposits and extend loans. In evaluating an investment in shares of our common stock, the factors set forth in this section should be carefully considered, along with other matters discussed in reports and other filings that we have made with the Securities and Exchange Commission. It should not be assumed that we have listed or described the only risks that could affect our future performance or the market price of our common stock. Item 7A.- Quantitative and Qualitative Disclosures About Market Risk Market risk reflects the risk of economic loss resulting from changes in interest rates and market prices. This risk of loss can be reflected in either reduced potential net interest revenue in future periods or diminished market values of financial assets. The Company's market risk arises primarily from interest rate risk that is inherent in its lending, investment and deposit taking activities. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest the Company earns on its assets and owes on its liabilities are established contractually for a period of time. Since market interest rates change over time, the Company is exposed to lower profit margins (or losses) if it cannot adapt to interest rate changes. Several techniques might be used by a financial institution to minimize interest rate risk. One approach used by the Company is to periodically analyze its assets and liabilities and make future financing and investing decisions based on payment streams, interest rates, contractual maturities, repricing opportunities and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Company's primary asset/liability management technique is the measurement of its asset/liability gap; that is, the difference between the amounts of interest-sensitive assets and liabilities that will be refinanced (repriced) during a given period. If the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year or longer period, the Company is in an asset-sensitive gap position. In this situation, net interest revenue would increase if market interest rates rose or decrease if market interest rates fell. If alternatively, more liabilities than assets will reprice, the Company is in a liability-sensitive position. Accordingly, net interest revenue would decline when rates rose and increase when rates fell. These examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally differ in magnitude for assets and liabilities. Management seeks to manage interest-rate risk through the utilization of various tools that include matching repricing periods for new assets and liabilities and managing the composition and size of the investment portfolio so as to reduce the risk in the deposit and loan portfolios, while at the same time maximizing the yield generated from the portfolio. 36 37 The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates as of December 31, 2000. The expected maturity categories take into account repricing opportunities as well as contractual maturities. For core deposits without contractual maturities (interest-bearing checking, savings and money market accounts), the table presents cash flows based on management's judgement concerning their most likely runoff or repricing behaviors. The fair value of loans, deposits and other borrowings are based on the discounted value of expected cash flows using a discount rate which is commensurate with the maturity. The fair value of securities is based on market prices or dealer quotes.
FAIR VALUE PRINCIPAL AMOUNT MATURING/REPRICING IN: DECEMBER 31, 2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000 ---------- -------- -------- -------- -------- ---------- ---------- ------------ (Dollars in thousands) RATE-SENSITIVE ASSETS: Fixed interest rate loans $1,928,597 $686,888 $781,483 $776,816 $634,454 $527,915 $5,336,153 $5,188,263 Average interest rate 9.05% 10.34% 8.93% 8.80% 9.26% 9.32% 9.21% Variable interest rate loans $ 786,982 -- -- -- -- -- $ 786,982 $ 796,076 Average interest rate 9.89% -- -- -- -- -- 9.89% Fixed interest rate securities $ 399,813 $237,313 $371,556 $270,886 $315,322 $451,639 $2,046,529 $ 63,708 Average interest rate 6.18% 6.53% 6.60% 6.82% 6.96% 7.03% 6.69% Other interest bearing assets $ 224,612 -- -- -- -- -- $ 224,612 $ 224,612 Average interest rate 6.23% -- -- -- -- -- 6.23% Mortgage servicing rights (1) -- -- -- -- -- -- $ 34,783 $ 34,783 RATE-SENSITIVE LIABILITIES: Savings & interest bearing checking $ 829,877 $391,728 $391,736 $198,704 $198,704 $596,120 $2,606,869 $2,606,869 Average interest rate 3.99% 2.84% 2.84% 2.88% 2.88% 2.88% 3.22% Fixed interest rate time deposits $2,723,266 $918,245 $115,707 $ 56,308 $ 47,720 $ 2,997 $3,864,243 $4,065,316 Average interest rate 5.87% 6.23% 5.82% 5.77% 6.37% 7.52% 5.96% Fixed interest rate borrowings $ 10,424 $ 5,269 $ 270 $ 263 $ 273 $137,350 $ 153,849 $ 503,427 Average interest rate 6.26% 5.80% 6.70% 6.71% 6.70% 5.94% 5.96% Variable interest rate borrowings $ 504,161 -- -- -- -- -- $ 504,161 $ 504,161 Average interest rate 4.94% -- -- -- -- -- 4.94% RATE-SENSITIVE OFF BALANCE SHEET ITEMS: Commitments to extend credit for single family mortgage loans $ 19,805 -- -- -- -- -- $ 19,805 $ 19,805 Average interest rate 7.41% -- -- -- -- -- 7.41% Forward contracts $ 22,500 -- -- -- -- -- $ 22,500 $ 22,500 Average interest rate 7.10% -- -- -- -- -- 7.10%
(1) Mortgage servicing rights represent a non-financial asset that is rate-sensitive in that its value is dependent upon the underlying mortgage loans being serviced that are rate-sensitive. In addition, see "Item 1. - Business - Investment Portfolio" and "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensitivity" and "- Securities and Other Earning Assets." 37 38 Item 8. - Financial Statements and Supplementary Data. 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, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Memphis, Tennessee January 18, 2001 38 39 CONSOLIDATED BALANCE SHEETS BANCORPSOUTH, INC. AND SUBSIDIARIES
DECEMBER 31 ---------------------------------- 2000 1999 ------------ ------------ ASSETS (IN THOUSANDS) Cash and due from banks (Note 21) $ 314,888 $ 329,553 Interest bearing deposits with other banks 11,687 12,058 Held-to-maturity securities (Note 4) (fair value of $1,199,644 and $1,009,240) 1,189,129 1,031,062 Available-for-sale securities (Note 5) (amortized cost of $832,781 and $1,102,236) 857,400 1,080,535 Federal funds sold and securities purchased under agreement to resell 212,925 110,875 Loans (Notes 6, 7 and 17) 6,161,082 5,626,043 Less: Unearned discount 65,767 84,082 Allowance for credit losses 81,730 74,232 ------------ ------------ Net loans 6,013,585 5,467,729 Mortgages held for sale 27,820 37,513 Premises and equipment, net (Note 8) 197,898 171,867 Accrued interest receivable 89,605 73,076 Other assets (Notes 11 and 18) 129,097 127,429 ------------ ------------ TOTAL ASSETS $ 9,044,034 $ 8,441,697 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand: Non-interest bearing $ 1,009,808 $ 966,491 Interest bearing 1,682,278 1,589,155 Savings 924,591 937,508 Other time (Note 9) 3,864,243 3,573,491 ------------ ------------ Total deposits 7,480,920 7,066,645 Federal funds purchased and securities sold under repurchase agreements (Note 9) 503,427 257,427 Short-term borrowings (Note 9) -- 89,000 Accrued interest payable 40,611 30,929 Other liabilities (Notes 11 and 12) 77,451 74,338 Long-term debt (Note 10) 152,049 166,247 ------------ ------------ TOTAL LIABILITIES 8,254,458 7,684,586 ------------ ------------ SHAREHOLDERS' EQUITY (NOTES 3, 15 AND 16) Common stock, $2.50 par value Authorized - 500,000,000 shares; Issued - 85,793,477 and 85,762,149 shares at December 31, 2000 and 1999, respectively 214,484 214,405 Capital surplus 70,841 71,777 Accumulated other comprehensive income 15,202 (14,149) Retained earnings 515,599 486,540 Treasury stock at cost (1,750,137 and 106,733 shares at December 31, 2000 and 1999, respectively) (26,550) (1,462) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 789,576 757,111 ------------ ------------ Commitments and contingent liabilities (Note 21) -- -- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,044,034 $ 8,441,697 ============ ============
See accompanying notes to consolidated financial statements. 39 40 CONSOLIDATED STATEMENTS OF INCOME BANCORPSOUTH, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 ------------------------------------------ 2000 1999 1998 --------- -------- -------- (In thousands, except per share amounts) INTEREST REVENUE Loans receivable $ 526,080 $458,300 $433,700 Deposits with other banks 1,175 1,263 1,765 Federal funds sold and securities purchased under agreement to resell 6,266 6,869 8,271 Held-to-maturity securities: 64,756 53,990 52,713 U.S. Treasury 2,605 5,316 6,653 U.S. Government agencies and corporations 45,488 32,968 31,499 Obligations of states and political subdivisions 16,369 15,490 14,313 Other 294 216 248 Available-for-sale securities 72,647 72,610 74,495 Mortgages held for sale 3,111 3,638 3,470 --------- -------- -------- Total interest revenue 674,035 596,670 574,414 --------- -------- -------- INTEREST EXPENSE Deposits 310,365 256,751 257,305 Federal funds purchased and securities sold under repurchase agreements 16,966 8,362 5,930 Other 19,552 15,037 13,869 --------- -------- -------- Total interest expense 346,883 280,150 277,104 --------- -------- -------- Net interest revenue 327,152 316,520 297,310 Provision for credit losses (Note 7) 26,166 17,812 19,310 --------- -------- -------- Net interest revenue, after provision for credit losses 300,986 298,708 278,000 --------- -------- -------- OTHER REVENUE Mortgage lending 10,874 18,289 13,816 Service charges 40,472 36,503 33,835 Life insurance premiums 4,300 3,975 3,655 Trust income 6,700 6,400 5,841 Security gains (losses), net (15,632) 4,416 1,363 Insurance commissions 16,034 13,573 12,475 Other 22,830 17,165 14,433 --------- -------- -------- Total other revenue 85,578 100,321 85,418 --------- -------- -------- OTHER EXPENSE Salaries and employee benefits (Note 12 and 14) 133,855 124,750 114,443 Occupancy net of rental income 18,343 16,918 15,736 Equipment 24,137 21,618 20,103 Telecommunications 7,234 7,096 5,987 Merger related 9,215 1,218 3,577 Other 81,443 80,282 73,082 --------- -------- -------- Total other expense 274,227 251,882 232,928 --------- -------- -------- Income before income taxes 112,337 147,147 130,490 Income tax expense (Note 11) 37,941 44,736 42,249 --------- -------- -------- NET INCOME $ 74,396 $102,411 $ 88,241 ========= ======== ======== NET INCOME PER SHARE (NOTE 15): BASIC $ 0.88 $ 1.20 $ 1.04 ========= ======== ======== DILUTED $ 0.88 $ 1.19 $ 1.03 ========= ======== ========
See accompanying notes to consolidated financial statements. 40 41 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME BANCORPSOUTH, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
ACCUMULATED COMMON STOCK OTHER -------------------- CAPITAL COMPREHENSIVE RETAINED TREASURY SHARES AMOUNT SURPLUS INCOME EARNINGS STOCK TOTAL ---------- -------- --------- ------------- ----------- -------- --------- (Dollars in thousands, except per share amounts) BALANCE, DECEMBER 31, 1997 41,376,310 $103,754 $ 113,597 $ 9,030 $ 415,060 $(2,429) $ 639,012 Net income -- -- -- -- 88,241 -- 88,241 Net unrealized change in investment securities net of tax effect of ($3,121) (Note 16) -- -- -- 5,104 -- -- 5,104 ---------- -------- --------- ------------- ----------- -------- --------- Comprehensive income 93,345 Shares issued: Business combination (Note 3) 1,106,532 2,766 -- -- 11,637 -- 14,403 Purchase of minority interest (Note 3) 491,573 1,229 7,781 -- -- -- 9,010 Stock split (Note 2) 42,559,281 106,534 (51,970) -- (54,564) -- -- Other shares issued 137,866 118 2,451 -- (2,643) 1,566 1,492 Recognition of stock compensation -- -- -- -- 278 -- 278 Purchase of treasury stock (30,000) -- -- -- -- (602) (602) Retirement of treasury stock -- -- -- -- (110) 110 -- Cash dividends declared: BancorpSouth, $0.45 per share -- -- -- -- (32,442) -- (32,442) Pooled acquisitions -- -- -- -- (1,334) -- (1,334) ---------- -------- --------- ------------- ----------- -------- --------- BALANCE, DECEMBER 31, 1998 85,641,562 214,401 71,859 14,134 424,123 (1,355) 723,162 Net income -- -- -- -- 102,411 -- 102,411 Net unrealized change in investment securities net of tax effect of $16,279 (Note 16) -- -- -- (28,283) -- -- (28,283) ---------- -------- --------- ------------- ----------- -------- --------- Comprehensive income 74,128 Other shares issued 66,354 4 (82) -- 65 750 737 Recognition of stock compensation -- -- -- -- 70 -- 70 Purchase of treasury stock (52,500) -- -- -- -- (857) (857) Cash dividends declared: BancorpSouth, $0.49 per share -- -- -- -- (40,129) -- (40,129) ---------- -------- --------- ------------- ----------- -------- --------- BALANCE, DECEMBER 31, 1999 85,655,416 214,405 71,777 (14,149) 486,540 (1,462) 757,111 Net income -- -- -- -- 74,396 -- 74,396 Net unrealized change in investment securities net of tax effect of ($16,969) (Note 16) -- -- -- 29,351 -- -- 29,351 ---------- -------- --------- ------------- ----------- -------- --------- Comprehensive income 103,747 Shares issued: Business combination (Note 3) 95,000 -- -- -- -- 1,360 1,360 Other shares issued 271,074 79 (856) -- (10) 2,455 1,668 Recognition of stock compensation -- -- (80) -- (1,065) 1,543 398 Purchase of treasury stock (1,978,150) -- -- -- -- (30,446) (30,446) Cash dividends declared: BancorpSouth, $0.53 per share -- -- -- -- (44,262) -- (44,262) ---------- -------- --------- ------------- ----------- -------- --------- BALANCE, DECEMBER 31, 2000 84,043,340 $214,484 $ 70,841 $ 15,202 $ 515,599 $(26,550) $ 789,576 =========== ======== ========= ======== ========= ======== =========
See accompanying notes to consolidated financial statements. 41 42 CONSOLIDATED STATEMENTS OF CASH FLOWS BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31 --------------------------------------------- 2000 1999 1998 ------------ ------------ ---------- (In thousands) OPERATING ACTIVITIES: Net income $ 74,396 $ 102,411 $ 88,241 Adjustment to reconcile net income to net cash provided by operating activities: Provision for credit losses 26,166 17,812 19,310 Depreciation and amortization 22,697 19,966 18,455 Deferred taxes (1,833) (448) 3,964 Amortization of intangibles 3,741 2,937 1,827 Amortization of debt securities premium and discount, net (1,464) (2,746) (10,784) Security losses (gains), net 15,632 (4,416) (1,363) Net deferred loan origination expense (4,576) (5,016) (3,366) Increase in interest receivable (16,529) (4,230) (3,898) Increase in interest payable 9,682 1,307 2,232 Proceeds from mortgages sold 345,507 565,687 772,583 Origination of mortgages for sale (336,326) (539,854) (796,476) Other, net 2,695 (10,282) (9,056) ------------ ------------ ---------- Net cash provided by operating activities 139,788 143,128 81,669 ------------ ------------ ---------- INVESTING ACTIVITIES: Proceeds from calls and maturities of held- to-maturity securities 306,825 230,726 631,824 Proceeds from calls and maturities of available- for-sale securities 573,948 1,191,115 510,849 Proceeds from sales of held-to-maturity securities 308 9,040 -- Proceeds from sales of available-for-sale securities 719,568 105,234 66,597 Purchases of held-to-maturity securities (416,789) (429,110) (688,615) Purchases of available-for-sale securities (1,163,648) (1,127,549) (630,390) Net (increase) decrease in short-term investments (102,050) 119,056 (105,651) Net increase in loans (567,446) (613,326) (544,406) Purchases of premises and equipment (49,188) (21,967) (26,212) Proceeds from sale of premises and equipment 3,342 1,246 1,463 Other, net 61,859 (10,798) (9,798) ------------ ------------ ---------- Net cash used in investing activities (633,271) (546,333) (794,339) ------------ ------------ ---------- FINANCING ACTIVITIES: Net increase in deposits 414,275 345,763 618,381 Net increase (decrease) in short-term debt and other liabilities 147,742 89,485 (109,542) Advances on long-term debt 26,682 145,000 125,600 Repayment of long-term debt (40,976) (89,425) (15,118) Issuance of common stock 951 74 472 Purchase of treasury stock (30,446) (857) (602) Payment of cash dividends (39,781) (38,825) (32,905) ------------ ------------ ---------- Net cash provided by financing activities 478,447 451,215 586,286 ------------ ------------ ---------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (15,036) 48,010 (126,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 341,611 293,601 419,985 ------------ ------------ ---------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 326,575 $ 341,611 $ 293,601 ============ ============ ==========
See accompanying notes to consolidated financial statements. 42 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BANCORPSOUTH, INC. AND SUBSIDIARIES DECEMBER 31, 2000, 1999 AND 1998 (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 subsidiary, BancorpSouth Bank (the "Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain 1999 and 1998 amounts have been reclassified to conform with the 2000 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 $337,201,000, $278,843,000 and $218,436,000 and income taxes of $42,131,000, $32,283,000 and $36,876,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 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. Available-for-sale securities are debt and equity securities 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, as 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. 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 based on estimated probable 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 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. 43 44 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. STOCK BASED COMPENSATION The Company elected to continue to account for stock-based compensation to employees using the intrinsic value based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," as allowed by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based Compensation." See Note 14 for disclosure of pro forma net income and pro forma net income per share as required under SFAS No. 123. Certain of the Company's stock option plans contain provisions for stock appreciation rights (SARs). Accounting rules for SARs require the recognition of expense for appreciation in the market value of the Company's common stock or a reduction of expense in the event of a decline in the market value of the Company's common stock. See Note 14 for further disclosures regarding SARs. RECENT PRONOUNCEMENT SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," established accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities measured at fair value. This statement will be adopted for the year 2001 and is not expected to have a material effect on the Company's financial condition or results of operations. The Company reclassified securities totaling $170.5 million from held-to-maturity into the available-for-sale portfolio as of January 1, 2001. 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 the Bank's credit life insurance subsidiary, files a consolidated federal income tax return. OTHER Trust income is recorded on the cash basis as received, which results in an amount that does not differ materially from the amount that would be recorded under the accrual basis. (2) STOCK SPLIT On May 15, 1998, the Company effected a two-for-one stock split in the form of a 100% stock dividend, which resulted in the issuance of 42,559,281 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. 44 45 (3) ACQUISITIONS On October 30, 1998, Alabama Bancorp., Inc., a $280 million bank holding company headquartered in Birmingham, Alabama, merged with and into the Company. Pursuant to the merger, Alabama Bancorp's subsidiary banks, Highland Bank and First Community Bank of the South, merged into the Bank. The Company issued 3,604,394 shares of common stock to the shareholders of Alabama Bancorp. In addition, a total of 491,573 shares of the Company's common stock were issued to the minority shareholders of Highland Bank and First Community Bank of the South. This transaction was accounted for as a pooling of interests, except for the acquisition of the minority interest, which was accounted for as a purchase. The purchase of the minority interest resulted in the recognition of an intangible asset of $6.9 million that is being amortized over a period of 15 years. The Company's financial statements for all periods presented include the consolidated accounts of Alabama Bancorp. On December 4, 1998, Merchants Capital Corporation, a $220 million bank holding company headquartered in Vicksburg, Mississippi, merged with and into the Company. Pursuant to the merger, Merchants Capital Corporation's subsidiary bank, Merchants Bank, merged into the Bank. The Company issued 2,798,022 shares of common stock to the shareholders of Merchants Capital Corporation. This transaction was accounted for as a pooling of interests and the Company's financial statements for all periods presented include the consolidated accounts of Merchants Capital Corporation. On December 31, 1998, The First Corporation, a $150 million bank holding company headquartered in Opelika, Alabama, merged with and into the Company. Pursuant to the merger, The First Corporation's subsidiary bank, The First National Bank of Opelika, merged into the Bank. The Company issued 2,265,444 shares of common stock to the shareholders of The First Corporation. This transaction was accounted for as a pooling of interests and the Company's financial statements for 1998 include the consolidated accounts of The First Corporation. The financial statements for periods prior to 1998 were not restated because the impact of The First Corporation acquisition represented a change of less than 3% to the Company's financial results. On February 26, 1999, HomeBanc Corporation, a $160 million bank holding company headquartered in Guntersville, Alabama, merged with and into the Company. Pursuant to the merger, HomeBanc Corporation's subsidiary bank, The Home Bank, merged into the Bank. Each share of stock of HomeBanc Corporation was converted into 1.5747417 shares of the Company's common stock, or a total of 2,099,971 shares of common stock. This transaction was accounted for as a pooling of interests and the Company's financial statements for all periods presented include the consolidated accounts of HomeBanc Corporation. On June 30, 1999, Stewart Sneed Hewes, Inc. and subsidiaries, TSH Rentals, Inc. and Stewart Sneed Hewes II, Inc., a group of interrelated commercial insurance agencies, merged with and into BancorpSouth Insurance Services of Mississippi, Inc., a subsidiary of the Bank. A total of 1,252,806 shares of the Company's common stock were issued to effect this transaction. This transaction was accounted for as a pooling of interests and the Company's financial statements for all periods presented include the accounts of Stewart Sneed Hewes, Inc. and subsidiaries, TSH Rentals, Inc. and Stewart Sneed Hewes II, Inc. On August 31, 2000, First United Bancshares, Inc., a $2.7 billion bank holding company headquartered in El Dorado, Arkansas, merged with and into the Company. Pursuant to the merger, First United Bancshares' subsidiary banks and trust company merged into the Bank. Each share of stock of First United Bancshares was converted into 1.125 shares of the Company's common stock, or a total of 28,489,225 shares of common stock. This transaction was accounted for as a pooling of interests and the Company's financial statements for all periods presented include the consolidated accounts of First United Bancshares. On October 10, 2000, the Pittman Insurance Agency and the Kilgore, Seay and Turner Insurance Agency, insurance agencies based in Jackson, Mississippi, merged with and into BancorpSouth Insurance Services of Mississippi, Inc., a subsidiary of the Bank. Consideration given to complete this transaction consisted of cash of $3,065,000 and 95,000 shares of the Company's common stock. The transaction was accounted for as a purchase. On October 31, 2000, Texarkana First Financial Corporation, a $218 million savings and loan holding company headquartered in Texarkana, Arkansas, merged with and into the Company. Pursuant to the merger, Texarkana First Federal Corporation's subsidiary company, First Federal Savings and Loan Association, merged into the Bank. Consideration paid to complete this transaction consisted of cash in the aggregate amount of $37,500,000. This transaction was accounted for as a purchase. (4) HELD-TO-MATURITY SECURITIES A comparison of amortized cost and estimated fair values of held-to-maturity securities as of December 31, 2000 and 1999 follows: 45 46
2000 ------------------------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------ --------- --------- ------------ (In thousands) U.S. Treasury $ 22,019 $ 359 -- $ 22,378 U.S. Government agencies and corporations 826,353 11,118 3,831 833,640 Obligations of states and political subdivisions 340,757 6,478 3,609 343,626 ------------ --------- --------- ------------ Total $ 1,189,129 $ 17,955 $ 7,440 $ 1,199,644 ============ ========= ========= ============
1999 ------------------------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------ --------- --------- ------------ (In thousands) U.S. Treasury $ 74,786 $ 287 $ 626 $ 74,447 U.S. Government agencies and corporations 619,955 152 19,050 601,057 Obligations of states and political subdivisions 336,321 2,133 4,718 333,736 ------------ --------- --------- ------------ Total $ 1,031,062 $ 2,572 $ 24,394 $ 1,009,240 ============ ========= ========= ============
Gross gains of $33,000 and gross losses of $172,000 were recognized in 2000, gross gains of $184,000 and gross losses of $17,000 were recognized in 1999 and gross gains of $380,000 and gross losses of $64,000 were recognized in 1998 on held-to-maturity securities. Except for 1999, these gains and losses were the result of held-to-maturity securities being called prior to maturity. Included in the 1999 amounts is a gross gain of $21,000 related to the sale of held-to-maturity securities with amortized cost of $6,016,000. 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 $807,000,000 at December 31, 2000 were pledged to secure public and trust funds on deposit and for other purposes. The amortized cost and estimated fair value of held-to-maturity securities at December 31, 2000 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.
2000 ---------------------------------- ESTIMATED AMORTIZED FAIR COST VALUE ------------ ------------ (In thousands) Due in one year or less $ 110,690 $ 110,498 Due after one year through five years 572,491 572,814 Due after five years through ten years 288,666 294,425 Due after ten years 217,282 221,907 ------------ ------------ Total $ 1,189,129 $ 1,199,644 ============ ============
46 47 (5) AVAILABLE-FOR-SALE SECURITIES A comparison of amortized cost and estimated fair values of available-for-sale securities as of December 31, 2000 and 1999 follows:
2000 ------------------------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------ ---------- ---------- ------------ (In thousands) U.S. Treasury $ 26,463 $ 158 -- $ 26,621 U.S. Government agencies and corporations 670,186 19,975 549 689,612 Obligations of states and political subdivisions 73,275 20,159 19,312 74,122 Preferred stock 3,318 92 73 3,337 Other 59,539 4,640 471 63,708 ------------ --------- --------- ------------ Total $ 832,781 $ 45,024 $ 20,405 $ 857,400 ============ ========= ========= ============
1999 ------------------------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------ ---------- ---------- ------------ (In thousands) U.S. Treasury $ 98,502 $ 363 $ 1,306 $ 97,559 U.S. Government agencies and corporations 868,821 630 25,907 843,544 Obligations of states and political subdivisions 84,020 948 1,739 83,229 Other 50,893 5,596 286 56,203 ------------ --------- --------- ------------ Total $ 1,102,236 $ 7,537 $ 29,238 $ 1,080,535 ============ ========= ========= ============
Gross gains of $549,000 and gross losses of $16,042,000 were recognized in 2000, gross gains of $4,724,000 and gross losses of $475,000 were recognized in 1999 and gross gains of $1,172,000 and gross losses of $125,000 were recognized in 1998 on available-for-sale securities. Available-for-sale securities with a carrying value of approximately $627,000,000 at December 31, 2000 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, 2000 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 that reprice periodically are considered as maturing on the first repricing date subsequent to December 31, 2000.
2000 ---------------------------------- ESTIMATED AMORTIZED FAIR COST VALUE ------------ ------------ (In thousands) Due in one year or less $ 60,602 $ 60,654 Due after one year through five years 408,745 418,822 Due after five years through ten years 224,384 233,456 Due after ten years 139,050 144,468 ------------ ------------ Total $ 832,781 $ 857,400 ============ ============
(6) LOANS 47 48 A summary of loans classified by collateral type at December 31, 2000 and 1999 follows:
2000 1999 ------------ ------------ (In thousands) Commercial and agricultural $ 757,885 $ 712,799 Consumer and installment 1,065,324 1,197,277 Real estate mortgage 4,027,751 3,444,172 Lease financing 288,884 258,811 Other 21,238 12,984 ------------ ------------ Total $ 6,161,082 $ 5,626,043 ============ ============
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 $15,572,000 and $13,352,000 at December 31, 2000 and 1999, respectively. Restructured loans totaled $879,000 and $1,125,000 at December 31, 2000 and 1999, respectively. The total amount of interest earned on non-performing loans was approximately $263,000, $212,000 and $228,000 in 2000, 1999 and 1998, respectively. The gross interest income which would have been recorded under the original terms of those loans amounted to $878,000, $626,000 and $612,000 in 2000, 1999 and 1998, 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 amounts due according to the contractual terms of the loan agreement. The Company's recorded investment in loans considered impaired at December 31, 2000 and 1999 was $14,669,000 and $7,916,000, respectively, with a valuation reserve of $5,639,000 and $2,974,000, respectively. The average recorded investment in impaired loans during 2000 and 1999 was $21,796,000 and $17,620,000, respectively. (7) ALLOWANCE FOR CREDIT LOSSES The following summarizes the changes in the allowance for credit losses for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 ---------- ---------- ---------- (In thousands) Balance at beginning of year $ 74,232 $ 68,385 $ 61,932 Provision charged to expense 26,166 17,812 19,310 Recoveries 4,972 3,637 5,108 Loans charged off (24,606) (16,602) (19,117) Acquisitions 966 1,000 1,152 ---------- ---------- ---------- Balance at end of year $ 81,730 $ 74,232 $ 68,385 ========== ========== ==========
(8) PREMISES AND EQUIPMENT A summary by asset classification at December 31, 2000 and 1999 follows:
ESTIMATED USEFUL LIFE YEARS 2000 1999 ----------- ---------- ---------- Cost: (In thousands) Land N/A $ 31,701 $ 28,855 Buildings and improvements 20-50 149,837 139,720 Leasehold improvements 10-20 5,958 4,835 Equipment, furniture and fixtures 3-12 150,385 127,590 Construction in progress N/A 17,443 9,184 ---------- ---------- 355,324 310,184 Accumulated depreciation and amortization 157,426 138,317 ---------- ---------- Premises and equipment, net $ 197,898 $ 171,867 ========== ==========
48 49 (9) TIME DEPOSITS AND SHORT-TERM DEBT Certificates of deposit and other time deposits of $100,000 or more amounting to approximately $1,387,526,000 and $1,317,345,000 were outstanding at December 31, 2000 and 1999, respectively. Total interest expense relating to certificate and other time deposits of $100,000 or more totaled approximately $77,077,000, $57,602,000, and $60,007,000 for the years ended December 31, 2000, 1999 and 1998, respectively. For time deposits with a remaining maturity of more than one year at December 31, 2000, the aggregate amount of maturities for each of the following five years is presented in the following table:
MATURING IN AMOUNT ----------- -------------- (In thousands) 2002 $ 916,935 2003 136,529 2004 57,633 2005 56,064 2006 345 Thereafter 2,318 ------------ Total $ 1,169,824 ============
Presented below is information relating to short-term debt for the years ended December 31, 2000 and 1999:
END OF PERIOD DAILY AVERAGE MAXIMUM --------------------- --------------------- OUTSTANDING INTEREST INTEREST AT ANY BALANCE RATE BALANCE RATE MONTH END ---------- -------- ---------- -------- ------------ (Dollars in thousands) 2000: Federal funds purchased $ -- -- $ 29,859 6.3% $ 71,500 Flex-Repos purchased 198,925 5.6% 25,804 5.7% 202,300 Securities sold under repurchase agreements 304,502 5.6% 253,152 5.3% 304,502 Short-term Federal Home Loan Bank advances -- -- 136,792 6.8% 570,000 ---------- ---------- ------------ Total $ 503,427 $ 445,607 1,148,302 ========== ========== ============ 1999: Federal funds purchased $ 20,100 4.6% $ 19,589 4.9% $ 23,600 Securities sold under repurchase agreements 237,327 4.2% 114,121 6.5% 237,327 Short-term Federal Home Loan Bank advances 89,000 6.0% 57,922 5.5% 115,000 ---------- ---------- ------------ Total $ 346,427 $ 191,632 375,927 ========== ========== ============
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, 2000, the Bank had established informal federal funds borrowing lines of credit aggregating $1,494,000,000. 49 50 (10) LONG-TERM DEBT FEDERAL HOME LOAN BANK ADVANCES The Bank has entered into a blanket floating lien security agreement with the Federal Home Loan Bank (FHLB) of Dallas. Under the terms of this agreement, the Bank is required to maintain sufficient collateral to secure borrowings in an aggregate amount of the lesser of 75% of the book value (unpaid principal balance) of the borrower's first mortgage collateral or 35% of the borrower's assets. At December 31, 2000, the following FHLB fixed term advances were repayable as follows:
FINAL DUE DATE INTEREST RATE AMOUNT --------------- ------------- -------------- (In thousands) 2001 6.38% - 6.92% $ 10,000 2002 5.75% 5,000 2008 and beyond 5.86% - 7.19% 137,049 ---------- Total $ 152,049 ==========
(11) INCOME TAXES Total income taxes for the years ended December 31, 2000, 1999 and 1998 are allocated as follows:
2000 1999 1998 ---------- ---------- ---------- (In thousands) Income from continuing operations $ 37,941 $ 44,736 $ 42,249 Shareholders' equity for other comprehensive income 16,969 (16,279) 3,121 Shareholders' equity for stock option plans (510) (268) (678) ---------- ---------- ---------- Total $ 54,400 $ 28,189 $ 44,692 ========== ========== ==========
The components of income tax expense (credit) attributable to continuing operations are as follows for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 ---------- ---------- ---------- Current: (In thousands) Federal $ 35,790 $ 39,278 $ 33,280 State 3,984 5,906 5,005 Deferred: Federal (1,593) (389) 3,446 State (240) (59) 518 ---------- ---------- ---------- Total $ 37,941 $ 44,736 $ 42,249 ========== ========== ==========
50 51 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:
2000 1999 1998 -------- -------- -------- (In thousands) Tax expense at statutory rate $ 39,318 $ 51,501 $ 45,672 Increase (reduction) in taxes resulting from: State income taxes net of federal tax benefit 2,434 3,801 3,590 Tax-exempt interest revenue (7,284) (6,870) (6,253) Non-deductible merger expenses 2,050 255 1,250 Charitable contribution -- (1,450) -- Other, net 1,423 (2,501) (2,010) -------- -------- -------- Total $ 37,941 $ 44,736 $ 42,249 ======== ======== ========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999 are as follows:
2000 1999 -------- ------- Deferred tax assets: (In thousands) Loans receivable, principally due to allowance for credit losses $ 34,345 $29,771 Deferred liabilities, principally due to compensation arrangements and vacation accruals 7,184 4,692 Unrealized losses on available-for-sale securities -- 7,552 Net operating loss carryforwards 629 698 -------- ------- Total gross deferred tax assets 42,158 42,713 Less: valuation allowance -- -- -------- ------- Deferred tax assets $ 42,158 $42,713 -------- ------- Deferred tax liabilities: Bank premises and equipment, principally due to differences in depreciation and lease transactions $ 24,167 $22,871 Deferred assets, principally due to expense recognition 1,495 1,258 Investments, principally due to interest income recognition 3,143 1,884 Capitalization of mortgage servicing rights 11,435 9,063 Unrealized gains on available-for-sale securities 9,417 -- -------- ------- Total gross deferred tax liabilities 49,657 35,076 -------- ------- Net deferred tax assets (liabilities) $ (7,499) $ 7,637 ======== =======
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, 2000. At December 31, 2000 the Company has net operating loss carryforwards related to business combinations for federal income tax purposes of approximately $1,643,000 that are available to offset future federal taxable income, subject to various limitations, through 2009. 51 52 (12) 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 21. 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. The BancorpSouth, Inc. Restoration Plan (the "Restoration Plan") provides for the payment of retirement benefits to certain participants in the BancorpSouth, Inc. Retirement Plan (the "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 their benefit under the Basic Plan. A summary of the defined benefit retirement plans at and for the years ended December 31, 2000, 1999 and 1998 follows:
2000 1999 1998 -------- -------- -------- Change in benefit obligation: (In thousands) - ---------------------------- Projected benefit obligation at beginning of year $ 37,328 $ 37,577 $ 34,050 Service cost 1,924 3,131 2,284 Interest cost 2,443 2,795 2,396 Curtailment 929 -- -- Amendments 2,697 -- -- Actuarial (gain) loss 4,530 (3,104) 2,870 Benefits paid (2,138) (3,071) (4,023) -------- -------- -------- Projected benefit obligation at end of year $ 47,713 $ 37,328 $ 37,577 ======== ======== ======== Change in plan assets: - ---------------------- Fair value of plan assets at beginning of year $ 48,095 $ 46,333 $ 42,454 Actual return on assets (349) 3,471 6,777 Employer contributions -- 1,362 1,125 Benefits paid (2,138) (3,071) (4,023) -------- -------- -------- Fair value of plan assets at end of year $ 45,608 $ 48,095 $ 46,333 ======== ======== ======== Funded status: - -------------- Benefit obligation $(47,713) $(37,328) $(37,577) Fair value of plan assets 45,608 48,095 46,333 Unrecognized transition amount (2) (4) (6) Unrecognized prior service cost 1,744 (1,338) (1,604) Unrecognized actuarial gain 102 (7,752) (4,625) -------- -------- -------- Net amount recognized $ (261) $ 1,673 $ 2,521 ======== ======== ======== Components of net periodic pension cost: - ---------------------------------------- Service cost $ 1,924 $ 3,131 $ 2,284 Interest cost 2,981 2,795 2,396 Expected return on assets (3,289) (3,434) (3,144) Amortization of unrecognized transition amount (2) (7) 202 Recognized prior service cost 90 (78) (78) Recognized net gain (745) (157) (152) -------- -------- -------- Net periodic pension cost $ 959 $ 2,250 $ 1,508 ======== ======== ========
52 53 Plan assets consist primarily of listed bonds and commingled funds. The assumptions used for measuring net periodic pension cost for the years ended December 31, 2000, 1999 and 1998 are presented in the following table.
2000 1999 1998 -------------- -------------- -------------- Discount rate 7.75% 7.75% 6.75% Rate of compensation increase 4.00 4.00 4.00 Expected rate of return on plan assets 9.00 7.50 7.50
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 10 years. The amount accrued under the plan was $234,000 in 2000, $144,000 in 1999 and $128,000 in 1998. 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 limitations as established by the Internal Revenue Code. Employee contributions (up to 5% 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 shares of Company common stock at prevailing market prices. Plan expense for the years ended December 31, 2000, 1999 and 1998 was $3,507,000, $3,149,000 and $3,011,000, respectively. (13) 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 4, Held-to-Maturity Securities, and Note 5, 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 rates currently available 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, 2000 and 1999:.
2000 1999 ------------------------------ ----------------------------- BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- (In thousands) Commercial and agricultural $ 757,885 $ 744,563 $ 712,799 $ 747,250 Consumer and installment 1,065,324 1,046,598 1,197,277 1,269,761 Real estate mortgage 4,027,751 3,956,954 3,444,172 3,639,278 All other 21,238 20,865 12,984 13,280 ---------- ---------- ---------- ---------- Total $5,872,198 $5,768,980 $5,367,232 $5,669,569 ========== ========== ========== ==========
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 are believed to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine 53 54 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. DEPOSIT LIABILITIES Under SFAS 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, NOW accounts and money market checking accounts, is equal to the amount payable on demand as of December 31, 2000 and 1999. 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, 2000 and 1999:
2000 1999 ---------------------------- ---------------------------- BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- (In thousands) Maturing or repricing in six months or less $1,643,409 $1,666,562 $1,839,822 $1,864,737 Maturing or repricing between six months and one year 1,243,370 1,304,788 931,991 945,814 Maturing or repricing between one and three years 880,237 965,766 694,730 703,070 Maturing or repricing beyond three years 97,227 128,200 106,948 118,561 ---------- ---------- ---------- ---------- Total $3,864,243 $4,065,316 $3,573,491 $3,632,182 ========== ========== ========== ==========
DEBT The carrying amounts for federal funds purchased and repurchase agreements approximate fair value because of their short-term maturity. The fair value of the Company's fixed-term 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, 2000 and 1999:
2000 1999 ----------------------- ----------------------- BOOK FAIR BOOK FAIR Final due date VALUE VALUE VALUE VALUE - -------------- -------- -------- -------- -------- (In thousands) 2001 $ 10,000 $10,014 $ 2,088 $ 2,075 2002 5,000 4,994 5,000 4,940 2005 and thereafter 137,049 135,369 159,159 150,953 -------- -------- -------- -------- Total $152,049 $150,377 $166,247 $157,968 ======== ======== ======== ========
(14) STOCK INCENTIVE AND STOCK OPTION PLANS In 1995, the Company issued 60,000 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 30,000 at December 31, 2000. The compensation associated with this award is being recognized over the 10-year period. In 1998, the Company issued 70,000 shares of common stock to a key employee. The shares vest over a 6-year period subject to the Company meeting certain performance goals. The unearned shares are held in escrow and totaled 42,000 at December 31, 2000. In 1998, the Company issued an aggregate of 8,000 shares to the directors of the Company. The shares vest over a 3-year period and the unearned shares are held in escrow and totaled 2,144 at December 31, 2000. The compensation associated with this award is being recognized over the 3-year period. In 2000, the Company issued 100,000 shares of common stock to a key employee. The shares vest over a 5-year period subject to the Company meeting certain performance goals. The unearned shares are held in escrow and totaled 100,000 at December 31, 2000. The compensation associated with this award is being recognized over the 5-year period. 54 55 Key employees and directors of the Company and its subsidiaries have been granted stock options and SARs under the Company's 1990, 1994 and 1995 stock incentive plans. The stock incentive plans were amended in 1998 to eliminate SARs and to allow a limited number of restricted stock awards. All options and SARs granted pursuant to these plans have an exercise price equal to the market value on the date of the grant and are exercisable over periods of one to ten years. At December 31, 2000, the Company had outstanding 475,264 SARs exercisable in conjunction with certain of the options outstanding. The Company recorded reductions in compensation expense of $1,844,000, $956,000 and $2,709,000 in 2000, 1999 and 1998, respectively, related to the SARs because of the changes in market value of its common stock. In 1995 and 1998, 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 stock dividend discussed in Note 2. In 1998, the Company adopted a stock plan through which a minimum of 50% of the compensation payable to each director is paid in the form of the Company's common stock effective January 1, 1999. Directors may elect under the plan to receive up to 100% of their compensation in the form of common stock. A summary of the status of the Company's stock options outstanding as of December 31, 2000, 1999 and 1998, and changes during the years ended on those dates is presented below:
2000 1999 1998 ------------------------ ---------------------- ----------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE Options SHARES PRICE SHARES PRICE SHARES PRICE - ------- ---------- ---------- ---------- --------- ---------- --------- Outstanding at beginning of year 2,194,934 $13.74 1,938,393 $12.37 1,786,797 $10.65 Granted 539,298 13.01 355,875 16.80 459,651 15.45 Exercised (196,530) 6.71 (88,874) 4.58 (261,434) 6.02 Expired or cancelled (28,600) 19.10 (10,460) 9.88 (46,621) 7.81 --------- --------- --------- Outstanding at end of year 2,509,102 $14.08 2,194,934 $13.74 1,938,393 $12.37 ========= ========= ========= Exercisable at end of year 1,873,802 1,498,372 1,274,506 ========= ========= =========
The following table summarizes information about stock options at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ------------------------------- Range of NUMBER WEIGHTED-AVG WEIGHTED-AVG NUMBER WEIGHTED-AVG Exercise Prices OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ----------------- ------------ -------------- -------------- ----------- -------------- $ 2.47 to $ 3.58 6,484 2.7 years $ 3.41 6,484 $ 3.41 $ 6.41 to $ 6.49 76,876 1.7 6.42 76,876 6.42 $ 7.44 to $ 9.38 403,723 3.1 8.66 403,723 8.66 $11.06 to $14.45 1,088,451 7.5 12.54 726,951 12.28 $15.06 to $22.50 933,568 7.9 18.96 659,768 19.47 --------- --------- $2.47 to $22.50 2,509,102 6.7 $14.08 1,873,802 $13.76 ========= =========
55 56 SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, adoption of a fair-value based accounting method for employee stock-based compensation arrangements. As permitted by SFAS No. 123, the Company has elected to disclose pro forma net income and earnings per share amounts as if the fair-value based method had been applied in measuring compensation cost. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 2000, 1999 and 1998: expected options lives of 7 years for all three years; expected dividend yield of 3.00%, 3.18% and 2.84%; expected volatility of 23%, 22% and 22% and risk-free interest rates of 6%, 6% and 7%. Pro forma net income and pro forma net income per share calculated under the provisions of SFAS No. 123 for the years ended December 31, 2000, 1999 and 1998 are presented in the following table.
2000 1999 1998 -------------- -------------- -------------- Net income (in thousands) As reported $74,396 $102,411 $88,241 Pro forma 73,361 101,163 87,250 Basic earnings per share As reported $ 0.88 $ 1.20 $ 1.04 Pro forma 0.87 1.18 1.03 Diluted earnings per share As reported $ 0.88 $ 1.19 $ 1.03 Pro forma 0.86 1.18 1.02
(15) EARNINGS PER SHARE AND DIVIDEND DATA The computation of basic earnings per share is based on the weighted average number of common shares outstanding. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding plus the shares resulting from the assumed exercise of all outstanding stock options using the treasury stock method. The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 2000, 1999 and 1998:
2000 1999 ------------------------------------ --------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- -------- ----------- ------------- --------- BASIC EPS: (In thousands, except per share amounts) Income available to common shareholders $74,396 84,474 $0.88 $102,411 85,564 $1.20 ===== ===== Effect of dilutive stock options -- 337 -- 444 ------- ------ -------- ------ DILUTED EPS: Income available to common shareholders plus assumed exercise $74,396 84,811 $0.88 $102,411 86,008 $1.19 ======= ====== ===== ======== ====== ===== 1998 ------------------------------------------ INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- BASIC EPS: Income available to common shareholders $88,241 85,094 $1.04 ===== Effect of dilutive stock options -- 586 ------- ------ DILUTED EPS: Income available to common shareholders plus assumed exercise $88,241 85,680 $1.03 ======= ====== =====
Dividends to shareholders are paid from dividends paid to the Company by the Bank which are subject to approval by the applicable state regulatory authority. At December 31, 2000, the Bank could have paid dividends to the Company of $247,000,000 under current regulatory guidelines. 56 57 (16) OTHER COMPREHENSIVE INCOME The following table presents the components of other comprehensive income and the related tax effects allocated to each component for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 ----------------------------- ------------------------------- ------------------------------ BEFORE TAX NET BEFORE TAX NET BEFORE TAX NET TAX (EXPENSE) OF TAX TAX (EXPENSE) OF TAX TAX (EXPENSE) OF TAX AMOUNT BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT -------- ---------- -------- ---------- ---------- --------- ---------- --------- -------- Unrealized gains on securities: (In thousands) Unrealized gains (losses) arising during holding period $30,827 $(11,042) $19,785 $(40,313) $14,661 $(25,652) $ 9,272 $(3,505) $5,767 Reclassification adjustment for net losses (gains) realized in net income 15,493 (5,927) 9,566 (4,249) 1,618 (2,631) (1,047) 384 (663) ------- -------- ------- -------- ------- -------- ------- ------- ------ Other comprehensive income (loss) $46,320 $(16,969) $29,351 $(44,562) $16,279 $(28,283) $ 8,225 $(3,121) $5,104 ======= ======== ======= ======== ======= ======== ======= ======= ======
(17) 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:
(In thousands) Amount -------- Loans outstanding at December 31, 1999 $19,512 New loans 3,678 Repayments (130) Changes in directors and executive officers 1,348 ------- Loans outstanding at December 31, 2000 $24,408 =======
(18) CAPITALIZED MORTGAGE SERVICING RIGHTS Originated mortgage servicing rights ("OMSRs"), as well as purchased mortgage servicing rights ("PMSRs"), are capitalized as assets by allocating the total cost 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. PMSRs and OMSRs are being amortized in proportion to and over the period of the estimated net servicing income. Capitalized mortgage servicing rights are evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their fair value. 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). 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. 57 58 The following is a summary of capitalized mortgage servicing rights, net of accumulated amortization, and a valuation allowance for impairment:
2000 1999 -------- -------- (In thousands) Balance at beginning of year $35,267 $28,150 Mortgage servicing rights capitalized 7,333 11,879 Amortization expense (5,425) (4,762) ------- ------- Balance at end of year 37,175 35,267 Valuation allowance (2,392) (1,368) ------- ------- Fair value at end of year $34,783 $33,899 ======= =======
(19) REGULATORY MATTERS 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 Board of Governors of the Federal Reserve (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 I) of a least 4% of risk-weighted assets, total capital of at least 8% of risk-weighted assets and a minimum Tier I leverage ratio of 3% of adjusted average assets. The regulations also define well capitalized levels of Tier I, total capital and Tier I leverage as 6%, 10% and 5%, respectively. The Company had Tier I, total capital and Tier I leverage above the well capitalized levels at December 31, 2000 and 1999, respectively, as set forth in the following table:
2000 1999 -------------------- -------------------- AMOUNT RATIO AMOUNT RATIO -------- ------- -------- ------- (Dollars in thousands) Total Capital (to Risk-Weighted Assets) $811,724 12.56% $813,401 14.02% Tier I Capital (to Risk-Weighted Assets) 730,900 11.31 740,036 12.75 Tier I Leverage Capital (to Average Assets) 730,900 8.10 740,036 8.83
58 59 (20) SEGMENTS The Company's principal activity is community banking which includes providing a full range of deposit products, commercial loans and consumer loans. General corporate and other includes leasing, mortgage lending, trust services, credit card activities, insurance services and other activities not allocated to community banking. Results of operations and selected financial information by operating segment for the three years ended December 31, 2000, 1999 and 1998 are presented below:
GENERAL COMMUNITY CORPORATE BANKING AND OTHER TOTAL ----------- --------- ----- 2000 (In thousands) RESULTS OF OPERATIONS Net interest revenue $ 271,775 $ 55,377 $ 327,152 Provision for credit losses 24,379 1,787 26,166 --------------------------------------------------------------------------------------------------------- Net interest income after provision 247,396 53,590 300,986 for credit losses Other revenue 42,660 42,918 85,578 Other expense 224,348 49,879 274,227 --------------------------------------------------------------------------------------------------------- Income before income taxes 65,708 46,629 112,337 Income taxes 22,192 15,749 37,941 --------------------------------------------------------------------------------------------------------- Net income $ 43,516 $ 30,880 $ 74,396 SELECTED FINANCIAL INFORMATION Identifiable assets $8,223,507 $820,527 $9,044,034 Depreciation & amortization 20,844 1,853 22,697 1999 RESULTS OF OPERATIONS Net interest revenue $ 262,084 $ 54,436 $ 316,520 Provision for credit losses 14,813 2,999 17,812 --------------------------------------------------------------------------------------------------------- Net interest income after provision 247,271 51,437 298,708 for credit losses Other revenue 59,607 40,714 100,321 Other expense 206,344 45,538 251,882 --------------------------------------------------------------------------------------------------------- Income before income taxes 100,534 46,613 147,147 Income taxes 30,565 14,171 44,736 --------------------------------------------------------------------------------------------------------- Net income $ 69,969 $ 32,442 $ 102,411 SELECTED FINANCIAL INFORMATION Identifiable assets $7,816,689 $625,008 $8,441,697 Depreciation & amortization 18,950 1,016 19,966 1998 RESULTS OF OPERATIONS Net interest revenue $ 246,438 $ 50,872 $ 297,310 Provision for credit losses 16,563 2,747 19,310 --------------------------------------------------------------------------------------------------------- Net interest income after provision credit losses 229,875 48,125 278,000 for credit losses Other revenue 51,239 34,179 85,418 Other expense 191,315 41,613 232,928 --------------------------------------------------------------------------------------------------------- Income before income taxes 89,799 40,691 130,490 Income taxes 29,074 13,175 42,249 --------------------------------------------------------------------------------------------------------- Net income $ 60,725 $ 27,516 $ 88,241 SELECTED FINANCIAL INFORMATION Identifiable assets $7,314,566 $585,089 $7,899,655 Depreciation & amortization 17,251 1,204 18,455
59 60 (21) COMMITMENTS AND CONTINGENT LIABILITIES LEASES Rent expense was approximately $4,793,000 for 2000, $4,413,000 for 1999 and $3,970,000 for 1998. 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, 2000:
(In thousands) Amount -------- 2001 $ 3,811 2002 3,121 2003 2,441 2004 1,490 2005 887 Thereafter 1,051 ------- Total future minimum lease payments $12,801 =======
MORTGAGE LOANS SERVICED FOR OTHERS The Company services mortgage loans for others which are not included in the accompanying financial statements. Included in the $2.2 billion of loans serviced for investors at December 31, 2000, is approximately $7.0 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, 2000, 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. Mortgage 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, 2000, the contractual or notional amount of these forward contracts was approximately $29,000,000. 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, 2000, these included approximately $48,489,000 for letters of credit, and approximately $1,046,216,000 for interim mortgage financing, construction credit, credit card and revolving 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, 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 $48,919,000 were maintained to satisfy Federal regulatory requirements at December 31, 2000. 60 61 (22) 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 ------------------------ 2000 1999 -------- -------- Assets: (In thousands) Cash on deposit with subsidiary bank $ 23,526 $ 46,084 Investment in subsidiaries 768,830 715,415 Other assets 15,363 19,267 -------- -------- Total assets $807,719 $780,766 ======== ======== Liabilities and shareholders' equity: Total liabilities $ 18,143 $ 23,655 Shareholders' equity 789,576 757,111 -------- -------- Total liabilities and shareholders' equity $807,719 $780,766 ======== ======== YEARS ENDED DECEMBER 31 -------------------------------------- CONDENSED STATEMENTS OF INCOME 2000 1999 1998 ------- -------- ------- (In thousands) Dividends from subsidiaries $62,600 $ 49,625 $57,055 Management fees from subsidiaries -- 499 2,327 Other operating income 3,142 200 884 ------- -------- ------- Total income 65,742 50,324 60,266 Operating expenses 12,623 7,479 11,664 ------- -------- ------- Income before tax benefit and equity in undistributed earnings 53,119 42,845 48,602 Income tax benefit 1,383 2,816 530 ------- -------- ------- Income before equity in undistributed earnings of subsidiaries 54,502 45,661 49,132 Equity in undistributed earnings of subsidiaries 19,894 56,750 39,109 ------- -------- ------- Net income $74,396 $102,411 $88,241 ======= ======== ======= YEARS ENDED DECEMBER 31 -------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS 2000 1999 1998 ------- -------- ------- (In thousands) Operating activities: Net income $74,396 $102,411 $88,241 Adjustments to reconcile net income to net cash provided by operating activities (67,656) (63,204) (21,195) ------- -------- ------- Net cash provided by operating activities 6,740 39,207 67,046 Net cash used in financing activities (29,298) (45,708) (58,608) ------- -------- ------- Increase (decrease) in cash and cash equivalents (22,558) (6,501) 8,438 Cash and cash equivalents at beginning of year 46,084 52,585 44,147 ------- -------- ------- Cash and cash equivalents at end of year $23,526 $ 46,084 $52,585 ======= ======== =======
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. 61 62 PART III Item 10. - Directors and Executive Officers of the Registrant Information concerning the directors and nominees of the Company appears under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for its 2001 annual meeting of shareholders, 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 58 Directors and Chief Executive Officer of the Company and BancorpSouth Bank; Director of the Company James V. Kelley President and Chief Operating Officer 51 of the Company and BancorpSouth Bank; Director of the Company L. Nash Allen, Jr. Treasurer, and Chief 56 Financial Officer of the Company; Executive Vice President, Chief Financial Officer and Cashier, BancorpSouth Bank Harry R. Baxter Executive Vice President of the Company 56 and Vice Chairman and Director of Marketing of BancorpSouth Bank Gary R. Harder Executive Vice President of the Company 56 and Executive Vice President, Audit and Loan Review of BancorpSouth Bank Michael W. Weeks Executive Vice President of the 52 Company and Vice Chairman of BancorpSouth Bank Michael L. Sappington Executive Vice President of the Company 51 and Vice Chairman of BancorpSouth Bank Gregg Cowsert Executive Vice President of the 53 Company and Vice Chairman and Chief Lending Officer of BancorpSouth Bank
62 63 Cathy M. Robertson Executive Vice President of the 46 Company and BancorpSouth Bank
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 has served as Chairman of the Board and Chief Executive Officer of the Bank and the Company for at least the past five years. Mr. Kelley has served as President and Chief Operating Officer of the Bank and the Company since the August 31, 2000 merger of First United Bancshares, Inc. with the Company. Prior to the merger, he served as Chairman of the Board, President and Chief Executive Officer of First United Bancshares, Inc. for at least the past five years. Mr. Allen has served as Executive Vice President of the Bank for at least the past five years. He has served as Treasurer and Chief Financial Officer of the Company during this same period. Mr. Baxter has served as Executive Vice President of the Company and Vice Chairman and Director of Marketing of the Bank for at least the past five years. Mr. Harder has served as Senior Vice President and Executive Vice President-Loan Review of the Bank for at least the past five years. He is also Executive Vice President of the Company. Mr. Weeks served as Chairman of the Board and Chief Executive Officer of Volunteer Bank, a former subsidiary of the Company, until June 1997 when Volunteer Bank was merged into BancorpSouth Bank and he was named Vice Chairman of BancorpSouth Bank. He has served as Executive Vice President of the Company for at least the past five years. Mr. Sappington has served as Executive Vice President of the Company and Vice Chairman of the Bank for at least the past five years. Mr. Cowsert has served as Executive Vice President and Vice Chairman of the Bank for at least the past five years. He has also served as Executive Vice President of the Company. Mrs. Robertson has served as First Vice President, Senior Vice President and Executive Vice President of the Bank for at least the past five years. She is also Executive Vice President of the Company. Item 11.- Executive Compensation Information concerning the remuneration of executive officers of the Company appears under the caption "Executive Compensation" in the Company's definitive Proxy Statement for its 2001 annual meeting of shareholders, and is incorporated herein by reference. Information concerning the remuneration of directors of the Company appears under the caption "Compensation of Directors" in the Company's definitive Proxy Statement for its 2001 annual meeting of shareholders, 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" in the Company's definitive Proxy Statement for its 2001 annual meeting of shareholders, and is incorporated herein by reference. 63 64 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" in the Company's definitive Proxy Statement for its 2001 annual meeting of shareholders, and is incorporated herein by reference. 64 65 PART IV Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Consolidated Financial Statements: See Item 8. (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 and restated. (1) (b) Bylaws, as amended and restated. (2) (c) Amendment No. 1 to Amended and Restated Bylaws. (4) Specimen Common Stock Certificate. (3) (10) (a) 1998 Director Stock Plan. (2)(12) (b) Form of deferred compensation agreement between Bancorp of Mississippi, Inc. and certain key executives. (4)(12) (c) 1994 Stock Incentive Plan. (5)(12) (d) 1995 Non-Qualified Stock Option Plan for Non-Employee Directors. (5)(12) (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 (6)(12) (f) Stock Bonus Agreement between BancorpSouth, Inc. and Aubrey B. Patterson, dated January 20, 1998 and Escrow Agreement between BancorpSouth Bank and Aubrey B. Patterson, dated March 20, 1998 (7)(12) (g) First Amendment, dated January 30, 2000, to Stock Bonus Agreement, dated January 20, 1998, between BancorpSouth, Inc. and Aubrey B. Patterson (8)(12) (h) Second Amendment, dated January 31, 2001, to Stock Bonus Agreement, dated January 20, 1998, between BancorpSouth, Inc. and Aubrey B. Patterson (12) (i) Stock Bonus Agreement between BancorpSouth, Inc. and James V. Kelley, dated April 16, 2000 and Escrow Agreement between BancorpSouth Bank and James V. Kelley, dated April 16, 2000 (9)(12) (j) Amendment, dated July 24, 2000, to Stock Bonus Agreement, dated April 16, 2000, between BancorpSouth, Inc. and James V. Kelley (10)(12) (k) Information regarding Bancorp of Mississippi, Inc., amended and restated Salary Deferral-Profit Sharing Employee Stock Ownership Plan. (11)(12) (11) Statement re computation of per share earnings. (21) Subsidiaries of the Registrant. (23) Consent of Independent Accountants. (28) Information regarding Bancorp of Mississippi, Inc., amended and restated Salary Deferral-Profit Sharing Employee Stock Ownership Plan. (11)(12) (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 Annual Report on Form 10-K for the year ended December 31, 1998 (file number 1-12991) and incorporated by reference thereto. (3) Filed as an exhibit to the Company's Annual Report on 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 Annual Report on Form 10-K for the year ended December 31, 1988 (file number 0-10826) and incorporated by reference thereto. (5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1998 (file number 1-12991) and incorporated by reference thereto. (6) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (file number 0-10826) and incorporated by reference thereto.
65 66 (7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (file number 1-12991), and incorporated by reference thereto. (8) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2000 (file number 1-12991) and incorporated by reference thereto. (9) Filed as exhibits 10.3 and 10.4 to the Company's registration statement on Form S-4 filed June 14, 2000 (Registration No. 333-39326) and incorporated by reference thereto. (10) Filed as an exhibit to the Company's Current Report on Form 8-K filed on July 24, 2000 (file number 1-12991) and incorporated by reference thereto. (11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 (file number 0-10826) and incorporated by reference thereto. (12) Compensatory plans or arrangements.
(b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K on November 22, 2000 reporting under Item 5, "Other Events" and Item 7, "Financial Statements and Exhibits." The Company filed amendments on Form 8-K/A on November 14, 2000 and November 15, 2000, reporting under Item 2, "Acquisition or Disposition of Assets," Item 5, "Other Events," and Item 7, "Financial Statements and Exhibits." 66 67 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 28, 2001 By: /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 28, 2001 - --------------------------------------------- Aubrey B. Patterson Treasurer and Chief Financial Officer (Principal Financial and /s/ L. Nash Allen, Jr. Accounting Officer) March 28, 2001 - --------------------------------------------- L. Nash Allen, Jr. /s/ Shed H. Davis Director March 28, 2001 - --------------------------------------------- Shed H. Davis /s/ Hassell H. Franklin Director March 28, 2001 - --------------------------------------------- Hassell H. Franklin /s/ W. G. Holliman, Jr. Director March 28, 2001 - --------------------------------------------- W. G. Holliman, Jr.. /s/ A. Douglas Jumper Director March 28, 2001 - --------------------------------------------- A. Douglas Jumper /s/ James V. Kelley President, Chief Operating March 28, 2001 - --------------------------------------------- Officer and Director James V. Kelley /s/ Turner O. Lashlee Director March 28, 2001 - --------------------------------------------- Turner O. Lashlee /s/ R. Madison Murphy Director March 28, 2001 - --------------------------------------------- R. Madison Murphy /s/ Robert C. Nolan Director March 28, 2001 - --------------------------------------------- Robert C. Nolan
68 /s/ W. Cal Partee, Jr Director March 28, 2001 - --------------------------------------------- W. Cal Partee, Jr. /s/ Alan W. Perry Director March 28, 2001 - --------------------------------------------- Alan W. Perry /s/ Travis E. Staub Director March 28, 2001 - --------------------------------------------- Travis E. Staub /s/ Andrew R. Townes Director March 28, 2001 - --------------------------------------------- Andrew R. Townes, DDS
EX-3.C 2 g67862ex3-c.txt AMENDMENT NO. 1 TO AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3(c) AMENDMENT NO. 1 TO AMENDED AND RESTATED BYLAWS OF BANCORPSOUTH, INC. The Amended and Restated Bylaws of BancorpSouth, Inc. are amended by deleting Section 9 of Article III thereof in its entirety, and inserting in replacement thereof the following: SECTION 9. Vacancies If a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors: (i) the shareholders of the Corporation may fill the vacancy, (ii) the Board of Directors may fill the vacancy, or (iii) if the Directors remaining in office constitute fewer than a quorum of the Board of Directors, the Board of Directors may fill the vacancy by the affirmative vote of a majority of all the Directors remaining in office. A vacancy that will occur at a later date, by reason of resignation effective at a later date or otherwise, may be filled before the vacancy occurs, but the new Director may not take office until the vacancy occurs. Amended by the Board of Directors of BancorpSouth, Inc. as of August 30, 2000 /s/ Cathy S. Freeman ----------------------------------------- Cathy S. Freeman Secretary EX-10.H 3 g67862ex10-h.txt SECOND AMENDMENT TO STOCK BONUS AGREEMENT 1 EXHIBIT 10(h) STOCK BONUS AGREEMENT SECOND AMENDMENT THIS INSTRUMENT amends the Stock Bonus Agreement ("Agreement") entered into by and between BancorpSouth, Inc. (the "Company") and AUBREY B. PATTERSON ("Patterson"), on January 30, 1998, pursuant to the approval of the Company's board of directors (the "Board") on January 24, 2001, to be effective on January 31, 2001. RECITALS: WHEREAS, the Company has awarded shares of common stock of the Company, $2.50 par value, ("Common Stock") to Patterson under the terms of the Agreement, and provided that such shares would be restricted and subject to a risk of forfeiture for a period of ten years, unless the shares became vested sooner pursuant to the achievement of performance criteria under the Agreement; WHEREAS, the Company recognizes that Patterson has assumed additional responsibilities with the growth of the Company through mergers and acquisitions and desires to award 56,000 shares of common stock that are restricted under the terms of this Agreement as an additional performance incentive; and WHEREAS, the Company amended the Agreement on January 30, 2000, to modify the vesting provisions for the restricted shares that had been previously awarded; WHEREAS, the Company desires to again modify the vesting schedule to extend the overall performance period of the Agreement so that all services contemplated thereunder will be completed by April 1, 2007, and all restrictions will lapse on such date; NOW, THEREFORE, in consideration of the premises set forth herein and other mutual agreements and good and valuable consideration hereinafter set forth, the Company and Patterson hereby agree that the Agreement shall be modified as follows, effective January 31, 2001: 1. SECTION 2 OF THE AGREEMENT IS RESTATED AS FOLLOWS: 2. Term. The term of this Agreement shall be from January 21, 1998, until April 1, 2007. This Agreement is not an employment contract. The existence of this Agreement shall not affect in any way the Company's right to discharge Patterson. 2. SECTIONS 3(B) AND 3(C) ARE RESTATED AS FOLLOWS: (b) In the event Patterson voluntarily terminated his employment with the Company other than as provided in Section 6(b) hereof, or if this Agreement is terminated by the Company pursuant to Section 6(a)(i) hereof prior to April 1, 2007, Patterson shall retain full ownership of the shares of Common Stock that have been released to him by the Escrow Agent, but shall forfeit all right, title and interest in and to any shares of Common Stock still held by the Escrow Agent, which shares shall be delivered to the Company to be held in treasury or to be canceled as shall be determined by the Board. (c) In the event this Agreement is terminated pursuant to Section 6(b) hereof prior to April 1, 2007, Patterson shall be entitled to receive all shares of Common Stock held by the Escrow Agent as of such termination date and shall be entitled to retain full ownership of all such shares of Common Stock. 2 3. A NEW SECTION 3A IS ADDED TO IMMEDIATELY FOLLOW SECTION 3: 3A. Additional Stock Bonus Compensation. Pursuant to action of the board of directors taken on January 24, 2001, the Company does hereby award to Patterson an additional 56,000 shares of Common Stock in consideration for the performance of services to the Company, provided that such shares shall be subject to the restrictions and risks of forfeiture described herein. Such shares shall be held subject to and in accordance with the terms of Section 3 hereof. Patterson shall have full, nonforfeitable rights to such Common Stock upon the soonest of (i) the expiration of this Agreement pursuant to Section 2, (ii) the termination of this Agreement pursuant to Section 6(b), or (iii) the satisfaction criteria set forth in Section 3(a), applying such performance criteria on and after April 1, 2004. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first written above. BANCORPSOUTH, INC. By: /s/ Cathy S. Freeman ---------------------------------------------- Its: First Vice President and Corporate Secretary /s/ Aubrey B. Patterson ------------------------------------------------- AUBREY B. PATTERSON EX-11 4 g67862ex11.txt COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31, -------------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Basic Earning per Share (In thousands, except per share amounts.) Average shares outstanding 84,474 85,564 85,094 ========== ========== ========== Income available to common shareholders' $ 74,396 $ 102,411 $ 88,241 ========== ========== ========== Basic Earnings per Share $ 0.88 $ 1.20 $ 1.04 ========== ========== ========== Diluted Earnings per Share Average common shares outstanding 84,474 85,564 85,094 Effect of dilutive stock options 337 444 586 ---------- ---------- ---------- Average diluted shares outstanding 84,811 86,008 85,680 ========== ========== ========== Income available to common shareholders' $ 74,396 $ 102,411 $ 88,241 ========== ========== ========== Diluted Earnings per Share $ 0.88 $ 1.19 $ 1.03 ========== ========== ==========
EX-21 5 g67862ex21.txt SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
Jurisdiction Holder of Name Of Incorporation Outstanding Stock - ---- ---------------- ------------------ BancorpSouth Bank Mississippi BancorpSouth, Inc. Personal Finance Corporation Mississippi BancorpSouth Bank Century Credit Life Insurance Company Mississippi BancorpSouth Bank BancorpSouth Insurance Services, Inc. Mississippi BancorpSouth Bank Eagle Premium Assistance Corporation Louisiana BancorpSouth Bank BancorpSouth Insurance Services of Alabama, Inc Alabama BancorpSouth Bank BancorpSouth Investment Services, Inc. Mississippi BancorpSouth Bank
EX-23 6 g67862ex23.txt CONSENT OF KPMG LLP 1 EXHIBIT 23 Accountants' Consent The Board of Directors BancorpSouth, Inc.: We consent to incorporation by reference in the Registration Statement (No. 33-28081) on Form S-4 and the Registration Statement (No. 33-60699) on Form S-8 of BancorpSouth, Inc. of our report dated January 18, 2001, relating to the consolidated balance sheets of BancorpSouth, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000, which report is included in the 2000 annual report on Form 10-K of BancorpSouth, Inc. /s/ KPMG LLP Memphis, Tennessee March 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----