<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 September 30, 1998
----------------------------------------------
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- -------------------
Commission file number 0-10826
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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
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(Registrant's telephone number, including area code)
- -----------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed
since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes / X / No / /
On September 30, 1998, the registrant had outstanding 44,662,106 shares of
common stock, par value $2.50 per share.
<PAGE> 2
BANCORPSOUTH, INC.
CONTENTS
PAGE
PART I. Financial Information
ITEM 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
September 30, 1998, and December 31,1997............. 3
Consolidated Condensed Statements of Income and
Comprehensive Income
Three and Nine Months Ended September 30,
1998 and 1997........................................ 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997........ 5
Notes to Consolidated Condensed Financial Statements. 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 10
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk.......................................... 16
PART II. Other Information
ITEM 5. Other Information.................................... 17
ITEM 6. Exhibits and Reports on Form 8-K .................... 17
FORWARD-LOOKING STATEMENTS
Statements contained in this Report, which are not historical in
nature, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include statements in the "Management's Discussion and Analysis of Financial
Conditional and Results of Operations" regarding liquidity and capital
resources. Such forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from
anticipated results. These risks and uncertainties include regulatory
constraints, changes in interest rates, competition from other financial
services companies, changes in the Company's operation or expansion strategy,
the general economy of the United States and the specific markets in which the
Company operates, and other factors as may be identified from time to time in
<PAGE> 3
the Company's filings with the Securities and Exchange Commission or in the
Company's press releases.
<PAGE> 4
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
BANCORPSOUTH, INC.
Consolidated Condensed Balance Sheets
(Unaudited)
(In Thousands)
September 30 December 31
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $134,977 $286,307
Interest bearing deposits with other banks 8,269 6,465
Held-to-maturity securities, at amortized cost 601,048 533,419
Available-for-sale securities, at fair market value 366,071 406,212
Federal funds sold 28,000 0
Loans 3,116,956 2,852,885
Less: Unearned discount 96,678 93,858
Allowance for credit losses 43,600 39,877
------------- -------------
Net loans 2,976,678 2,719,150
Mortgages held for sale 41,327 39,134
Premises and equipment, net 105,563 101,373
Other assets 101,081 88,083
------------- -------------
TOTAL ASSETS $4,363,014 $4,180,143
============= =============
LIABILITIES
Deposits:
Demand: Non-interest bearing $481,692 $467,962
Interest bearing 815,989 840,009
Savings 635,208 548,683
Time 1,752,282 1,683,601
------------- -------------
Total deposits 3,685,171 3,540,255
Federal funds purchased and securities
sold under repurchase agreements 55,525 177,450
Long-term debt 170,123 47,539
Other liabilities 63,075 54,477
------------- -------------
TOTAL LIABILITIES 3,973,894 3,819,721
SHAREHOLDERS' EQUITY
Common stock 111,980 55,990
Capital surplus 96,099 95,699
Accumulated other comprehensive income
Unrealized gain on available-for-sale securities 7,854 4,482
Retained earnings 174,670 206,570
Less cost of shares held in treasury (1,483) (2,319)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 389,120 360,422
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,363,014 $4,180,143
============= =============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Income and Comprehensive Income
(Unaudited)
(In thousands except for per share amounts)
Three months ended Nine months ended
September 30 September 30
--------------------------- ------------------------------
1998 1997 1998 1997
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
INTEREST REVENUE:
Interest & fees on loans $67,684 $61,201 $197,266 $178,523
Deposits with other banks 103 121 297 308
Interest on federal funds sold 536 1,090 1,728 3,755
Interest on held-to-maturity securities:
U. S. Treasury 1,650 1,833 5,031 5,357
U. S. Government agencies & corporations 5,995 4,992 19,749 15,815
Obligations of states & political subdivisions 2,315 2,093 6,784 6,386
Interest and dividends on available-for-sale securities 5,606 5,189 17,286 13,501
Interest on mortgages held for sale 984 571 2,565 1,437
---------- ------------ ------------- -------------
Total interest revenue 84,873 77,090 250,706 225,082
---------- ------------ ------------- -------------
INTEREST EXPENSE:
Interest on deposits 38,620 36,073 113,998 102,818
Interest on federal funds purchased & securities
sold under repurchase agreements 347 403 1,239 1,242
Other interest expense 2,760 706 7,653 2,371
---------- ------------ ------------- -------------
Total interest expense 41,727 37,182 122,890 106,431
---------- ------------ ------------- -------------
Net interest revenue 43,146 39,908 127,816 118,651
Provision for credit losses 3,771 2,476 9,784 6,125
---------- ------------ ------------- -------------
Net interest revenue, after provision for
credit losses 39,375 37,432 118,032 112,526
---------- ------------ ------------- -------------
OTHER REVENUE:
Mortgage lending 2,556 1,887 7,776 5,665
Trust income 776 684 2,211 1,982
Service charges 5,067 4,861 14,759 13,933
Security gains (losses), net 69 430 244 641
Life insurance income 951 907 2,679 2,906
Other 2,526 2,264 7,599 7,084
---------- ------------ ------------- -------------
Total other revenue 11,945 11,033 35,268 32,211
---------- ------------ ------------- -------------
OTHER EXPENSE:
Salaries and employee benefits 13,742 16,506 43,811 47,163
Net occupancy expense 2,265 2,169 6,466 6,256
Equipment expense 3,347 3,166 9,858 8,718
Deposit insurance premiums 154 146 462 343
Other 10,901 9,752 32,155 30,013
---------- ------------ ------------- -------------
Total other expense 30,409 31,739 92,752 92,493
---------- ------------ ------------- -------------
Income before income taxes 20,911 16,726 60,548 52,244
Income tax expense 6,990 5,125 20,230 16,756
---------- ------------ ------------- -------------
Net income 13,921 11,601 40,318 35,488
Other comprehensive income 1,746 992 3,327 1,821
---------- ------------ ------------- -------------
Comprehensive income $15,667 $12,593 $43,645 $37,309
========== ============ ============= =============
Earnings per share: Basic $0.31 $0.26 $0.90 $0.80
========== ============ ============= =============
Diluted $0.31 $0.26 $0.89 $0.79
========== ============ ============= =============
Dividends declared per common share $0.11 $0.095 $0.33 $0.285
========== ============ ============= =============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In Thousands)
Nine Months Ended
September 30
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $55,095 $35,189
------------- -------------
Investing activities:
Proceeds from calls and maturities of
held-to-maturity securities 477,148 193,350
Proceeds from calls and maturities of
available-for-sale securities 115,083 138,512
Proceeds from sales of
available-for-sale securities 26,600 7,949
Purchases of held-to-maturity securities (536,681) (152,553)
Purchases of available-for-sale securities (95,421) (269,529)
Net (increase) decrease in short-term investments (28,000) 40,400
Net increase in loans (264,618) (175,933)
Purchases of premises and equipment (14,129) (18,194)
Other (12,142) (11,365)
------------- -------------
Net cash used by investing activities (332,160) (247,363)
------------- -------------
Financing activities:
Net increase in deposits 144,916 202,954
Net decrease in short-term
borrowings and other liabilities (124,774) (6,753)
Increase (decrease) in long-term debt 122,584 (7,657)
Payment of cash dividends (14,714) (12,780)
Exercise of stock options 130 381
Acquisition of treasury stock (603) (1,366)
------------- -------------
Net cash provided by financing activities 127,539 174,779
------------- -------------
Decrease in cash and cash equivalents (149,526) (37,395)
Cash and cash equivalents at beginning of
period 292,772 171,863
------------- -------------
Cash and cash equivalents at end of period $143,246 $134,468
============= =============
<FN>
See accompanying notes to consolidated condensed financial statements
</TABLE>
<PAGE> 7
BANCORPSOUTH, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION AND PRINCIPALS OF
CONSOLIDATION
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the accounting policies in effect as of
December 31, 1997, as set forth in the annual consolidated financial
statements of BancorpSouth, Inc. (the "Company"), as of such date. In the
opinion of management, all adjustments necessary for a fair presentation of
the consolidated condensed financial statements have been included and all
such adjustments were of a normal recurring nature. The results of operations
for the three-month and nine-month periods ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
The consolidated condensed financial statements include the accounts of
the Company and its wholly-owned subsidiary, BancorpSouth Bank (the "Bank"),
and the Bank's wholly-owned subsidiaries, Century Credit Life Insurance
Company, Personal Finance Corporation, BancorpSouth Insurance Services of
Mississippi, Inc., BancorpSouth Insurance Services of Tennessee, Inc. and
BancorpSouth Investment Services, Inc.
NOTE 2 - LOANS
The composition of the loan portfolio by collateral type is detailed
below:
<TABLE>
<CAPTION>
September 30 December 31
------------------------------ -------------
1998 1997 1997
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Commercial and agricultural $ 277,299 $ 261,981 $ 266,112
Consumer and installment 871,332 799,823 823,356
Real estate mortgage:
1-4 Family 821,759 774,375 779,546
Other 710,470 757,854 791,591
Lease financing 197,108 158,217 172,436
Other 20,905 11,285 19,844
------------- ------------- -------------
Total $ 2,898,873 $ 2,763,535 $ 2,852,885
============= ============= =============
</TABLE>
<PAGE> 8
The following table presents information concerning non-performing loans:
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Non-accrual loans $4,678 $4,008
Loans 90 days or more past due 6,093 7,465
Restructured loans 635 659
------------ ------------
Total non-performing loans $11,406 $12,132
============ ============
</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>
Nine month periods Year ended
ended September 30 December 31
---------------------------- -----------
1998 1997 1997
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $39,877 $37,272 $37,272
Provision charged to expense 9,784 6,125 9,008
Recoveries 1,607 1,364 1,828
Loans charged off (7,668) (6,170) (8,827)
Acquisitions - 596 596
----------- ----------- -----------
Balance at end of period $43,600 $39,187 $39,877
=========== =========== ===========
</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> 9
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------------------------------
1998 1997
----------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------ ------------ ------------ ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common shareholders $13,921 44,573 $0.31 $11,600 44,425 $0.26
============ ============
Effect of dilutive stock
options - 470 - 365
------------ ------------ ------------ ------------
Diluted EPS
Income available to
common shareholders
plus assumed exercise $13,921 45,043 $0.31 $11,600 44,790 $0.26
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION
Nine Months Ended September 30,
--------------------------------------------------------------------------------------------------
1998 1997
----------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common shareholders $40,318 44,558 $0.90 $35,487 44,413 $0.80
============ ============
Effect of dilutive stock
options - 500 - 332
------------ ------------ ------------ ------------
Diluted EPS
Income available to
common shareholders
plus assumed exercise $40,318 45,058 $0.89 $35,487 44,745 $0.79
============ ============ ============ ============ ============ ============
</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 nine month periods ended September 30, 1998 and 1997 were as
follows:
<PAGE> 10
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------------- -------------------------
Net of tax: 1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Unrealized holding gains
arising during the period $ 1,761 $ 993 $ 3,372 $ 1,850
Less: reclassification adjustment
for gains included in net income 15 1 45 29
----------- ----------- ----------- -----------
Other comprehensive income $ 1,746 $ 992 $ 3,327 $ 1,821
=========== =========== =========== ===========
</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> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion provides certain information concerning the
consolidated financial condition and results of operations of the Company.
This discussion should be read in conjunction with the unaudited consolidated
condensed financial statements for the periods ended September 30, 1998 and
1997, found elsewhere in this report. On March 25, 1998, the Company's Board
of Directors declared a two-for-one stock split effected in the form of a 100%
stock dividend payable on May 15, 1998 to shareholders of record on May 1,
1998. Information relating to earnings per share, dividends per share and
other share data has been retroactively adjusted to reflect this stock split.
RESULTS OF OPERATIONS
Net Income
The Company's net income for the third quarter of 1998 was $13.92 million
compared to $11.60 million in the third quarter of 1997. For the first nine
months of 1998, net income was $40.32 million, an increase of 13.61% from
$35.49 million for the same period of 1997. For the third quarter of 1998,
basic and diluted earnings per common share were $0.31, compared to basic and
diluted earnings per common share of $0.26 for the same period of 1997. For
the first nine months of 1998, basic earnings per common share were $0.90 and
diluted earnings per common share were $0.89, compared to basic earnings per
common share of $0.80 and diluted earnings per common share of $0.79 for the
same period of 1997. The annualized returns on average assets for the third
quarter of 1998 and 1997 were 1.27% and 1.19%, respectively. For the nine
months ended September 30, the annualized returns on average assets were 1.24%
for 1998 and 1997.
Net Interest Revenue
Net interest revenue, the difference between interest earned on assets
and the cost of interest-bearing liabilities, is the largest component of the
Company's net income. For purposes of this discussion, all interest revenue
has been adjusted to a fully taxable equivalent basis. The primary items of
concern in managing net interest revenue are the mix and maturity balance
between interest-sensitive assets and liabilities.
Net interest revenue was $44.20 million for the three months ended
September 30, 1998, compared to $40.84 million for the same period in 1997.
For the nine months ended September 30, 1998 and 1997, net interest revenue
was $131.01 million and $121.48 million, respectively. Earning assets
averaged $4.12 billion in the third quarter and $4.07 billion for the first
nine months of 1998, compared with $3.65 billion and $3.56 billion in the
respective periods in 1997. Average interest-bearing liabilities were $3.50
billion in the third quarter and $3.46 billion for the first nine months of
1998, compared with $3.08 billion and $3.01 billion in the respective periods
in 1997.
Net interest revenue, expressed as a percentage of average earning
assets, was 4.26% for the third quarter of 1998 as compared to 4.44% for the
same period of 1997 and 4.30% for the first nine months of 1998 as compared to
4.56% for the same period of 1997.
<PAGE> 12
Provision for Credit Losses
The provision for credit losses charged to operating expense is an amount
which, in the judgment of management, is necessary to maintain the allowance
for credit losses at a level that is adequate to meet the present and poten-
tial risks of losses in the Company's current portfolio of loans. Management's
judgment is based on a variety of factors which include the Company's experi-
ence related to loan balances, charge-offs and recoveries, scrutiny of
individual loans and risk factors, results of regulatory agency reviews of
loans, and present and anticipated future economic conditions of the Company's
market area. Material estimates that are particularly susceptible to
significant change in the near term are a necessary part of this process.
Future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for credit losses. These agencies may require the Company to recognize
additions to the allowance based on their judgments about information
available to them at the time of their examination.
The provision for credit losses totaled $3.77 million for the third
quarter of 1998 compared to $2.48 million for the same period of 1997. For
the nine-month periods ended September 30, 1998 and 1997, the provision for
credit losses totaled $9.78 million and $6.13 million, respectively. The
increase in the provision for credit losses for 1998 compared to 1997 reflects
the increased level of net loans charged off and the increased level of non-
performing loans.
Other Revenue
Other revenue for the quarter ended September 30, 1998, totaled $11.95
million compared to $11.03 million for the same period of 1997, a 8.3%
increase. For the nine months ended September 30, 1998 and 1997, other
revenue was $35.27 million and $32.21 million, respectively, a 9.5% increase.
The most significant change in other revenue was in mortgage lending where
revenue of $7.78 million was recorded during the first nine months of 1998
compared to $5.67 million in the same period of 1997. Stable and relatively
low mortgage rates during 1998 resulted in increased mortgage loan
originations. Service charges on deposit accounts for the first nine months
increased 5.9%. Trust income increased 11.6% during the first nine months of
1998 over the same period of 1997.
Other Expense
Other expense totaled $30.41 million for the third quarter of 1998, a
4.19% decrease from the same period of 1997. For the nine months ended
September 30, 1998, other expenses totaled $92.75 million, a 0.28% increase
over that for the same period during 1997. The most significant change in a
component of other expense relates to the Company's stock option plans,
expense for which is reported under the caption salaries and employee
<PAGE> 13
benefits. Certain of the stock option plans contain a provision for stock
appreciation rights (SARs) which require the recognition of expense for stock
price appreciation. During 1998, the Company has recovered expense because of
the decline in the Company's stock price from December 31, 1997. During the
third quarter of 1998, expense recovery of $1,599,000 was recorded. For the
nine month period ended September 30, 1998, expense recovery of $2,796,000 has
been recorded. This compares to expense of $1,881,000 in the third quarter of
1997 and expense of $2,446,000 for the nine months ended September 30, 1997.
Deposit insurance was $462,000 for the nine months ended 1998 compared to the
same period last year of $343,000.
The other components of other expense reflect normal increases and
general inflation in the cost of services and supplies purchased by the
Company.
Income Tax
Income tax expense was $6.99 million and $5.13 million for the third
quarters of 1998 and 1997, respectively. For the nine month period ended
September 30, 1998, income tax expense was $20.23 million compared to $16.76
million for the same period in 1997.
FINANCIAL CONDITION
Earning Assets
The percentage of earning assets to total assets measures the
effectiveness of management's efforts to invest available funds into the most
efficient and profitable uses. Earning assets at September 30, 1998 were
$4.06 billion, or 93.2% of total assets, compared with $3.74 billion, or 89.6%
at December 31, 1997.
The securities portfolio is used to make various term investments, to
provide a source of liquidity and to serve as collateral to secure certain
types of deposits. Held-to-maturity securities at September 30, 1998, were
$601.0 million compared with $533.4 million at the end of 1997, a 12.7%
increase. Available-for-sale securities were $366.1 million at September 30,
1998, compared to $406.2 million at December 31, 1997.
The loan portfolio of the Company's bank subsidiary makes up the largest
single component of the Company's earning assets. The Company's lending
activities include both commercial and consumer loans. Loan originations are
derived from a number of sources including direct solicitation by the
Company's loan officers, real estate broker referrals, mortgage loan
companies, present savers and borrowers, builders, attorneys, walk-in
customers and, in some instances, other lenders. The Company has established
disciplined and systematic procedures for approving and monitoring loans that
vary depending on the size and nature of the loan. Loans, net of unearned
discount, totaled $3.02 billion at September 30, 1998, which represents a 9.5%
increase from the December 31, 1997 total of $2.76 billion.
At September 30, 1998, the Company did not have any concentrations of
loans in excess of 10% of total loans outstanding. Loan concentrations are
considered to exist when there are amounts loaned to a multiple number of
borrowers engaged in similar activities that would cause them to be similarly
impacted by economic or other conditions. However, the Company does conduct
business in a geographically concentrated area. The ability of the Company's
<PAGE> 14
borrowers to repay loans is to some extent dependent upon the economic
conditions prevailing in its market area.
In the normal course of business, management becomes aware of possible
credit problems in which borrowers exhibit potential for the inability to
comply with the contractual terms of their loans, but which do not currently
meet the criteria for disclosure as problem loans because management currently
does not have serious doubt as to the borrowers' ability to comply with the
loan terms. Historically, some of these loans are ultimately restructured or
placed in non-accrual status.
The Company's policy provides that loans, other than installment loans,
are generally placed on non-accrual status if, in management's opinion,
payment in full of principal or interest is not expected, or when payment of
principal or interest is more than 90 days past due, unless the loan is both
well secured and in the process of collection. Non-performing loans were
0.38% of all loans outstanding at September 30, 1998, compared to 0.44% at the
end of 1997.
Allowance for Credit Losses
The Company attempts to maintain the allowance for credit losses at a
level which, in the opinion of management, is adequate to meet the present and
potential risks of losses on its current portfolio of loans. Management's
judgement is based on a variety of factors that include examining potential
losses in specific credits and considering the general risks associated with
lending functions such as current and anticipated economic conditions,
business trends in the Company's region and nationally, historical experience
as related to losses, changes in the mix of the loan portfolio and credits
which bear substantial risk of loss but which cannot be readily quantified.
Material estimates that are particularly susceptible to significant change in
the near term are a necessary part of this process. Future additions to the
allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for credit
losses. These agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
Management does not believe the allowance for credit losses can be
fragmented by category of loans with any precision that would be useful to
investors but is doing so in this report only in an attempt to comply with
disclosure requirements of regulatory agencies. The allocation of allowance
by loan category is based in part on evaluations of specific loans' past
history and on economic conditions within specific industries or geographical
areas. Accordingly, since all of these conditions are subject to change, the
allocation is not necessarily indicative of the breakdown of any future
losses. The following table presents (a) the allocation of the allowance for
credit losses by loan category and (b) the percentage of each category in the
loan portfolio to total loans for the dates indicated.
<PAGE> 15
<TABLE>
<CAPTION>
September 30 December 31
----------------------------------------------------------- -----------------------------
1998 1997 1997
----------------------------- ----------------------------- -----------------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOANS TO FOR LOANS TO FOR LOANS TO
CREDIT LOSSES TOTAL LOANS CREDIT LOSSES TOTAL LOANS CREDIT LOSSES TOTAL LOANS
-------------- -------------- -------------- -------------- -------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $3,972 8.90% $3,755 9.48% $2,985 9.33%
Consumer and installment 15,532 27.95% 11,639 28.94% 14,760 28.86%
Real estate mortgage 21,315 56.15% 21,777 55.44% 19,415 55.07%
Lease financing 2,621 6.32% 2,016 5.73% 2,592 6.04%
Other 160 0.67% - 0.41% 125 0.70%
-------------- -------------- -------------- -------------- -------------- --------------
Total $43,600 100.00% $39,187 100.00% $39,877 100.00%
============== ============== ============== ============== ============== ==============
</TABLE>
The following table provides an analysis of the allowance for credit
losses for the periods indicated.
<TABLE>
<CAPTION>
Twelve months ended
Nine months ended September 30 December 31
------------------------------ --------------
1998 1997 1997
-------------- -------------- --------------
(dollars in thousands)
<S> <C> <C> <C>
Balance, beginning of period $39,877 $37,272 $37,272
Loans charged off:
Commercial and agricultural (190) (216) (678)
Consumer & installment (5,985) (5,390) (7,107)
Real estate mortgage (1,418) (518) (994)
Lease financing (75) (46) (48)
-------------- -------------- --------------
Total loans charged off (7,668) (6,170) (8,827)
-------------- -------------- --------------
Recoveries:
Commercial and agricultural 155 195 214
Consumer & installment 1,330 830 1,205
Real estate mortgage 102 283 352
Lease financing 20 56 57
-------------- -------------- --------------
Total recoveries 1,607 1,364 1,828
-------------- -------------- --------------
Net charge-offs (6,061) (4,806) (6,999)
Provision charged to operating expense 9,784 6,125 9,008
Acquistions - 596 596
-------------- -------------- --------------
Balance, end of period $43,600 $39,187 $39,877
============== ============== ==============
Average loans for period $2,872,173 $2,560,236 $2,598,315
============== ============== ==============
RATIOS:
Net charge offs to average loans 0.21% 0.19% 0.27%
============== ============== ==============
</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
<PAGE> 16
deposits at the end of the third quarter of 1998 were $3.69 billion as
compared to $3.54 billion at December 31, 1997, representing a 4.1% increase.
Non-interest bearing deposits increased by $13.7 million while interest-
bearing deposits grew $131.2 million from December 31, 1997 to September 30,
1998. The Company borrowed $125 million from the Federal Home Loan Bank during
the first quarter of 1998. Of these funds, $50 million matures in 10 years,
$50 million matures in 15 years and $25 million matures in 20 years. These
borrowings were initially invested in short-term securities and are to be used
by the Company over time to fund loans of similar maturities.
LIQUIDITY
Liquidity is the ability of the Company to fund the needs of its bor-
rowers, depositors and creditors. The Company's traditional sources of
liquidity include maturing loans and investment securities, purchased federal
funds and its base of core deposits. Management believes these sources are
adequate to meet liquidity needs for normal operations.
The Company continues to pursue a lending policy stressing adjustable
rate loans, in furtherance of its strategy for matching interest sensitive
assets with an increasingly interest sensitive liability structure.
CAPITAL RESOURCES
The Company is required to comply with the risk-based capital
requirements of the Board of Governors of the Federal Reserve System. These
requirements apply a variety of weighting factors, which vary according to the
level of risk associated with the particular assets. At September 30, 1998,
the Company's Tier 1 capital and total capital, as a percentage of total risk-
adjusted assets, were 12.23% and 13.48%, respectively. Both ratios exceed the
required minimum levels for these ratios of 4.0% and 8.0%, respectively. In
addition, the Company's leverage capital ratio (Tier 1 capital divided by
total assets, less goodwill) was 8.65% at September 30, 1998, compared to the
required minimum leverage capital ratio of 4%.
The Company's current capital position continues to provide it with a
level of resources available for the acquisition of depository institutions
and businesses closely related to banking in the event opportunities arise.
YEAR 2000
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the Year 2000
compliance. During 1997, the Company developed a plan to deal with the Year
2000 problem and established a Year 2000 committee that consists of
representatives from the major functional areas of the Company. The committee
has conducted a comprehensive review of the Company's computer systems to
identify the systems that could be affected by the Year 2000 issue and has
developed an implementation plan to resolve potential problems. We have
reviewed our core mainframe systems and application subsystems and have
obtained the Year 2000 compliant releases and are developing the installation
and testing plan for each of these applications. We have corresponded with
our third party service providers and other providers of software and hardware
for certification of their compliance with Year 2000 issues. It is
<PAGE> 17
anticipated that all reprogramming efforts will be completed by December 31,
1998, allowing adequate time for testing. Management has assessed the Year
2000 compliance expense and believes that the related potential effect on the
Company's business, financial condition and results of operations will be
immaterial. The Company is expensing all costs associated with the Year 2000
as the costs are incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended September 30, 1998, there were no material
changes to the quantitative and qualitative disclosures about market risks
presented in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
<PAGE> 18
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Pursuant to recent amendments to Rule 14a-4(c) under the Securities
Exchange Act of 1934, as amended, discretionary voting authority conferred in
proxies solicited by the Company's Board of Directors in connection with the
Company's 1999 annual meeting of shareholders may be exercised with respect to
any matter raised at the annual meeting, if the Company does not receive
notice of the matter on or prior to February 7, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27.1) Financial Data Schedule for the periods ended September 30, 1998.
(27.2) Restated Financial Data Schedule for the periods ended September
30, 1997.
(b) (1) A Current Report on Form 8-K was filed by the Company on July 10,
1998 reporting the signing of a definitive merger agreement whereby
the Company would acquire Alabama Bancorp., Inc., located in
Birmingham, Alabama.
(2) A Current Report on Form 8-K was filed by the Company on September
3, 1998 reporting the signing of a definitive merger agreement
whereby the Company would acquire The First Corporation, located in
Opelika, Alabama.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BancorpSouth, Inc.
(Registrant)
DATE: November 13, 1998 /S/ L. Nash Allen, Jr.
L. Nash Allen, Jr.
Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 134,977
<INT-BEARING-DEPOSITS> 8,269
<FED-FUNDS-SOLD> 28,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 601,048
<INVESTMENTS-CARRYING> 601,048
<INVESTMENTS-MARKET> 601,048
<LOANS> 3,020,278
<ALLOWANCE> 43,600
<TOTAL-ASSETS> 4,363,014
<DEPOSITS> 3,685,171
<SHORT-TERM> 55,525
<LIABILITIES-OTHER> 63,075
<LONG-TERM> 170,123
<COMMON> 111,980
0
0
<OTHER-SE> 277,140
<TOTAL-LIABILITIES-AND-EQUITY> 4,363,014
<INTEREST-LOAN> 197,266
<INTEREST-INVEST> 31,564
<INTEREST-OTHER> 21,876
<INTEREST-TOTAL> 250,706
<INTEREST-DEPOSIT> 113,998
<INTEREST-EXPENSE> 122,890
<INTEREST-INCOME-NET> 127,816
<LOAN-LOSSES> 9,784
<SECURITIES-GAINS> 244
<EXPENSE-OTHER> 92,752
<INCOME-PRETAX> 60,548
<INCOME-PRE-EXTRAORDINARY> 60,548
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,645
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 4.30
<LOANS-NON> 4,678
<LOANS-PAST> 6,093
<LOANS-TROUBLED> 635
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 39,877
<CHARGE-OFFS> 7,668
<RECOVERIES> 1,607
<ALLOWANCE-CLOSE> 43,600
<ALLOWANCE-DOMESTIC> 43,600
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 119,360
<INT-BEARING-DEPOSITS> 15,108
<FED-FUNDS-SOLD> 59,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 365,463
<INVESTMENTS-CARRYING> 321,361
<INVESTMENTS-MARKET> 321,361
<LOANS> 2,673,644
<ALLOWANCE> 39,187
<TOTAL-ASSETS> 3,955,525
<DEPOSITS> 3,466,119
<SHORT-TERM> 27,729
<LIABILITIES-OTHER> 69,924
<LONG-TERM> 37,051
<COMMON> 55,990
0
0
<OTHER-SE> 298,712
<TOTAL-LIABILITIES-AND-EQUITY> 3,955,525
<INTEREST-LOAN> 178,523
<INTEREST-INVEST> 27,558
<INTEREST-OTHER> 19,001
<INTEREST-TOTAL> 225,082
<INTEREST-DEPOSIT> 102,818
<INTEREST-EXPENSE> 106,431
<INTEREST-INCOME-NET> 118,651
<LOAN-LOSSES> 6,125
<SECURITIES-GAINS> 641
<EXPENSE-OTHER> 92,493
<INCOME-PRETAX> 52,244
<INCOME-PRE-EXTRAORDINARY> 52,244
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,488
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.79
<YIELD-ACTUAL> 4.56
<LOANS-NON> 3,961
<LOANS-PAST> 5,131
<LOANS-TROUBLED> 662
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 37,868
<CHARGE-OFFS> 6,170
<RECOVERIES> 1,364
<ALLOWANCE-CLOSE> 39,187
<ALLOWANCE-DOMESTIC> 39,187
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
