<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- --------------------
Commission file number 0-10826
----------------
BancorpSouth, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Mississippi 64-0659571
- ------------------------------------------ --------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Mississippi Plaza, Tupelo, Mississippi 38801
- ------------------------------------------ --------------------------------
(Address of principal executive offices) (Zip Code)
601/680-2000
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes / X / No / /
On June 30, 1998, the registrant had outstanding 44,688,278 shares of common
stock, par value $2.50 per share.
<PAGE> 2
BANCORPSOUTH, INC.
CONTENTS
PART I. Financial Information
ITEM 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
June 30, 1998, and December 31, 1997.................. 3
Consolidated Condensed Statements of Income and
Comprehensive Income
Three and Six Months Ended June 30, 1998 and 1997..... 4
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997............... 5
Notes to Consolidated Condensed Financial Statements.. 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 10
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk........................................... 15
PART II. Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders... 16
ITEM 6. Exhibits and Reports on Form 8-K...................... 17
FORWARD-LOOKING STATEMENTS
Statements contained in this Report, which are not historical in
nature, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include statements in the "Management's Discussion and Analysis of Financial
Conditional and Results of Operations" regarding liquidity and capital
resources. Such forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from
anticipated results. These risks and uncertainties include regulatory
constraints, changes in interest rates, competition from other financial
services companies, changes in the Company's operation or expansion strategy,
the general economy of the United States and the specific markets in which the
Company operates, and other factors as may be identified from time to time in
the Company's filings with the Securities and Exchange Commission or in the
Company's press releases.
<PAGE> 3
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
BANCORPSOUTH, INC.
Consolidated Condensed Balance Sheets
(Unaudited) (In Thousands)
June 30 December 31
1998 1997
------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $154,842 $286,307
Interest bearing deposits with other banks 9,833 6,465
Held-to-maturity securities, at amortized cost 784,279 533,419
Available-for-sale securities, at fair market value 377,712 406,212
Federal funds sold 47,000 0
Loans 3,005,395 2,852,885
Less: Unearned discount 97,593 93,858
Allowance for credit losses 42,256 39,877
------------- --------------
Net loans 2,865,546 2,719,150
Mortgages held for sale 59,415 39,134
Premises and equipment, net 106,153 101,373
Other assets 99,623 88,083
------------- --------------
TOTAL ASSETS $4,504,403 $4,180,143
============= ==============
LIABILITIES
Deposits:
Demand: Non-interest bearing $488,974 $467,962
Interest bearing 822,016 840,009
Savings 624,888 548,683
Time 1,916,449 1,683,601
------------- --------------
Total deposits 3,852,327 3,540,255
Federal funds purchased and securities
sold under repurchase agreements 47,680 177,450
Long-term debt 170,928 47,539
Other liabilities 54,602 54,477
------------- --------------
TOTAL LIABILITIES 4,125,537 3,819,721
------------- --------------
SHAREHOLDERS' EQUITY
Common stock 111,980 55,990
Capital surplus 96,130 95,699
Accumulated other comprehensive income
Unrealized gain on available-for-sale securities 6,092 4,482
Retained earnings 165,666 206,570
Less cost of shares held in treasury (1,002) (2,319)
------------- --------------
TOTAL SHAREHOLDERS' EQUITY 378,866 360,422
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,504,403 $4,180,143
============= ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Income and Comprehensive Income
(Unaudited)
(In thousands except for per share amounts)
Three months ended Six months ended
June 30 June 30
------------------------- -----------------------------
1998 1997 1998 1997
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST REVENUE:
Interest & fees on loans $65,574 $59,705 $129,582 $117,322
Deposits with other banks 97 93 194 187
Interest on federal funds sold 869 1,297 1,192 2,665
Interest on held-to-maturity securities:
U. S. Treasury 1,660 1,817 3,381 3,524
U. S. Government agencies & corporations 7,341 5,274 13,754 10,823
Obligations of states & political subdivisions 2,300 2,141 4,469 4,293
Interest and dividends on available-for-sale securities 5,827 4,700 11,680 8,312
Interest on mortgages held for sale 926 455 1,581 866
---------- ------------- ------------- -------------
Total interest revenue 84,594 75,482 165,833 147,992
---------- ------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits 38,776 34,088 75,378 66,745
Interest on federal funds purchased & securities
sold under repurchase agreements 377 440 892 839
Other interest expense 2,603 818 4,893 1,665
---------- ------------- ------------- -------------
Total interest expense 41,756 35,346 81,163 69,249
---------- ------------- ------------- -------------
Net interest revenue 42,838 40,136 84,670 78,743
Provision for credit losses 3,092 2,168 6,013 3,649
---------- ------------- ------------- -------------
Net interest revenue, after provision for
credit losses 39,746 37,968 78,657 75,094
---------- ------------- ------------- -------------
OTHER REVENUE:
Mortgage lending 2,933 1,949 5,220 3,778
Trust income 700 544 1,435 1,298
Service charges 4,856 4,642 9,692 9,072
Security gains (losses), net 8 156 175 211
Life insurance income 910 949 1,728 1,999
Other 2,262 2,317 5,073 4,820
---------- ------------- ------------- -------------
Total other revenue 11,669 10,557 23,323 21,178
---------- ------------- ------------- -------------
OTHER EXPENSE:
Salaries and employee benefits 14,663 15,054 30,069 30,657
Net occupancy expense 2,077 2,051 4,201 4,087
Equipment expense 3,262 2,744 6,511 5,552
Deposit insurance premiums 154 149 308 197
Other 11,082 10,308 21,254 20,261
---------- ------------- ------------- -------------
Total other expense 31,238 30,306 62,343 60,754
---------- ------------- ------------- -------------
Income before income taxes 20,177 18,219 39,637 35,518
Income tax expense 6,781 5,968 13,240 11,631
---------- ------------- ------------- -------------
Net income 13,396 12,251 26,397 23,887
Other comprehensive income 615 1,891 1,581 829
---------- ------------- ------------- -------------
Comprehensive income $14,011 $14,142 $27,978 $24,716
========== ============= ============= =============
Earnings per share: Basic $0.30 $0.28 $0.59 $0.54
========== ============= ============= =============
Diluted $0.30 $0.27 $0.59 $0.53
========== ============= ============= =============
Dividends declared per common share $0.11 $0.095 $0.22 $0.19
========== ============= ============= =============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In Thousands)
Six Months Ended
June 30
----------------------------
1998 1997
------------ -------------
<S> <C> <C>
Net cash provided by operating activities $14,481 $30,659
------------ -------------
Investing activities:
Proceeds from calls and maturities of
held-to-maturity securities 186,131 50,706
Proceeds from calls and maturities of
available-for-sale securities 84,189 79,274
Proceeds from sales of
available-for-sale securities 26,600 1,450
Purchases of held-to-maturity securities (430,932) (51,057)
Purchases of available-for-sale securities (79,284) (161,507)
Net (increase) decrease in short-term investments (47,000) 78,400
Net increase in loans (150,648) (85,684)
Purchases of premises and equipment (11,347) (10,726)
Other (8,520) (8,671)
------------ -------------
Net cash used by investing activities (430,811) (107,815)
------------ -------------
Financing activities:
Net increase in deposits 312,072 79,599
Net decrease in short-term
borrowings and other liabilities (137,460) (3,621)
Increase (decrease) in long-term debt 123,389 (7,150)
Payment of cash dividends (9,807) (8,536)
Exercise of stock options 124 137
Acquisition of treasury stock (85) (1,366)
------------ -------------
Net cash provided by financing activities 288,233 59,063
------------ -------------
Decrease in cash and cash equivalents (128,097) (18,093)
Cash and cash equivalents at beginning of
period 292,772 169,635
------------ -------------
Cash and cash equivalents at end of period $164,675 $151,542
============ =============
<FN>
See accompanying notes to consolidated condensed financial statements
</TABLE>
<PAGE> 6
BANCORPSOUTH, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION AND
PRINCIPALS OF CONSOLIDATION
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the accounting policies in effect as of
December 31, 1997, as set forth in the annual consolidated financial statements
of BancorpSouth, Inc. (the "Company"), as of such date. In the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated condensed financial statements have been included and all such
adjustments were of a normal recurring nature. The results of operations for
the three-month and six-month periods ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
The consolidated condensed financial statements include the accounts of
the Company and its wholly-owned subsidiary, BancorpSouth Bank (the "Bank") and
the Bank's wholly-owned subsidiaries, Century Credit Life Insurance Company,
Personal Finance Corporation, BancorpSouth Insurance Services of Mississippi,
Inc. and BancorpSouth Insurance Services of Tennessee, Inc.
NOTE 2 - LOANS
The composition of the loan portfolio by collateral type is detailed
below:
<TABLE>
<CAPTION>
June 30 December 31
----------------------------- --------------
1998 1997 1997
------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C>
Commercial and agricultural $256,574 $257,897 $266,112
Consumer and installment 839,370 766,621 823,356
Real estate mortgage 1,700,964 1,483,492 1,571,137
Lease financing 193,014 155,223 172,436
Other 15,473 9,533 19,844
------------- --------------- ---------------
Total $3,005,395 $2,672,766 $2,852,885
============= =============== ===============
</TABLE>
<PAGE> 7
The following table presents information concerning non-performing loans:
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
----------- -------------
(In thousands)
<S> <C> <C>
Non-accrual loans $9,229 $4,008
Loans 90 days or more past due 6,399 7,465
Restructured loans 637 659
----------- -------------
Total non-performing loans $16,265 $12,132
=========== =============
</TABLE>
NOTE 3 - ALLOWANCE FOR CREDIT LOSSES
The following schedule summarizes the changes in the allowance for credit
losses for the periods indicated:
<TABLE>
<CAPTION>
Year ended
Six month periods ended June 30 December 31
-------------------------------
1998 1997 1997
--------------- -------------- --------------
(In thousands)
<C> <C> <C> <C>
Balance at beginning of period $39,877 $37,272 $37,272
Provision charged to expense 6,013 3,649 9,008
Recoveries 1,019 997 1,828
Loans charged off (4,653) (3,793) (8,827)
Acquisitions - 596 596
--------------- -------------- --------------
Balance at end of period $42,256 $38,721 $39,877
=============== ============== ==============
</TABLE>
NOTE 4 - PER SHARE DATA
The Company adopted SFAS No. 128, "Earnings per Share", effective for financial
statements ending after December 15, 1997. All prior period EPS data has been
restated to conform with the provisions of this Statement.
The computation of basic earnings per share is based on the weighted average
number of common shares outstanding. The computation of diluted earnings per
share is based on the weighted average number of common shares outstanding plus
the shares resulting from the assumed exercise of all outstanding stock options
using the treasury stock method. The following table provides a reconciliation
of the numerators and denominators of the basic and diluted earnings per share
computations for the periods as shown.
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- -------------- ------------- --------------- ------------- -------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to
common shareholders $13,396 44,568 $0.30 $12,251 44,401 $0.28
============= =============
Effect of dilutive stock
options 510 309
------------- -------------- --------------- -------------
DILUTED EPS
Income available to
common shareholders
plus assumed exercise $13,396 45,078 $0.30 $12,251 44,710 $0.27
=========== ============= ============ ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- -------------- ------------- --------------- ------------- -------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to
common shareholders $26,397 44,551 $0.59 $23,887 44,408 $0.54
============= =============
Effect of dilutive stock
options 515 315
------------- -------------- --------------- -------------
DILUTED EPS
Income available to
common shareholders
plus assumed exercise $26,397 45,066 $0.59 $23,887 44,723 $0.53
=========== ============= ============ ============== ============= =============
</TABLE>
NOTE 5 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 15, 1997. The purpose of
reporting comprehensive income is to report a measure of all changes in equity
of the Company that result from recognized transactions and other economic
events of the period other than transactions with owners in their capacity as
owners. The components of other comprehensive income for the Company for the
three month and six month periods ended June 30, 1998 and 1997 were as follows:
<PAGE> 9
<TABLE>
<CAPTION>
Other comprehensive income, Three months ended June 30 Six months ended June 30
------------------------------ ------------------------------
net of tax: 1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Unrealized holding gains
arising during the period $ 615 $ 1,917 $ 1,611 $ 857
Less: reclassification adjustment
for gains included in net income 26 30 28
-------------- -------------- -------------- --------------
Other comprehensive income $ 615 $ 1,891 $ 1,581 $ 829
============== ============== ============== ==============
</TABLE>
NOTE 6 - RECENT PRONOUNCEMENTS
In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" was issued. This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This statement is effective
for fiscal years beginning after December 15, 1997. The Company intends to
comply with this statement in 1998.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" was issued. The statement standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable. In addition, the new statement requires additional
information on changes in benefit obligations and fair value of plan assets
and eliminates certain disclosures that are no longer useful. This statement
is effective for fiscal years beginning after December 15, 1997. The Company
intends to comply with this statement in 1998.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company intends to comply with this statement in 2000.
NOTE 7 - STOCK SPLIT
On March 25, 1998, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% stock dividend payable on May 15,
1998 to shareholders of record on May 1, 1998. Information relating to
earnings per share, dividends per share and other share data has been
retroactively adjusted to reflect this stock split.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion provides certain information concerning the
consolidated financial condition and results of operations of the Company.
This discussion should be read in conjunction with the unaudited consolidated
condensed financial statements for the periods ended June 30, 1998 and 1997,
found elsewhere in this report. On March 25, 1998, the Company's Board of
Directors declared a two-for-one stock split effected in the form of a 100%
stock dividend payable on May 15, 1998 to shareholders of record on May 1,
1998. Information relating to earnings per share, dividends per share and
other share data has been retroactively adjusted to reflect this stock split.
RESULTS OF OPERATIONS
Net Income
The Company's net income for the second quarter of 1998 was $13.40
million compared to $12.25 million in the second quarter of 1997. For the first
six months of 1998, net income was $26.40 million, an increase of 10.51% from
$23.89 million for the same period of 1997. For the second quarter of 1998,
basic and diluted earnings per common share were $0.30, compared to basic
earnings per common share of $0.28 and diluted earnings per common share of
$0.27 for the same period of 1997. For the first six months of 1998, basic
and diluted earnings per common share were $0.59, compared to basic earnings
per common share of $0.54 and diluted earnings per common share of $0.53 for
the same period of 1997. The annualized returns on average assets for the
second quarter of 1998 and 1997 were 1.21% and 1.29%, respectively. For the
six months ended June 30, the annualized returns on average assets were 1.22%
and 1.27% for 1998 and 1997, respectively.
Net Interest Revenue
Net interest revenue, the difference between interest earned on assets and
the cost of interest-bearing liabilities, is the largest component of the
Company's net income. For purposes of this discussion, all interest revenue
has been adjusted to a fully taxable equivalent basis. The primary items of
concern in managing net interest revenue are the mix and maturity balance
between interest-sensitive assets and liabilities.
Net interest revenue was $43.95 million for the three months ended June
30, 1998, compared to $41.78 million for the same period in 1997. For the six
months ended June 30, 1998 and 1997, net interest revenue was $86.81 million
and $81.92 million, respectively. Earning assets averaged $4.14 billion in the
second quarter and $4.05 billion for the first six months of 1998, compared
with $3.56 billion and $3.52 billion in the respective periods in 1997.
Average interest-bearing liabilities were $3.52 billion in the second quarter
and $3.45 billion for the first six months of 1998, compared with $3.00 billion
and $2.97 billion in the respective periods in 1997.
Net interest revenue, expressed as a percentage of average earning assets,
was 4.25% for the second quarter of 1998 as compared to 4.63% for the same
period of 1997 and 4.33% for the first six months of 1998 as compared to 4.62%
for the same period of 1997.
<PAGE> 11
Provision for Credit Losses
The provision for credit losses charged to operating expense is an amount
which, in the judgment of management, is necessary to maintain the allowance
for credit losses at a level that is adequate to meet the present and potential
risks of losses in the Company's current portfolio of loans. Management's
judgment is based on a variety of factors which include the Company's experi-
ence related to loan balances, charge-offs and recoveries, scrutiny of
individual loans and risk factors, results of regulatory agency reviews of
loans, and present and anticipated future economic conditions of the Company's
market area. Material estimates that are particularly susceptible to
significant change in the near term are a necessary part of this process.
Future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for
credit losses. These agencies may require the Company to recognize additions
to the allowance based on their judgments about information available to them
at the time of their examination.
The provision for credit losses totaled $3.09 million for the second
quarter of 1998 compared to $2.17 million for the same period of 1997. For the
six-month periods ended June 30, 1998 and 1997, the provision for credit losses
totaled $6.01 million and $3.65 million, respectively. The increase in the
provision for credit losses for 1998 compared to 1997 reflects the increased
level of net loans charged off and the increased level of non-performing loans.
Other Revenue
Other revenue for the quarter ended June 30, 1998, totaled $11.67 million
compared to $10.56 million for the same period of 1997, a 10.5% increase. For
the six months ended June 30, 1998 and 1997, other revenue was $23.32 million
and $21.18 million, respectively, a 10.1% increase. The most significant
change in other revenue was in mortgage lending where revenue of $5.22 million
was recorded during the first six months of 1998 compared to $3.78 million in
the same period of 1997. Stable and relatively low mortgage rates during the
first half of 1998 resulted in increased mortgage loan originations. Service
charges on deposit accounts for the first six months increased 6.8%. Trust
income increased 10.6% during the first six months of 1998 over the same period
of 1997.
Other Expense
Other expense totaled $31.24 million for the second quarter of 1998, a 3.08%
increase from the same period of 1997. For the six months ended June 30, 1998,
other expenses totaled $62.34 million, a 2.6% increase over 1997's. The most
significant change in a component of other expense relates to the Company's
stock option plans, expense for which is reported under the caption salaries
and employee benefits. Certain of the stock option plans contain a provision
for stock appreciation rights (SARs) which require the recognition of expense
<PAGE> 12
for stock price appreciation. During 1998, the Company has recovered expense
because of the decline in the Company's stock price from December 31, 1997.
During the second quarter of 1998, expense recovery of $417,000 was recorded.
For the six month period ended June 30, 1998, expense recovery of $1,197,000
has been recorded. This compares to expense of $556,000 in the second quarter
of 1997 and expense of $562,000 for the six months ended June 30, 1997.
Deposit insurance was $308,000 for the six months ended 1998 compared to the
same period last year of $197,000.
The other components of other expense reflect normal increases and general
inflation in the cost of services and supplies purchased by the Company.
Income Tax
Income tax expense was $6.78 million and $5.97 million for the second
quarters of 1998 and 1997, respectively. For the six month period ended June
30, 1998, income tax expense was $13.24 million compared to $11.63 million for
the same period in 1997.
FINANCIAL CONDITION
Earning Assets
The percentage of earning assets to total assets measures the
effectiveness of management's efforts to invest available funds into the most
efficient and profitable uses. Earning assets at June 30, 1998 were $4.18
billion, or 92.9% of total assets, compared with $3.74 billion, or 89.6% at
December 31, 1997.
The securities portfolio is used to make various term investments, to
provide a source of liquidity and to serve as collateral to secure certain
types of deposits. Held-to-maturity securities at June 30, 1998, were $784.3
million compared with $533.4 million at the end of 1997, a 47.0% increase.
Available-for-sale securities were $377.7 million at June 30, 1998, compared to
$406.2 million at December 31, 1997.
The loan portfolio of the Company's bank subsidiary makes up the largest
single component of the Company's earning assets. The Company's lending
activities include both commercial and consumer loans. Loan originations are
derived from a number of sources including direct solicitation by the Company's
loan officers, real estate broker referrals, mortgage loan companies, present
savers and borrowers, builders, attorneys, walk-in customers and, in some
instances, other lenders. The Company has established disciplined and
systematic procedures for approving and monitoring loans that vary depending on
the size and nature of the loan. Loans, net of unearned discount, totaled
$2.91 billion at June 30, 1998, which represents a 5.4% increase from the
December 31, 1997 total of $2.76 billion.
At June 30, 1998, the Company did not have any concentrations of loans in
excess of 10% of total loans outstanding. Loan concentrations are considered
to exist when there are amounts loaned to a multiple number of borrowers
engaged in similar activities that would cause them to be similarly impacted by
economic or other conditions. However, the Company does conduct business in a
geographically concentrated area. The ability of the Company's borrowers to
repay loans is to some extent dependent upon the economic conditions prevailing
in its market area.
<PAGE> 13
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.
The Company's policy provides that loans, other than installment loans,
are generally placed on non-accrual status if, in management's opinion, payment
in full of principal or interest is not expected, or when payment of principal
or interest is more than 90 days past due, unless the loan is both well secured
and in the process of collection. Non-performing loans were 0.56% of all loans
outstanding at June 30, 1998, compared to 0.44% at the end of 1997. Non-
performing loans are up at June 30, 1998, primarily as a result of one loan
that management has determined is not collectible. This loan was foreclosed
upon during the third quarter of 1998.
Allowance for Credit Losses
The Company attempts to maintain the allowance for credit losses at a
level which, in the opinion of management, is adequate to meet the present and
potential risks of losses on its current portfolio of loans. Management's
judgement is based on a variety of factors that include examining potential
losses in specific credits and considering the general risks associated with
lending functions such as current and anticipated economic conditions, business
trends in the Company's region and nationally, historical experience as related
to losses, changes in the mix of the loan portfolio and credits which bear
substantial risk of loss but which cannot be readily quantified. Material
estimates that are particularly susceptible to significant change in the near
term are a necessary part of this process. Future additions to the allowance
may be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for credit losses. These agencies
may require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Management does not believe the allowance for credit losses can be
fragmented by category of loans with any precision that would be useful to
investors but is doing so in this report only in an attempt to comply with
disclosure requirements of regulatory agencies. The allocation of allowance by
loan category is based in part on evaluations of specific loans' past history
and on economic conditions within specific industries or geographical areas.
Accordingly, since all of these conditions are subject to change, the
allocation is not necessarily indicative of the breakdown of any future losses.
The following table presents (a) the allocation of the allowance for credit
losses by loan category and (b) the percentage of each category in the loan
portfolio to total loans for the dates indicated.
<PAGE> 14
<TABLE>
<CAPTION>
June 30 December 31
------------------------------------------------------------- -------------------------------
1998 1997 1997
----------------------------- ------------------------------- -------------------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOANS TO FOR LOANS TO FOR LOANS TO
CREDIT LOSSES TOTAL LOANS CREDIT LOSSES TOTAL LOANS CREDIT LOSSES TOTAL LOANS
<S> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $3,005 8.54% $3,650 9.65% $2,985 9.33%
Consumer and installment 16,120 27.93% 11,616 28.68% 14,760 28.86%
Real estate mortgage 20,381 56.60% 21,684 55.50% 19,415 55.07%
Lease financing 2,590 6.42% 1,771 5.81% 2,592 6.04%
Other 160 0.51% - 0.36% 125 0.70%
----------- -------------- ------------- --------------- ------------- ---------------
Total $42,256 100.00% $38,721 100.00% $39,877 100.00%
=========== ============== ============= =============== ============= ===============
</TABLE>
The following table provides an analysis of the allowance for credit losses for
the periods indicated.
<TABLE>
<CAPTION>
Twelve months ended
Six months ended June 30 December 31
------------------------------- --------------
1998 1997 1997
--------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of period $39,877 $37,272 $37,272
Loans charged off:
Commercial and agricultural (190) (167) (678)
Consumer & installment (3,528) (3,367) (7,107)
Real estate mortgage (891) (221) (994)
Lease financing (44) (38) (48)
--------------- --------------- ---------------
Total loans charged off (4,653) (3,793) (8,827)
--------------- --------------- ---------------
Recoveries:
Commercial and agricultural 155 260 214
Consumer & installment 751 171 1,205
Real estate mortgage 94 527 352
Lease financing 19 39 57
--------------- --------------- ---------------
Total recoveries 1,019 997 1,828
--------------- --------------- ---------------
Net charge-offs (3,634) (2,796) (6,999)
Provision charged to operating expense 6,013 3,649 9,008
Acquistions - 596 596
--------------- --------------- ---------------
Balance, end of period $42,256 $38,721 $39,877
=============== =============== ===============
Average loans for period $ 2,828,175 $ 2,552,720 $ 2,598,315
=============== =============== ===============
RATIOS:
Net charge offs to average loans 0.13% 0.11% 0.27%
=============== =============== ===============
</TABLE>
Deposits and Other Interest-bearing Liabilities
Deposits originating within the communities served by the Bank continue to
be the Company's primary source of funding its earning assets. Total deposits
at the end of the second quarter of 1998 were $3.85 billion as compared to
<PAGE> 15
$3.54 billion at December 31, 1997, representing an 8.8% increase. Non-
interest bearing deposits increased by $21.0 million while interest bearing
deposits grew $291.1 million from December 31, 1997 to June 30, 1998. Included
in the deposit growth is approximately $175 million of public funds obtained in
the first quarter of 1998 and scheduled to mature in the third quarter of 1998.
These funds were used to purchase investment securities with similar
maturities. The Company also borrowed $125 million from the Federal Home Loan
Bank during the first quarter of 1998. Of these funds, $50 million matures in
10 years, $50 million matures in 15 years and $25 million matures in 20 years.
These borrowings were initially invested in short-term securities and are to be
used by the Company over time to fund loans of similar maturities.
LIQUIDITY
Liquidity is the ability of the Company to fund the needs of its borrowers,
depositors and creditors. The Company's traditional sources of liquidity
include maturing loans and investment securities, purchased federal funds and
its base of core deposits. Management believes these sources are adequate to
meet liquidity needs for normal operations.
The Company continues to pursue a lending policy stressing adjustable rate
loans, in furtherance of its strategy for matching interest sensitive assets
with an increasingly interest sensitive liability structure.
CAPITAL RESOURCES
The Company is required to comply with the risk-based capital requirements
of the Board of Governors of the Federal Reserve System. These requirements
apply a variety of weighting factors, which vary according to the level of risk
associated with the particular assets. At June 30, 1998, the Company's Tier 1
capital and total capital, as a percentage of total risk-adjusted assets, were
12.11% and 13.36%, respectively. Both ratios exceed the required minimum
levels for these ratios of 4.0% and 8.0%, respectively. In addition, the
Company's leverage capital ratio (Tier 1 capital divided by total assets, less
goodwill) was 8.38% at June 30, 1998, compared to the required minimum leverage
capital ratio of 4%.
The Company's current capital position continues to provide it with a
level of resources available for the acquisition of depository institutions and
businesses closely related to banking in the event opportunities arise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended June 30, 1998, there were no material
changes to the quantitative and qualitative disclosures about market risks
presented in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on Tuesday,
April 21, 1998. At this meeting, the following matters were voted upon by the
Company's shareholders:
(a) Election of Class III Directors
Aubrey B. Patterson and Dr. Andrew R. Townes were elected to serve as
Class III directors of the Company until the annual meeting of shareholders in
2001 or until their respective successors are elected and qualified. The vote
was as follows:
Votes Cast Votes Cast Abtentions/
in Favor Against or Withheld Non Votes
---------- ------------------- -----------
NAME
Aubrey B. Patterson 18,056,748 47,965 0
Dr. Andrew R. Townes 18,039,948 64,765 0
The following directors continued in office following the meeting:
NAME Term Expires
------------
A. Douglas Jumper 1999
T. O. Lashlee 1999
W. G. Holliman, Jr. 1999
Alan W. Perry 1999
S. H. Davis 2000
Hassell H. Franklin 2000
Fletcher H. Goode, M.D. 2000
Travis E. Staub 2000
Lowery A. Woodall 2000
(b) Selection of Independent Auditors
The shareholders of the Company ratified the appointment of KPMG Peat
Marwick LLP as the Company's independent auditors for the fiscal year ended
December 31, 1998 by the following vote:
Votes Cast Votes Cast Abstentions/
in Favor Against or Withheld Non Votes
---------- ------------------- ------------
17,964,419 51,770 88,524
<PAGE> 17
The shareholders of the Company approved the Amendments and Restatements to
the Company's 1994 Stock Incentive Plan and the 1995 Non-Qualified Stock
Option Plan for Non-Employee Directors by the following vote:
Votes Cast Votes Cast Abstentions/
in Favor Against or Withheld Non Votes
---------- ------------------- ------------
15,419,884 2,218,105 466,724
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27.1) Financial Data Schedule for the periods ended June 30, 1998.
(27.2) Restated Financial Data Schedule for the periods ended June 30,
1997.
(b) A Form 8-K was filed on May 18, 1998 reporting the signing of a
definitive merger agreement whereby the Company would acquire Merchants
Capital Corporation, Vicksburg, Mississippi.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BancorpSouth, Inc.
-------------------------------
(Registrant)
DATE: August 13, 1998 /S/ L. Nash Allen, Jr.
-------------------------------
L. Nash Allen, Jr.
Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 154,842
<INT-BEARING-DEPOSITS> 9,833
<FED-FUNDS-SOLD> 47,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 377,712
<INVESTMENTS-CARRYING> 377,712
<INVESTMENTS-MARKET> 377,712
<LOANS> 2,907,802
<ALLOWANCE> 42,256
<TOTAL-ASSETS> 4,504,403
<DEPOSITS> 3,852,327
<SHORT-TERM> 47,680
<LIABILITIES-OTHER> 54,602
<LONG-TERM> 170,928
<COMMON> 111,980
0
0
<OTHER-SE> 313,675
<TOTAL-LIABILITIES-AND-EQUITY> 4,504,403
<INTEREST-LOAN> 129,582
<INTEREST-INVEST> 21,604
<INTEREST-OTHER> 14,647
<INTEREST-TOTAL> 165,833
<INTEREST-DEPOSIT> 75,378
<INTEREST-EXPENSE> 81,163
<INTEREST-INCOME-NET> 84,670
<LOAN-LOSSES> 6,013
<SECURITIES-GAINS> 175
<EXPENSE-OTHER> 62,343
<INCOME-PRETAX> 39,637
<INCOME-PRE-EXTRAORDINARY> 39,637
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,397
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
<YIELD-ACTUAL> 4.25
<LOANS-NON> 9,229
<LOANS-PAST> 6,399
<LOANS-TROUBLED> 637
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 39,877
<CHARGE-OFFS> 4,653
<RECOVERIES> 1,019
<ALLOWANCE-CLOSE> 42,256
<ALLOWANCE-DOMESTIC> 42,256
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 143,068
<INT-BEARING-DEPOSITS> 8,474
<FED-FUNDS-SOLD> 21,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 321,361
<INVESTMENTS-CARRYING> 321,361
<INVESTMENTS-MARKET> 321,361
<LOANS> 2,584,607
<ALLOWANCE> 38,721
<TOTAL-ASSETS> 3,821,106
<DEPOSITS> 3,342,763
<SHORT-TERM> 31,289
<LIABILITIES-OTHER> 52,037
<LONG-TERM> 48,928
<COMMON> 55,990
0
0
<OTHER-SE> 290,099
<TOTAL-LIABILITIES-AND-EQUITY> 3,821,106
<INTEREST-LOAN> 118,598
<INTEREST-INVEST> 18,640
<INTEREST-OTHER> 12,030
<INTEREST-TOTAL> 149,268
<INTEREST-DEPOSIT> 66,745
<INTEREST-EXPENSE> 69,249
<INTEREST-INCOME-NET> 80,019
<LOAN-LOSSES> 3,649
<SECURITIES-GAINS> 211
<EXPENSE-OTHER> 62,303
<INCOME-PRETAX> 35,518
<INCOME-PRE-EXTRAORDINARY> 35,518
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,887
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.53
<YIELD-ACTUAL> 4.62
<LOANS-NON> 3,088
<LOANS-PAST> 4,540
<LOANS-TROUBLED> 660
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 37,868
<CHARGE-OFFS> 3,793
<RECOVERIES> 997
<ALLOWANCE-CLOSE> 38,721
<ALLOWANCE-DOMESTIC> 38,721
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
