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, 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 0-10826
-----------------------------------------------------------------------------
BancorpSouth, Inc.
(Exact name of registrant as specified in its charter)
Mississippi 64-0659571
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Mississippi Plaza, Tupelo, Mississippi 38804
(Address of principal executive offices) (Zip Code)
(662) 680-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 August 7, 2000, the registrant had outstanding 55,725,605 shares of common
stock, par value $2.50 per share.
<PAGE 2>
BANCORPSOUTH, INC.
CONTENTS
PART I. Financial Information Page
ITEM 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
June 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Income
Three and Six Months Ended June 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. Other Information
ITEM 4. Matters Submitted to a Vote of Security Holders 19
ITEM 6. Exhibits and Reports on Form 8-K 20
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report may not be based on historical
facts and are "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1993, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements may be
identified by reference to a future period(s) or by the use of forward-
looking terminology, such as "anticipate," "believe," "estimate," "expect,"
"may," "might," "will," "intend" and "would." These forward-looking
statements include, without limitation, those relating to the Company's
liquidity, allowance for credit losses, lending policy, capital resources and
a pending merger transaction. We caution you not to place undue reliance on
the forward-looking statements contained in this Report, in that actual
results could differ materially from 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 prevailing interest rates,
government fiscal and monetary policies, prevailing interest rates,
effectiveness of the Company's interest rate hedging strategies, changes in
laws and regulations affecting financial institutions, ability of the Company
to effectively service loans, ability of the Company to identify and
integrate acquisitions and investment opportunities, changes in the Company's
operating or expansion strategy, geographic concentrations of assets,
availability of and costs associated with obtaining adequate and timely
sources of liquidity, dependence on existing sources of funding, changes in
consumer preferences, competition from other financial services companies,
failure or delay in obtaining shareholder approval of the proposed merger,
failure to consummate the proposed merger 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 these forward-
looking statements to reflect events or circumstances that occur after the
date of this Report.
<PAGE 3>
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
BANCORPSOUTH, INC.
Consolidated Condensed Balance Sheets
(Unaudited)
June 30, December 31,
2000 1999
------------ ------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $184,895 $217,270
Interest bearing deposits with other banks 11,878 5,411
Held-to-maturity securities, at amortized cost 883,836 840,754
Available-for-sale securities, at fair market value 441,017 345,284
Federal funds sold 6,600 65,000
Loans 4,323,121 4,131,418
Less: Unearned discount 69,490 77,886
Allowance for credit losses 58,504 55,557
------------ ------------
Net loans 4,195,127 3,997,975
Mortgages held for sale 28,713 37,521
Premises and equipment, net 135,104 129,054
Other assets 150,326 138,657
------------ ------------
TOTAL ASSETS $6,037,496 $5,776,926
============ ============
LIABILITIES
Deposits:
Demand: Non-interest bearing $631,084 $614,567
Interest bearing 1,178,934 1,075,252
Savings 720,878 799,917
Time 2,576,197 2,325,679
------------ ------------
Total deposits 5,107,093 4,815,415
Short-term borrowings 225,286 242,989
Long-term debt 137,246 138,560
Other liabilities 75,647 82,562
TOTAL LIABILITIES 5,545,272 5,279,526
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 143,261 143,261
Capital surplus 89,546 90,990
Accumulated other comprehensive income (2,468) (95)
Retained earnings 286,442 264,707
Less cost of shares held in treasury (24,557) (1,463)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 492,224 497,400
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,037,496 $5,776,926
============ ============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE 4>
<TABLE>
<CAPTION>
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except for per share amounts)
Three months ended Six months ended
June 30 June 30
---------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INTEREST REVENUE:
Loans receivable $94,323 $81,331 $184,894 $160,757
Deposits with other banks 164 114 285 265
Federal funds sold 715 923 1,372 2,643
Held-to-maturity securities:
U. S. Treasury 756 1,598 1,616 3,200
U. S. Government agencies & corporations 9,514 7,133 19,072 12,493
Obligations of states & political subdivisions 2,660 2,589 5,352 5,229
Available-for-sale securities 5,361 6,833 10,456 14,533
Trading securities 15 (5) 33 (5)
Mortgages held for sale 860 858 1,845 1,783
------------ ------------ ----------- -----------
Total interest revenue 114,368 101,374 224,925 200,898
------------ ------------ ----------- -----------
INTEREST EXPENSE:
Deposits 52,741 44,042 102,638 87,690
Short-term borrowings 1,857 922 3,616 1,535
Other 2,752 2,742 5,926 5,590
------------ ------------ ----------- -----------
Total interest expense 57,350 47,706 112,180 94,815
------------ ------------ ----------- -----------
Net interest revenue 57,018 53,668 112,745 106,083
Provision for credit losses 5,136 3,607 8,449 6,670
------------ ------------ ----------- -----------
Net interest revenue, after provision for
credit losses 51,882 50,061 104,296 99,413
------------ ------------ ----------- -----------
OTHER REVENUE:
Mortgage lending 2,557 4,500 5,344 9,335
Trust income 976 872 1,971 1,753
Service charges 7,243 6,216 13,533 11,918
Security gains (losses), net 0 (280) 18 4,008
Life insurance income 1,057 973 2,077 1,944
Other 8,156 7,027 18,538 13,337
------------ ------------ ----------- -----------
Total other revenue 19,989 19,308 41,481 42,295
------------ ------------ ----------- -----------
OTHER EXPENSE:
Salaries and employee benefits 22,406 22,214 46,828 43,572
Net occupancy expense 3,143 2,914 6,412 5,776
Equipment expense 4,392 4,069 8,787 8,332
Telecommunications 1,386 1,538 2,611 2,936
Contribution to charitable foundation 4,146
Other 13,983 14,336 27,231 29,208
------------ ------------ ----------- -----------
Total other expense 45,310 45,071 91,869 93,970
------------ ------------ ----------- -----------
Income before income taxes 26,561 24,298 53,908 47,738
Income tax expense 8,640 7,848 17,833 14,423
------------ ------------ ----------- -----------
Net income $17,921 $16,450 $36,075 $33,315
============ ============ =========== ===========
Earnings per share: Basic $0.32 $0.29 $0.64 $0.58
============ ============ =========== ===========
Diluted $0.32 $0.29 $0.64 $0.58
============ ============ =========== ===========
Dividends declared per common share $0.13 $0.12 $0.26 $0.24
============ ============ =========== ===========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE 5>
<TABLE>
<CAPTION>
BANCORPSOUTH, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
---------------------------
2000 1999
(In thousands)
---------- ----------
<S> <C> <C>
Net cash provided by operating activities $52,130 $51,478
Investing activities:
Proceeds from calls and maturities of
held-to-maturity securities 127,143 124,567
Proceeds from calls and maturities of
available-for-sale securities 26,939 240,967
Proceeds from sales of
available-for-sale securities 52,957 11,325
Purchases of held-to-maturity securities (169,514) (317,776)
Purchases of available-for-sale securities (179,033) (175,431)
Net increase in short-term investments 58,400 91,210
Net increase in loans (288,784) (212,027)
Proceeds from sale of student loans 90,483 -
Purchases of premises and equipment (11,648) (9,282)
Proceeds from sale of premises and equipment 217 1,082
---------- ----------
Other, net (10,894) (18,295)
Net cash used by investing activities (303,734) (263,660)
---------- ----------
Financing activities:
Net increase in deposits 291,678 113,296
Net (decrease) increase in short-term
borrowings and other liabilities (11,343) 11,040
Advances on long-term debt 70,000 105,000
Repayment of long-term debt (85,314) (16,844)
Acquisition of treasury stock (24,810) -
Payment of cash dividends (14,787) (12,893)
Exercise of stock options 272 51
---------- ----------
Net cash provided by financing activities 225,696 199,650
---------- ----------
Decrease in cash and cash equivalents (25,908) (12,532)
Cash and cash equivalents at beginning of
period 222,681 188,266
---------- ----------
Cash and cash equivalents at end of period $196,773 $175,734
========== ==========
<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, 1999, 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 and six month periods ended June 30, 2000 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, Valley Finance, Inc., BancorpSouth Insurance
Services of Mississippi, Inc., BancorpSouth Insurance Services of Tennessee,
Inc., BancorpSouth Insurance Services of Alabama, Inc. and BancorpSouth
Investment Services, Inc.
NOTE 2 - LOANS
The composition of the loan portfolio by collateral type is detailed below:
<TABLE>
<CAPTION>
June 30, December 31,
--------------------------- ------------
2000 1999 1999
(In thousands)
------------- ------------ ------------
<S> <C> <C> <C>
Commercial and agricultural $405,985 $382,344 $371,169
Consumer and installment 875,748 942,919 978,013
Real estate mortgage:
1-4 Family 1,111,780 965,515 1,043,447
Other 1,633,460 1,335,795 1,471,126
Lease financing 274,095 221,363 254,868
Other 22,053 27,358 12,795
------------- ------------ ------------
Total $4,323,121 $3,875,294 $4,131,418
============= ============ ============
</TABLE>
<PAGE 7>
The following table presents information concerning non-performing loans:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
(In thousands)
<S> <C> <C>
Non-accrual loans $6,863 $5,150
Loans 90 days or more past due 14,645 14,378
Restructured loans 67 91
---------- ------------
Total non-performing loans $21,575 $19,619
========== ============
</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>
Six month periods Year ended
ended June 30, December 31,
------------- ------------ ------------
2000 1999 1999
------------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $55,557 $51,083 $51,083
Provision charged to expense 8,449 6,670 14,689
Recoveries 1,088 1,017 2,135
Loans charged off (6,590) (4,767) (12,350)
------------- ------------ ------------
Balance at end of period $58,504 $54,003 $55,557
============= ============ ============
</TABLE>
NOTE 4 - PER SHARE 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.
<PAGE 8>
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.
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------------------------------------
2000 1999
--------------------------------------- ----------------------------------------
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 $17,921 56,104 $0.32 $16,450 57,120 $0.29
=========== =============
Effect of dilutive stock
options - 279 - 415
------------ ------------ ----------- ------------
Diluted EPS
Income available to
common shareholders
plus assumed exercise $17,921 56,383 $0.32 $16,450 57,535 $0.29
============ ============ =========== =========== ============ =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------------------------
2000 1999
--------------------------------------- ----------------------------------------
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 $36,075 56,479 $0.64 $33,315 57,101 $0.58
=========== =============
Effect of dilutive stock
options - 316 - 428
------------ ------------ ----------- ------------
Diluted EPS
Income available to
common shareholders
plus assumed exercise $36,075 56,795 $0.64 $33,315 57,529 $0.58
============ ============ =========== =========== ============ =============
</TABLE>
NOTE 5 - COMPREHENSIVE INCOME
The following table presents the components of other comprehensive income and
the related tax effects allocated to each component for the periods
indicated.
<PAGE 9>
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------------------------------------------------
2000 1999
--------------------------------- ----------------------------------
Before Tax Net Before Tax Net
tax (expense) of tax tax (expense) of tax
amount benefit amount amount benefit amount
(In thousands)
---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains on securities
Unrealized gains (losses) arising
during holding period ($997) $381 ($616) ($3,005) $1,149 ($1,856)
Less: Reclassification adjustment
for gains realized in net income (2) 1 (1) 331 (127) 204
---------- --------- --------- ---------- ---------- ----------
Other Comprehensive Income (Loss) ($999) $382 (617) ($2,674) $1,022 ($1,652)
========== ========= ========== ==========
Net income 17,921 16,450
--------- ----------
Comprehensive Income $17,304 $14,798
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------------------------------------------
2000 1999
--------------------------------- ----------------------------------
Before Tax Net Before Tax Net
tax (expense) of tax tax (expense) of tax
amount benefit amount amount benefit amount
(In thousands)
---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains on securities
Unrealized gains (losses) arising
during holding period ($3,838) $1,468 ($2,370) ($9,145) $3,498 ($5,647)
Less: Reclassification adjustment
for gains realized in net income (5) 2 (3) (3,934) 1,505 (2,429)
---------- --------- --------- ---------- ---------- ----------
Other Comprehensive Income (Loss) ($3,843) $1,470 (2,373) ($13,079) $5,003 ($8,076)
========== ========= ========== ==========
Net income 36,075 33,315
--------- ----------
Comprehensive Income $33,702 $25,239
========= ==========
</TABLE>
NOTE 6 - BUSINESS COMBINATIONS
On February 26, 1999, the Company completed its merger with The HomeBanc
Corporation. The Company issued approximately 2.1 million shares of common
stock in the merger that was accounted for as a pooling of interests. The
Company's financial statements for all periods presented include the
consolidated accounts of The HomeBanc Corporation.
On June 30, 1999, the Company completed its merger with the Stewart Sneed
Hewes Group. The Company issued approximately 1.3 million shares of common
stock in the merger that was accounted for as a pooling of interests. The
Company's financial statements for all periods presented include the
consolidated accounts of the Stewart Sneed Hewes Group.
NOTE 7 - RECENT PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
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. The impact of adopting the provisions of this statement
on the Company's financial position, results of operations and cash flow
subsequent to the effective date is not currently estimable and will depend
on the financial position of the Company and the nature and purpose of the
derivative instruments in use by management at that time.
<PAGE 10>
NOTE 8 - SEGMENT REPORTING
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, investment services and
other activities not allocated to community banking.
Results of operations and selected financial information by operating segment
for the three month periods ended June 30, 2000 and 1999 are presented below:
<TABLE>
<CAPTION>
General
Community Corporate
Banking and Other Total
(In thousands)
------------ ------------ ------------
<S> <C> <C> <C>
Three Months Ended June 30, 2000
Results of Operations
Net interest revenue $43,935 $13,083 $57,018
Provision for credit losses 4,715 421 5,136
-----------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 39,220 12,662 51,882
Other revenue 10,417 9,572 19,989
Other expense 34,355 10,955 45,310
-----------------------------------------------------------------------------------------------------
Income before income taxes 15,282 11,279 26,561
Income taxes 4,971 3,669 8,640
-----------------------------------------------------------------------------------------------------
Net income $10,311 $7,610 $17,921
Selected Financial Information
Identifiable assets $5,471,832 $565,664 $6,037,496
Depreciation & amortization 3,630 482 4,112
Three Months Ended June 30, 1999
Results of Operations
Net interest revenue $40,675 $12,993 $53,668
Provision for credit losses 3,016 591 3,607
-----------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 37,659 12,402 50,061
Other revenue 9,161 10,147 19,308
Other expense 34,205 10,866 45,071
-----------------------------------------------------------------------------------------------------
Income before income taxes 12,615 11,683 24,298
Income taxes 4,075 3,773 7,848
-----------------------------------------------------------------------------------------------------
Net income $8,540 $7,910 $16,450
Selected Financial Information
Identifiable assets $5,006,515 $597,481 $5,603,996
Depreciation & amortization 3,496 386 3,882
</TABLE>
<PAGE 11>
Results of operations and selected financial information by operating segment
for the six month periods ended June 30, 2000 and 1999 are presented below:
<TABLE>
<CAPTION>
General
Community Corporate
Banking and Other Total
(In thousands)
------------ ------------ ------------
<S> <C> <C> <C>
Six Months Ended June 30, 2000
Results of Operations
Net interest revenue $85,695 $27,050 $112,745
Provision for credit losses 7,655 794 8,449
-----------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 78,040 26,256 104,296
Other revenue 19,959 21,522 41,481
Other expense 68,515 23,354 91,869
-----------------------------------------------------------------------------------------------------
Income before income taxes 29,484 24,424 53,908
Income taxes 9,753 8,080 17,833
-----------------------------------------------------------------------------------------------------
Net income $19,731 $16,344 $36,075
Selected Financial Information
Identifiable Assets $5,471,832 $565,664 $6,037,496
Depreciation & amortization 7,184 901 8,085
Six Months Ended June 30, 1999
Results of Operations
Net interest revenue $79,755 $26,328 $106,083
Provision for credit losses 5,457 1,213 6,670
-----------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 74,298 25,115 99,413
Other revenue 22,092 20,203 42,295
Other expense 72,801 21,169 93,970
-----------------------------------------------------------------------------------------------------
Income before income taxes 23,589 24,149 47,738
Income taxes 7,127 7,296 14,423
-----------------------------------------------------------------------------------------------------
Net income $16,462 $16,853 $33,315
Selected Financial Information
Identifiable Assets $5,006,515 $597,481 $5,603,996
Depreciation & amortization 7,101 752 7,853
</TABLE>
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, 2000 and 1999,
found elsewhere in this Report. Financial information for all prior periods
presented have been restated to include the results of operations and
financial condition of entities acquired by the Company during 1999 in
mergers accounted for as poolings of interests. See Note 6 to the Company's
consolidated condensed financial statements included elsewhere in the Report
for additional information about these mergers.
RESULTS OF OPERATIONS
---------------------
Net Income
----------
<PAGE 12>
The Company's net income for the second quarter of 2000 was $17.92 million,
an increase of 8.94% from $16.45 million in the second quarter of 1999. For
the first six months of 2000, net income was $36.08 million, an increase of
8.28% from $33.32 million for the same period in 1999. Basic and diluted
earnings per common share for the second quarter of 2000 were $0.32, compared
to basic and diluted earnings per common share of $0.29 for the same period
of 1999. For the six months ended June 30, 2000, basic and diluted earnings
per share were $0.64, compared to basic and diluted earnings per share of
$0.58 for the first six months of 1999. The annualized returns on average
assets for the second quarter of 2000 and 1999 were 1.22% and 1.20%,
respectively. For the six months ended June 30, 2000 and 1999, the
annualized returns on average assets were 1.23% and 1.22%, 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 $61.00 million for the three months ended June 30,
2000, compared to $57.63 million for the same period in 1999, representing an
increase of 5.85%. For the first six months of 2000 and 1999, net interest
revenue was $120.70 million and $111.37 million, respectively, representing
an increase of 8.38%. Earning assets averaged $5.50 billion in the second
quarter of 2000, compared with $5.13 billion in the second quarter of 1999,
representing an increase of 7.21%. Earning assets for the first six months of
2000 averaged $5.46 billion, compared to $5.09 billion in 1999, representing
an increase of 7.27%. Average interest-bearing liabilities were $4.66 billion
in the second quarter of 2000, compared with $4.30 billion in the second
quarter of 1999, representing an increase of 8.37%. Average interest-bearing
liabilities were $4.68 billion for the first six months of 2000 compared to
$4.33 billion for the same period in 1999, representing an increase of 8.08%.
Net interest revenue, expressed as a percentage of average earning assets,
was 4.32% for the second quarter of 2000 as compared to 4.35% for the same
period of 1999 and 4.30% for the first six months of 2000, compared to 4.36%
for the same period in 1999.
Provision for Credit Losses
---------------------------
The provision for credit losses is the cost of providing an allowance or
reserve for estimated probable losses on loans. The amount for each
accounting period 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. Future additions to
the allowance for credit losses may be necessary based upon 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 changes to the allowance based on their judgments about information
available to them at the time of their examination.
<PAGE 13>
The provision for credit losses totaled $5.14 million for the second quarter
of 2000 compared to $3.61 million for the same period of 1999, representing
an increase of 42.38%. For the six-month periods ended June 30, 2000 and
1999, the provision for credit losses totaled $8.45 million and $6.67
million, respectively, representing an increase of 26.69%. The increase in
provision for the second quarter and the first six months of 2000, as
compared to the same periods of 1999, reflects the continuing growth in the
Company's loan portfolio and an increase in non-performing loans during the
first six months of 2000.
Other Revenue
-------------
Other revenue for the quarter ended June 30, 2000 totaled $20.0 million,
compared to $19.3 million for the same period of 1999, an increase of 3.53%.
For the six months ended June 30, 2000 and 1999, other revenue was $41.48
million and $42.30 million, respectively. Revenue from mortgage lending
activities decreased 43.18%, from $4.50 million to $2.56 million, during the
three months ended June 30, 2000 when compared to the same period of 1999.
The decrease was primarily due to higher mortgage interest rates during the
second quarter of 2000 which resulted in decreased mortgage loan originations
when compared to the same period of 1999. Service charge revenue increased
16.52%, from $6.22 million to $7.24 million, for the second quarter of 2000
when compared to the second quarter of 1999.
The Company established a charitable foundation in the first quarter of 1999.
Appreciated equity securities were contributed by the Company 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 the
six months ended June 30, 1999.
Other revenue for the first six months of 2000 includes a $2.6 million gain
that resulted from the Bank's sale of $85.7 million in student loans in the
first quarter of 2000. The Bank continues to originate student loans and
intends to rebuild its portfolio of student loans.
Other Expense
-------------
Other expense totaled $45.31 million for the second quarter of 2000, a 0.53%
decrease from $45.07 million for the same period of 1999. For the six months
ended June 30, 2000, other expenses totaled $91.87 million, a 2.24% decrease
from $93.97 million for the same period in 1999. A significant component of
this decrease was the contribution by the Company of appreciated equity
securities with an aggregate market value of approximately $4.15 million in
connection with the Company's establishment of a charitable foundation during
the first quarter of 1999, as discussed in "Other Revenue" above.
A significant change in other expense relates to the Company's stock option
plans, expense for which is reported in the Company's financial statements as
a component of the line item "salaries and employee benefits." Certain of the
Company's stock option plans contain a provision for stock appreciation
rights (SARs) which require the recognition of expense for appreciation in
the Company's stock price or a reduction of expense in the event of a decline
in the Company's stock price. As a result of a decrease in the Company's
stock price during the second quarter of 2000, a decrease in salaries and
employee benefits expense of approximately $1.16 million was recorded in that
quarter. This compares to an increase in expense of $1.2 million during the
second quarter of 1999. For the six months ended June 30, 2000, a reduction
in expense related to the Company's stock option plans of $1.10 million was
recorded, compared to an increase of $49,000 during the first six months of
1999.
<PAGE 14>
The Company recorded merger related expenses of $483,000 during the first six
months of 2000 related to its pending merger with First United Bancshares,
Inc. ("First United"). See "Recent Developments" for additional information
regarding this transaction. The Company also recorded merger-related expense
of $1.3 million during the first six months of 1999 related to the merger
with The HomeBanc Corporation and the Stewart Sneed Hewes Group.
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 $8.64 million and $7.85 million for the second quarter
of 2000 and 1999, respectively, an increase of 10.09%. For the six month
period ended June 30, 2000, income tax expense was $17.83 million compared to
$14.42 million for the same period in 1999, representing an increase of
23.64%. The increases for the second quarter and first six months of 2000,
when compared to the same periods of 1999, are due in part to a $1.6 million
tax benefit recorded in the first quarter of 1999 related to the
establishment of a charitable foundation discussed in "Other Revenue" and
"Other Expense" above.
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, 2000 were $5.63 billion, or
93.21% of total assets, compared with $5.35 billion, or 92.56% of total
assets, at December 31, 1999.
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, 2000 were $883.84 million,
compared with $840.75 million at the end of 1999, a 5.11% increase.
Available-for-sale securities were $441.02 million at June 30, 2000, compared
to $345.28 million at December 31, 1999, a 27.72% increase.
The Bank's loan portfolio makes up the largest single component of the
Company's earning assets. The Bank's lending activities include both
commercial and consumer loans. Loan originations are derived from a number
of sources, including direct solicitation by the Bank's loan officers, real
estate broker referrals, mortgage loan companies, current savers and
borrowers, builders, attorneys, walk-in customers and, in some instances,
other lenders. The Bank 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 $4.25
billion at June 30, 2000, which represents a 4.9% increase from the December
31, 1999 total of $4.05 billion.
<PAGE 15>
At June 30, 2000, 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.
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 potential 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
0.51% of all loans outstanding at June 30, 2000 and 0.48% of all loans
outstanding at December 31, 1999.
Allowance for Credit Losses
---------------------------
The Company attempts to maintain the allowance for credit losses at a level
that, in the opinion of management, is adequate to meet the estimated
probable losses on its current portfolio of loans. Management's judgement is
based on a variety of factors that include examining probable losses in
specific credits and considering the current risks associated with lending
functions such as current 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 record changes 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
allowance or 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 16>
<TABLE>
<CAPTION>
June 30, December 31,
--------------------------------------------------------- ----------------------------
2000 1999 1999
--------------------------- ---------------------------- ----------------------------
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 $5,639 9.39% $4,406 9.87% $3,932 8.98%
Consumer and installment 33,728 20.26% 22,361 24.33% 19,586 23.67%
Real estate mortgage 15,492 63.50% 24,126 59.38% 28,761 60.87%
Lease financing 3,585 6.34% 2,934 5.71% 3,196 6.17%
Other 60 0.51% 176 0.71% 82 0.31%
------------- ------------ -------------- ------------ -------------- ------------
Total $58,504 100.00% $54,003 100.00% $55,557 100.00%
============= ============ ============== ============ ============== ============
</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,
-----------------------------
2000 1999 1999
----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, beginning of period $55,557 $51,083 $51,083
Loans charged off:
Commercial and agricultural (367) (114) (520)
Consumer & installment (5,406) (4,338) (10,438)
Real estate mortgage (641) (300) (1,326)
Lease financing (176) (15) (66)
----------- ----------- -----------
Total loans charged off (6,590) (4,767) (12,350)
----------- ----------- -----------
Recoveries:
Commercial and agricultural 93 141 304
Consumer & installment 853 773 1,595
Real estate mortgage 128 83 177
Lease financing 14 20 59
----------- ----------- -----------
Total recoveries 1,088 1,017 2,135
----------- ----------- -----------
Net charge-offs (5,502) (3,750) (10,215)
Provision charged to operating expense 8,449 6,670 14,689
----------- ----------- -----------
Balance, end of period $58,504 $54,003 $55,557
=========== =========== ===========
Average loans for period $4,124,538 $3,675,447 $3,799,799
=========== =========== ===========
RATIOS:
Net charge offs to average loans-annualized 0.27% 0.20% 0.27%
=========== =========== ===========
</TABLE>
<PAGE 17>
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 June 30, 2000 were $5.11 billion as compared to $4.82 billion at December
31, 1999, representing a 6.06% increase. Non-interest bearing demand
deposits increased by $16.51 million, or 2.69%, from $614.57 million to
$631.08 million, while interest-bearing demand, savings and time deposits
grew $275.16 million, or 6.55%, from $4.20 billion to $4.48 billion, from
December 31, 1999 to June 30, 2000.
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 the Company's 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, 2000, the Company's
Tier 1 capital and total capital, as a percentage of total risk-adjusted
assets, were 10.67% and 11.95%, respectively. Both ratios exceed the
required minimum levels for these ratios of 4.0% and 8.0%, respectively. In
addition, the Company's Tier 1 leverage capital ratio (Tier 1 capital divided
by total assets, less goodwill) was 8.12% at June 30, 2000, compared to the
required minimum Tier 1 leverage capital ratio of 3%.
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.
RECENT DEVELOPMENTS
-------------------
On April 16, 2000, the Company entered into a merger agreement with First
United, whereby First United would merge into the Company and First United's
subsidiary banks would merge into the Bank. The merger agreement provides
that, upon completion of the proposed merger, shareholders of First United
are to be issued 1.125 shares of the Company's common stock in exchange for
each share of First United common stock. The merger is subject to, among
other things, approval by applicable banking regulatory authorities and by
the shareholders of the Company and First United. The Company received
approval from the FDIC with respect to the proposed merger on July 18, 2000.
The Company and First United have each scheduled a special meeting of their
respectively shareholders on August 24, 2000 to consider and vote on the
merger agreement. Management anticipates that , if the merger agreements is
approved by the shareholders of both companies, the transaction will be
completed on August 31, 2000, and that it will be accounted for as a pooling
of interests.
<PAGE 18>
First United is a bank holding company headquartered in El Dorado, Arkansas,
whose common stock is quoted on the Nasdaq Stock Market under the symbol
"UNTD." First United reports that, as of March 31, 2000, it had
approximately $2.7 billion in assets and $2.25 billion in deposits, and that
it owned 11 subsidiary banks and one trust company with banking locations in
39 communities in Arkansas, Louisiana and Texas.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended June 30, 2000, 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,
1999.
<PAGE 19>
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,
May 2, 2000. At this meeting, the following matters were voted upon by the
Company's shareholders:
(a) Election of Class II Directors
------------------------------
Shed H. Davis, Hassell H. Franklin and Travis E. Staub were elected to
serve as Class I directors of the Company until the annual meeting of
shareholders in 2003 or until their respective successors are elected and
qualified. The vote was as follows:
Votes Cast Votes Cast Abstentions/
in Favor Against or Withheld Non Votes
Name
Shed H. Davis 46,391,010 395,955 0
Hassell H. Franklin 46,421,419 365,546 0
Travis E. Staub 46,388,342 398,342 0
The following directors continued in office following the meeting:
Name Term Expires
Aubrey B. Patterson 2001
Andrew R. Townes, D.D.S. 2001
W. G. Holliman, Jr. 2002
A. Douglas Jumper 2002
Turner O. Lashlee 2002
Alan W. Perry 2002
<PAGE 20>
(b) Selection of Independent Auditors
---------------------------------
The shareholders of the Company ratified the appointment of KPMG LLP as
the Company's independent auditors for the fiscal year ending December 31,
2000 by the following vote:
Votes Cast Votes Cast Abstentions/
in Favor Against or Withheld Non Votes
46,177,341 172,513 437,111
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(a) Exhibits
(3.1) Restated Articles of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Registration Statement on Form S-4 (Registration
No. 33-88274) filed on January 5, 1995, and incorporated herein by
reference)
(3.2) Amendment to Restated Articles of Incorporation of the Company (filed
as Exhibit 3.2 to the Company's Registration Statement on Form S-4
(Registration No. 33-88274) filed on January 5, 1995, and incorporated
herein by reference)
(3.3) Bylaws of the Company (filed as Exhibit 3(b) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (file No.
0-10826) and incorporated herein by reference)
(27.1) Financial Data Schedule for the period ended June 30, 2000.
(b) Reports on Form 8-K
A report on Form 8-K was filed April 17, 2000 reporting under Item 5, "Other
Events" and Item 7, "Financial Statements and Exhibits."
A report on Form 8-K was filed April 27, 2000 reporting under Item 5, "Other
Events" and Item 7, "Financial Statements and Exhibits."
A report on Form 8-K was filed May 9, 2000 reporting under Item 5, "Other
Events" and Item 7, "Financial Statements and Exhibits."
<PAGE 21>
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 10, 2000 /S/ L. Nash Allen, Jr.
--------------------------------
L. Nash Allen, Jr.
Treasurer and
Chief Financial Officer
