-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uv8GnbWvYAlMXpinu+nvRQYs6q952MGQ7xmMXJR2vUQasS+mVFRlqYsylqsusgeH /PzF/hc/qpw+6DyuAoLY1g== 0000950144-96-001486.txt : 19960402 0000950144-96-001486.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950144-96-001486 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCORPSOUTH INC CENTRAL INDEX KEY: 0000701853 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 640659571 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10826 FILM NUMBER: 96543031 BUSINESS ADDRESS: STREET 1: ONE MISSISSIPPI PL CITY: TUPELO STATE: MS ZIP: 38801 BUSINESS PHONE: 6016802000 MAIL ADDRESS: STREET 1: PO BOX 789 CITY: TUPELO STATE: MS ZIP: 38802-0789 FORMER COMPANY: FORMER CONFORMED NAME: BANCORP OF MISSISSIPPI INC DATE OF NAME CHANGE: 19920703 10-K 1 BANCORPSOUTH INC. FORM 10-K 12-31-95 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1995 or ----------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from to ---------- ----------- Commission file number 0-10826 ------- BancorpSouth, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Mississippi 64-0659571 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Mississippi Plaza Tupelo, Mississippi 38801 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (601) 680-2000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ---------------------------------------- ------------------------------------ NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $2.50 PAR VALUE - -------------------------------------------------------------------------------- (Title of Class) (Cover Page Continues on Next Page) 2 (Continued from Cover Page) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 31, 1996, was approximately $485,419,000 based on the closing sale price as reported on the Nasdaq Stock Market. On March 15, 1996, the registrant had outstanding 21,008,526 shares of Common Stock, par value $2.50 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1995, are incorporated by reference into Part II of this Report. Portions of the definitive Proxy Statement used in connection with Registrant's Annual Meeting of Shareholders to be held April 23, 1996, are incorporated by reference into Part III of this Report. 2 3 BANCORPSOUTH, INC. FORM 10-K For the Fiscal Year Ended December 31, 1995 CONTENTS PART I Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. . . . . . . . . . . . . . . . . . . . 22 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 22 PART III Item 10. Directors and Executive Officers of the Registrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . 25 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3 4 PART I Item 1. - Business General The Company is a bank and thrift holding company with commercial banking and savings and loan operations in Mississippi and commercial banking operations in Tennessee. Its principal subsidiaries are Bank of Mississippi ("BOM"), Volunteer Bank ("VOL") and Laurel Federal Savings and Loan Association ("LFSL"). The Company's principal office is located at One Mississippi Plaza, Tupelo, Mississippi 38801 and its telephone number is (601) 680-2000. Description of Business BOM has its principal office in Tupelo, Lee County, Mississippi, and conducts a general commercial banking and trust business through 90 offices in 43 municipalities or communities in 26 counties throughout Mississippi. BOM has grown through the acquisition of other banks, the purchase of assets from federal regulators and through the opening of new branches and offices. In addition, BOM operates consumer finance and credit life insurance subsidiaries. At December 31, 1995, BOM was the fourth largest commercial bank in Mississippi with total deposits of approximately $2.03 billion and total assets of approximately $2.34 billion. VOL has its principal office in Jackson, Madison County, Tennessee, and conducts a general commercial banking and trust business through 31 offices in 16 municipalities or communities in 12 counties in west Tennessee. VOL has grown through the acquisition of other banks and through the opening of new branches and offices. In addition, VOL operates consumer finance and credit life insurance subsidiaries. At December 31, 1995, VOL was the thirteenth largest commercial bank in Tennessee with total deposits of approximately $671 million and total assets of approximately $788 million. LFSL has its principal office in Laurel, Jones County, Mississippi, and provides mortgage, consumer and commercial lending and traditional thrift deposit services, including checking accounts through 8 offices in 6 municipalities or communities in 5 counties in southeast Mississippi. At December 31, 1995, LFSL had total deposits of approximately $166 million and total assets of approximately $187 million. The Company, through its subsidiaries, provides a range of financial services to individuals and small-to-medium size businesses. Various types of checking accounts, both interest bearing and non-interest bearing, are available. Savings accounts and certificates of deposit with a range of maturities and interest rates are available to meet the needs of customers. Other services include safe deposit and night depository facilities. Limited 24-hour banking with automated teller machines is provided in most of its principal markets. BOM is an issuing bank for MasterCard and overdraft protection is available to approved MasterCard holders maintaining checking accounts with the Company's subsidiary banks. 4 5 The Company offers a variety of services through the trust departments of its subsidiary banks, including personal trust and estate services, certain employee benefit accounts and plans, including individual retirement accounts, and limited corporate trust functions. At December 31, 1995, the Company and its subsidiaries employed approximately 1,880 persons. The Company and its subsidiaries are not a party to any collective bargaining agreements, and employee relations are deemed to be good. Competition Vigorous competition exists in all major areas where the Company is engaged in business. The Company's subsidiary banks and savings and loan association compete for available loans and depository accounts not only with state and national commercial banks in their respective areas but also with savings and loan associations, insurance companies, credit unions, money market mutual funds, automobile finance companies and financial services companies. None of these competitors is dominant in the whole area served by the Company's subsidiary banks. The principal areas of competition in the banking industry center on a financial institution's ability and willingness to provide credit on a timely and competitively priced basis, to offer a sufficient range of deposit and investment opportunities at a competitive price and maturity, and to offer personal and other services of sufficient quality and at competitive prices. The Company and its subsidiaries believe they can compete effectively in all these areas. Regulation and Supervision The following is a brief summary of the regulatory environment in which the Registrant and the subsidiaries operate and is not designed to be a complete discussion of all statutes and regulations affecting such operations, including those statutes and regulation specifically mentioned herein. The Company is a bank and thrift holding company and is registered as such with the Board of Governors of the Federal Reserve System (the "FRB") and the Office of Thrift Supervision (the "OTS") and is subject to regulation and supervision by the FRB and the OTS. The Company is required to file with the FRB and the OTS annual reports and such other information as they may require. The FRB and OTS may also conduct examinations of the Company. The Company is a legal entity which is separate and distinct from its subsidiaries. There are various legal limitations on the extent to which the subsidiary banks and savings and loan association may extend credit, pay dividends or otherwise supply funds to the Company or its affiliates. In particular, the subsidiary banks and savings and loan association are subject to certain restrictions imposed by federal law on any extensions of credit to the Company or, with certain exceptions, other affiliates. Dividends to shareholders can be paid only from dividends paid to the Company by its subsidiaries which are subject to approval by the applicable regulatory authorities. 5 6 BOM and VOL are incorporated under the banking laws of the States of Mississippi and Tennessee, respectively, and accordingly are subject to the applicable provisions of state banking laws rather than the National Bank Act. BOM is subject to the supervision of the Mississippi Department of Banking and Consumer Finance and to regular examinations by that department. VOL is subject to the supervision of the Tennessee Department of Financial Institutions and to regular examinations by that Department. The deposits in BOM and VOL are insured by the Federal Deposit Insurance Corporation (the "FDIC") and, therefore, each bank is subject to the provisions of the Federal Deposit Insurance Act and to examination by the FDIC. Neither bank is a member of the Federal Reserve System. LFSL is a stock federally chartered savings association whose deposits are insured by the FDIC. As a federally-chartered savings association, LFSL is subject to regulation and examination by the OTS. LFSL must file reports with the OTS concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquistions of other savings associations. The regulatory structure gives the OTS extensive discretion in connection with its supervisory and enforcement activities and examination policies with respect to the classification of assets and the establishment of adequate credit loss reserves for regulatory purposes. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") permits among other things the acquisition by bank holding companies of savings associations, irrespective of their financial condition, and increased the deposit insurance premiums for banks and savings associations. FIRREA also provides that commonly controlled federally insured financial institutions must reimburse the FDIC for losses incurred by the FDIC in connection with the default of another commonly controlled financial institution or in connection with the provision of FDIC assistance to such a commonly controlled financial institution in danger of default. Reimbursement liability under FIRREA is superior to any obligations to shareholders of such federally insured institutions (including a bank holding company such as the Company if it were to acquire another federally insured financial institution), arising as a result of their status as a shareholder of a reimbursing financial institution. The Company and its subsidiary banks and savings and loan association are subject to the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). This statute provides for increased funding for the FDIC's deposit insurance fund and expanded the regulatory powers of federal banking agencies to permit prompt corrective actions to resolve problems of insured depository institutions through the regulation of banks and their affiliates, including bank holding companies. The provisions are designed to minimize the potential loss to depositors and to FDIC insurance funds if financial institutions default on their obligations to depositors or become in danger of default. Among other things, FDICIA provides a framework for a system of supervisory actions based primarily on the capital levels of financial institutions. FDICIA also provides for a risk-based deposit insurance premium structure. The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institutions poses to its deposit insurance fund. While most of the Company's deposits are in the Bank Insurance Fund (BIF), the deposits of LFSL and certain other of the Company's deposits which were acquired from thrifts over the years remain in the Savings Association Insurance Fund (SAIF). Deposit insurance rates for 1996 for the Company's deposits in BIF have been assessed at zero 6 7 while deposits insurance rates for 1996 for the Company's deposits in SAIF will continue at the rate of 23 cents per $100 of insured deposits. Also, Congress is currently considering a special, one-time assessment on SAIF insured deposits and if enacted, this assessment could result in a one-time pre-tax charge of up to $2.7 million. The Company is required to comply with the risk-based capital guidelines which the FRB adopted in January 1989, and to other tests relating to capital adequacy which the FRB adopts from time to time. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Capital Resources," on pages 19 and 20 of the Company's 1995 Annual Report to Shareholders incorporated herein by reference. In September 1994, President Clinton signed into law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"). Beginning September 29, 1995, IBBEA permits adequately capitalized and managed bank holding companies to acquire control of banks in states other than their home states, subject to federal regulatory approval, without regard to whether such a transaction is prohibited by the laws of any state. IBBEA permits states to continue to require that an acquired bank have been in existence for a certain minimum time period which may not exceed five years. A bank holding company may not, following an interstate acquisition , control more than 10% of the nation's total amount of bank deposits or 30% of bank deposits in the relevant state (unless the state enacts legislation to raise the 30% limit). States retain the ability to adopt legislation to effectively lower the 30% limit. Beginning June 1, 1997, federal banking regulators may approve merger transactions involving banks located in different states, without regard to laws of any state prohibiting such transactions; except that, mergers may not be approved with respect to banks located in states that, prior to June 1, 1997, enacted legislation prohibiting mergers by banks located in such state with out-of-state institutions. Federal banking regulators may permit an out-of-state bank to open new branches in another state if such state has enacted legislation permitting interstate branching. Affiliated institutions are authorized to accept deposits for existing accounts, renew time deposits and close and service loans for affiliated institutions without being deemed an impermissible branch of the affiliate. 7 8 Selected Statistical Information Set forth below is certain selected statistical information relating to the Company's business. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differentials Net Interest Revenue, the difference between Interest Revenue and Interest Expense, is the most significant component of the Company's earnings. For internal analytical purposes, management adjusts Net Interest Revenue to a "taxable equivalent" basis using an effective tax rate of 35% on tax exempt items (primarily interest on municipal securities). Another significant statistic in the analysis of Net Interest Revenue is the effective interest differential, also called the net yield on earning assets. The net yield on earning assets is net interest divided by total interest-earning assets. Recognizing the importance of interest differential to total earnings, management places great emphasis on managing interest rate spreads. Although interest differential is affected by national, regional and local economic conditions, including the level of credit demand and interest rates, there are significant opportunities to influence interest differential through appropriate loan and investment policies which are designed to maximize interest differential while maintaining sufficient liquidity and availability of "incremental funds" for purposes of meeting existing commitments and for investment in lending and other investment opportunities that may arise. The following table sets forth the average balances of assets and liabilities and the average rates earned and paid for the three years ended December 31, 1995. The table shows the various components of earning assets and the sources used to fund these assets which are included in the effective interest differential. 8 9 Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential
1995 1994 1993 ------------------------------- ------------------------- ----------------------------- (Taxable equivalent basis) Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------ ------- -------- ------ (Dollars in thousands) ASSETS Interest bearing deposits in other banks $15,974 $ 857 5.36% $ 11,112 $ 660 5.94% $ 14,799 $ 833 5.63% Held-to-maturity securities: U.S. treasury and agencies 398,194 28,152 7.07% 315,429 18,642 5.91% 368,762 22,505 6.10% State and political subdivisions (1) 118,493 10,517 8.88% 107,774 10,325 9.58% 132,328 11,862 8.96% Other securities 4,228 168 3.97% 4,556 270 5.93% 8,906 596 6.69% Available-for-sale securities (2) 183,396 8,902 4.85% 266,370 13,974 5.25% 141,496 6,852 4.84% Federal funds sold 39,451 2,205 5.59% 43,437 1,756 4.04% 48,780 1,487 3.05% Loans (net of unearned discount) (3) (4) (6) 2,146,967 204,397 9.52% 1,881,922 163,902 8.71% 1,675,048 150,707 9.00% Mortgages held for sale 20,805 1,433 6.89% 33,620 2,400 7.14% 54,833 3,382 6.17% ---------- -------- ---------- -------- ---------- -------- Total interest earning assets and revenue 2,927,508 256,631 8.77% 2,664,220 211,929 7.95% 2,444,952 198,224 8.11% Other assets 256,363 249,064 240,138 Less: alowance for credit losses (32,574) (28,745) (25,305) ---------- ---------- ---------- Total $3,151,297 $2,884,539 $2,659,785 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - interest bearing $654,151 $ 17,733 2.71% $ 618,929 $ 16,320 2.64% $563,372 $ 14,553 2.58% Savings 300,278 11,916 3.97% 292,908 9,515 3.25% 250,203 7,724 3.09% Time 1,416,901 77,516 5.47% 1,237,205 53,435 4.32% 1,201,022 52,474 4.37% Federal funds purchased and securities under repurchase agreements 40,845 2,084 5.10% 36,685 1,338 3.65% 35,166 982 2.79% Other short-term borrowings (5) 4,706 299 6.35% 23,584 1,346 5.71% 2,836 88 3.10% Long term debt 68,452 4,909 7.17% 38,234 3,075 8.04% 35,143 2,894 8.23% ---------- -------- ---------- -------- ---------- -------- Total interest bearing liabilities and expense 2,485,333 114,457 4.61% 2,247,546 85,029 3.78% 2,087,742 78,715 3.77% Demand deposits - non-interest bearing 361,120 364,451 327,540 Other liabilities 36,449 31,613 25,999 ---------- ---------- ---------- Total liabilities 2,882,902 2,643,610 2,441,281 Shareholders' equity 268,395 240,929 218,504 ---------- ---------- ---------- Total $3,151,297 $2,884,539 $2,659,785 ========== ========== ========== Net interest revenue $142,174 $126,900 $119,509 ======== ======== ======== Net yield on interest earning assets 4.86% 4.76% 4.89% ==== ===== =====
1. Includes taxable equivalent adjustments of $1,411,000, $2,651,000 and $3,112,000 in 1995, 1994 and 1993, respectively, using an effective tax rate of 35%. 2. Includes taxable equivalent adjustment of $581,000, $747,000 and $591,000 in 1995, 1994 and 1993 using an effective ax rate of 35%. 3. Includes fees on loans of $4,249,000, $3,348,000 and $3,207,000 in 1994, 1993 and 1992, respectively. 4. Includes taxable equivalent adjustment of $597,000, $175,000 and $756,000 in 1995, 1994 and 1993, respectively, using an effective tax rate of 35%. 5. Interest expense includes interest paid on liabilities not included in averages. 6. Non-accrual loans are immaterial for each of the years presented. 9 10 Analysis of Changes in Effective Interest Differential Net interest revenue may also be analyzed by segregating the rate and volume components of interest revenue and interest expense. The table which follows presents an analysis of rate and volume change in net interest from 1994 to 1995 and 1993 to 1994. Changes which are not solely due to volume or rate are allocated to volume.
1995 OVER 1994 - INCREASE (DECREASE) 1994 OVER 1993 - INCREASE (DECREASE) ------------------------------------ ----------------------------------- (Taxable equivalent basis) Volume Rate Total Volume Rate Total ---------- ------- -------- --------- -------- -------- (In thousands) INTEREST REVENUE Due from banks - interest bearing $ 261 ($64) $ 197 ($219) $ 46 ($173) Held-to-maturity securities: U.S. Government agencies 5,851 3,659 9,510 (3,152) (711) (3,863) State and political subdivisions 951 (759) 192 (2,352) 815 (1,537) Other securities (13) (89) (102) (258) (68) (326) Available-for-sale securities (4,028) (1,044) (5,072) 6,551 571 7,122 Federal funds sold (223) 672 449 (216) 485 269 Loans (net of unearned discount) 25,233 15,262 40,495 18,017 (4,822) 13,195 Mortgages held for sale (884) (83) (967) (1,514) 532 (982) ------- ------- ------- ------- ------- ------- Total 27,148 17,554 44,702 16,857 (3,152) 13,705 ------- ------- ------- ------- ------- ------- INTEREST EXPENSE Demand deposits - interest bearing 955 458 1,413 1,465 302 1,767 Savings deposits 292 2,109 2,401 1,387 404 1,791 Time deposits 9,831 14,250 24,081 1,563 (602) 961 Federal funds purchased and securities under repurchase agreements 212 554 746 55 301 356 Other short-term borrowings (1,067) - (1,047) 1,184 74 1,258 Long-term debt 2,167 (333) 1,834 249 (68) 181 ------- ------- ------- ------- ------- ------- Total 12,390 17,038 29,428 5,903 411 6,314 ------- ------- ------- ------- ------- ------- Increase (Decrease) in Effective Interest Differential $14,759 $ 516 $15,274 $10,954 ($3,563) $ 7,391 ======= ======= ======= ======= ======= =======
10 11 Investment Portfolio Held-to-Maturity Securities The following table shows the amortized cost of held-to-maturity securities at December 31, 1995, 1994 and 1993:
December 31 ---------------------------- 1995 1994 1993 -------- -------- -------- (In thousands) U. S. Treasury securities $ 33,355 $ 59,793 5,142 U. S. Government agency securities 293,831 376,708 252,866 Taxable obligations of states and political subdivisions 500 - - Tax exempt obligations of states and political subdivisions 110,830 112,915 125,093 Other securities 787 3,416 6,552 -------- -------- -------- TOTAL $439,303 $552,832 $389,653 ======== ========= ========
The following table shows the maturities and weighted average yields as of the end of the latest period for each investment category presented above:
December 31, 1995 ------------------------------------------------------------------ U.S. U.S. GOVERMENT STATES & WEIGHTED TREASURY AGENCY POLITICAL OTHER AVERAGE SECURITIES SECURITIES SUBDIVISIONS SECURITIES YIELD ---------- ---------- ------------ ---------- -------- (In thousands) PERIOD TO MATURITY: Maturing within one year $ 250 $ 22,739 $ 9,352 $600 6.16% Maturing after one year but within five years 31,122 151,962 39,518 187 6.72% Maturing after five years but within ten years 1,983 115,448 50,685 - 7.88% Maturing after ten years - 3,682 11,775 - 8.93% ------- -------- -------- ---- TOTAL $33,355 $293,831 $111,330 $787 ======= ======== ======== ====
The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a taxable equivalent basis using a 35% tax rate. 11 12 Available-for-Sale Securities The following table shows the book value of available-for-sale securities at December 31, 1995, 1994 and 1993:
December 31 ---------------------------- 1995 1994 1993 -------- -------- -------- (In thousands) U. S. Treasury securities $ 51,241 $ 30,429 $ 73,787 U. S. Government agency securities 127,488 67,607 114,295 Taxable obligations of states and political subdivisions 3,337 - - Tax exempt obligations of states and political subdivisions 20,000 30,234 15,409 Other securities 37,689 65,759 71,597 -------- -------- -------- TOTAL $239,755 $194,029 $275,088 ======== ======== ========
The following table shows the maturities and weighted average yields as of the end of the latest period for each investment category presented above:
December 31, 1995 ----------------------------------------------------------------- U.S. U.S. GOVERMENT STATES & WEIGHTED TREASURY AGENCY POLITICAL OTHER AVERAGE SECURITIES SECURITIES SUBDIVISIONS SECURITIES YIELD ---------- ---------- ------------ ---------- -------- (In thousands) PERIOD TO MATURITY: Maturing within one year $10,223 $ 9,357 $ 5,929 $24,513 5.59% Maturing after one year but within five years 38,986 76,646 13,797 256 6.49% Maturing after five years but within ten years 2,032 18,362 2,078 12,294 7.37% Maturing after ten years - 23,123 1,533 626 7.26% ------- -------- ------- ------- TOTAL $51,241 $127,488 $23,337 $37,689 ======= ======== ======= =======
The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a taxable equivalent basis using a 35% tax rate. 12 13 Loan Portfolio The Company's loans are widely diversified by borrower and industry. The following table shows the composition of loans of the Company at December 31 for the years indicated.
DECEMBER 31 ---------------------------------------------------------- 1995 1994 1993 1992 1991 --------- ---------- ---------- ---------- ---------- (In thousands) Commercial & agricultural (1)(2) $ 223,225 $ 211,988 $ 203,798 $ 382,233 $ 359,557 Consumer & installment 695,127 633,692 510,538 501,627 474,222 Real estate mortgage 1,314,935 1,151,666 1,013,446 692,467 671,018 Lease financing 121,617 81,816 60,781 51,325 43,912 Other 16,780 11,913 52,692 22,594 12,358 ---------- ---------- ---------- ---------- ---------- Total gross loans $2,371,684 $2,091,075 $1,841,255 $1,650,246 $1,561,067 ========== ========== ========== ========== ==========
(1) Including $17,338,000, $15,247,000, $15,588,000, $18,197,000 and $17,787,000 in 1995, 1994, 1993, 1992 and 1991, respectively, of loans classified as agricultural. (2) Including $36,054,000, $29,838,000, $27,048,000, $20,364,000 and $20,074,000 in 1995, 1994, 1993, 1992 and 1991, respectively, of loans secured by or relating to agricultural land. Maturity Distribution of Loans The maturity distribution of the Company's loan portfolio is one factor in management's evaluation of the risk characteristics of the loan portfolio. The following table shows the maturity distribution of gross loans of the Company as of December 31, 1995.
ONE YEAR ONE TO AFTER OR LESS FIVE YEARS FIVE YEARS -------- ---------- ---------- (In thousands) Commercial & agricultural $126,872 $ 80,308 $ 16,045 Consumer & installment 194,563 477,819 22,745 Real estate mortgages 526,240 563,796 224,899 Lease financing 38,932 78,954 3,731 Other 10,040 4,046 2,694 -------- ---------- -------- Total gross loans $896,647 $1,204,923 $270,114 ======== ========== ========
13 14 Sensitivity of Loans to Changes in Interest Rates The interest sensitivity of the Company's loans is important in the management of effective interest differential. The Company attempts to manage the relationship between the rate sensitivity of its assets and liabilities to produce an effective interest differential that is not significantly impacted by the level of interest rates. The following table shows the interest sensitivity of the Company's gross loans as of December 31, 1995.
December 31, 1995 -------------------------- FIXED VARIABLE RATE RATE ----- -------- (In thousands) Loan Portfolio Due after one year $1,187,421 $287,616
Nonaccrual, Past Due and Restructured Loans See Note 6 of Notes to Consolidated Financial Statements on page 29 of the Company's 1995 Annual Report to Shareholders incorporated herein by reference. The aggregate principal balance of non-accrual loans was $1,592,000, $3,029,000, $4,072,000, $10,742,000 and $11,288,000 at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The aggregate principal balance of restructured loans was $7,000, $1,448,000, $4,018,000, $2,045,000 and $912,000 at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. Accruing loans which were contractually past due 90 days or more for years ended December 31, 1995, 1994, 1993, 1992 and 1991, amounted to $5,148,000, $3,614,000, $4,277,000, $8,523,000 and $8,069,000, respectively. The Company's policy provides that loans are placed in non-accrual status if any of the following criteria are met: (1) a loan is determined to be a loss of any amount as to principal or interest; (2) a loan has a deficiency balance; (3) receipt of notice of bankruptcy with regards to a borrower; or (4) a loan involves repossession of property and it is reasonably assumed that there will be a loss. In the normal course of business, management becomes aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans, but which do not currently meet the criteria for disclosure as problem loans. Historically, some of these loans are ultimately restructured or placed in non-accrual status. At December 31, 1995, no loans were known to be potential problem loans. At December 31, 1995, the Company did not have any concentration of loans in excess of 10% of total loans outstanding. Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. 14 15 Summary of Loan Loss Experience In the normal course of business, the Company assumes risks in extending credit. The Company manages these risks through its lending policies, loan review procedures and the diversification of its loan portfolio. Although it is not possible to predict loan losses with any certainty, management constantly reviews the characteristics of the loan portfolio to determine its overall risk profile and quality. Constant attention to the quality of the loan portfolio is achieved by a formal loan review process. Throughout this on-going process, management is advised of the condition of individual loans and of the quality profile of the entire loan portfolio. Any loan or portion thereof which is classified as "loss" by regulatory examiners or which is determined by management to be uncollectible because of such factors as the borrower's failure to pay interest or principal, the borrower's financial condition, economic conditions in the borrower's industry, or the inadequacy of underlying collateral, is charged off. The provision for credit losses charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for credit losses at a level that is adequate to meet the present and potential risks of losses on the Company's current portfolio of loans. Management's judgment is based on a variety of factors which include the Company's experience related to loan balances, charge-offs and recoveries, scrutiny of individual loans and risk factors, results of regulatory agency reviews of loans, and present and future economic conditions of the Company's market area. Material estimates that are particularly susceptible to significant change in the near term are a necessary part of this process. Future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Management does not believe the allowance for credit losses can be fragmented by category of loans with any precision that would be useful to investors but is doing so in this report only in an attempt to comply with disclosure requirements of regulatory agencies. The breakdown of the allowance by loan category is based in part on evaluations of specific loans' past history and on economic conditions within specific industries or geographical areas. Accordingly, since all of these conditions are subject to change, the allocation is not necessarily indicative of the breakdown of any future losses. 15 16 The following table presents (a) the breakdown of the allowance for credit losses by loan category and (b) the percentage of each category in the loan portfolio to total loans at December 31 for the years presented:
1995 1994 1993 ---- ---- ---- ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF FOR LOANS TO FOR LOANS TO FOR LOANS TO CREDIT LOSS TOTAL LOANS CREDIT LOSS TOTAL LOANS CREDIT LOSS TOTAL LOANS ---------------- ----------- ---------------- ----------- ---------------- ----------- (In thousands) Commercial & agricultural $3,290 9.41% $ 3,100 10.14% $ 3,020 11.07% Consumer & installment 10,413 29.31% 9,350 30.30% 7,620 27.73% Real estate mortgage 19,500 55.44% 17,090 55.08% 16,123 55.04% Lease financing 1,433 5.13% 1,290 3.91% 705 3.30% Other - 0.71% - 0.57% - 2.86% ------- ------- ------- ------- ------- ------- TOTAL $34,636 100.00% $30,830 100.00% $27,468 100.00% ======= ======= ======= ======= ======= ======= 1992 1991 ---------------- ---------------- ALLOWANCE % OF ALLOWANCE % OF FOR LOANS TO FOR LOANS TO CREDIT LOSS TOTAL LOANS CREDIT LOSS TOTAL LOANS ---------------- ----------- ---------------- ----------- (In thousands) Commercial & agricultural $ 5,550 23.16% $ 4,855 23.03% Consumer & installment 7,355 30.40% 6,420 30.38% Real estate mortgage 10,426 41.96% 9,325 42.99% Lease financing 785 3.11% 506 2.81% Other - 1.37% - 0.79% ------- ------- ------- ------- TOTAL $24,116 100.00% $21,106 100.00% ======= ======= ======= =======
16 17 The following table sets forth certain information with respect to the Company's loans (net of unearned discount) and the allowance for credit losses for the five years ended December 31, 1995.
1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (In thousands) LOANS Average loans for the period $2,146,967 $1,881,922 $1,675,048 $1,550,745 $1,451,562 ========= ========== ========== ========== ========== ALLOWANCE FOR CREDIT LOSSES Balance, beginning of period 30,830 27,468 24,116 21,106 19,479 Loans charged off: Commercial & agricultural (448) (1,479) (374) (1,662) (2,139) Consumer & installment (3,550) (3,146) (5,030) (5,214) (5,090) Real estate mortgage (715) (1,217) (2,128) (4,810) (2,782) Lease financing (1) (19) (144) (169) (175) ---------- ---------- ---------- ---------- ---------- Total loans charged off (4,714) (5,861) (7,676) (11,855) (10,186) ---------- ---------- ---------- ---------- ---------- Recoveries: Commercial & agricultural 99 1,539 169 348 293 Consumer & installment 1,084 1,271 1,326 1,409 1,283 Real estate mortgage 366 412 325 169 427 Lease financing 18 55 176 96 48 ---------- ---------- ---------- ---------- ---------- Total recoveries 1,567 3,277 1,996 2,022 2,051 ---------- ---------- ---------- ---------- ---------- Net charge-offs (3,147) (2,584) (5,680) (9,833) (8,135) Provision charged to operating expense 6,206 5,946 9,032 12,843 9,446 Acquisitions 747 316 ---------- ---------- ---------- ---------- ---------- Balance, end of period $ 34,636 $ 30,830 $ 27,468 $ 24,116 $ 21,106 ========== ========== ========== ========== ========== RATIOS Net charge-offs to average loans 0.15% 0.14% 0.34% 0.63% 0.56% ========== ========== ========== ========== ==========
17 18 Deposits Deposits represent the principal source of funds for the Company. The distribution and market share of deposits by type of deposit and by type of depositor are important considerations in the Company's assessment of the stability of its funds sources and its access to additional funds. Furthermore, management shifts the mix and maturity of the deposits depending on economic conditions and loan and investment policies in an attempt, within set policies, to minimize cost and maximize effective interest differential. The following table shows the classification of deposits on an average basis for the three years ended December 31, 1995.
YEARS ENDED DECEMBER 31 ------------------------------------------------------------- 1995 1994 1993 ------------------------------------------------------------- Average Average Average Average Average Average Amount Rate Amount Rate Amount Rate ---------- ------- ---------- ------- ---------- ------- (Dollars in thousands) Non-interest bearing demand deposits $ 361,120 - $ 364,451 - $ 327,540 - Interest bearing demand deposits 654,151 2.35% 618,929 2.64% 563,372 2.58% Savings 300,278 4.76% 292,908 3.25% 250,203 3.09% Time 1,416,901 5.47% 1,237,205 4.32% 1,201,022 4.37% ---------- ---------- ---------- TOTAL DEPOSITS $2,732,450 $2,513,493 $2,342,137 ========== ========== ==========
Time deposits of $100,000 and over including certificates of deposits of $100,000 and over at December 31, 1995, had maturities as follows:
DECEMBER 31, 1995 ----------------- (In thousands) Three months or less $ 98,934 Over three months through six months 107,598 Over six months through twelve months 60,524 Over twelve months 67,859 -------- TOTAL $334,915 ========
18 19 Return on Equity and Assets Return on average common equity, average assets, and the dividend payout ratio are based on net income for the three years ended December 31, 1995, as presented below:
YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 ---- ---- ---- Return on average equit 13.23% 12.75% 15.07% Return on average asset 1.13 1.07 1.24 Dividend payout ratio 34.37 32.69 25.70
The Company's average equity as a percent of average assets was 8.52%, 8.35% and 8.22% for 1995, 1994 and 1993, respectively. Short-Term Borrowings See Note 9 of Notes to Consolidated Financial Statements on page 9 of the Company's 1995 Annual Report to Shareholders incorporated herein by reference. Item 2. - Properties The physical properties of the Registrant are held in its subsidiaries as follows: a. Bank of Mississippi - The main office of the BOM is located at One Mississippi Plaza in the central business district of Tupelo in a seven-floor modern glass, concrete, and steel office building owned by BOM. BOM occupies approximately 75% of the rentable space in the building with the remainder leased to various unaffiliated tenants. BOM owns 68 of its 90 branch banking facilities. The remaining 22 branch banking facilities are occupied under leases varying in length from one to 12 years. BOM also owns several buildings in the Hattiesburg, Mississippi, area (which provide space for certain of BOM's Southern Region activities including warehouse requirements, mortgage lending, trust services, lease servicing and central operations), an operations center near the Tupelo Municipal Airport (which provides operational support for VOL and LFSL as well), and an office building in downtown Jackson, Mississippi (which has approximately 86,000 square feet of space, of which BOM uses approximately two-thirds for banking activities while leasing or holding for lease the remaining 28,000 square feet). BOM considers all its buildings and leased premises to be in good condition. BOM also owns several parcels of property acquired under foreclosure. Ownership of and rentals on other real property by BOM are not material. b. Volunteer Bank - The main office of VOL is located at One Jackson Place in the central business district of Jackson, Tennessee in a building owned by VOL. 19 20 VOL owns 20 of its 31 branch banking facilities. The remaining 11 branch banking facilities are occupied under leases varying in length from one to 30 years. VOL considers all its building and leased premises to be in good condition. VOL also owns several parcels of property acquired under foreclosure. Ownership of and rentals on other real property by VOL are not material. c. LFSL - The main office of LFSL is located at 317 5th Avenue in the central business district of Laurel, Mississippi in a building owned by LFSL. LFSL owns its other seven branch locations and considers all its buildings to be in good condition. d. Personal Finance Company - This wholly-owned subsidiary of BOM occupies 36 leased offices, with the unexpired terms varying in length from one to six years. The average size of these leased offices is approximately 1,000 square feet with average annual rent of approximately $8,000. All these premises are considered to be in good condition. e. TC Finance, Inc.- This wholly-owned subsidiary of VOL occupies 7 leases offices with the unexpired terms varying in length from one to five years. Item 3. - Legal Proceedings The Company and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. In the opinion of management, after consultation with outside legal counsel, the outcome of these actions should not have a material adverse effect on the financial condition of the Company and its subsidiaries, taken as a whole. Item 4. - Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the fourth quarter of 1995. 20 21 PART II Item 5. - Market for the Registrant's Common Stock and Related Stockholder Matters Market for Common Stock The common stock of the Company trades on The Nasdaq Stock Market under the symbol BOMS. The following table sets forth the range of closing sale prices of the Company's common stock as reported on The Nasdaq Stock Market. The prices have been restated to reflect the effect of the two-for-one stock split effected in the form of a 100% stock dividend paid November 20, 1995.
1995: High Low ------- ------ 4th quarter $23.875 $20.25 3rd quarter 20.875 19.375 2nd quarter 20.00 18.00 1st quarter 18.00 16.25 1994: 4th quarter $17.125 $15.50 3rd quarter 18.125 17.00 2nd quarter 16.625 14.50 1st quarter 16.50 14.50
Holders of Record As of February 29, 1996, there were 7,357 shareholders of record of the Company's common stock. Dividends The Company declared cash dividends totaling $0.62 per share during 1995, $0.555 during 1994 and $0.54 during 1993. Future dividends, if any, will vary depending on the Company's profitability and anticipated capital requirements. Item 6. - Selected Financial Data The information under the caption "Selected Financial Information" on page 11 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference. The Company's long-term debt at December 31, 1995, totaled $73,624,000, at December 31, 1994, totaled $67,416,000, at December 31, 1993, totaled $32,541,000, at December 31, 1992, totaled $33,309,000 and totaled $39,896,000 at December 31, 1991. 21 22 Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 13 through 20 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference. Item 8. - Financial Statements and Supplementary Data The following consolidated financial statements of the Company and its subsidiaries, the report of independent auditors thereon, and the quarterly data (unaudited), appearing in the Company's 1995 Annual Report to Shareholders, are incorporated herein by reference. Consolidated Balance Sheets on page 21. Consolidated Statements of Income on page 22. Consolidated Statements of Shareholders' Equity on page 23. Consolidated Statements of Cash Flows on page 24. Notes to Consolidated Financial Statements on pages 25 through 39. Report of Independent Auditors on page 40. Summary of Quarterly Results (Unaudited) on page 12. Item 9. - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no disagreements with the Company's independent accountants and auditors on any matter of accounting principles or practices or financial statement disclosure. 22 23 PART III Item 10. - Directors and Executive Officers of the Registrant Information concerning the directors and nominees of the Company appears under the caption "Election of Directors" on pages 1 through 4 of the Company's definitive Proxy Statement for its 1996 annual meeting, and is incorporated herein by reference. Executive Officers of Registrant Information follows concerning the executive officers of the Company who are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934.
Name Offices Held Age ---- ------------ --- Aubrey Burns Patterson Chairman of the Board of 53 Directors and Chief Executive Officer of the Company and Bank of Mississippi; Director of the Company; Director of Volunteer Bank Charles J. McKee Executive Vice President 64 of the Company; Vice Chairman, Lending, Bank of Mississippi; Director of Bank of Mississippi and Volunteer L. Nash Allen, Jr. Treasurer, and Chief 51 Financial Officer of the Company; Executive Vice President, Bank of Mississippi, Director of Laurel Federal Savings and Loan Association Kenneth R. Wilburn Executive Vice President, 49 Loan Administration of the Company and Bank of Mississippi
23 24
Harry R. Baxter Executive Vice President 51 and Director of Marketing of the Company and Bank of Mississippi Director of Laurel Federal Savings and Loan Association Gary R. Harder Senior Vice President, 51 Audit and Loan Review of the Company and Bank of Mississippi Michael W. Weeks Chairman of the Board of 47 Directors and Chief Executive Officer of Volunteer Bank; Executive Vice President of the Company
None of the executive officers of the Company are related by blood, marriage, or adoption. There are no arrangements or understandings between any of the executive officers and any other person pursuant to which the individual named above was or is to be selected as an officer. The executive officers of the Company are elected by the Board of Directors at its first meeting following the annual meeting of shareholders, and they hold office until the next annual meeting or until their successors are duly elected and qualified. Mr. Patterson served as President of the Bank of Mississippi from 1983 until April 1990 when he was named Chief Executive Officer of the Bank of Mississippi and the Company. He has served as Chairman of the Board and Chief Executive Officer of the Bank of Mississippi and the Company since April 1993. Following the merger with VBS on August 31, 1993, he served as a director of VBS and he has served as a director of Volunteer Bank since its formation on December 31, 1993. Mr. McKee has served as Vice Chairman and as Executive Vice President of the Bank of Mississippi during the last five years and as Executive Vice President of the Company since April, 1986. He has served as a director of Bank of Mississippi since 1993, as a director of VBS from August 31 to December 31, 1992, and as a director of Volunteer Bank since its formation on December 31, 1992. Mr. Allen has served as Senior Vice President and Executive Vice President of the Bank of Mississippi during the past five years. He has served as Treasurer of the Company during this same period. He has served as a director of Laurel Federal Savings and Loan Association since its acquisition on March 31, 1995. Mr. Wilburn served as Senior Vice President-Loan Administration, Bank of Mississippi, until January 1988, when his designation was changed to Executive Vice President-Loan 24 25 Administration. Since October 1992, he has also served as Executive Vice President of the Company. Mr. Baxter joined the Bank of Mississippi in July 1986, as Senior Vice President and Director of Marketing. He was named Executive Vice President and Director of Marketing in August 1989. Since October 1992, he has also served as Executive Vice President of the Company. He has served as a director of Laurel Federal Savings and Loan Association since its acquisition on March 31, 1995. Mr. Harder served as First Vice President and Senior Vice President-Loan Review, Bank of Mississippi during the last five years. Since October, 1992 he has also served as First Vice President and then Senior Vice President of the Company. Mr. Weeks served as Vice-Chairman of the Board and Chief Executive Officer of Volunteer Bank from January 24, 1995 to March 16, 1995 when he was named Chairman of the Board and Chief Executive Officer of Volunteer Bank. He has served as Executive Vice President of the Company since January 17, 1995. Prior to his employment by the Company, Mr. Weeks served as a partner in the accounting firm of KPMG Peat Marwick LLP. Item 11. - Executive Compensation Information concerning the remuneration of executive officers of the Company appears under the caption "Executive Compensation" on pages 7 through 13 of the Company's definitive Proxy Statement for its 1996 annual meeting , and is incorporated herein by reference. Information concerning the remuneration of directors of the Company appears under the caption "Compensation of Directors" on page 4 of the Company's definitive Proxy Statement for its 1996 annual meeting, and is incorporated herein by reference. Item 12. - Security Ownership of Certain Beneficial Owners and Management Information concerning the security ownership of certain beneficial owners and directors and executive officers of the Company appears under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 5 and 6 of the Company's definitive Proxy Statement for its 1996 annual meeting, and is incorporated herein by reference. Item 13. - Certain Relationships and Related Transactions Information concerning certain relationships and related transactions with management and others appears under the caption "Certain Relationships and Related Transactions" on page 15 of the Company's definitive Proxy Statement for its 1996 annual meeting, and is incorporated herein by reference. 25 26 PART IV Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Consolidated Financial Statements: The following have been incorporated herein from the Company's 1995 Annual Report to Shareholders: -Report of Independent Auditors -Consolidated balance sheets as of December 31, 1995, and 1994. -Consolidated statements of income for the three years ended December 31, 1995. -Consolidated statements of shareholders' equity for the three years ended December 31, 1995. -Consolidated statements of cash flows for the three years ended December 31, 1995. -Notes to consolidated financial statements for the three years ended December 31, 1995. (a) 2. Consolidated Financial Statement Schedules: All schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. (a) 3. Exhibits: (3) (a) Articles of incorporation, as amended. (1) (b) Bylaws. (2) (4) (a) Specimen Common Stock Certificate. (3) (b) The Company has outstanding certain long-term debt. None of such debt exceeds 10% of the total assets of the Company and its consolidated subsidiaries. Copies of instruments defining the rights of holders of the debt will be furnished to the Securities and Exchange Commission upon request. (10)(a) Stock Bonus Agreement between Bancorp of Mississippi, Inc., and Aubrey B. Patterson, Jr., dated November 6, 1987, and Escrow Agreement between Bank Mississippi and Aubrey B. Patterson, Jr., dated November 6, 1987. (4)(8) (b) Form of deferred compensation agreement between Bancorp of Mississippi, Inc. and certain key executives. (5)(8) (c) 1994 Stock Incentive Plan. (3)(8) (d) 1995 Non-Qualified Stock Option Plan for Non-Employee Directors. (3)(8) (e) Stock Bonus Agreement between BancorpSouth, Inc. and Michael W. Weeks, dated January 17, 1995 and Escrow Agreement between Bank of Mississippi and Michael W. Weeks dated January 17, 1995 (8) (11) Statement re computation of per share earnings. 26 27 (13)(a) Managements' Discussion and Analysis of Financial Condition and Results of Operations on pages 13 through 20 of the 1995 Annual Report to Shareholders. (6) (b) Consolidated Financial Statements and Notes thereto and Independent Auditors Report on pages 21 through 40 of the 1995 Annual Report to Shareholders. (6) (c) Summary of Quarterly Results on page 12 of the 1995 Annual Report to Shareholders. (6) (d) Selected Financial Information on page 11 of the 1995 Annual Report to Shareholders. (6) (21) Subsidiaries of the Registrant. (23) Consent of Independent Accountants. (27) Financial Data Schedule. (SEC use only) (28) Information regarding Bancorp of Mississippi, Inc., amended and restated Salary Deferral-Profit Sharing Employee Stock Ownership Plan. (7)(8) (1) Filed as exhibits 3.1 and 3.2 to the Company's registration statement on Form S-4 filed on January 6, 1995 (Registration No. 33-88274) and incorporated by reference thereto. (2) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1985 (file number 0-10826), and incorporated by reference thereto. (3) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1994 (file number 0-10826), and incorporated by reference thereto. (4) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1987 (file number 0-10826), and incorporated by reference thereto. (5) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1988 (file number 0-10826), and incorporated by reference thereto. (6) Furnished for the information of the Commission only and not deemed "filed" as part of this Report on Form 10-K except for those portions which are specifically incorporated herein by reference. (7) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1990 (file number 0-10826), and incorporated by reference thereto. (8) Compensatory plans or arrangements. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 1995. 27 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BancorpSouth, Inc. /s/ Aubrey Burns Patterson DATE: March 27, 1996 ----------------------------- Aubrey Burns Patterson Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Chairman of the Board, Chief Executive /s/ Aubrey Burns Patterson Officer (Principal Executive Officer) - ----------------------------- and Director March 27, 1996 Aubrey Burns Patterson /s/ L. Nash Allen, Jr. Treasurer (Principal Financial and - ----------------------------- Accounting Officer) March 27, 1996 L. Nash Allen, Jr. Director March , 1996 - ----------------------------- S. H. Davis Director March , 1996 - ----------------------------- Hassell Franklin /s/ J. Luis Griffin, Jr. Director March 27, 1996 - ----------------------------- J. Louis Griffin, Jr. /s/ W. G. Holliman, Jr. Director March 27, 1996 - ----------------------------- W. G. Holliman, Jr. /s/ Douglas Jumper Director March 27, 1996 - ----------------------------- Douglas Jumper /s/ Turner O. Lashlee Director March 27, 1996 - ----------------------------- Turner O. Lashlee 28 29 /s/ Alan W. Perry - ----------------------------- Director March 27, 1996 Alan W. Perry /s/ Frank A. Riley - ----------------------------- Director March 27, 1996 Frank A. Riley /s/ Travis E. Staub - ----------------------------- Director March 27, 1996 Travis E. Staub /s/ Andrew R. Townes, DDS - ----------------------------- Director March 27, 1996 Andrew R. Townes, DDS /s/ Lowery A. Woodall - ----------------------------- Director March 27, 1996 Lowery A. Woodall 29 EX-10.(E) 2 STOCK BONUS AGREEMENT 1 EXHIBIT 10 (e) Stock Bonus Agreement between BancorpSouth and Michael W. Weeks and Escrow Agreement between Bank of Mississippi and Michael W. Weeks 2 STOCK BONUS AGREEMENT AGREEMENT made as of January 17, 1995, between BANCORPSOUTH, INC. ("Bancorp" or, collectively with its subsidiaries, the "Company") and MICHAEL W. WEEKS ("Weeks"). WHEREAS, the Company desires to retain the full-time, dedicated services of Weeks as Vice Chairman of Volunteer Bank, or such other assigned positions with the Company as the Board of Directors of Bancorp may determine, and to be assured of its right to his services in said capacities; and WHEREAS, Weeks is willing to serve in that capacity, or such other senior officer capacities as may be assigned; The parties, in consideration of the premises and other mutual agreements hereinafter set forth, agree as follows: 1. Services to be Provided by Weeks. Weeks agrees to serve as Vice Chairman of Volunteer Bank, or in any other senior officer capacity with the Company assigned by the Board of Directors, pursuant to his employment arrangement with the Company and agrees to devote substantially all his time to performing such duties as may from time to time be assigned to him by the Board of Directors of Bancorp and to grant the Company his undivided loyalty as long as he continues to be employed by the Company. 2. Term. The term of this Agreement shall be from April 1, 1995, until April 1, 2005. This Agreement is not an employment contract. The existence of this Agreement shall not affect in any way the Company's right to discharge Weeks. 3. Bonus Compensation; Stock Ownership. Simultaneously with the execution of this Agreement, Bancorp shall deliver 15,000 shares of the $2.50 par value common stock of Bancorp ("Common Stock"), which may be either authorized but unissued shares or shares held in the treasury of Bancorp, and Weeks shall execute and deliver an Escrow Agreement in the form of Exhibit A annexed hereto (the "Escrow Agreement"). Pursuant to the terms of the Escrow Agreement and this Agreement, Weeks shall be entitled to receive notices of all meetings of shareholders and vote the shares at such meetings and to receive dividends paid with respect to the shares as set forth in Section 6 of the Escrow Agreement. Weeks shall have no other right or interest in and to such shares of Common Stock until such shares have been released to him by the Escrow Agent upon the occurrence of the events specified in Section 2 and Section 3(b) and Section 4 of the Escrow Agreement. In the event the Company does not achieve either a .9% Return on Average Assets or a 11.29% Return on Average Equity for any given year, no shares of Common Stock shall be released to Weeks in the succeeding year. 3 Such unreleased shares of Common Stock shall, however, remain in escrow and shall be distributed in accordance with Section 2, 3(b) and 4 of the Escrow Agreement. In the event Weeks voluntarily terminates his employment with the Company other than as provided in Section 6(b) hereof or if this Agreement is terminated by the Company pursuant to Section 6(a)(i) hereof prior to April 1, 2005, Weeks shall retain full ownership of the shares of Common Stock that have been released to him pursuant to the provisions of the Escrow Agreement and Weeks shall forfeit all right, title and interest in and to any shares of Common Stock still subject to the Escrow Agreement, which shares shall be delivered to Bancorp to be held in treasury or to be cancelled as shall be determined by its Board of Directors. In the event this Agreement is terminated pursuant to Section 6(b) hereof prior to April 1, 2005, Weeks shall be entitled to receive all shares of Common Stock held by the Escrow Agent as of such termination date and shall be entitled to retain full ownership of all such shares of Common Stock. 4. Covenants of Weeks. Weeks covenants that, as of the date of this Agreement, he is not in violation of any agreement, covenant, court order, consent decree, statute or other binding commitment of his to do, or refrain from doing, any act, and that by entering into this Agreement he will not thereby violate any such agreement, covenant, court order, consent decree, statute or other binding commitment. 5. Noncompetition. Weeks agrees not to compete with the Company as follows: (a) Noncompetition. Weeks agrees that, upon termination of this Agreement for any cause whatsoever other than a change in control of the Company as defined in Section 6(b) hereof, he will not directly or indirectly, as principal, agent, employee or in any other capacity, for the term of two (2) years from the date of such termination of employment, enter into or engage in the same business now being carried on by the Company or as may be carried on by the Company from the date hereof to the date of Weeks' termination, or within any state in which the Company does business. Furthermore, during that two-year period he will not, directly or indirectly, divert or attempt to divert business from the Company. (b) Respect for employee relationships. Weeks agrees that upon termination of this Agreement, he will not, without the prior written consent of the Company, directly or indirectly, as principal, agent, employee or in any other capacity, for the term of two years from the date of such termination of employment, hire, entice away 2 4 or in any other manner persuade any employee of the Company to discontinue his relationship with the Company. (c) Return of documents. Weeks agrees that, upon termination of this Agreement for any cause whatsoever, he shall deliver to the Company all correspondence, agreements, contracts, books of account, records, files, research, manuals or other documents, and all copies thereof, relating to, concerning or arising out of the business and operations of the Company. (d) Reasonable nature of restrictions. Weeks represents and admits that, in the event of the termination of his employment for any reason whatsoever, his experience and capabilities are such that he can obtain employment in business not in competition with the Company, and that enforcement of a remedy by way of injunction will not prevent him from earning a livelihood. Weeks further represents and admits that the period of two years following termination of his employment with the Company, during which time he may not compete with the Company nor disturb the relationship between the Company and its employees, is reasonably necessary to protect the interests of the Company and would not unfairly or unreasonably restrict Weeks. 6. Termination and Severance. It is the contemplation of the parties hereto that this Agreement shall not be terminated prior to the expiration of the initial term set forth in Section 2 hereof. (a) Termination by the Company. Notwithstanding the foregoing, the Company shall have the immediate right to terminate this Agreement upon the happening of any of the following events: (i) an act, in the good faith judgment of the Board of Directors of Bancorp, of dishonesty, embezzlement or fraud against the Company; Weeks' conviction of a misdemeanor involving dishonesty or breach of trust; Weeks' conviction of a felony; or the issuance of any order for Weeks' removal as an employee of the Company by any state or federal regulatory agency or court of competent jurisdiction; or (ii) the death of Weeks or the mental or physical illness, disability or incapacity of Weeks which, in the reasonable and good faith judgment of the Board of Directors of Bancorp, prevents Weeks from performing his duties hereunder and the 3 5 continuance of such illness, disability or incapacity for a period of 90 substantially consecutive days. (b) Termination by Weeks. Notwithstanding the foregoing, Weeks shall have the immediate right to terminate this Agreement in the event there is a change in control of the Company, as defined in (c) below. (c) Change in Control. Change in control of an entity shall be deemed to have occurred if: (i) any "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, other than a trustee or other fiduciary holding securities under an employee benefit plan of the entity or a corporation controlling the entity or owned directly or indirectly by the stockholders of the entity in substantially the same proportions as their ownership of stock of such entity; becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of such entity representing more than 25% of the total voting power represented by such entity's then outstanding Voting Securities (as defined below), or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of such entity and any new director whose election by the Board of Directors or nomination for election by such entity's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of such entity approve a merger or consolidation of such entity with any other corporation, other than a merger or consolidation which would result in the Voting Securities of such entity outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) more than 65% of the total voting power represented by the Voting Securities of such entity or such 4 6 surviving entity outstanding immediately after such merger or consolidation, or the stockholders of such entity approve a plan of complete liquidation of such entity or an agreement for the sale or disposition by such entity of all or substantially all of its assets. For purposes of this section "Voting Securities" of an entity shall mean any securities of the entity which vote generally in the election of its directors. 7. Merger. Upon a merger or consolidation in which Bancorp is not the surviving entity this Agreement shall continue unless terminated by Weeks pursuant to Section 6(b), and the surviving corporation shall substitute its common shares having a value equivalent to the value of the Common Stock for the Common Stock required to be delivered after consummation of the merger. 8. Election. Upon receipt of Common Stock, Weeks may desire to make an election under Section 83(b) of the Internal Revenue Code of 1986 ("Code") regarding the timing and amount of compensation income to be recognized by him on account of his receipt of Common Stock. The making of such an election shall be wholly within the discretion of Weeks and it shall be the sole responsibility of Weeks to see that such election, if desired, is properly made and timely filed. If Weeks makes such an election, he shall inform the Company in writing immediately thereafter. 9. Withholding. Whenever Weeks shall recognize compensation income as a result of the receipt of Common Stock, he shall remit to the Company the minimum amount of federal and state income and employment tax withholding which the Bank or the Company is required to remit to the Internal Revenue Service or applicable state department of revenue in accordance with the then current provisions of the Code or applicable state law ("Withholding Tax"). The full amount of the Withholding Tax shall be remitted simultaneously with the filing of an election described in Section 7 or upon the occurrence of any other event which results in the recognition of compensation income by Weeks. The Withholding Tax may be paid by (i) cash, (ii) a certified check or (iii) delivery of shares of Common Stock with a fair market value equal to the amount of the Withholding Tax. (The fair market value of the Common Stock shall be determined in accordance with the Treasury Regulations under Code Section 2031 as in effect on the date hereof.) 10. Nonassignment. No party hereto may assign any rights hereunder. Any such purported delegation or assignment shall be void. 5 7 11. Severability. It is the intention of the Company and Weeks that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws of the State of Mississippi, but that the unenforceability (or the modification to conform with such laws or public policies) of any provisions hereof shall not render unenforceable or impair the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 12. Miscellaneous. (a) The existence of this Agreement shall not affect in any way the right or power of Bancorp to make or authorize any adjustment, reclassification, reorganization or other change in its capital or business structure, any merger or consolidation of Bancorp, any issue of debt or equity securities having preferences or priorities as to the Common Stock or the rights thereof, the dissolution or liquidation of Bancorp, any sale or transfer of all or any part of its business or assets, or any other corporate act or proceeding. (b) This Agreement may only be amended or modified in writing as agreed upon by all the parties hereto. (c) All notices or other communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given, if by hand delivery, upon receipt thereof, or if mailed by certified or registered mail, postage prepaid, three days following deposit in the United States mail, and in any event, to be addressed to all of the parties as follows: to the Company, at One Mississippi Plaza Tupelo, Mississippi 38801 to Weeks, at Volunteer Bank P. O. Box 549 Jackson, Tennessee 38302 or to such other address as shall hereafter be provided by proper notice to the other parties. (d) The captions and headings herein are for convenience of reference only and shall not be deemed to be a part of the substance of this Agreement. 6 8 (e) This Agreement shall be construed and interpreted according to the laws of the State of Mississippi. (f) The foregoing contains the entire and only agreement between the parties respecting the subject matter hereof, and any representation, promise or condition in connection therewith not incorporated herein shall not be binding upon either party. (g) The foregoing agreement shall be binding upon the parties hereto and there respective heirs, successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. BANCORPSOUTH, INC. By: /s/ Aubrey B. Patterson, Jr. --------------------------------- Aubrey B. Patterson, Jr. By: /s/ Michael W. Weeks ---------------------------------- MICHAEL W. WEEKS 7 9 ESCROW AGREEMENT AGREEMENT made as of January 17, 1995, among MICHAEL W. WEEKS ("Weeks"), BANCORPSOUTH, INC. (the "Company") and BANK OF MISSISSIPPI as escrow agent ("Escrow Agent"). WHEREAS, Weeks has the right to acquire 15,000 shares of the Company's Common Stock, $2.50 par value ("Common Stock"), and, pursuant to the terms of a Stock Bonus Agreement, dated as of January 17, 1995, between Weeks and the Company (the "Stock Agreement"), Weeks has agreed to place such shares of Common Stock in escrow to be released to him upon the occurrence of certain events; and WHEREAS, Escrow Agent is willing to act as escrow agent for the purposes of holding such shares of Common Stock pending their release to Weeks or forfeiture to the Company. NOW, THEREFORE, the parties, in consideration of the premises and other mutual agreements hereinafter set forth, agree as follows: 1. Weeks hereby agrees that upon the issuance of the Common Stock under the Stock Agreement, he will cause the Company to issue ten stock certificates, each for 1,500 shares of the Common Stock, registered in the name of Michael W. Weeks. Weeks agrees that upon the issuance of any Additional Installments, as defined in Section 2 of this Agreement, he will cause the Company to issue a number of certificates equal to the number of full years remaining in the term of the Stock Agreement on the date the Additional Installment is made. Each such certificate shall be for an equal number of shares; provided, however, that such certificates may be for an unequal number of shares to the extent necessary to prevent the issuance of fractional shares. (Certificates issued upon the execution of the Stock Agreement and Additional Installments are referred to herein as "Certificates"). Each Certificate will bear a legend substantially as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN ESCROW AGREEMENT, DATED JANUARY 17, 1995, AMONG MICHAEL W. WEEKS, BANCORPSOUTH, INC. AND BANK OF MISSISSIPPI, AS ESCROW AGENT, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH SUCH AGREEMENT. A COPY OF THE ESCROW AGREEMENT IS AVAILABLE AT THE PRINCIPAL OFFICES OF BANCORPSOUTH, INC. Upon issuance Weeks will, or will cause the Company to, deposit the Certificates with the Escrow Agent, together with 10 one stock power for each Certificate, duly executed in blank, to be held by the Escrow Agent in accordance with the terms of this Agreement. 2. The Escrow Agent will hold the Certificates until they are released. A Certificate, and the attendant stock power, shall be released to Weeks upon April 1, 1996, and upon each succeeding April 1 while he is employed by the Company, until all Certificates have been released. Notwithstanding the foregoing, upon receipt, prior to April 1 of any year, of a Certificate signed by the majority of the Company's Board of Directors and the Company's Secretary certifying that according to the Company's annual report for the Company's year ending on the preceding December 31, the Company's Return on Average Assets was less than .9% and its Return on Average Equity was less than 11.2%, the Escrow Agent will complete the stock powers relating to the Certificates to be delivered to Weeks on April 1 of the year that follows such December 31 and shall then deliver those Certificates, together with the accompanying stock powers, to the Company. Upon such April 1 the Company shall deliver to the Escrow Agent, as an additional installment ("Additional Installment"), new Certificates, and accompanying stock powers, for a number of shares equal to the number of shares returned to the Company. 3. Notwithstanding the provisions of Section 2 hereof, upon receipt of a certificate signed by the majority of the Company's Board of Directors and the Company's Secretary certifying that: (a) Weeks' employment with the Company or a subsidiary of the Company has been terminated in accordance with the provisions of Section 6(a) of the Stock Agreement or that Weeks has voluntarily terminated his employment with the Company or a subsidiary of the Company, the Escrow Agent will complete the stock powers relating to all Certificates held by it and deliver such Certificates, together with the accompanying stock powers, to the Company; or (b) Weeks' employment with the Company and/or its subsidiaries has been terminated in accordance with the provisions of Section 6(b) of the Stock Agreement, the Escrow Agent will deliver to Weeks all Certificates held by it with the accompanying stock powers. 4. Notwithstanding the provisions of Section 2 hereof on April 1, 2005, the Escrow Agent shall deliver to Weeks all Certificates 2 11 in its possession, together with the accompanying stock powers. 5. Upon delivery of the Certificates to Weeks, they will bear appropriate state and federal securities legends as directed by the Company and appropriate stop transfer instructions will be noted in the stock records of the Company. 6. During the period that the Escrow Agent holds any of the Certificates, Weeks shall be entitled to notice of all meetings, annual or special, of stockholders of the Company at which stockholders have the right to vote and Weeks shall be entitled to vote all shares represented by such Certificates held by the Escrow Agent at any such meeting upon any matter upon which stockholders of the Company have the right to vote. Weeks shall not be entitled to any of the other attributes of ownership of the shares subject to escrow, nor shall he have the right to pledge, hypothecate or otherwise encumber such shares; provided, however, that Weeks shall be entitled to receive cash dividends paid with respect to any shares held in escrow. In the event the Company increases or decreases the number of shares of Common Stock outstanding by means of a stock split, stock dividend or recapitalization, certificates representing any additional shares which Weeks would be entitled to receive as the record holder of any shares of Common Stock subject to escrow shall automatically be delivered by the Company to the Escrow Agent and such shares shall be subject to the terms of this Agreement as if they were part of the Certificates in respect of which they were received. 7. (a) The Escrow Agent shall not be liable to any person for any act by it except for gross negligence or willful misconduct by the Escrow Agent. Each of Weeks and the Company, severally, agrees to indemnify and hold harmless the Escrow Agent for all liabilities of the Escrow Agent arising from the doing of any act or the failure to do any act except conduct constituting gross negligence or willful misconduct by the Escrow Agent. (b) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and shall be protected in acting or refraining from acting in reliance on any instrument reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties. Except as set forth in Section 7(a), the Escrow Agent shall not be personally liable for any act it may do or omit to do hereunder as Escrow Agent while acting in good faith and in the exercise of its own good judgment, and any act done or omitted by it pursuant to the advice of its own attorneys shall be conclusive evidence of such good faith. 3 12 (c) In case the Escrow Agent obeys or complies with any order, judgment or decree of any court, it shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. (d) The Escrow Agent shall be entitled to employ such legal counsel and other experts as it may deem necessary properly to advise it in connection with its obligations hereunder. The Escrow Agent may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. (e) The Company agrees to reimburse Escrow Agent for all expenses incurred by it in the performance of its services under this Agreement. The Escrow Agent agrees to maintain adequate records and in such form and detail to support any claim for reimbursement hereunder and to furnish such records or copies to the Company as it may request. 8. If the Escrow Agent reasonably requires other or further instruments in connection with this Agreement or its obligations in respect hereto, Weeks, and the Company each agree that he or it shall furnish such instruments. 9. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed to retain in its possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings, whether by interpleader or otherwise. 10. Miscellaneous. (a) This Agreement may only be amended or modified in writing executed by the parties hereto. (b) All notices or other communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given, if by hand delivery, upon receipt thereof, or if mailed by certified or registered mail, postage prepaid, three days following deposit in the United States mail, and in any event, to be addressed to: 4 13 the Company, at One Mississippi Plaza Tupelo, Mississippi 38801 Weeks, at Volunteer Bank P. O. Box 549 Jackson, Tennessee 38302 Escrow Agent, at One Mississippi Plaza Tupelo, Mississippi 38801 or to such other address as shall hereafter be provided by proper notice to the other parties. (c) This Agreement shall be construed and interpreted according to the laws of the State of Mississippi. (d) The foregoing, in conjunction with the Stock Agreement, contains the entire and only agreement between the parties respecting the subject matter hereof, and any representation, promise or condition in connection therewith not incorporated herein or therein shall not be binding upon either party. 5 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WITNESS:
/s/ Cathy M. Robertson /s/ Michael W. Weeks ---------------------- ------------------------- MICHAEL W. WEEKS BANCORPSOUTH, INC. Attest: /s/ Cathy M. Robertson By: /s/ Aubrey B. Patterson, ---------------------- ------------------------- Secretary BANK OF MISSISSIPPI Attest: /s/ Cathy M. Robertson By: /s/ Aubrey B. Patterson, Jr. ------------------------ --------------------------- Secretary
6 EX-11 3 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31, ------------------------------------------------ (Dollars in thousands except per share amounts.) 1995 1994 1993 PRIMARY ---- ---- ---- - ------- Average common shares outstanding 20,874,336 10,158,346 9,885,375 Stock options-treasury stock method 141,070 28,361 43,634 2-for-1 stock split effected in the form of a 100% stock dividend paid November 20, 1995 - 10,186,707 9,929,009 ----------- ----------- ----------- Average primary shares outstanding 21,015,406 20,373,414 19,858,018 =========== =========== =========== Adjusted net income $ 35,504 $ 30,728 $ 32,935 =========== =========== =========== Per share amount $ 1.69 $ 1.51 $ 1.66 =========== =========== =========== FULLY DILUTED - ------------- Average common shares outstanding 20,874,336 10,158,346 9,885,375 Stock options-treasury stock method 141,070 36,661 43,634 Convertible subordinated debentures assumed converted - - 96,675 2-for-1 stock split effected in the form of a 100% stock dividend paid November 20, 1995 - 10,195,007 10,025,684 ----------- ----------- ----------- Average fully diluted shares outstanding 21,015,406 20,390,014 20,051,368 =========== =========== =========== Net income $ 35,504 $ 30,728 $ 32,935 Add: Interest on convertible subordinated debentures, after taxes - - 116 ----------- ----------- ----------- Adjusted net income $ 35,504 $ 30,728 $ 33,051 =========== =========== =========== Per share amount $ 1.69 $ 1.51 $ 1.65 ----------- ----------- -----------
EX-13.(A) 4 MANAGEMENTS DISCUSSION AND ANALYSIS 1 EXHIBIT 13 (a) Managements' Discussion and Analysis of Financial Condition and Results of Operations 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BancorpSouth, Inc. (the Company) is a bank and thrift holding company with commercial banking and savings and loan operations in Mississippi and commercial banking operations in Tennessee. Bank of Mississippi (BOM), the Company's Mississippi banking subsidiary is headquartered in Tupelo, Mississippi. Volunteer Bank (VOL), the Company's Tennessee banking subsidiary is headquartered in Jackson, Tennessee. Laurel Federal Savings and Loan Association (Laurel Federal), the Company's Mississippi thrift subsidiary, is headquartered in Laurel, Mississippi. BOM and its consumer finance and credit life insurance subsidiaries provide commercial banking, leasing, mortgage origination and servicing and trust services to corporate customers, local governments, individuals and other financial institutions through an extensive network of branches and offices located throughout the State of Mississippi. VOL and its consumer finance and credit life insurance subsidiaries provide similar banking services in West Tennessee. Laurel Federal provides mortgage, consumer and commercial lending and traditional thrift deposit services, including checking accounts. During 1995, the Company acquired LF Bancorp, Inc.(LF Bancorp), headquartered in Laurel, Mississippi; First Federal Bank for Savings (First Federal), headquartered in Starkville, Mississippi; Wes-Tenn Bancorp, Inc. (Wes-Tenn), headquartered in Covington, Tennessee and the assets and certain liabilities of Shelby Bank, located in Bartlett, Tennessee, a component of the suburban Memphis market. Laurel Federal, the principal subsidiary of LF Bancorp, is operated as a subsidiary of the Company. First Federal and Wes-Tenn's principal subsidary, Tennessee Community Bank (TCB), were merged with and into the Company's banking subsidiaries, BOM and VOL, respectively. The assets and certain liabilities of Shelby Bank were combined with those of VOL upon acquistion. For a more detailed discussion of these acquisitions, reference is made to Note 3 of Notes to Consolidated Financial Statements. The following discussion provides certain information concerning the consolidated financial condition and results of operations of the Company. For a complete understanding of the following discussion, reference is made to the Consolidated Financial Statements and Notes thereto presented elsewhere in this Annual Report. Two graphs appear on this page in the Annual Report. The following is a description of the graphs. RETURN ON AVERAGE ASSETS .091% .091% 1.24% 1.07% 1.13% 1991 1992 1993 1994 1995
RETURN ON AVERAGE EQUITY 13.15% 12.30% 15.07% 12.75% 13.23% 1991 1992 1993 1994 1995
THREE YEARS ENDED DECEMBER 31, 1995 RESULTS OF OPERATIONS Summary The table below summarizes the Company's net income and returns on average assets and average shareholders' equity for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993 -------------- -------------- -------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income before effect of accounting change $35,504 $30,728 $29,506 Net income $35,504 $30,728 $32,935 Net income per share: $1.69 $1.51 $1.66 Return on average assets 1.13% 1.07% 1.24% Return on average shareholders' equity 13.23% 12.75% 15.07%
NET INTEREST REVENUE Net interest revenue, principally interest earned on assets less interest costs on liabilities, provides the Company with its principal source of income. Since net interest revenue is affected by changes in the levels of interest rates and the amount and composition of interest earning assets and interest bearing liabilities, one of management's primary tasks is to balance these interest sensitive components of assets and liabilities for the purpose of maximizing net interest revenue while at the same time minimizing interest rate risk to the Company. 3 The following table presents the average components of interest earning assets and interest bearing liabilities for each year and their change, expressed as a percentage, from each of the prior years.
1995 1994 1993 ------------------ ------------------ ------------------ AVERAGE % AVERAGE % AVERAGE % BALANCE CHANGE BALANCE CHANGE BALANCE CHANGE ---------- ------ ---------- ------ ---------- ------ Interest earning assets: (DOLLARS IN THOUSANDS) Deposits with other banks $ 19,970 +79.7% $11,112 -24.9% $ 14,799 -27.2% Held-to-maturity securities 516,919 +20.8% 427,759 -16.1% 509,996 -17.7% Available-for-sale securities 183,396 -31.1% 266,370 +88.3% 141,496 - Federal funds sold 39,451 -9.2% 43,437 -11.0% 48,780 -3.7% Loans and leases, net of unearned 2,146,967 +14.1% 1,881,922 +12.4% 1,675,048 +8.0% Mortgages held for sale 20,805 -38.1% 33,620 -38.7% 54,833 -1.5% ---------- ---------- ---------- Total interest earning assets $2,927,508 +9.9% $2,664,220 +9.0% $2,444,952 +6.4% ========== ========== ========== Interest bearing liabilities: Deposits $2,371,330 +10.3% $2,149,042 +6.7% $2,014,597 +4.6% Federal funds purchased and securities sold under repurchase agreements 40,845 +11.3% 36,686 +4.3% 35,166 +15.6% Long-term debt 68,452 +17.6% 58,191 +67.6% 34,713 -16.1% Other 4,706 +29.7% 3,627 +11.1% 3,266 -42.3% ---------- ---------- ---------- Total interest bearing liabilities $2,485,333 +10.6% $2,247,546 +7.7% $2,087,742 +4.2% ========== ========== ========== Non-interest bearing deposits $361,120 -0.9% $364,451 +11.3% $327,540 +14.8% ========== ========== ==========
In 1995 loans and leases continued as the most significant growth components of interest earning assets. Loans and leases grew at faster rates than interest bearing deposits in 1995, 1994 and 1993; however, the Company's other funding sources, non-interest bearing deposits, federal funds and Federal Home Loan Bank advances, were adequate to fund its asset growth. The changes in the components of interest earning assets, interest bearing liabilities, and non-interest bearing deposits resulted in the following tax equivalent net interest revenue expressed as a percent of average earning assets for the years ended December 31, 1995, 1994 and 1993: 1995 1994 1993 ----- ----- ----- Net interest margin 4.86% 4.76% 4.89%
The Company experienced a decrease in net interest margin in 1994 as interest rates stabilized. As short-term interest rates began to rise in 1995, the net interest margin stabilized and then increased. The Company began in 1994 to utilize short-term, intermediate-term and long-term borrowings from the Federal Home Loan Bank for the purpose of funding asset growth. The Company has sought to lengthen the maturity of deposits by actively seeking four and five-year certificates of deposit with interest rates slightly above the relative market for such funds, thereby reducing the net interest margin in all three years presented. While net interest margin has been reduced in the short-term, a stable deposit base has been the result of placing emphasis on intermediate-term deposits. 2 4 INTEREST RATE SENSITIVITY The interest sensitivity gap is the difference between the maturity or repricing scheduling of interest sensitive assets and interest sensitive liabilities for a given period of time. A prime objective of asset/liability management is to maximize net interest margin while maintaining a reasonable mix of interest sensitive assets and liabilities. The following table sets forth the Company's interest rate sensitivity at December 31, 1995.
INTEREST RATE SENSITIVITY DECEMBER 31, 1995 MATURING OR REPRICING ------------------------------------------------- 91 DAYS OVER 1 0 TO 90 TO YEAR TO OVER DAYS 1 YEAR 5 YEARS 5 YEARS ------------------------------------------------- (IN THOUSANDS) Interest earning assets: Interest bearing deposits due from banks $ 15,892 $ - $ - $ - Federal funds sold 35,450 - - - Held-to-maturity securities 19,668 48,338 227,273 144,024 Available-for-sale securities 36,084 42,365 107,023 54,283 Loans & leases, net of unearned 744,221 389,734 1,080,083 81,128 Mortgages held for sale 25,168 - - - -------- --------- ---------- -------- Total interest earning assets 876,483 480,437 1,414,379 279,435 -------- --------- ---------- -------- Interest bearing liabilities: Interest bearing demand deposits & savings 337,432 212,980 448,337 - Time deposits 402,670 734,733 330,557 3,486 Federal funds purchased & securities sold under repurchase agreements 34,944 904 - - Long-term debt 829 2,463 33,006 37,326 Other 1,435 130 730 451 -------- --------- ---------- -------- Total interest bearing liabilities 777,310 951,210 812,630 41,263 -------- --------- ---------- -------- Interest sensitivity gap $ 99,173 $(470,773) $ 601,749 $238,172 ======== ========= ========== ======== Cumulative interest sensitivity gap $ 99,173 $(371,600) $ 230,149 $468,321 ======== ========= ========== ========
Two graphs appear on this page in the Annual Report. The following is a description of the graphs. NET INTEREST INCOME TAX EQUIVALENT BASIS IN MILLIONS $101.13 $115.4 $119.5 $126.9 $142.1 1991 1992 1993 1994 1995
ALLOWANCE FOR CREDIT LOSSES AS A PERCENT OF LOANS, NET OF UNEARNED DISCOUNT 1.39% 1.51% 1.54% 1.52% 1.51% 1991 1992 1993 1994 1995
In the event interest rates decline after 1995, it is likely that the Company will experience a slightly negative effect on net interest income, as the cost of funds will decrease at a less rapid rate than interest income on interest bearing assets. Conversely, in periods of increasing interest rates, based on the current interest sensitivity gap, the Company will experience increased net interest income. PROVISIONS FOR CREDIT LOSSES The Company has an asset quality review staff which, with a committee of senior officers, reviews the adequacy of the allowance for credit losses in each accounting period. An amount is provided as a charge against current income, based on this group's recommendation and senior management's approval, to maintain the allowance for credit losses at a level sufficient to absorb possible losses inherent in the existing loan and lease portfolios. This provision is determined after examining potential losses in specific credits and considering the general risks associated with lending functions such as current and anticipated economic conditions, historical experience as related to losses, changes in the mix of the loan portfolio and credits which bear substantial risk of 3 5 loss but which cannot be readily quantified. The process of determining the adequacy of the provision requires that management make material estimates and assumptions which are particularly susceptible to significant change in the near-term. The provision for credit losses, the allowance for credit losses as a percent of loans and leases outstanding at the end of each year and net charge offs are shown in the following table:
1995 1994 1993 -------- -------- -------- (DOLLARS IN THOUSANDS) Provision for credit losses $6,206 $5,946 $9,032 Allowance for credit losses as a percent of loans and leases outstanding at year end 1.51% 1.52% 1.54% Net charge offs $3,147 $2,584 $5,680 Net charge offs as a percent of average loans .15% .14% .34%
The 1995 provision for credit losses increased from 1994's level by 4.4% as a result of the growth in loans. The 1994 provision for credit losses decreased 34.2% from 1993's level as a result of an improvement in general economic conditions as evidenced by the lowest level of net loans charged off in recent history. The provision for credit losses for 1993 was 29.6% less than the provision for the previous year principally as a result of conforming in 1992 the loan, litigation and real estate valuation policies of VOL to make them consistent with those applied at BOM. Net charge offs were abnormally high in 1993 as a result of actions taken at VOL to conform the quality of its loan portfolio on a basis consistent with BOM. The provisions for credit losses in 1995 and 1994 have been at reduced levels from 1993's provision as a result of an improvement in the Company's loan portfolio as evidenced by the decline in non-performing assets as set forth in the discussion of Loans in the Financial Condition section of this presentation. OTHER REVENUE The components of other revenue for the years ended December 31, 1995, 1994 and 1993 and the percent of change from the prior year are shown in the following table:
1995 1994 1993 ----------------------- ---------------------- ---------------------- AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------- --------- ------ --------- ------ --------- (DOLLARS IN THOUSANDS) Mortgage lending $ 3,723 +333.9% $ 858 -72.1% $ 3,075 +143.1% Service charges 15,965 +10.6% 14,439 +9.4% 13,199 +4.3% Life insurance premiums 3,345 +1.4% 3,300 +7.9% 3,057 -1.4% Trust income 2,237 +19.4% 1,873 +5.5% 1,776 +0.1% Securities gains (losses), net (765) +161.1% (293) -140.1% 731 +246.4% Other revenue 6,735 +15.4% 5,835 +18.2% 4,938 +3.6% ------- ------- ------- Total other revenue $31,240 +20.1% $26,012 -2.9% $26,776 +12.7% ======= ======= =======
The revenue produced by mortgage lending activities rebounded in 1995 primarily as a result of stable interest rates and growth in servicing income. In 1994, mortgage lending revenue was impacted by losses incurred on the sale of mortgages in an unfavorable secondary market. The revenue produced by mortgage lending activities in 1993 increased because of declining interest rates which stimulated refinancing activity by borrowers and a favorable secondary mortgage market. The Company's mortgage loan servicing portfolio has continued to increase as indicated in the following table:
1995 1994 1993 ------------------- ------------------ ----------------- AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------ -------- ------ -------- ------ -------- (DOLLARS IN MILLIONS) Mortgage loans serviced $876.0 +8.0% $811.3 +11.4% $728.4 +24.4%
4 6 Service charges on deposit accounts increased in 1995 because of higher volumes of items processed as a result of increased economic activity. Life insurance premiums decreased slightly in 1995. Growth in life insurance premiums has not kept pace with loan growth because much of the Company's loan growth has occurred in indirect automobile financing which does not present the opportunity to sell credit life insurance. Trust income in 1995 increased 19.4% over 1994. The trust business experienced steady growth as evidenced by increases in the number of trust accounts and the value of assets under care (either managed or in custody). Security losses in 1995 and 1994 were primarily the result of securities being called before their maturity dates. Security gains in 1993 were primarily the result of certain taxable municipal securities being sold after losses considered by management to be other than temporary were recognized in prior periods. Other revenue increased 15.4% and 18.2% in 1995 and 1994, respectively, principally as a result of increases in fees for non-deposit related services. OTHER EXPENSES The components of other expense for the years ended December 31, 1995, 1994 and 1993 and the percent change from the prior year are shown in the following table:
1995 1994 1993 ----------------------- ---------------------- ------------------ AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------ --------- ------ --------- ------ -------- (DOLLARS IN THOUSANDS) Salary and employee benefits $ 54,739 +13.1% $48,413 +5.3% $45,971 +7.2% Occupancy net of rental income 8,022 +5.3% 7,616 +0.9% 7,548 +7.6% Equipment 8,860 +18.7% 7,463 +15.6% 6,457 +5.5% Deposit insurance premiums 3,412 -39.3% 5,621 +9.4% 5,140 +3.4% Other 36,717 +21.3% 30,259 +7.8% 28,060 -1.0% -------- ------- ------- Total other expenses $111,750 +12.5% $99,372 +6.6% $93,176 +4.3% ======== ======= =======
Increases in salary and employee benefits are primarily attributable to incentives and salary increases, additional employees to staff the banking locations added in each of the three years and the increased cost of employee health care benefits. Occupancy and equipment expenses have increased principally as a result of additional branch offices and upgrades to the Company's internal operating systems. Deposit insurance premiums decreased substantially in 1995 as a result of lower rates in the insurance assessment rate of the Federal Deposit Insurance Corporation (FDIC). The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires that deposit premiums be assessed based on the risk inherent in and the financial soundness of a bank. Effective January 1, 1994, the actual assessment rate for premiums applicable to a particular institution depends upon the risk assessment classification assigned to it by the FDIC. As a result of the financial condition of the Company's subsidiary banks, under the FDIC's current risk-based premium policy, deposit insurance rates for 1996 for the Company's deposits in the Bank Insurance Fund (BIF) have been assessed at zero. However, Laurel Federal, the Company's thrift subsidiary, and certain other of the Company's deposits which were acquired from thrifts over the years remain in the Savings Association Insurance Fund (SAIF) and will continue to experience assessments for 1996 at the rate of 23 cents per $100 of insured deposits, the same rate experienced in all three years in the above table. Also, Congress is currently considering a special, one-time assessment on SAIF insured deposits and if enacted, this assessment could result in a one-time, pre-tax charge of up to $2.7 million. Other expenses increased 21.3% in 1995 principally as a result of merger expenses related to the Company's acquisitions. The expansion of the Company's branch banking network also contributed to increases in all years presented. 5 7 FINANCIAL CONDITION LOANS The Company's loan portfolio represents the largest single component of its earning asset base. The following table indicates the average loans, year end balances of the loan portfolio and the percent of increases for the years presented: Two graphs appear on this page in the Annual Report. the following is a description of the graphs. NONACCRUAL AND RESTRUCTURED LOANS AS A PERCENT OF LOANS, NET OF UNEARNED DISCOUNT .081% .081% .45% .22% .07% 1991 1992 1993 1994 1995
TOTAL SHAREHOLDER'S EQUITY IN MILLIONS $173.6 $199.9 $233.2 $252.9 $288.1 1991 1992 1993 1994 1995
1995 1994 1993 ------------------ -------------------- ----------------- AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE ------ -------- ------ -------- ------ -------- (DOLLARS IN MILLIONS) Loans, net of unearned - average $2,147 +14.1% $1,882 +12.4% $1,675 +8.0% Loans, net of unearned - year end $2,295 +13.3% $2,026 +13.4% $1,786 +11.8%
The Company's loan portfolio continued to grow in 1995 in both its Mississippi and Tennessee markets. The increase in 1994 occurred principally in the Company's Mississippi market. The Company strives to maintain a high-quality loan portfolio, forsaking growth for quality. The Company's non-performing assets which were significantly reduced in 1994 and continued to decline in 1995 and which are carried either in the loan account or other assets on the consolidated balance sheets, were as follows at the end of each year presented.
DECEMBER 31 ---------------------------------- 1995 1994 1993 ------ ------ ------- (IN THOUSANDS) Foreclosed properties $2,662 $1,757 $ 1,652 Non-accrual loans 1,592 3,029 4,072 Loans 90 days or more past due 5,148 3,614 4,277 Restructured loans 7 1,448 4,018 ------ ------ ------- Total non-performing assets $9,409 $9,848 $14,019 ====== ====== =======
The Company has not as a matter of policy participated in any highly leveraged transactions nor made any loans or investments relating to corporate transactions such as leveraged buyouts or leveraged recapitalizations. SECURITIES AND OTHER EARNING ASSETS The securities portfolio is used to make various term investments, provide a source of liquidity and to serve as collateral to secure certain types of deposits. A portion of the Company's securities portfolio continues to be tax-exempt. Investments in tax-exempt securities totaled $134.5 million at December 31, 1995, compared to $144.3 million at the end of 1994. The Company invests only in investment grade securities, with the exception of obligations of Mississippi and Tennessee counties and municipalities, and avoids other high yield non-rated securities and investments. At December 31, 1995, the Company's available-for-sale securities totaled $239.8 million. These securities, which are subject to possible sale, are recorded at fair value. At December 31, 1995, the Company held no securities whose decline in fair value was considered other than temporary. Net unrealized gains on investment securities as of December 31, 1995 totaled $12.6 million. Net unrealized gains on held-to-maturity securities comprised $8.8 million of that total while net unrealized gains on available-for-sale securities were $3.8 million. Net unrealized losses on investment securities as of December 31, 1994, amounted to $22.6 million. Of that total, $19.8 million was attributable to held-to-maturity securities and $2.8 million available-for-sale securities. These unrealized losses were a direct result of the strong upward movement in interest rates during the 1994. While these interest rate movements presented buying opportunities, they also resulted in lower market values on existing investments. Because the average maturity of securities owned is relatively short, market value fluctuations due to interest rate changes are softened and the impact of foregone earnings is reduced. 6 8 DEPOSITS The following table presents the Company's average deposit mix and percent of change for the years indicated:
1995 1994 1993 ---------------- ----------------- ----------------- AVERAGE % AVERAGE % AVERAGE % BALANCE CHANGE BALANCE CHANGE BALANCE CHANGE ------- ------ ------- ------ ------- ------ Interest bearing deposits $2,371.3 +10.3% $2,149.0 +6.7% $2,014.6 +4.6% Non-interest bearing deposits $ 361.1 +0.9% $ 364.5 +11.3% $ 327.5 +14.8%
The Company's deposit mix continued to experience change in 1995. By year end 1995, other time deposits showed an increase of 11.9% from the end of 1994, while interest bearing demand deposits decreased slightly by 0.6% and other short-term savings accounts increased 4.6%. Non-interest bearing demand deposits decreased 0.5% from year end 1994 to year end 1995. Management believes that significant declines in interest rates in 1993 and early 1994 caused depositors to reduce the period over which they were willing to commit their funds and shifted their deposits from longer term, fixed rate instruments to daily savings and demand accounts, or even to seek alternative non-bank investments. As interest rates began to rise in mid-1994, funds began to move into longer term certificates of deposits as depositors sought higher yields on their deposits. That trend continued into 1995. Deposits are the Company's primary source of funds to support its earning assets. The Company's primary market areas provide the sources of all deposits for all periods presented. LIQUIDITY The Company's goal is to provide adequate funds to meet changes in loan demand or any potential increase in the normal level of deposit withdrawals. This goal is accomplished primarily by maintaining sufficient short-term liquid assets coupled with consistent growth in core deposits in order to fund earning assets and to maintain the availability of unused capacity to acquire funds in national and local capital markets. The Company's traditional sources of maturing loans, investment securities, mortgages held for sale, purchased federal funds and base of core deposits seem adequate to meet liquidity needs for normal operations. In 1994, the Company's two subsidiary banks initiated relationships with the Federal Home Loan Bank which provided an additional source of liquidity to fund term loans with borrowings of matched maturities. The matching of these assets and liabilities has had the effect of reducing the Company's net interest margin. CAPITAL RESOURCES The Company is required to comply with the risk-based capital guidelines established by the Board of Governors of the Federal Reserve System (FRB). These guidelines apply a variety of weighting factors which vary according to the level of risk associated with the assets. Capital is measured in two "Tiers": Tier I consists of paid-up share capital, including common stock and disclosed reserves (retained earnings and related surplus in the case of common stock), and Tier II consists of general allowance for losses on loans and leases, "hybrid" debt capital instruments, and all or a portion of other subordinated capital debt, depending upon remaining term to maturity (such as the Company's 9% subordinated debentures due 1999). The Company's Tier I capital and total capital, as a percentage of total risk-adjusted assets, was 12.11% and 13.97%, respectively at December 31, 1995, compared to 11.31% and 13.49% at December 31, 1994. Both ratios exceed the required minimum levels for these ratios of 4% and 8% respectively. In addition, the Company's leverage capital ratio (Tier I capital divided by total assets, less goodwill) was 8.56% at December 31, 1995 and 8.33% at December 31, 1994, compared to the required minimum leverage capital ratio of 3%. The FDIC's capital-based supervisory system for insured financial institutions categorizes the capital position for banks into five categories, ranging from well capitalized to critically undercapitalized. For a bank to classify as "well capitalized", the Tier I risk-based capital, total risk-based capital and leverage capital ratios must be at least 6%, 10% and 5%, respectively. Each of the Company's bank subsidiaries meet the criteria for the "well capitalized" category at December 31, 1995. 7 9 The Office of Thrift Supervision (OTS) establishes capital requirements for savings associations. These requirements include a tangible capital requirement, a leverage limit and a risk-based capital requirement. The tangible capital requirement requires a savings association to maintain tangible capital in an amount no less than 1.5% of adjusted total assets, the leverage limit requires an association to maintain core capital of no less than 3% of adjusted assets and the risk-based capital requirement requires an association to have total capital equal to 8% of risk-weighted assets, which must include core capital equal to at least 4% of risk-weighted assets. The Company's thrift subsidiary met each of these capital requirements at December 31, 1995. The Company has determined to pursue acquisition transactions of depository institutions and businesses closely related to banking which further the Company's business strategies. The Company anticipates that the consideration for substantially all of these transactions, if completed, will be shares of the Company's Common Stock. 8 EX-13.(B) 5 CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 13 (b) Consolidated Financial Statements and Notes thereto and Report of Independent Auditors 33 2 CONSOLIDATED BALANCE SHEETS BANCORPSOUTH, INC. AND SUBSIDIARIES
DECEMBER 31 ---------------------------- 1995 1994 ---------- ---------- (In thousands) ASSETS Cash and due from banks (Note 19) $ 149,923 $ 138,230 Interest bearing deposits with other banks 15,892 6,463 Held-to-maturity securities (Note 4) (fair value of $448,075 and $532,985) 439,303 552,832 Available-for-sale securities (Note 5) (amortized cost of $235,909 and $196,760) 239,755 194,029 Federal funds sold 35,450 3,275 Loans (Notes 6, 7 and 17) 2,371,684 2,091,075 Less: Unearned discount 76,518 65,461 Allowance for credit losses 34,636 30,830 ---------- ---------- Net loans 2,260,530 1,994,784 Mortgages held for sale 25,168 10,471 Premises and equipment, net (Note 8) 81,240 71,458 Accrued interest receivable 28,992 22,950 Other assets (Note 11 and 18) 25,775 24,626 ---------- ---------- Total assets $3,302,028 $3,019,118 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand: Non-interest bearing $ 393,417 $ 395,416 Interest bearing 665,313 630,832 Savings 333,436 303,881 Other time (Note 9) 1,471,446 1,268,540 ---------- ---------- Total deposits 2,863,612 2,598,669 Federal funds purchased and securities sold under repurchase agreements (Note 9) 35,848 63,314 Accrued interest payable 13,695 9,623 Other liabilities (Notes 11 and 12) 27,154 27,244 Long-term debt (Note 10) 73,624 67,416 ---------- ---------- Total liabilities 3,013,933 2,766,266 ---------- ---------- Shareholders' equity (Notes 2, 14, 15 and 16) Common stock, $2.50 par value Authorized - 500,000,000 shares; Issued - 21,105,664 (reflects the 1995 2-for-1 stock split effected as a dividend) and 10,328,460 shares at December 31, 1995 and 1994, respectively 52,764 25,819 Capital surplus 84,391 79,008 Unrealized gain (loss) on available-for-sale securities, net of tax 2,480 (1,702) Retained earnings 149,494 152,655 Treasury stock at cost (108,384 and 165,356 shares at December 31, 1995 and 1994, respectively) (1,034) (2,928) ---------- ---------- Total shareholders' equity 288,095 252,852 ---------- ---------- Commitments and contingent liabilities (Notes 6 and 19) Total liabilities and shareholders' equity $3,302,028 $3,019,118 ========== ==========
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31 ---------------------------------------- 1995 1994 1993 -------- -------- -------- (In thousands, except per share amounts) INTEREST REVENUE: Loans receivable $203,800 $163,727 $149,951 Deposits with other banks 857 660 833 Federal funds sold 2,205 1,756 1,487 Held-to-maturity securities: U.S. Treasury 3,977 2,063 4,550 U.S. Government agencies and corporations 24,175 16,579 17,955 Obligations of states and political subdivisions 7,491 7,213 8,854 Other 168 270 596 Available-for-sale securities 8,321 13,227 6,261 Mortgages held for sale 1,433 2,400 3,382 -------- -------- -------- Total interest revenue 252,427 207,895 193,869 -------- -------- -------- INTEREST EXPENSE: Deposits 107,165 79,270 74,751 Federal funds purchased and securities sold under repurchase agreements (Note 9) 2,084 1,338 982 Other (Note 10) 5,208 4,421 2,982 -------- -------- -------- Total interest expense 114,457 85,029 78,715 -------- -------- -------- Net interest revenue 137,970 122,866 115,154 Provision for credit losses (Note 7) 6,206 5,946 9,032 -------- -------- -------- Net interest revenue, after provision for credit losses 131,764 116,920 106,122 -------- -------- -------- OTHER REVENUE: Mortgage lending 3,723 858 3,075 Service charges 15,965 14,439 13,199 Life insurance premiums 3,345 3,300 3,057 Trust income 2,237 1,873 1,776 Securities gains (losses), net (765) (293) 731 Other 6,735 5,835 4,938 -------- -------- -------- Total other revenue 31,240 26,012 26,776 -------- -------- -------- OTHER EXPENSES: Salaries and employee benefits (Notes 12 and 14) 54,739 48,413 45,971 Occupancy net of rental income 8,022 7,616 7,548 Equipment 8,860 7,463 6,457 Deposit insurance premiums 3,412 5,621 5,140 Other 36,717 30,259 28,060 -------- -------- -------- Total other expenses 111,750 99,372 93,176 -------- -------- -------- Income before income taxes and effect of accounting change 51,254 43,560 39,722 Income tax expense (Note 11) 15,750 12,832 10,216 -------- -------- -------- Income before effect of accounting change 35,504 30,728 29,506 Cumulative effect on prior years of change in accounting for income taxes (Note 1) - - 3,429 -------- -------- -------- Net income $ 35,504 $ 30,728 $ 32,935 ======== ======== ======== EARNINGS PER SHARE (Note 16): Before effect of accounting change $1.69 $1.51 $1.49 ======== ======== ======== After effect of accounting change $1.69 $1.51 $1.66 ======== ======== ========
See accompanying notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY BANCORPSOUTH, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
COMMON STOCK UNREALIZED --------------------- CAPITAL GAINS RETAINED TREASURY SHARES AMOUNT SURPLUS (LOSSES), NET EARNINGS STOCK TOTAL ----------- ------- ------- ------------- -------- ---------- -------- (Dollars in thousands) BALANCE, DECEMBER 31, 1992 8,580,313 $21,575 $35,221 - $144,041 $(1,041) $199,796 Shares issued: Conversion of debentures (Note 10) 316,382 791 6,989 - - - 7,780 15% stock dividend (Note 15) 1,025,107 2,580 33,543 - (36,199) - (76) Conversion of warrants 59,540 148 452 - - - 600 Other shares issued 119,909 301 1,313 - - - 1,614 Recognition of stock compensation - - - - 32 - 32 Purchase of treasury stock (70,061) - - - - (1,026) (1,026) Purchase of stock warrants - - (25) - - - (25) Net income - - - - 32,935 - 32,935 Cash dividends declared: BancorpSouth, at $.54 per share (1) - - - - (7,585) - (7,585) Pooled acquisitions - - - - (878) - (878) ---------- ------- ------- ------ -------- ------- -------- BALANCE, DECEMBER 31, 1993 10,031,190 25,395 77,493 - 132,346 (2,067) 233,167 Impact at January 1, 1994 of change in accounting principle, net of tax (Note 1) - - - 2,573 - - 2,573 Shares issued: Employee stock bonus plan (Note 14) 25,000 63 750 - (813) - - Conversion of warrants 119,665 299 908 - - - 1,207 Other shares issued 25,103 62 341 - - - 403 Recognition of stock compensation - - - - 438 - 438 Purchase of treasury stock (37,854) - - - - (861) (861) Purchase of stock warrants - - - - (484) - (484) Change in market valuation of available-for-sale securities, net of tax - - - (4,275) - - (4,275) Net income - - - - 30,728 - 30,728 Cash dividends declared: BancorpSouth, at $.555 per share (1) - - - - (8,754) - (8,754) Pooled acquisitions - - - - (1,290) - (1,290) --------- ------ ------ ------ -------- -------- --------- BALANCE, DECEMBER 31, 1994 10,163,104 25,819 79,008 (1,702) 152,655 (2,928) 252,852 Shares issued: Employee stock bonus plan (Note 14) 15,000 37 476 - (513) - - Purchase business acquisitions (Note 3) 259,285 370 4,530 - - 1,894 6,794 Other shares issued 61,883 154 404 - - - 558 Recognition of stock compensation - - - - 436 - 436 Fractional shares redeemed in poolings (797) (1) (21) - - - (22) Purchase stock warrants - - - (6) - - (6) Change in market valuation of available-for-sale securities, net of tax - - - 4,182 - - 4,182 Net income - - - - 35,504 - 35,504 Stock split effected in the form of a stock dividend (Note 2) 10,498,805 26,385 - - (26,385) - - Cash dividends declared: BancorpSouth, at $.62 per share (1) - - - - (11,278) - (11,278) Pooled acquisitions - - - - (925) - (925) ----------- -------- ------- ------ -------- ------- -------- BALANCE, DECEMBER 31, 1995 20,997,280 $52,764 $84,391 $2,480 $149,494 $(1,034) $288,095 =========== ======== ======= ====== ======== ======= ========
(1) Cash dividends declared per share have been adjusted for the two-for-one stock split in the form of a stock dividend paid November 20, 1995. See accompanying notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS BANCORPSOUTH, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31 ------------------------------------------------- 1995 1994 1993 ----------- --------- --------- (In thousands) Operating activities: Net income $ 35,504 $ 30,728 $ 32,935 Adjustment to reconcile net income to net cash (used) provided by operating activities: Provision for credit losses 6,206 5,946 9,032 Depreciation and amortization 8,448 6,952 6,081 Deferred taxes 74 3,313 (416) Amortization of intangibles 726 583 315 Amortization of debt securities premium and discount, net (663) 1,483 2,343 Decrease in trading securities, net - - 2,019 Security losses (gains), net 765 293 (731) Net deferred loan origination expense (2,624) (2,087) (2,880) (Increase) decrease in interest receivable (6,042) (4,699) 1,848 Increase (decrease) in interest payable 4,072 2,119 (497) Proceeds from mortgages sold 150,572 266,911 216,069 Origination of mortgages for sale (163,415) (182,192) (266,335) Other, net 4,457 (46) (2,136) -------- -------- -------- Net cash provided by (used) in operating activities 38,080 129,304 (2,353) -------- -------- -------- Investing activities: Proceeds from calls and maturities of held- to-maturity securities 145,071 72,358 247,968 Proceeds from calls and maturities of available- for-sale securities 290,404 498,144 - Proceeds from sales of held-to-maturity securities 931 994 12,139 Proceeds from sales of available-for-sale securities 11,708 19,070 - Purchases of held-to-maturity securities (111,875) (253,423) (297,535) Purchases of available-for-sale securities (261,322) (423,712) - Net increase (decrease) in short-term investments (32,175) 27,676 50,070 Net increase in loans (269,328) (240,538) (188,207) Purchases of premises and equipment (18,695) (10,050) (12,828) Proceeds from sale of premises and equipment 480 103 2,575 Other, net (5,268) (2,914) (5,091) -------- -------- -------- Net cash used in investing activities (250,069) (312,292) (190,909) -------- -------- -------- Financing activities: Net increase in deposits 264,943 132,384 156,117 Net increase (decrease) in short-term debt and other liabilities (28,478) 26,448 (2,328) Advances on long-term debt 21,000 43,093 8,025 Repayment of long-term debt (14,792) (9,432) (1,878) Issuance of common stock 506 404 1,522 Acquisition of treasury stock - (861) (1,026) Purchase of stock warrants (6) (484) (25) Proceeds from warrant conversion, net - 1,207 600 Payment of cash dividends (10,062) (7,669) (10,253) -------- -------- -------- Net cash provided by financing activities 233,111 185,090 150,754 -------- -------- -------- Increase (decrease) in cash and cash equivalents 21,122 2,102 (42,508) Cash and cash equivalents at beginning of year 144,693 42,591 185,099 -------- -------- -------- Cash and cash equivalents at end of year $165,815 $144,693 $142,591 ======== ======== ========
See accompanying notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BANCORPSOUTH, INC. AND SUBSIDIARIES DECEMBER 31, 1995, 1994 AND 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of BancorpSouth, Inc. (the Company) have been prepared in conformity with generally accepted accounting principles and prevailing practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period reported. Actual results could differ significantly from those estimates. The Company and its subsidiaries are engaged in the business of banking and activities closely related to banking. The Company and its subsidiaries are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies. The following is a summary of the more significant accounting and reporting policies. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Bank of Mississippi (BOM), Volunteer Bank (VOL) and Laurel Federal Savings and Loan Association (Laurel Federal). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain 1994 and 1993 amounts have been reclassified to conform with the 1995 presentation. CASH FLOW STATEMENTS Cash equivalents include cash and amounts due from banks including interest bearing deposits with other banks. The Company paid interest of $110,385,000, $82,910,000 and $79,213,000 and income taxes of $15,480,000, $8,505,000 and $8,487,000 for the years ended December 31, 1995, 1994 and 1993, respectively. During 1994, the Company implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" issued by the Financial Accounting Standards Board (FASB), increasing shareholders' equity by $2,573,000. See Note 4 regarding the reclassification from held-to-maturity securities to available-for-sale securities during 1995 which resulted in increasing shareholders' equity by $390,000. See Notes 10, 14 and 15 related to the conversion of convertible subordinated capital debentures, the stock bonus plan and the stock dividend paid. SECURITIES The Company adopted SFAS 115 effective January 1, 1994. Under SFAS 115, securities are classified as either held-to-maturity, trading or available-for-sale. Held-to-maturity securities are debt securities that the Company has the ability and management has the positive intent to hold to maturity. They are reported at amortized cost. Trading securities are debt and equity securities that are bought and held principally for the purpose of selling them in the near term. They are reported at fair value, with unrealized gains and losses included in earnings. The Company had no trading securities at December 31, 1995 and 1994. Available-for-sale securities are debt and equity securities not classified as either held-to-maturity securities or trading securities. They are reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in a separate component of shareholders' equity until realized. Prior to the adoption by the Company on January 1, 1994, of SFAS 115, these securities were held for sale and carried at the lower of aggregate amortized cost or market. Gains and losses on securities are determined on the identified certificate basis. Amortization of premium and accretion of discount are computed using the interest method. Changes in the valuation of securities which are considered other than temporary are recorded as losses in the period recognized. 7 LOANS Loans are recorded at the face amount of the notes reduced by collections of principal. Loans include net unamortized deferred origination costs. Unearned discount on discount-basis consumer loans is recognized as income using a method which approximates the level yield method. Interest is recorded monthly as earned on all other loans. Where doubt exists as to the collectibility of the loans, interest income is recorded as payment is received. PROVISION AND ALLOWANCE FOR CREDIT LOSSES The provision for credit losses charged to expense is an amount which, in the judgment of management, is necessary to maintain the allowance for credit losses at a level that is adequate to meet the present and potential risks of losses on the Company's current portfolio of loans. Management's judgment is based on a variety of factors which include the Company's experience related to loan balances, charge-offs and recoveries, scrutiny of individual loans and risk factors, results of regulatory agency reviews of loans, and present and future economic conditions of the Company's market area. Material estimates that are particularly susceptible to significant change in the near term are a necessary part of this process. Future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. MORTGAGES HELD FOR SALE Mortgages held for sale are recorded at lower of aggregate cost or market as determined by outstanding commitments from investors or current investor yield requirements. PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation and amortization, computed using straight-line and accelerated methods, are charged to expense over the shorter of the lease term or the estimated useful lives of the assets. Costs of major additions and improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. OTHER REAL ESTATE OWNED Real estate acquired in settlement of loans is carried at the lower of cost or fair value, less selling cost. Fair value is based on independent appraisals and other relevant factors. At the time of acquisition, any excess of cost over fair value is charged to the allowance for credit losses. Gains and losses realized on sale are included in other revenue. PENSION EXPENSE The Company maintains a non-contributory defined benefit pension plan that covers all employees who qualify as to age and length of service. Net periodic pension expense is actuarially determined. INCOME TAXES Effective January 1, 1993, the Company adopted the provisions of SFAS No. 109, "Accounting for Income Taxes", resulting in a $3,429,000 benefit and reported the cumulative effect of that change in the method of accounting for income taxes in the 1993 consolidated statement of income. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company, with the exception of BOM's credit life insurance subsidiary and VOL's credit life insurance subsidiary, files a consolidated federal income tax return. 8 RECENT PRONOUNCEMENTS SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", issued in March 1995, provides guidance for recognition of impairment losses related to long-lived assets, and certain intangibles and related goodwill. This Statement is effective for fiscal beginning after December 15, 1995. SFAS No. 123 "Accounting for Stock-Based Compensation" was issued in October 1995, and provides for a fair value method of accounting for stock-based compensation arrangements rather than the intrinsic value method now followed. Adoption of the fair value method for purposes of preparing basic financial statements is not required although disclosure or the effect of such adoptions is. The Statement is effective for stock-based compensation arrangements awarded after December 15, 1995. Management believes the adoption of the above-mentioned Statements will not have a material impact on the Company's consolidated financial statement. OTHER Trust income is recorded on the cash basis as received, which does not differ materially from the accrual basis. (2) STOCK SPLIT On November 20, 1995, the Company's two-for-one stock split effected in the form of a 100% stock dividend resulted in the issuance of 10,495,805 new shares of common stock. Information relating to earnings per share, dividends per share and other share data has been retroactively adjusted to reflect this stock split. (3) ACQUISITIONS On March 31, 1995, LF Bancorp, Inc. (LF Bancorp), a $190 million thrift holding company and parent of Laurel Federal, merged with and into the Company and Laurel Federal became a subsidiary of the Company. Pursuant to the merger, each share of common stock of LF Bancorp was converted into 2.026 shares of the Company's common stock, or a total of 1,664,202 common shares. This transaction was accounted for as a pooling of interests and the Company's financial statements for all periods presented include the consolidated accounts of LF Bancorp. On July 31, 1995, First Federal Bank for Savings (First Federal), a $25 million savings and loan association, merged with and into the Company. Pursuant to the merger, First Federal was merged into BOM. Each share of common stock of First Federal was converted into 1.396 shares of the Company's common stock, or a total of 219,654 common shares. This transaction was accounted for as a pooling of interests. The result of operations of First Federal are included in the Company's financial statements for all periods presented but are not presented separately in the table below because they are not material. On September 1, 1995, the Company, issued 156,818 shares of common stock to effect the purchase of substantially all of the assets and the assumption of certain liabilities of the Shelby Bank (Shelby). The purchase price was allocated to the acquired assets and liabilities at their respective estimated fair value at the date of acquisition. On November 30, 1995, Wes-Tenn Bancorp, Inc. (Wes-Tenn), a $340 million bank holding company, merged with and into the Company. Pursuant to the merger, Wes-Tenn's subsidiary bank, Tennessee Community Bank (TCB), was merged into VOL and TCB's wholly-owned subsidiaries, TC Finance, Inc. and West Tennessee Life Insurance Company, became subsidiaries of VOL. Each share of common stock of Wes-Tenn was converted into 1.214702 shares of the Company's common stock, or a total of 3,059,764 common shares. This transaction was accounted for as a pooling of interests and the Company's financial statements for all periods presented include the consolidated accounts of Wes-Tenn. Prior to its merger with the Company, Wes-Tenn on April 3, 1995, acquired West Tennessee Financial Corporation (WTFC), a $38 million bank holding company and parent of Community Bank of West Tennessee (CBWT). WTFC and CBWT were merged into Wes-Tenn and TCB, respectively. This acquisition was accounted for as a purchase and the purchase price was allocated to the acquired assets and liabilities at their respective estimated fair value at the date of acquisition. 9 Details of the results of operations of the previously separate companies for the period before the combinations were consummated that are included in the current consolidated net income follows:
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1995 DECEMBER 31, 1994 ------------------ --------------------------- LF COMPANY WES-TENN COMPANY WES-TENN BANCORP ------- -------- ------- -------- ------- (In thousands except per share data) Net interest revenue.................. $92,542 $9,362 $103,876 $11,770 $6,278 Provision for credit losses........... 4,132 464 5,652 285 - Other revenue......................... 21,020 1,760 23,421 1,631 926 Other expense......................... 74,525 7,266 85,799 8,540 5,872 Income tax expense.................... 11,018 961 10,400 1,354 476 ------- ------ -------- ------- ------ Net income............................ $23,887 $2,431 $ 25,446 $ 3,222 $ 856 ------- ------ -------- ------- ------ Earnings per share.................... $ 1.33 $ 1.01 $ 1.605 $ 1.44 $ 2.30 Dividend declared per share........... 0.45 0.37 0.555 0.37 0.60
(4) HELD-TO-MATURITY SECURITIES A comparison of amortized cost and estimated fair values of held-to-maturity securities as of December 31, 1995 and 1994 follows:
1995 ---------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- ---------- (In thousands) U.S. Treasury $33,355 $ 1,698 $ 10 $ 35,043 U.S. Government agencies and corporations 293,831 5,603 771 298,663 Tax exempt obligations of states and political subdivisions 111,330 3,297 1,052 113,575 Other 787 7 - 794 -------- ------- ------ -------- Total $439,303 $10,605 $1,833 $448,075 ======== ======= ====== ========
1994 --------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------------------------------------------------- (In thousands) U.S. Treasury $ 59,793 $ 35 $ 2,124 $ 57,704 U.S. Government agencies and corporations 376,708 192 18,166 358,734 Tax exempt obligations of states and political subdivisions 112,915 3,194 2,979 113,130 Other 3,416 1 - 3,417 -------- ------ ------- -------- Total $552,832 $3,422 $23,269 $532,985 ======== ====== ======= ========
Gross gains of $123,000 and gross losses of $389,000 were recognized in 1995, gross gains of $67,000 and gross losses of $181,000 were recognized in 1994 and gross gains of $588,000 and gross losses of $585,000 were recognized in 1993 on held-to-maturity securities. These gains and losses were primarily the result of held-to-maturity securities being called prior to maturity. Held-to-maturity securities with a carrying value of approximately $279,000,000 at December 31, 1995, were pledged to secure public and trust funds on deposit and for other purposes. On November 15, 1995, the FASB issued a special report pertaining to the implementation of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Concurrent ith the issuance of the report but not later than December 31, 1995, the FASB allowed for a reassessment of the appropriateness of the classification of securities held at that time and to account for any resulting reclassification at fair value. Reclassifications from the held-to-maturity category that were a result of this 10 one-time assessment would not call into question the intent of the Company to hold other debt securities until maturity in the future. Based upon this guidance, the Company transferred securities with an amortized cost of $59,069,000 and an estimated fair value of $59,698,000 to the available-for-sale category with a resulting unrealized gain of $629,000. The amortized cost and estimated fair value of held-to-maturity securities at December 31, 1995 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1995 --------------------- ESTIMATED AMORTIZED FAIR COST VALUE --------------------- (In thousands) Due in one year or less $ 32,941 $ 32,863 Due after one year through five years 222,789 226,700 Due after five years through ten years 168,116 173,154 Due after ten years 15,457 15,358 -------- -------- Total $439,303 $448,075 ======== ========
(5) AVAILABLE-FOR-SALE SECURITIES A comparison of amortized cost and estimated fair values of available-for-sale securities as of December 31, 1995 and 1994 follows:
1995 -------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (In thousands) U.S. Treasury $ 50,626 $ 683 $ 68 $ 51,241 U.S. Government agencies and corporations 127,087 1,143 742 127,488 Tax exempt obligations of states and political subdivisions 23,212 444 315 23,341 Preferred stock 19,500 - - 19,500 Other 15,484 2,756 55 18,185 -------- ------ ------ -------- Total $235,909 $5,026 $1,180 $239,755 ======== ====== ====== ========
1994 -------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (In thousands) U.S. Treasury $ 31,642 $ 30 $1,248 $ 30,424 U.S. Government agencies and corporations 70,205 101 2,699 67,607 Tax exempt obligations of states and political subdivisions 31,377 339 1,482 30,234 Preferred stock 53,000 - - 53,000 Other 10,536 2,283 55 12,764 -------- ------ ------ -------- Total $196,760 $2,753 $5,484 $194,029 ======== ====== ====== ========
Gross gains of $900,000 and gross losses of $1,399,000 were recognized in 1995, gross gains of $170,000 and gross losses of $349,000 were recognized in 1994 and gross gains of $807,000 and gross losses of $180,000 were recognized in 1993 on available-for-sale securities. Gross gains of $101,000 were recognized in 1993 from sales of trading securities. 11 Available-for-sale securities with a carrying value of approximately $82,000,000 at December 31, 1995, were pledged to secure public and trust funds on deposit and for other purposes. The amortized cost and estimated fair value of available-for-sale securities at December 31, 1995 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalities.
1995 --------------------- ESTIMATED AMORTIZED FAIR COST VALUE --------- --------- (In thousands) Due in one year or less $ 49,946 $ 50,022 Due after one year through five years 128,564 129,684 Due after five years through ten years 31,986 34,767 Due after ten years 25,413 25,282 -------- -------- Total $235,909 $239,755 ======== ========
(6) LOANS A summary of loans classified by collateral type at December 31, 1995 and 1994 follows:
1995 1994 --------- ---------- (In thousands) Commercial and agricultural $ 223,225 $ 211,988 Consumer and installment 695,127 633,692 Real estate mortgage 1,314,935 1,151,666 Lease financing 121,617 81,816 Other 16,780 11,913 ---------- ---------- Total $2,371,684 $2,091,075 ========== ==========
Non-performing loans consist of both non-accrual loans and loans which have been restructured (primarily in the form of reduced interest rates) because of the borrower's weakened financial condition. The aggregate principal balance of non-accrual loans was $1,592,000 and $3,029,000 at December 31, 1995 and 1994, respectively. Restructured loans totaled $7,000 and $1,448,000 at December 31, 1995 and 1994, respectively. The recorded investment in loans considered impaired at December 31, 1995, under SFAS No. 114 was $30,875,000 with a valuation reserve of $3,279,000. Interest income of approximately $2,740,000 was recognized on these impaired loans. There were no impaired loans without a valuation reserve at December 31, 1995. The total amount of interest earned on non-performing loans was approximately $70,000, $214,000 and $277,000 in 1995, 1994 and 1993, respectively. The gross interest income which would have been recorded under the original terms of those loans amounted to $105,000, $353,000 and $611,000 in 1995, 1994 and 1993, respectively. 12 (7) ALLOWANCE FOR CREDIT LOSSES The following schedule summarized the changes in the allowance for credit losses for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993 ------- ------- ------- (In thousands) Balance at beginning of year $30,830 $27,468 $24,116 Provision charged to expense 6,206 5,946 9,032 Recoveries 1,567 3,277 1,996 Loans charged off (4,714) (5,861) (7,676) Acquisitions 747 - - ------- ------- ------- Balance at end of year $34,636 $30,830 $27,468 ======= ======= =======
(8) PREMISES AND EQUIPMENT A summary by asset classification at December 31, 1995 and 1994 follows:
ESTIMATED USEFUL LIFE YEARS 1995 1994 ----------- -------- -------- (In thousands) Cost: Land $ 12,756 $ 11,125 Buildings and improvements 20-50 61,943 57,475 Leasehold improvements 10-20 1,608 2,103 Equipment, furniture and fixtures 3-12 48,486 46,333 Construction in progress 5,044 2,309 -------- -------- 129,837 119,345 Accumulated Depreciation and Amortization 48,597 47,887 -------- -------- Premises and Equipment, net $ 81,240 $ 71,458 ======== ========
(9) TIME DEPOSITS AND SHORT-TERM DEBT Certificates of deposit and other time deposits of $100,000 or more amounting to approximately $334,915,000 and $264,486,000 were outstanding at December 31, 1995 and 1994, respectively. Total interest expense relating to certificate and other time deposits of $100,000 or more totaled approximately $17,386,000, $10,582,000 and $13,314,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 13 Presented below is information relating to short-term debt for the years ended December 31, 1995 and 1994.
END OF PERIOD DAILY AVERAGE MAXIMUM ---------------------- ------------------------ OUTSTANDING INTEREST INTEREST AT ANY BALANCE RATE BALANCE RATE MONTH END ------------------------ ------------------------ -------------- (Dollars in thousands) 1995: Federal funds purchased $ 3,850 5.2% $ 5,747 6.7% $11,474 Securities sold under repurchase agreements 31,998 4.8% 33,996 5.0% 39,345 ------- ------- ------- Total $35,848 $39,743 $50,819 ======= ======= ======= 1994: Federal funds purchased $34,350 6.3% $ 8,403 4.0% $35,700 Securities sold under repurchase agreements 28,964 4.6% 28,398 3.5% 32,410 ------- ------- ------- Total $63,314 $36,801 $68,110 ======= ======= =======
Federal funds purchased generally mature the day following the date of purchase while securities sold under repurchase agreements generally mature within 30 days from the date of sale. At December 31, 1995, the Company's subsidiary banks had established informal federal funds borrowing lines of credit aggregating $173,500,000. (10) LONG-TERM DEBT SUBORDINATED CAPITAL DEBENTURES On May 21, 1986, the Company issued $10,000,000 of 7.25% convertible subordinated capital debentures due May 1, 1998. The 7.25% debentures were convertible at or before maturity at a conversion price of $11.01 principal amount of debentures for one share of the Company's common stock, $2.50 par value per share, subject to adjustment. On March 12, 1993, the Company called for redemption on April 27, 1993, of the remaining $7,996,000 in outstanding debentures. Prior to the redemption date, substantially all of the outstanding debentures were converted into an aggregate of 727,678 shares of the Company's common stock (316,382 shares prior to adjusting for the 15% stock dividend and 2-for-1 stock split, see Notes 2 and 15), and on April 27, 1993, the remaining $22,000 principal amount of the debentures were redeemed. Interest of $116,000 on the 7.25% debentures is included in interest expense for 1993. On November 22, 1989, the Company issued $25,000,000 of 9% subordinated capital debentures due November 1, 1999. At December 31, 1995 and 1994, $24,508,000 of the debentures were outstanding. At December 31, 1995, the 9% debentures were redeemable at the option of the Company in whole or in part at the redemption price of 101.5% of par and will be redeemable at par on or after November 1, 1996. Up to $25,000 of 9% debentures per holder and a maximum of $250,000 of 9% debentures in the aggregate may be tendered for prepayment in the event of a holder's death in each 12-month period ending October 31. If aggregate redemptions are less than $250,000 in any such 12-month period, the unused portion will be carried forward to succeeding periods. No debentures were prepaid during 1993, 1994 or 1995. Interest of $2,206,000 on the 9% debentures is included in interest expense for 1995, 1994 and 1993, respectively. 14 FEDERAL HOME LOAN BANK ADVANCES BOM has entered into a blanket floating lien security agreement with the Federal Home Loan Bank (FHLB) of Dallas. Under the terms of this agreement, BOM is required to maintain sufficient collateral to secure borrowings in an aggregate amount of the lessor of 65 percent of the book value (unpaid principal balance) of the borrower's first mortgage collateral or 35 percent of the borrower's assets. VOL has entered into a blanket floating lien security agreement with the FHLB of Cincinnati. Under the terms of this agreement, VOL is required to maintain unencumbered, quality first mortgage loans in an amount equal to 150 percent of outstanding advances as collateral for those advances. At December 31, 1995, the following FHLB fixed term advances were repayable in monthly installments as follows:
FINAL DUE DATE INTEREST RATE AMOUNT --------------- ------------- ------ (In thousands) 1997 5.95% $ 5,000 1998 5.63% 5,000 2000 5.82% - 6.55% 10,000 Thereafter 5.21% - 8.95% $29,116 ------- Total $49,116 =======
(11) INCOME TAXES Total income taxes for the year ended December 31, 1995, 1994 and 1993 were allocated as follows:
1995 1994 1993 --------- ------------ ---------- (In thousands) Income from continuing operations $15,750 $12,832 $10,216 Cumulative effect of accounting change - - (3,429) Shareholders' equity for unrealized gain (loss) on available-for-sale securities 2,395 (1,139) - ------- ------- ------- Total $18,145 $11,693 $ 6,787 ======= ======= =======
The components of income tax expense (credit) attributable to continuing operations are as follows for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993 ---------- ----------- -------- (In thousands) Current: Federal $14,118 $ 8,224 $ 9,702 State 1,558 1,295 930 Deferred: Federal 13 3,002 (330) State 61 311 (86) ------- ------- ------- Total $15,750 $12,832 $10,216 ======= ======= =======
15 Income tax expense differs from the amount computed by applying the U.S. federal income tax rate of 35% to income before income taxes due to the following:
1995 1994 1993 -------- ----------- -------- (In thousands) Tax expense at statutory rate $17,939 $15,246 $13,903 Increase (reduction) in taxes resulting from: State income taxes net of federal tax benefit 1,052 1,044 549 Tax exempt interest revenue (2,718) (2,796) (3,022) Dividend received deduction (378) (497) (418) Tax over book loss on security transactions (520) (100) (268) Non-deductible merger expenses 490 41 - Other, net (115) (106) (528) ------- ------- ------- Total $15,750 $12,832 $10,216 ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are as follows:
1995 1994 ---- ---- (In thousands) Deferred tax assets: Loans receivable, principally due to allowance for credit losses $13,196 $10,843 Deferred liabilities principally due to compensation arrangements and vacation accruals 2,939 2,453 Unrealized losses on available-for-sale securities - 1,029 Other, net 105 199 Net operating loss carryforwards 395 460 Alternative minimum tax credit carryforwards - 756 ------- ------- Total gross deferred tax assets $16,635 $15,740 Less: valuation allowance - - ------- ------- Deferred tax assets $16,635 $15,740 ======= ======= Deferred tax liabilities: Bank premises and equipment, principally due to differences in depreciation and lease transactions $10,439 $ 8,168 Loans and lease receivables, principally due to deferral of loan origination costs and interest income recognition 1,342 1,959 Deferred assets, principally due to the capitalization of excess servicing rights for financial reporting purposes 2,432 1,617 Investments, principally due to interest income recognition 767 1,035 Unrealized gains on available-for-sale securities 1,366 - Other, net 18 221 ------- ------- Total gross deferred liabilities 16,364 13,000 ------- ------- Net deferred tax assets (liabilities) $ 271 $ 2,740 ======= =======
16 Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences existing at December 31, 1995. At December 31, 1995 the Company has net operating loss carryforwards for federal income tax purposes of approximately $1,127,000 that are available to offset future federal taxable income, subject to various limitations, through 2001. At December 31, 1995 the Company has capital loss carryforwards for federal income tax purposes of approximately $202,000 that are available to offset future capital gains, if any. The capital loss carryforwards will expire in 1997 and 1998. Based on the Company's historical and current pretax earnings, management believes that it is more likely than not that the Company will realize the benefits of the capital loss carryforwards existing at December 31, 1995. Tax bad debt reserves at Laurel Federal in the amount of $5,857,000 have not been tax-effected and represent a potential deferred tax liability. (12) PENSION AND PROFIT SHARING PLANS The Company maintains a noncontributory and trusteed defined benefit pension plan covering substantially all full-time employees who have at least one year of service and have attained the age of twenty-one. Benefits are based on years of service and the employee's compensation. The Company's funding policy is to contribute to the pension plan the amount required to fund benefits expected to be earned for the current year and to amortize amounts related to prior years using the projected unit credit cost method. The difference between the pension cost included in current income and the funded amount is included in other assets or other liabilities, as appropriate. Actuarial assumptions are evaluated periodically. Pension expense for the years ended December 31, 1995, 1994 and 1993 included the following components:
1995 1994 1993 ------ ------ ------ (In thousands) Service cost $ 785 $1,035 $ 992 Interest cost 1,001 1,081 1,032 Actual return on plan assets (3,637) 31 (1,079) Net amortization and deferral 2,510 (1,200) 67 Cost of special termination benefits 464 - - ------ ------ ------ Pension expense $1,123 $ 947 $1,012 ====== ====== ======
The funded status of the Company's plan at December 31, 1995 and 1994 was as follows:
1995 1994 ------- ------- (In thousands) Plan assets at fair value (primarily in listed bonds and commingled funds) $19,234 $14,857 Actuarial present value of projected benefit obligations 17,433 13,515 ------- ------- Projected benefit obligation less than plan assets 1,801 1,342 Unrecognized net gain (1,507) (2,670) Unrecognized prior service cost (1,341) (527) Unrecognized net obligation at January 1 (10) (12) ------- ------- Accrued pension expense recorded in the financial statements $(1,057) $(1,867) ======= ======= Actuarial present value of vested benefit obligations $ 7,412 $ 7,482 ======= ======= Accumulated benefit obligations $11,285 $ 8,769 ======= =======
17 The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% for 1995 and 1994. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5% for 1995 and 5.5% for 1994. The expected long-term rate of return on assets during 1995 and 1994 was 7.5%. The Company has a non-qualified supplemental retirement plan for certain key employees. Benefits commence when the employee retires and are payable over a period of ten years. The amount accrued under the plan was $111,000 in 1995, $93,000 in 1994 and $90,000 in 1993. The Company has a deferred compensation plan (commonly referred to as a 401(k) Plan), whereby employees may contribute a portion of their compensation, as defined, subject to the limitation as established in Section 415 of the Internal Revenue Code. Employee contributions (up to five percent of defined compensation) are matched dollar-for-dollar by the Company. Under the terms of the plan, contributions matched by the Company are used to purchase Company common stock at prevailing market prices. Plan expense for the years ended December 31, 1995, 1994 and 1993 was $1,495,000, $1,402,000 and $1,353,000, respectively. In December 1993, the Company adopted the BancorpSouth, Inc. Restoration Plan (Restoration Plan) to provide for the payment of retirement benefits to certain participants in the BancorpSouth, Inc. Retirement Plan (Basic Plan). The Restoration Plan covers any employee whose benefit under the Basic Plan is limited by the provisions of the Internal Revenue Code of 1986 and any employee who elects to participate in the BancorpSouth, Inc. Deferred Compensation Plan, thereby reducing his benefit under the Basic Plan. Restoration Plan expense was $48,000 in 1995 and $36,000 in 1994. (13) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS 107, "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments. SECURITIES The carrying amounts for short-term securities approximate fair value because of their short-term maturity (90 days or less) and present no unexpected credit risk. The fair value of most longer-term securities is estimated based on market prices or dealer quotes. See Note 4, Held-to-Maturity Securities, and Note 5, Available-for-Sale Securities for fair values. LOANS Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, consumer and installment and real estate mortgage. The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. The following table presents information for loans at December 31, 1995 and 1994:
1995 1994 -------------------------- -------------------------- BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- (In thousands) Commercial $ 223,225 $ 224,129 $ 211,988 $ 207,837 Consumer and installment 695,127 708,100 633,692 647,177 Real estate mortgage 1,314,935 1,295,090 1,151,666 1,126,932 All other 16,780 16,780 11,913 11,913 ---------- ---------- ---------- ---------- Total $2,250,067 $2,244,099 $2,009,259 $1,993,859 ========== ========== ========== ==========
18 Average maturity represents the expected average cash flow period, which in some instances is different than the stated maturity. Management has made estimates of fair value discount rates that is believed to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the fair value presented above would be indicative of the value negotiated in an actual sale. New loan rates were used as the discount rate on new loans of the same type, credit quality on maturity. For lower graded loans, the discount rate was based on yields of bonds of similar credit risk and maturity. DEPOSIT LIABILITIES Under SFAS 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, and NOW accounts, and money market and checking accounts, is equal to the amount payable on demand as of December 31, 1995 and 1994. The fair value of fixed-rate certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities. The following table presents information for certificates of deposit at December 31, 1995 and 1994:
1995 1994 ------------------------ ------------------------ BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- (In thousands) Certificates of deposit: Maturing in six months or less $ 755,204 $ 757,639 $ 597,947 $ 597,358 Maturing between six months and one year 345,987 347,679 215,342 215,855 Maturing between one and three years 288,709 292,169 339,008 339,820 Maturing beyond three years 81,546 84,766 116,243 115,249 ---------- ---------- ---------- ---------- Total $1,471,446 $1,482,253 $1,268,540 $1,268,282 ========== ========== ========== ==========
LONG-TERM DEBT The fair value of the Company's subordinated capital debentures is estimated based on quoted market prices. The following table presents information at December 31, 1995 and 1994:
1995 1994 ------------------- ------------------ BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ------- ------- ------- ------- (In thousands) Subordinated Capital Debentures $24,508 $24,265 $24,508 $24,018 ======= ======= ======= =======
19 The fair value of the Company's FHLB advances is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently available for advances of similar maturities. The following table presents information on the FHLB advances at December 31, 1995 and 1994.
1995 1994 ------------------- ------------------ BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ------- ------- ------- ------- (In thousands) (In thousands) Final due date - -------------- 1997 $ 5,000 $ 5,024 $ - $ - 1998 5,000 5,001 - - 2000 10,000 10,257 - - Thereafter 29,116 29,548 42,908 38,334 ------- ------- ------- ------- Total $49,116 $49,830 $42,908 $38,334 ======= ======= ======= =======
(14) STOCK INCENTIVE AND STOCK OPTION PLANS During 1987, the Company issued 34,500 shares of common stock (15,000 shares prior to adjusting for the 15% stock dividend and the 2-for-1 stock split effected in the form of a dividend, see Notes 2 and 15) to a key employee. The shares vest over a 10-year period subject to the Company meeting certain performance goals. The unearned shares are held in escrow and totaled 6,900 at December 31, 1995. The compensation associated with this award is being recognized over the 10-year period. During 1994, the Company issued 50,000 shares of common stock (25,000 shares prior to adjusting for the 2-for-1 stock split effected in the form of a dividend, see Note 2) to a key employee; 25,000 shares were awarded upon issuance and 25,000 shares were awarded on November 21, 1995. The stock bonus agreement provides for a cash bonus to the employee in an amount equal to the state and federal income and employment tax liabilities incurred by the employee as a result of this stock bonus award. The Company recorded compensation expense of $905,000 and $753,000 in 1995 and 1994, respectively, with regard to this stock bonus. In 1995, the Company issued 30,000 shares of common stock (15,000 shares prior to adjusting for the 2-for-1 stock split effected in the form of a dividend, see Note 2) to a key employee. The shares vest over a 10-year period subject to the Company meeting certain performance goals. The unearned shares are held in escrow and totaled 30,000 at December 31, 1995. The compensation associated with this award is being recognized over the 10-year period. Key employees and directors of the Company and its subsidiaries have been granted stock options and stock appreciation rights (SARs) under the Company's 1990, 1994 and 1995 stock incentive plans. All options and SARs granted pursuant to these plans have been at market value on the date of the grant and are exercisable over periods of one to ten years. The Company recorded $947,000, $106,000 and $213,000 in compensation expense in 1995, 1994 and 1993, respectively, related to the SARs because of the increase in market value of its common stock. In 1995, pursuant to certain acquisitions, incentive and non-qualified stock options were granted to employees and directors of the companies being acquired in exchange for stock options that were outstanding at the time those mergers were consummated. The number of shares and option prices of shares authorized under the various stock option plans have been adjusted for the two-for-one stock split effected in the form of a dividend discussed in Note 2. 20 Changes in options outstanding during 1995, 1994 and 1993 were as follows:
PRICE RANGE SHARES PER SHARE ------- ---------------- Outstanding, December 31, 1992 265,843 $ 9.44 to $14.94 Granted during 1993 250,700 $15.82 to $17.45 Exercised during 1993 (19,545) $ 8.26 to $12.99 Expired or cancelled during 1993 (3,680) $ 8.21 to $ 9.95 ------- ---------------- Outstanding, December 31, 1993 493,318 $ 8.21 to $17.45 Granted during 1994 24,150 $14.88 Exercised during 1994 (37,071) $ 8.26 to $12.99 Expired or cancelled during 1994 (2,645) $ 8.26 to $15.82 ------- ---------------- Outstanding, December 31, 1994 477,752 $ 8.21 to $17.45 Granted during 1995 178,000 $17.13 to $22.13 Additions due to acquistions 64,691 $ 4.94 to $ 7.16 Exercised during 1995 (42,073) $ 4.94 to $15.82 Expired or cancelled during 1995 (1,150) $14.88 ------- ---------------- Outstanding, December 31, 1995 677,220 $ 4.94 to $22.13 ------- ---------------- Exercisable, December 31, 1995 424,852 $ 4.94 to $17.45 ------- ----------------
(15) STOCK DIVIDEND On December 1, 1993, the Company issued 2,050,214 new shares of common stock (1,025,107 shares prior to adjusting for the 2-for-1 stock split, see Note 2) to effect the payment of a 15% stock dividend. Shareholders who were entitled to fractional shares were paid cash equal to the market value of the fraction on the record date which amounted to $76,000. Information relating to earnings per share has been retroactively adjusted to reflect this 15% stock dividend. (16) PER SHARE AND DIVIDEND DATA Net income per share is based on the weighted average number of shares of the Company's common stock and common stock equivalents outstanding. Net income per share for all periods presented has been retroactively adjusted to the reflect the acquisitions as discussed in Note 3. Common stock and common stock equivalents have also been adjusted for all periods presented for the 15% stock dividend and the two-for-one stock split effected in the form of a 100% stock dividend (see Notes 2 and 15). The computation of earnings per share is based on this adjusted weighted average number of common shares outstanding and the assumed exercise of all outstanding stock options using the treasury stock method (21,015,406 in 1995, 20,373,414 in 1994 and 19,858,018 in 1993). Wes-Tenn had outstanding warrants to purchase shares of its common stock all of which were exercised prior to its merger with the Company as discussed in Note 3. Dividends to shareholders can be paid only from dividends paid to the Company by its subsidiary banks which are subject to approval by the applicable state regulatory authorities. 21 (17) RELATED PARTY TRANSACTIONS The Company has made, and expects in the future to continue to make in the ordinary course of business, loans to directors and executive officers of the Company and their affiliates. In management's opinion, these transactions with directors and executive officers were made on substantially the same terms as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present any other unfavorable features. An analysis of such outstanding loans is as follows:
AMOUNT ------ (In thousands) Loans outstanding December 31, 1994 $ 16,916 New loans 14,488 Repayments (13,543) Changes in directors and executive officers (586) -------- Loans outstanding December 31, 1995 $ 17,275 ========
(18) CAPITALIZED MORTGAGE SERVICING RIGHTS In May 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights," was issued which is an amendment to SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." The Company elected in the fourth quarter to adopt this statement as of January 1, 1995. The effect of implementing SFAS No. 122 was not material to the consolidated financial statements. The primary difference between SFAS No. 122 and SFAS No. 65, as they relate to the Company, is the accounting treatment for in-house originated mortgage servicing rights (OMSRs). Substantially all of the Company's originations are in-house, whereby the underlying loans are funded and closed by the Company. SFAS No. 122, among other provisions, requires the recognitions of OMSRs, as well as purchased mortgage servicing rights (PMSRs), as assets by allocating the total cost incurred between the loan and the servicing rights based on their relative fair values. Under SFAS No. 65, the cost of OMSRs was included with the cost of the related loans and written off against income when the loans were sold. PMSRs were previously recorded as assets under SFAS No. 65. Also under the new Statement, all capitalized mortgage servicing rights are evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their fair value. In measuring impairment, the carrying amount must be stratified based on one or more predominant risk characteristics of the underlying loans. Impairment is recognized through a valuation allowance for each individual stratum. Under SFAS No. 65, the impairment evaluation could be made using either discounted or undiscounted cash flows with no required level of disaggregation specified. Any impairment was recorded directly against the asset. SFAS No. 122 does not change the provisions of SFAS No. 65 related to the recognition and amortization of excess servicing rights. The following is a summary of capitalized mortgage servicing rights, net of accumulated amortization, and a valuation allowance for impairment:
(in thousands) December 31, 1994 $3,608 Mortgage servicing rights capitalized 2,100 Amortization expense (657) ------ December 31, 1995 5,051 Valuation allowance (401) ------ Fair value at December 31, 1995 $4,650 ======
The value of pre-SFAS No. 122 PMSRs is established using a discounted cash flow analysis. These PMSRs are being amortized using an accelerated method over the estimated life of the net servicing income. The value of post-SFAS No. 122 PMSRs and OMSRs is established by allocating the total costs incurred between the loan and the servicing rights based on their relative fair values. To determine the fair value of the servicing rights created, the Company uses a valuation model that calculates the present value of future cash flows. The significant assumptions utilized by the valuation model are prepayment assumptions based upon dealer consensus and discount rates based upon market indices at the date of determination. Post-SFAS No. 122 implementation 22 PMSRs and OMSRs are being amortized in proportion to and over the period of the estimated net servicing income. A quarterly value impairment analysis is performed using a discounted methodology that is disaggregated by predominant risk characteristics. The Company has determined those risk characteristics to include: note rate and term and loan type based on 1) loan guarantee (i.e. conventional or government) and 2) interest characteristic (i.e. fixed-rate or adjustable-rate). (19) COMMITMENTS AND CONTINGENT LIABILITIES LEASES Rent expense was approximately $1,658,000 for 1995, $1,717,000 for 1994 and $1,623,000 for 1993. Future minimum lease payments for all non-cancelable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 1995:
AMOUNT ------ (In thousands) 1996 $1,300 1997 1,113 1998 918 1999 772 2000 483 Thereafter 1,001 ------ Total future minimum lease payments $5,587 ======
MORTGAGE LOANS SERVICED FOR OTHERS The Company services mortgage loans for others which are not included in the accompanying financial statements. Included in the $876 million of loans serviced for investors is approximately $299.5 million of primary recourse servicing where the Company is responsible for any losses incurred in the event of nonperformance by the mortgagor. The Company's exposure to credit loss in the event of such nonperformance is the unpaid principal balance at the time of default. This exposure is limited by the underlying collateral which consists of single family residences and either federal or private mortgage insurance. FORWARD CONTRACTS Forward contracts are agreements to purchase or sell securities at a future specific date at a specific price or yield. Risks arise from the possibility that counterparties may be unable to meet the term of their contracts and from movements in securities values and interest rates. At December 31, 1995, the Company had obligations under forward contracts consisting of commitments to sell mortgage loans originated or purchased by the Company into the secondary market at a future date. These obligations are entered into by the Company in order to establish the interest rate at which it can offer mortgage loans to its customers. Changes in the values of mortgage loans held for sale by the Company for delivery into the secondary market are recorded at the lower of cost or market. As of December 31, 1995, the contractual or notional amount of these forward contracts was approximately $34,988,000. The Company's exposure under these commitments to sell mortgage loans in the future is not material. LENDING COMMITMENTS In the normal course of business, there are outstanding various commitments and other arrangements for credit which are not reflected in the consolidated balance sheets. As of December 31, 1995, these included approximately $26,993,000 for letters of credit, and approximately $453,069,000 for interim mortgage financing, construction credit, credit card and revolving and line of credit arrangements. No significant credit losses are expected from these commitments and arrangements. REGULATORY MATTERS Under the FDIC's current risk-based premium policy, deposit insurance rates for 1996 for the Company's deposits in the Bank Insurance Fund (BIF) have been assessed at zero. However, the Company's thrift subsidiary's deposits and certain other of the Company's deposits which were acquired from thrifts over the years remain in the Savings Association Insurance Fund (SAIF) and will continue to be assessed for 1996 23 at the rate of $0.23 per $100 of insured deposits, the same rate as 1995. Also, Congress is currently considering a special one-time assessment on SAIF insured deposits and if enacted, this assessment could result in a one-time pre-tax charge of up to $2.7 million. LITIGATION Various legal claims have arisen in the normal course of business, including claims against entities to which the Company is successor as a result of business combinations. In the opinion of management and legal counsel, the ultimate resolution of these claims will have no material effect on the Company's consolidated financial position. RESTRICTED CASH BALANCE Aggregate reserves (in the form of deposits with the Federal Reserve Bank) of $35,036,000 were maintained to satisfy Federal regulatory requirements at December 31, 1995. 24 (20) CONDENSED FINANCIAL STATEMENT INFORMATION OF BANCORPSOUTH, INC. (PARENT COMPANY ONLY) The following condensed unaudited financial information reflects the accounts and transactions of BancorpSouth, Inc. (parent company only) for the dates indicated:
CONDENSED BALANCE SHEETS DECEMBER 31 --------------------- 1995 1994 -------- -------- (In thousands) Assets Cash on deposit with subsidiary banks $ 5,718 $ 2,455 Securities 1,233 1,255 Investment in subsidiaries 305,331 270,155 Other assets 1,375 8,008 -------- -------- Total assets $313,657 $281,873 ======== ======== Liabilities and shareholders' equity Long-term debt $ 24,508 $ 24,508 Other liabilities 1,054 4,513 -------- -------- Total liabilities 25,562 29,021 Shareholders' equity 288,095 252,852 -------- -------- Total liabilities and shareholders' equity $313,657 $281,873 ======== ========
YEARS ENDED DECEMBER 31 --------------------------- CONDENSED STATEMENTS OF INCOME 1995 1994 1993 ------- ------- ------- (In thousands) Dividends from subsidiaries $14,665 $12,279 $12,329 Management fees from subsidiaries 603 1,282 1,180 Other operating income 60 60 57 ------- ------- ------- Total income 15,328 13,621 13,566 Operating expenses 3,243 3,128 4,629 ------- ------- ------- Income before equity in undistributed earnings of subsidiaries 12,085 10,493 8,937 Equity in undistributed earnings of subsidiaries 23,419 20,235 23,998 ------- ------- ------- Net income $35,504 $30,728 $32,935 ======= ======= =======
YEARS ENDED DECEMBER 31 --------------------------- CONDENSED STATEMENTS OF CASH FLOWS 1995 1994 1993 ------- ------- ------- (In thousands) Operating Activities: Net income $35,504 $30,728 $32,935 Adjustments to reconcile net income to net cash provided by operating activities (22,592) (25,589) (20,985) ------- ------- ------- Net cash provided by operating activities 12,912 5,139 11,950 Net cash provided by (used in) investing activities - 900 (1,037) Net cash used in financing activities (9,649) (6,844) (11,962) ------- ------- ------- Increase (decrease) in cash and cash equivalents 3,263 (805) (1,049) Cash and cash equivalents at beginning of year 2,455 3,260 4,309 ------- ------- ------- Cash and cash equivalents at end of year $ 5,718 $ 2,455 $ 3,260 ======= ======= =======
25 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders BancorpSouth, Inc.: We have audited the consolidated balance sheets of BancorpSouth, Inc., and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BancorpSouth, Inc., and subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1, the Company changed its method of accounting for securities to adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", in 1994. As discussed in Notes 1 and 11, the Company changed its method of accounting for income taxes to adopt the provisions of SFAS No. 109, "Accounting for Income Taxes" in 1993. KPMG Peat Marwick LLP Memphis, Tennessee January 26, 1996 EX-13.(C) 6 SUMMARY OF QUARTERLY RESULTS 1 EXHIBIT 13 (c) Summary of Quarterly Results 34 2 SUMMARY OF QUARTERLY RESULTS (In thousands, except per share amounts - unaudited)
QUARTER ENDED ------------------------------------------- MAR 31 JUN 30 SEP 30 DEC 31 ------- ------- ------- ------- 1995: Interest revenue $58,601 $62,525 $64,974 $66,327 Net interest revenue 33,022 33,805 35,077 36,066 Provision for credit losses 1,297 1,241 2,058 1,610 Income before income taxes 11,648 12,909 13,740 12,957 Net income 7,905 8,869 9,544 9,186 Earnings per share 0.35 0.46 0.45 0.43 Dividends per share 0.15 0.15 0.15 0.17 1994: Interest revenue $48,000 $50,419 $53,261 $56,215 Net interest revenue 28,636 29,677 31,471 33,082 Provision for credit losses 1,114 1,479 1,822 1,531 Income before income taxes 9,398 9,663 11,926 12,573 Net income 6,789 7,070 8,003 8,866 Earnings per share 0.33 0.35 0.39 0.44 Dividends per share 0.135 0.135 0.135 0.15 1993: Interest revenue $48,054 $48,883 $48,221 $48,711 Net interest revenue 28,379 29,188 28,628 28,959 Provision for credit losses 2,206 2,244 2,551 2,031 Income before income taxes and accounting change 9,018 10,326 10,738 9,640 Net income before accounting change 6,725 7,652 8,006 7,123 Net income 10,154 7,652 8,006 7,123 Earnings per share before accounting change 0.34 0.38 0.40 0.35 Dividends per share 0.135 0.135 0.135 0.135
EX-13.(D) 7 SELECTED FINANCIAL INFORMATION 1 EXHIBIT 13 (d) Selected Financial Information 35 2 SELECTED FINANCIAL INFORMATION (Dollars in thousands, except per share amounts)
YEARS ENDED DECEMBER 31 ------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Earnings Summary: Interest revenue $ 252,427 $ 207,895 $ 193,869 $ 202,920 $ 220,319 Interest expense 114,457 85,029 78,715 92,143 121,386 ---------- ---------- ---------- ---------- ---------- Net interest revenue 137,970 122,866 115,154 110,777 98,933 Provision for credit losses 6,206 5,946 9,032 12,843 9,446 ---------- ---------- ---------- ---------- ---------- Net interest revenue, after provision for credit losses 131,764 116,920 106,122 97,934 89,487 Other revenue 31,240 26,012 26,776 23,767 22,407 Other expense 111,750 99,372 93,176 89,348 83,496 ---------- ---------- ---------- ---------- ---------- Income before income taxes and effect of accounting change 51,254 43,560 39,722 32,353 28,398 Applicable income taxes 15,750 12,832 10,216 9,194 6,654 ---------- ---------- ---------- ---------- ---------- Income before effect of accounting change and extraordinary item 35,504 30,728 29,506 23,159 21,744 Extraordinary loss on early extinguishment of debt, net of taxes - - - (285) - Cummulative effect of change in accounting for income taxes - - 3,429 - - ---------- ---------- ---------- ---------- ---------- Net income $ 35,504 $ 30,728 $ 32,935 $ 22,874 $21,744 ========== ========== ========== ========== ========== Per Share Data: Earnings before accounting change & extraordinary item $ 1.69 $ 1.51 $ 1.49 $ 1.33 $1.29 Cash dividends 0.62 0.555 0.54 0.51 0.47 Book value 13.72 12.44 11.82 10.56 9.50 Balance Sheet - Averages: Total assets $3,151,297 $2,884,539 $2,659,785 $2,503,499 $2,379,517 Held-to-maturity securities 516,919 427,759 509,996 583,459 549,533 Available-for-sale securities 183,396 266,370 141,496 - - Loans, net of unearned discount 2,146,967 1,881,922 1,675,048 1,550,745 1,451,562 Total deposits 2,732,450 2,513,493 2,342,137 2,210,934 2,092,052 Total shareholders' equity 268,395 240,929 218,504 185,925 165,321 Selected Ratios: Return on average assets 1.13% 1.07% 1.24% 0.91% 0.91% Return on average shareholders' equity 13.23% 12.75% 15.07% 12.30% 13.15%
EX-21 8 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
Jurisdiction Holder of Name Of Incorporation Outstanding Stock ---- ---------------- ----------------- Bank of Mississippi Mississippi BancorpSouth, Inc. Volunteer Bank Tennessee BancorpSouth, Inc. Laurel Federal Savings and Loan Association Mississippi BancorpSouth, Inc. Personal Finance Corporation Mississippi Bank of Mississippi Century Credit Life Insurance Company Mississippi Bank of Mississippi TC Finance, Inc. Tennessee Volunteer Bank West Tennessee Life Insurance Company Tennessee Volunteer Bank
All of the above subsidiaries are wholly owned and are included in the consolidated financial statements of the registrant. 36 EX-23 9 ACCOUNTANTS CONSENT 1 EXHIBIT 23 ACCOUNTANTS' CONSENT The Board of Directors BancorpSouth, Inc.: We consent to incorporation by reference in the Registration Statement (No. 33-3009) on Form S-3 and the Registration Statement (No. 2-88488) on Form S-8 of BancorpSouth, Inc. of our report dated January 26, 1996, relating to the consolidated balance sheets of BancropSouth, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report is incorporated by reference in the 1995 annual report on Form 10-K of BancorpSouth, Inc. Our report refers to a change in accounting principles related to the adoption in 1994 of the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. KPMG Peat Marwick LLP Memphis, Tennessee March 25, 1996 37 EX-27 10 FINANCIAL DATA SCHEDULE
9 YEAR DEC-31-1995 JAN-1-1995 DEC-31-1995 149,923 15,892 35,450 0 439,303 439,303 448,075 2,295,166 34,636 3,302,028 2,863,612 35,848 40,849 73,624 0 0 52,764 235,331 3,302,028 203,800 35,811 12,816 252,427 107,165 114,457 137,970 6,206 (765) 111,750 51,254 35,504 0 0 35,504 1.69 1.69 4.86 1,592 5,148 7 0 30,830 4,714 1,567 34,636 34,636 0 0
-----END PRIVACY-ENHANCED MESSAGE-----