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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
Commission file number 1-12991
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BancorpSouth, Inc.
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(Exact name of registrant as specified in its charter)
Mississippi 64-0659571
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Mississippi Plaza
Tupelo, Mississippi 38804
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (662) 680-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common stock, $2.50 par value New York Stock Exchange
Common stock purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $2.50 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
(Cover Page Continued on Next Page)
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(Continued from Cover Page)
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of January 31, 2001, was approximately $1,061,000,000 based
on the closing sale price as reported on the New York Stock Exchange on such
date.
On January 31, 2001, the registrant had outstanding 84,080,479 shares
of Common Stock, par value $2.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement used in connection with
Registrant's Annual Meeting of Shareholders to be held April 24, 2001, are
incorporated by reference into Part III of this Report.
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BANCORPSOUTH, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2000
CONTENTS
PART I
Item 1. Business.............................................................. 4
Item 2. Properties............................................................ 20
Item 3. Legal Proceedings..................................................... 22
Item 4. Submission of Matters to a Vote of Security
Holders............................................................... 22
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters................................................. 22
Item 6. Selected Financial Data............................................... 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.................................. 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............ 36
Item 8. Financial Statements and Supplementary Data........................... 38
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................. 61
PART III
Item 10. Directors and Executive Officers of the
Registrant............................................................ 62
Item 11. Executive Compensation.................................................. 63
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 63
Item 13. Certain Relationships and Related Transactions.......................... 64
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................................... 65
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PART I
Item 1. - Business
General
BancorpSouth, Inc. (the "Company") is a bank holding company with
commercial banking and financial services operations in Mississippi, Tennessee,
Alabama, Arkansas, Texas and Louisiana. Its principal subsidiary is BancorpSouth
Bank (the "Bank"). At December 31, 2000, the Company and its subsidiaries had
total assets of approximately $9.04 billion and total deposits of approximately
$7.48 billion. The Company's principal office is located at One Mississippi
Plaza, Tupelo, Mississippi 38804 and its telephone number is (662) 680-2000.
Description of Business
The Bank has its principal office in Tupelo, Lee County, Mississippi,
and conducts a general commercial banking and trust business through 247 offices
in 129 municipalities or communities in Mississippi, Tennessee, Alabama,
Arkansas, Texas and Louisiana. The Bank has grown through the acquisition of
other banks, the purchase of assets from federal regulators and through the
opening of new branches and offices.
The Bank and its subsidiaries provide a range of financial services to
individuals and small-to-medium size businesses. The Bank operates investment
services, consumer finance, credit life insurance and insurance agency
subsidiaries which engage in investment brokerage services, consumer lending,
credit life insurance sales and sales of other insurance products. The Bank's
trust department offers a variety of services including personal trust and
estate services, certain employee benefit accounts and plans, including
individual retirement accounts, and limited corporate trust functions.
At December 31, 2000, the Company and its subsidiaries had 3,869
full-time equivalent employees. The Company and its subsidiaries are not a party
to any collective bargaining agreements, and employee relations are considered
to be good.
Competition
Vigorous competition exists in all major areas where the Company is
engaged in business. The Bank competes for available loans and depository
accounts with state and national commercial banks as well as savings and loan
associations, insurance companies, credit unions, money market mutual funds,
automobile finance companies and financial services companies. None of these
competitors is dominant in the entire area served by the Bank.
The principal areas of competition in the banking industry center on a
financial institution's ability and willingness to provide credit on a timely
and competitively priced basis, to offer a sufficient range of deposit and
investment opportunities at a competitive price and maturity, and to offer
personal and other services of sufficient quality and at competitive prices. The
Company and its subsidiaries believe they can compete effectively in all these
areas.
Regulation and Supervision
The following is a brief summary of the regulatory environment in which
the Company and its subsidiaries operate and is not designed to be a complete
discussion of all statutes and regulations affecting such operations, including
those statutes and regulations specifically mentioned herein.
The Company is a bank holding company and is registered as such under
the Bank Holding Company Act of 1956 (the "Bank Holding Company Act") with the
Board of Governors of the Federal Reserve System (the "Federal Reserve") and is
subject to regulation and supervision by the Federal Reserve. The Company is
required to file with the Federal Reserve annual reports and such other
information as it may require. The Federal Reserve may also conduct examinations
of the Company.
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The Bank is incorporated under the banking laws of the State of
Mississippi and is subject to the applicable provisions of Mississippi banking
laws. The Bank is subject to the supervision of the Mississippi Department of
Banking and Consumer Finance and to regular examinations by that department.
Deposits in the Bank are insured by the Federal Deposit Insurance Corporation
(the "FDIC") and, therefore, the Bank is subject to the provisions of the
Federal Deposit Insurance Act and to examination by the FDIC. The Bank is not a
member of the Federal Reserve.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") permits, among other things, the acquisition by bank holding
companies of savings associations, irrespective of their financial condition,
and increased the deposit insurance premiums for banks and savings associations.
FIRREA also provides that commonly controlled federally insured financial
institutions must reimburse the FDIC for losses incurred by the FDIC in
connection with the default of another commonly controlled financial institution
or in connection with the provision of FDIC assistance to such a commonly
controlled financial institution in danger of default. Reimbursement liability
under FIRREA is superior to any obligations to shareholders of such federally
insured institutions (including a bank holding company such as the Company if it
were to acquire another federally insured financial institution), arising as a
result of their status as a shareholder of a reimbursing financial institution.
The Company and the Bank are subject to the provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). This statute
provides for increased funding for the FDIC's deposit insurance fund and
expanded the regulatory powers of federal banking agencies to permit prompt
corrective actions to resolve problems of insured depository institutions
through the regulation of banks and their affiliates, including bank holding
companies. The provisions are designed to minimize the potential loss to
depositors and to FDIC insurance funds if financial institutions default on
their obligations to depositors or become in danger of default. Among other
things, FDICIA provides a framework for a system of supervisory actions based
primarily on the capital levels of financial institutions. FDICIA also provides
for a risk-based deposit insurance premium structure. The FDIC charges an annual
assessment for the insurance of deposits based on the risk a particular
institution poses to its deposit insurance fund. While most of the Company's
deposits are in the Bank Insurance Fund (BIF), certain other of the Company's
deposits which were acquired from thrifts over the years remain in the Savings
Association Insurance Fund (SAIF).
The Company is required to comply with the risk-based capital
guidelines established by the FRB, and to other tests relating to capital
adequacy which the Federal Reserve adopts from time to time. See Note 19 to the
Company's Consolidated Financial Statements included in this Report.
The Company is a legal entity which is separate and distinct from its
subsidiaries. There are various legal limitations on the extent to which the
Bank may extend credit, pay dividends or otherwise supply funds to the Company
or its affiliates. In particular, the Bank is subject to certain restrictions
imposed by federal law on any extensions of credit of the Company or, with
certain exceptions, other affiliates.
The primary source of funds for dividends paid to the Company's
shareholders is dividends paid to the Company by the Bank. Various federal and
state laws limit the amount of dividends that the Bank may pay to the Company
without regulatory approval. Under Mississippi law, the Bank must obtain written
approval of the Commissioner of the Mississippi Department of Banking and
Consumer Finance prior to paying any dividend on the Bank's common stock. Under
FDICIA, the Bank may not pay any dividends, if after paying the dividend, it
would be undercapitalized under applicable capital requirements. The FDIC also
has the authority to prohibit the Bank from engaging in business practices which
the FDIC considers to be unsafe or unsound, which, depending on the financial
condition of the Bank, could include the payment of dividends.
In additions, the Federal Reserve has the authority to prohibit the
payment of dividends by bank holding companies if their actions constitute
unsafe or unsound practices. In 1985, the Federal Reserve issued a policy
statement on the payment of cash dividends by bank holding companies, which
outlined the Federal Reserve's view that a bank holding company that is
experiencing earnings weaknesses or other financial pressures should not pay
cash dividends that
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exceed its net income, that are inconsistent with its capital position or that
could only be funded in ways that weaken its financial health, such as by
borrowing or selling assets. The Federal Reserve indicated that, in some
instances, it may be appropriate for a bank holding company to eliminate its
dividends.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("IBBEA") was signed into law. IBBEA permits adequately
capitalized and managed bank holding companies to acquire control of banks in
states other than their home states, subject to federal regulatory approval,
without regard to whether such a transaction is prohibited by the laws of any
state. IBBEA permits states to continue to require that an acquired bank have
been in existence for a certain minimum time period which may not exceed five
years. A bank holding company may not, following an interstate acquisition,
control more than 10% of the nation's total amount of bank deposits or 30% of
bank deposits in the relevant state (unless the state enacts legislation to
raise the 30% limit). States retain the ability to adopt legislation to
effectively lower the 30% limit. Federal banking regulators may approve merger
transactions involving banks located in different states, without regard to laws
of any state prohibiting such transactions; except that, mergers may not be
approved with respect to banks located in states that, prior to June 1, 1997,
enacted legislation prohibiting mergers by banks located in such state with
out-of-state institutions. Federal banking regulators may permit an out-of-state
bank to open new branches in another state if such state has enacted legislation
permitting interstate branching. Affiliated institutions are authorized to
accept deposits for existing accounts, renew time deposits and close and service
loans for affiliated institutions without being deemed an impermissible branch
of the affiliate.
The federal Gramm-Leach-Bliley Act of 1999 (the "GLBA") was signed into
law on November 12, 1999. Under the GLBA, banks are no longer prohibited by the
Glass-Steagall Act from associating with a company engaged principally in
securities activities. The GLBA also permits bank holding companies to elect to
become a "financial holding company," which would expand the powers of the bank
holding company. Financial holding company powers relate to financial activities
that are determined by the Federal Reserve to be financial in nature, incidental
to an activity that is financial in nature, or complementary to a financial
activity (provided that the complementary activity does not pose a safety and
soundness risk). The GLBA itself defines certain activities as financial in
nature, including lending activities, underwriting and selling insurance,
providing financial or investment advice, underwriting, dealing and making
markets in securities and merchant banking. In order to qualify as a financial
holding company, a bank holding company's depository subsidiaries must be both
well capitalized and well managed, and must have at least a satisfactory rating
under the Community Reinvestment Act. The bank holding company must also declare
its intention to become a financial holding company to the Federal Reserve and
certify that its depository subsidiaries meet the capitalization and management
requirements. The repeal of the Glass-Steagall Act provisions and the
availability of financial holding company powers became effective on March 11,
2000. The GLBA establishes the Federal Reserve as the umbrella regulator of
financial holding companies, with subsidiaries of the financial holding company
being more specifically regulated by other regulatory authorities, such as the
Securities and Exchange Commission ("SEC"), the Commodity Futures Trading
Commission and state securities and insurance regulators, based upon the
subsidiaries' particular activities. The GLBA also provides for minimum federal
standards of privacy to protect the confidentiality of the personal financial
information of customers and to regulate use of such information by financial
institutions. A bank holding company that does not elect to become a financial
holding company remains subject to the Bank Holding Company Act. Management
believes that the Company currently meets the requirements to make an election
to become a financial holding company under the GLBA.
The Community Reinvestment Act of 1997 ("CRA") and its implementing
regulations are intended to encourage regulated financial institutions to meet
the credit need of their local community or communities, including low and
moderate income neighborhoods, consistent with the safe and sound operation of
such financial institutions. The regulations provide that the appropriate
regulatory authority will assess CRA reports in connection with applications for
establishment of domestic branches, acquisitions of banks or mergers involving
bank holding companies. An unsatisfactory CRA rating may serve as a basis to
deny an application to acquire or establish a new bank, to establish a new
branch or to expand banking services. At December 31, 2000, the Company had a
"satisfactory" CRA rating.
The Equal Credit Opportunity Act requires non-discrimination in banking
services. The federal enforcement agencies have recently cited institutions for
red-lining (refusing to extend credit to residents of a specific geographic area
known to be comprised predominantly of minorities) or reverse red-lining
(extending credit to minority applicants on terms less favorable than those
offered to non-minority applicants). Violations can result in the assessment of
substantial civil penalties.
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The Bank's insurance subsidiaries are regulated by the insurance
regulatory authorities and applicable laws and regulations of the states in
which they operate.
The Bank's investment services subsidiary is a registered adviser under
the Investment Advisers Act of 1940 and is regulated by the SEC.
Lending Activities
The Company's lending activities include both commercial and consumer
loans. Loan originations are derived from a number of sources including real
estate broker referrals, mortgage loan companies, direct solicitation by the
Company's loan officers, existing depositors and borrowers, builders, attorneys,
walk-in customers and, in some instances, other lenders. The Company has
established disciplined and systematic procedures for approving and monitoring
loans that vary depending on the size and nature of the loan.
Commercial Lending
The Bank offers a variety of commercial loan services including term
loans, lines of credit, equipment and receivable financing and agricultural
loans. A broad range of short-to-medium term commercial loans, both secured and
unsecured are made available to businesses for working capital (including
inventory and receivables), business expansion (including acquisition and
development of real estate and improvements), and the purchase of equipment and
machinery. At times, the Company also makes construction loans to real estate
developers for the acquisition, development and construction of residential
subdivisions.
Commercial loans are granted based on the borrower's ability to
generate cash flow to support its debt obligations and other cash related
expenses. A borrower's ability to repay commercial loans is substantially
dependent on the success of the business itself and on the quality of its
management. As a general practice, the Bank takes as collateral a security
interest in any available real estate, equipment, inventory, receivables or
other personal property, although such loans may also be made infrequently on an
unsecured basis. Generally, the Bank requires personal guaranties of its
commercial loans to offset the risks associated with such loans.
The Bank has had very little exposure as an agricultural lender. Crop
production loans have been either fully supported by the collateral and
financial strength of the borrower, or else a 90% loan guaranty has been
obtained through the Farmers Home Administration on such loans.
Residential Consumer Lending
A portion of the Bank's lending activities consists of the origination
of fixed and adjustable rate residential mortgage loans secured by
owner-occupied property located in the Bank's primary market areas. Home
mortgage lending is unique in that a broad geographic territory may be serviced
by originators working from strategically placed offices either within the
Bank's traditional banking facilities or from affordable storefront locations in
commercial buildings. In addition, the Bank offers construction loans, second
mortgage home improvement loans and home equity lines of credit.
The Bank finances the construction of individual, owner-occupied houses
on the basis of written underwriting and construction loan management
guidelines. First mortgage construction loans are made to solvent and competent
contractors on both a pre-sold and a "speculation" basis. Such loans are also
made to qualified individual borrowers and are generally supported by a take-out
commitment from a permanent lender. The Bank makes residential construction
loans to individuals who intend to erect owner occupied housing on a purchased
parcel of real estate. The construction phase of these loans have certain risks,
including the viability of the contractor, the contractor's ability to complete
the project and changes in interest rates.
In most cases, the Bank will sell its mortgage loans with terms of 15
years or more in the secondary market. The sale to the secondary market allows
the Bank to hedge against the interest rate risks related to such lending
operations. This brokerage arrangement allows the Bank to accommodate its
clients' demands while eliminating the interest rate risk
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for the 15 to 30 year period generally associated with such loans. After the
sale of a loan, the Bank's only involvement is to act as a servicing agent.
The Bank in most cases requires title, fire, extended casualty
insurance, and, where required by applicable regulations, flood insurance to be
obtained by the borrower. The Bank maintains its own errors and omissions
insurance policy to protect against loss in the event of failure of a mortgagor
to pay premiums on fire and other hazard insurance policies. Mortgage loans
originated by the Bank customarily include a "due on sale" clause giving the
Bank the right to declare a loan immediately due and payable in the event, among
other matters, that the borrower sells or otherwise disposes of the real
property subject to a mortgage. In general, the Bank enforces due on sales
clauses. Borrowers are typically permitted to refinance or repay loans at their
option without penalty.
Non-Residential Consumer Lending
Non-residential consumer loans made by the Bank include loans for
automobiles, recreation vehicles, boats, personal (secured and unsecured) and
deposit account secured loans. In addition, the Bank provides federally insured
or guaranteed student loans to students at universities and community colleges
in the Bank's market areas. The Bank also conducts various indirect lending
activities through established retail companies in its market areas.
Non-residential consumer loans are attractive to the Bank because they typically
have a shorter term and carry higher interest rates than that charged on other
types of loans. Non-residential consumer loans, however, do pose additional
risks of collectability when compared to traditional types of loans granted by
commercial banks such as residential mortgage loans.
The Bank also issues credit cards solicited on the basis of
applications received through referrals from the Bank's branches. The Bank
generally has a small portfolio of credit card receivables outstanding. Credit
card lines are underwritten using conservative credit criteria, including past
credit history and debt-to-income ratios, similar to the credit policies
applicable to other personal consumer loans. Historically, the Bank believes
that its credit card losses have been well below industry norms.
Consumer loans are granted based on employment and financial
information solicited from prospective borrowers as well as credit records
collected from various reporting agencies. Stability of the borrower,
willingness to pay and credit history are the primary factors to be considered.
The availability of collateral is also a factor considered in making such a
loan. The Bank seeks collateral that can be assigned and has good marketability
with a clearly adequate margin of value. The geographic area of the borrower is
another consideration, with preference given to borrowers in the Bank's primary
market areas.
Other Financial Services
The Bank's consumer finance subsidiaries extend consumer loans to
individuals and entities that may not satisfy the Bank's lending standards, and
operate in 54 offices located in 52 communities in Mississippi, Tennessee and
Alabama.
The Bank's insurance service subsidiaries serve as agents in the sale
of title insurance, commercial lines of insurance, and a full line of property
and casualty, life, health and employee benefits products and services and
operates in Mississippi, Tennessee and Alabama.
The Bank's investment services subsidiary provides brokerage,
investment advisory and asset management services, and operates in eight
communities in Mississippi, Tennessee and Alabama.
See Note 20 to the Company's Consolidated Financial Statements included
elsewhere in this Report for financial information about each segment of the
Company, as defined by generally accepted accounting principles.
Asset Quality
Management seeks to maintain a high quality of assets through
conservative underwriting and sound lending practices. Management intends to
follow this policy even though it may result in foregoing the funding of higher
yielding loans. While there is no assurance that the Company will not suffer
losses on its loans, management believes that the
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Company has in place adequate underwriting and loan administration policies and
personnel to manage the associated risks prudently.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. Undesirable loans include loans
to provide initial equity and working capital to new businesses with no other
capital strength, loans secured by unregistered stock, loans for speculative
transactions in stock, land or commodity markets, loans to borrowers or the
taking of collateral outside the Company's primary market areas, loans dependent
on secondary liens as primary collateral, and non-recourse loans. To the extent
risks are identified, additional precautions are taken in order to reduce the
Company's risk of loss. Commercial loans entail certain additional risks since
they usually involve large loan balances to single borrowers or a related group
of borrowers, resulting in a more concentrated loan portfolio. Further, since
payment of these loans is usually dependent upon the successful operation of the
commercial enterprise, the risk of loss with respect to these loans may increase
in the event of adverse conditions in the economy.
The Board of Directors of the Bank focuses much of its efforts and
resources, and that of the Bank's management and lending officials, on loan
review and underwriting policies. Loan status and monitoring is handled through
the Bank's Loan Administration Department. Weak financial performance is
identified and monitored using past due reporting, the internal loan rating
system, loan review reports, the various loan committee functions, and periodic
Asset Quality Rating Committee meetings. Senior loan officers have established a
review process with the objective of quickly identifying, evaluating and
initiating necessary corrective action for substandard loans. The results of
loan reviews are reported to the Audit Committee of the Company's and the Bank's
Board of Directors. This process is an integral element of the Bank's loan
program. Nonetheless, management maintains a cautious outlook in anticipating
the potential effects of uncertain economic conditions (both locally and
nationally) and the possibility of more stringent regulatory standards.
Recent Acquisitions
On August 31, 2000, First United Bancshares, Inc. ("First United")
merged into the Company in a transaction accounted for as a pooling of
interests. In connection with that merger, the Company issued 1.125 shares of
its common stock in exchange for each outstanding share of First United common
stock, or a total of approximately 28,489,225 shares of the Company's common
stock. First United was an Arkansas corporation and registered bank holding
company headquartered in El Dorado, Arkansas. Through its 11 subsidiary banks
and subsidiary trust company, First United conducted a commercial banking, trust
and insurance business in 69 offices in portions of Arkansas, Louisiana and
Texas. As of June 30, 2000, First United and its subsidiaries had total assets
of approximately $2.7 billion and total deposits of approximately $2.2 billion.
First United's subsidiary banks were (i) The First National Bank of El Dorado,
based in El Dorado, Arkansas, (ii) First National Bank of Magnolia, based in
Magnolia, Arkansas, (iii) Merchants and Planters Bank, N.A. of Camden, based in
Camden, Arkansas, (iv) The City National Bank of Fort Smith, based in Fort
Smith, Arkansas, (v) The Bank of North Arkansas, based in Melbourne, Arkansas,
(vi) FirstBank, based in Texarkana, Texas, (vii) First United Bank, based in
Stuttgart, Arkansas, (viii) Fredonia State Bank, based in Nacogdoches, Texas,
(ix) City Bank & Trust of Shreveport, based in Shreveport, Louisiana, (x)
Citizens National Bank of Hope, based in Hope, Arkansas, and (xi) First Republic
Bank, based in Rayville, Louisiana, and First United's subsidiary trust company
was First United Trust Company, N.A., based in El Dorado, Arkansas. Each of
these subsidiaries were merged into BancorpSouth Bank on August 31, 2000.
On October 10, 2000, Kilgore, Seay and Turner, Inc., a general
insurance agency based in Jackson, Mississippi, merged into BancorpSouth
Insurance Services, Inc., a subsidiary of the Bank, in exchange for cash
totaling $2.2 million. The transaction was accounted for as a purchase.
On October 10, 2000, Pittman Insurance and Bonding, Inc., a general
insurance agency based in Jackson, Mississippi, merged into BancorpSouth
Insurance Services, Inc., in exchange for 95,000 shares of the Company's common
stock and cash totaling $865,000. The transaction was accounted for as a
purchase.
On October 31, 2000, Texarkana First Financial Corporation ("Texarkana
First Financial") merged into the Company in exchange for cash totaling $37.5
million. The transaction was accounted for as a purchase. Texarkana First
Financial was a Texas corporation and single thrift holding company based in
Texarkana, Arkansas. Its subsidiary,
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First Federal Savings and Loan Association of Texarkana ("First Federal"), a
federally chartered stock savings and loan association, operated through a main
office and five branch offices in Texarkana, Ashdown, DeQueen, Hope and
Nashville, Arkansas and Texarkana, Texas. First Federal merged into BancorpSouth
Bank on October 31, 2000. As of June 30, 2000, Texarkana First Financial and its
subsidiary had total assets of approximately $216.0 million and total deposits
of approximately $157.6 million.
Selected Statistical Information
Set forth in this section below is certain selected statistical
information relating to the Company's business.
Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and
Interest Differentials
See "Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Net Interest Revenue" included herein for
information regarding the distribution of assets, liabilities and shareholders'
equity, and interest rates and interest differentials.
Analysis of Changes in Effective Interest Differential
See "Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Net Interest Revenue" included herein for
information regarding the analysis of changes in effective interest
differential.
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Investment Portfolio
Held-to-Maturity Securities
The following table shows the amortized cost of held-to-maturity
securities at December 31, 2000, 1999 and 1998:
December 31,
---------------------------------------------
2000 1999 1998
---------- ---------- ---------
(In thousands)
U.S. Treasury securities $ 22,019 $ 74,786 $107,039
U.S. Government agency
securities 826,353 619,955 441,392
Taxable obligations of states
and political subdivisions 13,949 11,812 11,275
Tax exempt obligations of states
and political subdivisions 326,808 324,509 313,788
Other securities -- -- --
---------- ---------- --------
TOTAL $1,189,129 $1,031,062 $873,494
========== ========== ========
The following table shows the maturities and weighted average yields as
of the end of the latest period for the investment categories presented above:
December 31, 2000
-----------------------------------------------------------------------
U.S.
U.S. Government States & Weighted
Treasury Agency Political Other Average
Securities Securities Subdivisions Securities Yield
---------- ----------- ------------ ---------- --------
(Dollars in thousands)
Period to Maturity:
Maturing within
one year $ 4,987 $221,909 $ 65,682 -- 6.10%
Maturing after one
year but within
five years 17,032 489,350 186,788 -- 6.62%
Maturing after five
years but within
ten years -- 74,807 75,874 -- 6.98%
Maturing after ten
years -- 40,287 12,413 -- 6.47%
------- -------- -------- ------
TOTAL $22,019 $826,353 $340,757 --
======= ======== ======== ======
The yield on tax-exempt obligations of states and political
subdivisions has been adjusted to a taxable equivalent basis using a 35% tax
rate.
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Available-for-Sale Securities
The following table shows the book value of available-for-sale
securities at December 31, 2000, 1999 and 1998:
December 31,
----------------------------------------------------------
2000 1999 1998
-------- ---------- ----------
(In thousands)
U.S. Treasury securities $ 26,621 $ 97,559 $ 166,922
U.S. Government agency
securities 689,612 843,544 907,766
Taxable obligations of states
and political subdivisions 9,601 8,923 7,565
Tax exempt obligations of states
and political subdivisions 64,521 74,306 83,128
Other securities 67,045 56,203 108,734
-------- ---------- ----------
TOTAL $857,400 $1,080,535 $1,274,115
======== ========== ==========
The following table shows the maturities and weighted average yields as
of the end of the latest period for the investment categories presented above:
December 31, 2000
--------------------------------------------------------------------------------------------------
U.S.
U.S. Government State & Weighted
Treasury Agency Political Other Average
Securities Securities Subdivisions Securities Yield
---------- ---------- ------------- ----------- ---------
(Dollars in thousands)
Period to Maturity:
Maturing within
one year $19,238 $ 68,766 $13,205 $ 6,024 6.39%
Maturing after one
year but within
five years 7,383 411,059 26,102 57,365 6.88%
Maturing after five
years but within
ten years -- 144,167 30,665 2,687 7.09%
Maturing after ten
years -- 65,620 4,150 969 7.41%
------- -------- ------- -------
TOTAL $26,621 $689,612 $74,122 $67,045
======= ======== ======= =======
The yield on tax-exempt obligations of states and political
subdivisions has been adjusted to a taxable equivalent basis using a 35% tax
rate. See "Item 7. - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Securities and Other Earning Assets."
12
13
Loan Portfolio
The Company's loans are widely diversified by borrower and industry.
The following table shows the composition of loans by collateral type of the
Company at December 31 for the years indicated. See "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Loans."
December 31,
------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands)
Commercial &
agricultural $ 757,885 $ 712,799 $ 721,001 $ 662,857 $ 573,425
Consumer & installment 1,065,324 1,197,277 1,133,218 1,099,151 1,001,434
Real estate mortgage 4,027,751 3,444,172 2,943,774 2,544,102 2,259,169
Lease financing 288,884 258,811 211,367 173,245 150,187
Other 21,238 12,984 26,669 26,242 20,599
---------- ---------- ---------- ---------- ----------
Total gross loans $6,161,082 $5,626,043 $5,036,029 $4,505,597 $4,004,814
========== ========== ========== ========== ==========
Maturity Distribution of Loans
The maturity distribution of the Company's loan portfolio is one factor
in management's evaluation of the risk characteristics of the loan portfolio.
The following table shows the maturity distribution of gross loans of the
Company as of December 31, 2000.
One Year One to After
or Less Five Years Five Years
---------- ------------ ----------
(In thousands)
Commercial
& agricultural $ 405,018 $ 313,763 $ 39,104
Consumer & installment 468,998 587,043 9,283
Real estate mortgages 1,490,532 2,064,437 472,782
Lease financing 92,415 184,349 12,120
Other 16,720 4,095 423
---------- ---------- --------
Total gross loans $2,473,683 $3,153,687 $533,712
========== ========== ========
13
14
Sensitivity of Loans to Changes in Interest Rates
The interest sensitivity of the Company's loan portfolio is important
in the management of effective interest differential. The Company attempts to
manage the relationship between the rate sensitivity of its assets and
liabilities to produce an effective interest differential that is not
significantly impacted by the level of interest rates. The following table shows
the interest sensitivity of the Company's gross loans as of December 31, 2000.
December 31, 2000
---------------------------------
Fixed Variable
Rate Rate
--------- --------
(In thousands)
Loan Portfolio
Due after one year $3,444,421 $242,978
========== ========
Non-Accrual, Past Due and Restructured Loans
Non-performing loans consist of both non-accrual loans and loans which
have been restructured (primarily in the form of reduced interest rates) because
of the borrower's weakened financial condition. The Company's non-performing
loans were as follows at the end of each period presented.
December 31
-------------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(In thousands)
Non-accrual loans $15,572 $13,352 $13,406 $ 9,124 $10,649
Loans 90 days or more past due 25,732 17,311 13,120 12,476 9,063
Restructured loans 879 1,125 1,781 1,975 2,894
------- ------- ------- ------- -------
Total gross loans $42,183 $31,788 $28,307 $23,575 $22,606
======= ======= ======= ======= =======
The total amount of interest earned on non-performing loans was
approximately $263,000, $212,000 and $228,000 in 2000, 1999 and 1998,
respectively. The gross interest income that would have been recorded under the
original terms of those loans amounted to $878,000, $626,000 and $612,000 in
2000, 1999 and 1998, respectively.
Loans considered impaired under Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure," are loans which, based on current
information and events, it is probable that the creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Company's recorded investment in loans considered impaired at
December 31, 2000 and 1999 was $14,669,000 and $7,916,000, respectively, with a
valuation reserve of $5,639,000 and $2,074,000, respectively. The average
recorded investment in impaired loans during 2000 and 1999 was $21,769,000 and
$17,620,000, respectively.
The Company's policy provides that loans, other than installment loans,
are generally placed in non-accrual status if, in management's opinion, payment
in full of principal or interest is not expected, or when payment of principal
or interest is more than 90 days past due, unless the loan is both well-secured
and in the process of collection.
14
15
In the normal course of business, management becomes aware of possible
credit problems in which borrowers exhibit potential for the inability to comply
with the contractual terms of their loans, but which do not currently meet the
criteria for disclosure as problem loans. Historically, some of these loans are
ultimately restructured or placed in non-accrual status. At December 31, 2000,
no loans were known to be potential problem loans.
At December 31, 2000, the Company did not have any concentration of
loans in excess of 10% of total loans outstanding. Loan concentrations are
considered to exist when there are amounts loaned to a multiple number of
borrowers engaged in similar activities, which would cause them to be similarly
impacted by economic or other conditions. However, the Company does conduct
business in a geographically concentrated area. The ability of the Company's
borrowers to repay loans is to some extent dependent upon the economic
conditions prevailing in the Company's market area.
15
16
Summary of Loan Loss Experience
In the normal course of business, the Company assumes risks in
extending credit. The Company manages these risks through its lending policies,
loan review procedures and the diversification of its loan portfolio. Although
it is not possible to predict loan losses with certainty, management
continuously reviews the characteristics of the loan portfolio to determine its
overall risk profile and quality.
Attention is paid to the quality of the loan portfolio through a formal
loan review process. The Board of Directors of the Bank has appointed a Loan
Loss Reserve Valuation Committee (the "Loan Loss Committee") that is responsible
for ensuring that the allowance for credit losses provides coverage of both
known and inherent losses. The Committee considers estimates of loss for
individually analyzed credits as well as factors such as historical experience,
changes in economic and business conditions and concentrations of risk in
determining the level of the allowance for credit losses. The Committee meets a
least quarterly to determine the amount of additions to the allowance for credit
losses. The Committee is composed of senior management from the Bank's Loan
Administration, Lending and Finance departments. In each period, the Committee
bases the allowance for credit losses on its loan classification system as well
as an analysis of general economic and business trends in our region and
nationally.
A key input for determining the amount of the allowance for loan losses
is the Company's loan classification system. The Company has a disciplined
approach for assigning credit ratings and classifications to individual loans.
Each loan is assigned a grade by the loan officer at origination that serves as
a basis for the credit analysis of the entire portfolio. Periodically, loan
officers review the status of each loan and update its grading. The grades
assigned by the loan officer are reviewed by an independent Loan Review
Department. The Loan Review Department is responsible for reviewing the credit
rating and classification of individual loans. The Loan Review Department also
assesses trends in the overall portfolio, adherence to internal credit policies
and Loan Administration procedures and other factors that may affect the overall
adequacy of the allowance for credit losses. Throughout this on-going process,
management and the Loan Loss Committee are advised of the condition of
individual loans and of the quality profile of the entire loan portfolio for
consideration in establishing the allowance for credit losses.
Any loan or portion thereof which is classified as "loss" by regulatory
examiners or which is determined by management to be uncollectible because of
such factors as the borrower's failure to pay interest or principal, the
borrower's financial condition, economic conditions in the borrower's industry,
or the inadequacy of underlying collateral, is charged off.
The provision for credit losses charged to operating expense is an
amount which, in the judgment of management, is necessary to maintain the
allowance for credit losses at a level that is adequate to meet the risks of
losses on the Company's current portfolio of loans. Management's judgment is
based on a variety of factors which include the Company's experience related to
loan balances, charge-offs and recoveries, scrutiny of individual loans and risk
factors, results of regulatory agency reviews of loans and economic conditions
of the Company's market area. Material estimates that are particularly
susceptible to significant change in the near term are a necessary part of this
process. Future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for credit losses. Such agencies may require the Company to recognize additions
to the allowance based on their judgments about information available to them at
the time of their examination.
Management does not believe the allowance for credit losses can be
fragmented by category of loans with any precision that would be useful to
investors but is doing so in this report only in an attempt to comply with
disclosure requirements of regulatory agencies. The breakdown of the allowance
by loan category is based in part on evaluations of specific loans' past history
and on economic conditions within specific industries or geographical areas.
Accordingly, since all of these conditions are subject to change, the allocation
is not necessarily indicative of the breakdown of any losses.
The following table presents (a) the breakdown of the allowance for
credit losses by loan category and (b) the percentage of each category in the
loan portfolio to total loans at December 31 for the years presented:
16
17
2000 1999 1998 1997 1996
------------------ ------------------- ------------------- ------------------ ------------------
ALLOW- ALLOW- ALLOW- ALLOW- ALLOW-
ANCE % OF ANCE % OF ANCE % OF ANCE % OF ANCE % OF
FOR LOANS TO FOR LOANS TO FOR LOANS TO FOR LOANS TO FOR LOANS TO
CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL CREDIT TOTAL
LOSS LOANS LOSS LOANS LOSS LOANS LOSS LOANS LOSS LOANS
------- --------- ------- --------- ------ -------- ------- -------- ------ --------
(Dollars in thousands)
Commercial
& agricultural $12,259 12.30% $11,127 12.67% $ 7,840 14.32% $ 8,015 14.71% $ 8,454 14.32%
Consumer
& installment 23,702 17.29% 22,231 21.28% 21,421 22.50% 19,187 24.40% 15,773 25.01%
Real estate
mortgage 37,279 65.38% 32,897 61.22% 28,887 58.45% 25,508 56.47% 25,271 56.42%
Lease financing 3,290 4.69% 3,196 4.60% 2,802 4.20% 2,592 3.85% 2,070 3.75%
Other 5,200 0.34% 4,781 0.23% 7,435 0.53% 6,630 0.58% 5,089 0.51%
------- ------ ------- ------ ------- ------ ------- ------ ------- -------
TOTAL $81,730 100.00% $74,232 100.00% $68,385 100.00% $61,932 100.01% $56,657 100.01%
======= ====== ======= ====== ======= ====== ======= ====== ======= =======
The following table sets forth certain information with respect to the
Company's loans (net of unearned discount) and the allowance for credit losses
for the five years ended December 31, 2000. See "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Provision for Credit Losses and Allowance for Credit Losses."
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
LOANS
Average loans for the period $ 5,791,569 $ 5,211,539 $ 4,710,847 $ 4,155,013 $ 3,788,681
=========== =========== =========== =========== ===========
ALLOWANCE FOR CREDIT
LOSSES
Balance, beginning
of period $ 74,232 $ 68,385 $ 61,932 $ 56,657 54,058
Loans charged off:
Commercial & agricultural (5,974) (2,565) (4,504) (2,753) (2,936)
Consumer & installment (14,203) (12,007) (11,793) (10,652) (10,088)
Real estate mortgage (4,082) (1,936) (2,745) (2,379) (1,766)
Lease financing (347) (94) (75) (50) (30)
----------- ----------- ----------- ----------- -----------
Total loans charged off (24,606) (16,602) (19,117) (15,834) (14,820)
----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial & agricultural 1,843 833 1,408 1,632 1,491
Consumer & installment 2,443 2,411 3,120 2,140 2,561
Real estate mortgage 646 334 560 576 504
Lease financing 40 59 20 57 5
----------- ----------- ----------- ----------- -----------
Total recoveries 4,972 3,637 5,108 4,405 4,561
----------- ----------- ----------- ----------- -----------
Net charge-offs (19,634) (12,965) (14,009) (11,429) (10,259)
Provision charged to
operating expense 26,166 17,812 19,310 15,682 11,643
Acquisitions 966 1,000 1,152 1,022 1,215
----------- ----------- ----------- ----------- -----------
Balance, end of period $ 81,730 $ 74,232 $ 68,385 $ 61,932 $ 56,657
=========== =========== =========== =========== ===========
RATIOS
Net charge-offs to
average loans 0.34% 0.25% 0.30% 0.28% 0.27%
=========== =========== =========== =========== ===========
17
18
Deposits
Deposits represent the principal source of funds for the Company. The
distribution and market share of deposits by type of deposit and by type of
depositor are important considerations in the Company's assessment of the
stability of its funds sources and its access to additional funds. Furthermore,
management shifts the mix and maturity of the deposits depending on economic
conditions and loan and investment policies in an attempt, within set policies,
to minimize cost and maximize effective interest differential. See "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Deposits."
The following table shows the classification of deposits on an average
basis for the three years ended December 31, 2000.
Year Ended December 31
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Non-interest bearing
demand deposits $ 967,823 -- $ 934,169 -- $ 861,421 --
Interest bearing
demand deposits 1,672,466 3.24% 1,585,545 2.86% 1,454,694 2.99%
Savings deposits 874,707 4.45% 956,056 3.78% 844,557 3.96%
Time deposits 3,758,003 5.78% 3,376,833 5.19% 3,280,353 5.50%
---------- ---------- ----------
Total deposits $7,272,999 $6,852,603 $6,441,025
========== ========== ==========
Time deposits of $100,000 and over, including certificates of deposits
of $100,000 and over, at December 31, 2000, had maturities as follows:
DECEMBER 31, 2000
-----------------
(In thousands)
Three months or less $ 419,661
Over three months through six months 249,110
Over six months through twelve months 436,201
Over twelve months 282,554
----------
TOTAL $1,387,526
==========
18
19
Return on Equity and Assets
Return on average equity, return on average assets and dividend payout
ratios based on net income for the three years ended December 31, 2000, are
presented below:
Year Ended December 31,
-----------------------------------------------
2000 1999 1998
----- ----- ----
Return on average equity 9.76% 13.89% 12.95%
Return on average assets 0.85 1.26 1.16
Dividend payout ratio 60.23 41.18 43.69
The Company's average equity as a percentage of average assets was
8.70%, 9.06% and 9.00% for 2000, 1999 and 1998, respectively. In 2000, the
Company's return on average equity (which is calculated by dividing net income
by average shareholders' equity) and return on average assets (which is
calculated by dividing net income by average total assets) decreased, and its
dividend payout ratio (which is calculated by dividing dividends declared per
share by net income per share) increased primarily due to significant
restructuring, merger-related and other charges incurred during 2000 in
connection with the merger of First United Bancshares, Inc. into the Company on
August 31, 2000. See "Item 7. - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Summary."
Short-Term Borrowings
The Company uses borrowed funds as an additional source of funds for
growth in earning assets. Short-term borrowings consist of federal funds
purchased, flexible repurchase agreements purchased, securities sold under
repurchase agreements and short-term Federal Home Loan Bank advances.
The following table sets forth, for the periods indicated, certain
information about short-term borrowings and the components thereof:
19
20
DECEMBER 31 DAILY AVERAGE MAXIMUM
-------------------- --------------------- OUTSTANDING
INTEREST INTEREST AT ANY
BALANCE RATE BALANCE RATE MONTH END
-------- -------- ----------- -------- ------------
(Dollars in thousands)
2000:
Federal funds purchased $ -- -- $ 29,859 6.3% $ 71,500
Flexible repurchase agreements 198,925 5.6% 25,804 5.7% 202,300
Securities sold under repurchase agreements 304,502 5.6% 253,152 5.3% 304,502
Short-term Federal Home Loan Bank advances -- -- 136,792 6.8% 570,000
-------- ---------- ----------
Total $503,427 $ 445,607 $1,148,302
======== ========== ==========
1999:
Federal funds purchased $ 20,100 4.6% $ 19,589 4.9% $ 23,600
Securities sold under repurchase agreements 237,327 4.2% 114,121 6.5% 237,327
Short-term Federal Home Loan Bank advances 89,000 6.0% 57,922 5.5% 115,000
-------- ---------- ----------
Total $346,427 $ 191,632 $ 375,927
======== ========== ==========
1998:
Federal funds purchased $ 9,075 5.0% $ 9,656 5.1% $ 22,790
Securities sold under repurchase agreements 134,347 4.7% 110,033 4.9% 125,267
Short-term Federal Home Loan Bank advances 1,046 5.1% 1,098 5.5% 1,322
-------- ---------- ----------
Total $144,468 $ 120,787 $ 51 $ 149,379
======== ========== ==========
Federal funds purchased generally mature the day following the date of
purchase while securities sold under repurchase agreements generally mature
within 30 days from the date of the sale. At December 31, 2000, the Bank has
established informal federal funds borrowing lines of credit aggregating $1.49
billion.
The Bank has entered into a blanket floating lien security agreement
with the Federal Home Loan Bank of Dallas. Under the terms of this agreement,
the Bank is required to maintain sufficient collateral to secure borrowings in
an aggregate amount of the lesser of 75% of the book value (unpaid principal
balance) of the borrower's first mortgage collateral or 35% of the borrower's
assets.
Item 2. - Properties
The physical properties of the Company are held by its subsidiaries as
follows:
a. BancorpSouth Bank - The main office is located at One
Mississippi Plaza in the central business district of Tupelo,
Mississippi in a seven-floor modern glass, concrete and steel
office building owned by the Bank. The Bank occupies
approximately 80% of the rentable space, with the remainder
leased to various unaffiliated tenants.
The Bank owns 208 of its 236 branch banking facilities. The
remaining 28 branch banking facilities are occupied under
leases with unexpired terms ranging from one to seven years.
The Bank also owns other buildings that provide space for
computer operations, lease servicing, mortgage lending,
warehouse needs and other general purposes.
The Bank considers all its buildings and leased premises to be
in good condition. The Bank also owns several parcels of
property acquired under foreclosure. Ownership of and rentals
on other real property by the Bank are not material.
20
21
b. Personal Finance Corporation - This wholly-owned subsidiary of
the Bank occupies 45 leased offices, with the unexpired terms
varying in length from one to five years. The average size of
these leased offices is approximately 1,000 square feet. All
of these premises are considered to be in good condition.
c. BancorpSouth Insurance Services, Inc. - This wholly-owned
subsidiary of the Bank owns seven of the nine offices it
occupies. It leases two offices that have unexpired terms
varying in length from one to three years.
21
22
Item 3. - Legal Proceedings
The Company and its subsidiaries are defendants in various lawsuits
arising in the ordinary course of business. In the opinion of management, after
consultation with outside legal counsel, the outcome of these actions should not
have a material adverse effect on the financial condition and results of
operations of the Company and its subsidiaries, taken as a whole.
Item 4. - Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of 2000.
Executive Officers of the Company
For information regarding executive officers of the Company, see "Item
10. - Directors and Executive Officers of the Registrant" in this Report.
PART II
Item 5. - Market for the Registrant's Common Equity and Related Stockholder
Matters
Market for Common Stock
The common stock of the Company trades on the New York Stock Exchange
under the symbol "BXS." The following table sets forth, for the periods
indicated, the range of sale prices of the Company's common stock as reported on
the New York Stock Exchange.
High Low
----------- -----------
2000 Fourth $ 14.88 $ 11.88
Third 15.31 13.81
Second 17.25 14.00
First 16.63 14.00
1999 Fourth $ 17.50 $ 16.31
Third 19.38 15.38
Second 19.13 15.81
First 19.44 15.75
Holders of Record
As of February 28, 2001, there were 10,348 shareholders of record of
the Company's common stock.
Dividends
The Company declared cash dividends totaling $0.53 per share during
2000, $0.49 during 1999 and $0.45 during 1998. Future dividends, if any, will
vary depending on the Company's profitability, anticipated capital requirements
and applicable federal and state regulations. See "Item 1. - Business -
Regulation and Supervision" and Note 15 to the Company's Consolidated Financial
Statements included elsewhere in this Report.
22
23
Item 6. - Selected Financial Data
SELECTED FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Earnings Summary: (Dollars in thousands, except per share amounts)
Interest revenue $ 674,035 $ 596,670 $ 574,414 $ 523,770 $ 476,862
Interest expense 346,883 280,150 277,104 246,945 222,806
---------- ---------- ---------- ---------- ----------
Net interest revenue 327,152 316,520 297,310 276,825 254,056
Provision for credit losses 26,166 17,812 19,310 15,682 11,643
---------- ---------- ---------- ---------- ----------
Net interest revenue, after
provision for credit losses 300,986 298,708 278,000 261,143 242,413
Other revenue 85,578 100,321 85,418 77,835 71,388
Other expense 274,227 251,882 232,928 225,199 198,360
---------- ---------- ---------- ---------- ----------
Income before income taxes 112,337 147,147 130,490 113,779 115,441
Income tax expense 37,941 44,736 42,249 34,141 37,031
---------- ---------- ---------- ---------- ----------
Net income $ 74,396 $ 102,411 $ 88,241 $ 79,638 $ 78,410
========== ========== ========== ========== ==========
Per Share Data:
Net income: Basic $ 0.88 $ 1.20 $ 1.04 $ 0.96 $ 0.98
Diluted 0.88 1.19 1.03 0.96 0.98
Cash dividends 0.53 0.49 0.45 0.395 0.35
Book value 9.40 8.84 8.44 7.72 7.08
Balance Sheet - Year End Balances:
Total assets $9,044,034 $8,441,697 $7,899,655 $7,207,205 $6,398,872
Total securities 2,046,529 2,111,597 2,147,609 2,032,644 1,793,779
Loans, net of unearned discount 6,095,315 5,541,961 4,935,668 4,400,643 3,909,003
Total deposits 7,480,920 7,066,645 6,720,906 6,102,882 5,553,941
Total shareholders' equity 789,576 757,111 723,162 639,012 566,183
Selected Ratios:
Return on average assets 0.85% 1.26% 1.16% 1.17% 1.27%
Return on average equity 9.76% 13.89% 12.95% 12.97% 14.78%
23
24
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
QUARTER ENDED
-------------------------------------------------------
Mar 31 Jun 30 Sept 30 Dec 31
- --------------------------------------------------------------------------------------------------------
2000 (In thousands, except per share amounts)
Interest revenue $158,729 $163,586 $173,325 $178,395
Net interest revenue 81,328 82,458 80,567 82,799
Provision for credit losses 4,615 5,398 10,656 5,497
Income before income taxes 39,267 38,510 16,871 17,689
Net income 26,645 25,984 9,492 12,275
Earnings per share: Basic 0.31 0.31 0.11 0.15
Diluted 0.31 0.31 0.11 0.15
Dividends per share 0.13 0.13 0.13 0.14
- --------------------------------------------------------------------------------------------------------
1999
Interest revenue $143,449 $145,545 $149,685 $157,991
Net interest revenue 76,234 77,694 79,505 83,087
Provision for credit losses 3,751 4,094 4,798 5,169
Income before income taxes 35,130 36,304 38,902 36,811
Net income 24,988 24,832 26,172 26,419
Earnings per share: Basic 0.29 0.29 0.31 0.31
Diluted 0.29 0.29 0.30 0.31
Dividends per share 0.12 0.12 0.12 0.13
- --------------------------------------------------------------------------------------------------------
1998
Interest revenue $140,201 $144,411 $145,429 $144,373
Net interest revenue 72,957 74,481 74,986 74,886
Provision for credit losses 4,048 4,793 5,602 4,867
Income before income taxes 34,451 34,732 33,300 28,007
Net income 23,619 23,570 21,799 19,253
Earnings per share: Basic 0.28 0.28 0.26 0.23
Diluted 0.28 0.28 0.25 0.22
Dividends per share 0.11 0.11 0.11 0.12
24
25
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a bank holding company headquartered in Tupelo,
Mississippi. The Bank, the Company's banking subsidiary, has commercial banking
operations in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana.
The Bank and its consumer finance, credit life insurance, insurance agency and
brokerage subsidiaries provide commercial banking, leasing, mortgage origination
and servicing, life insurance, brokerage and trust services to corporate
customers, local governments, individuals and other financial institutions
through an extensive network of branches and offices.
The following discussion provides certain information concerning the
consolidated financial condition and results of operations of the Company. For a
complete understanding of the following discussion, you should refer to the
Consolidated Financial Statements and Notes thereto presented elsewhere in this
Report.
On August 31, 2000, First United Bancshares, Inc. merged into the
Company in a transaction accounted for as a pooling of interests. All prior
period financial information has been restated as if this merger had been in
effect for all periods presented. For additional information about this merger,
refer to Note 3 to the Consolidated Financial Statements included elsewhere in
this Report.
THREE YEARS ENDED DECEMBER 31, 2000
RESULTS OF OPERATIONS
SUMMARY
The table below summarizes the Company's net income, return on average
assets and return on average equity for the years ended December 31, 2000, 1999
and 1998. The table also summarizes certain restructuring, merger-related and
other charges, and presents the Company's results of operations for 2000, 1999
and 1998 excluding these charges.
(Dollars in thousands, except per share amounts) 2000 1999 1998
-------- -------- --------
AS REPORTED:
Net income $ 74,396 $102,411 $ 88,241
Net income per share: Basic $ 0.88 $ 1.20 $ 1.04
Diluted $ 0.88 $ 1.19 $ 1.03
Return on average assets 0.85% 1.26% 1.16%
Return on average equity 9.76% 13.89% 12.95%
RESTRUCTURING, MERGER-RELATED AND OTHER CHARGES (NET OF TAX):
Securities losses related to restructuring of
acquired securities portfolio $ 9,685 $ -- $ --
Merger-related charges 7,445 976 3,095
Provision for credit losses 3,770 -- --
Other charges 1,605 -- 1,380
-------- -------- --------
Total $ 22,505 $ 976 $ 4,475
Per share:
Basic $ 0.27 $ 0.01 $ 0.05
Diluted $ 0.26 $ 0.01 $ 0.05
EXCLUDING RESTRUCTURING, MERGER-RELATED AND OTHER CHARGES:
Net income $ 96,901 $103,387 $ 92,716
Net income per share: Basic $ 1.15 $ 1.21 $ 1.09
Diluted $ 1.14 $ 1.20 $ 1.08
Return on average assets 1.11% 1.27% 1.23%
Return on average equity 12.72% 13.99% 13.61%
NET INTEREST REVENUE
Net interest revenue increased 3.3% to $339.2 million in 2000 from
$328.4 million in 1999, which represented an increase of 6.6% from $308.2
million in 1998. Net interest revenue is the difference between interest revenue
earned from earning assets such as loans, leases and securities, and interest
expense paid on liabilities such as deposits and borrowings, and continues to
provide the Company with its principal source of revenue. Net interest revenue
is affected by the general level of interest rates, changes in interest rates
and by changes in the amount and composition of interest
25
26
earning assets and interest bearing liabilities. The Company's long-term
objective is to manage those assets and liabilities to maximize net interest
revenue, while balancing interest rate, credit, liquidity and capital risks. For
purposes of the following discussion, revenue from tax-exempt loans and
investment securities has been adjusted to fully taxable equivalent amounts,
using an effective tax rate of 35%.
Interest income increased 12.7% to $686.1 million in 2000 from $608.6
million in 1999, which represented an increase of 4.0% from $585.3 million in
1998. The increase in interest income during 2000 was attributable to a 7.6%
increase in average interest earning assets to $8.2 billion in 2000, and an
increase in the yield of those assets of 38 basis points to 8.38% in 2000. The
increase in interest income during 1999 was attributable to a 7.3% increase in
average interest earning assets to $7.6 billion during 1999, which was partially
offset by a decrease in the yield of those assets of 25 basis points to 8.00% in
1999.
Interest expense increased 23.8% to $346.9 million in 2000 from $280.2
million in 1999, which represented an increase of 1.1% from $277.1 million in
1998. The increase in interest expense during 2000 was attributable to an 8.6%
increase in average interest bearing liabilities to $6.9 billion in 2000, and an
increase in the average rate paid on those liabilities of 61 basis points to
5.01% in 2000. The increase in interest expense during 1999 was attributable to
a 7.4% increase in average interest bearing liabilities to $6.4 billion in 1999,
which was partially offset by a decrease in the average rate paid on those
liabilities of 27 basis points to 4.40% in 1999.
The relative performance of the lending and deposit-raising functions
is frequently measured by two calculations - net interest margin and net
interest rate spread. Net interest margin is determined by dividing
fully-taxable equivalent net interest revenue by average earning assets. Net
interest rate spread is the difference between the average fully-taxable
equivalent yield earned on interest earning assets and the average rate paid on
interest bearing liabilities. Net interest margin is generally greater than the
net interest rate spread due to the additional income earned on those assets
funded by non-interest bearing liabilities, or free funding, such as demand
deposits and shareholders' equity.
Net interest margin for 2000 was 4.14%, a decline of 18 basis points
from 4.32% for 1999, which represented a decline of three basis points from
4.35% for 1998. Net interest rate spread for 2000 was 3.37%, a decline of 23
basis points from 3.60% for 1999, which represented an increase of two basis
points from 3.58% for 1998. The decline in net interest margin and net interest
rate spread in 2000 was due to the significant increase in funding cost which
was not offset by the smaller increase in asset yield.
The Company experienced significant growth in average interest earning
assets and average interest bearing liabilities during the three years ended
December 31, 2000. Average interest earning assets increased 7.6% during 2000,
7.3% during 1999 and 12.1% during 1998, due to increases in the Company's loan
and securities portfolios. Average interest bearing liabilities increased 8.6%
during 2000, 7.4% during 1999 and 12.5% during 1998, due to increases in the
Company's deposits and short-term borrowings.
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The following table presents average interest earning assets, average
interest bearing liabilities, net interest income, net interest margin and net
interest rate spread for the three years ended December 31, 2000. Each of the
measures is reported on a fully-taxable equivalent basis.
2000 1999 1998
---------------------------- ------------------------------ ------------------------------
(Taxable equivalent basis) Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ---- --------- -------- ---- --------- -------- ----
ASSETS (Dollars in thousands)
Loans (net of unearned
income)(1)(2) $5,791,569 $527,618 9.11% $5,211,539 $459,593 8.82% $4,710,847 $434,812 9.23%
Mortgages held for sale 39,461 3,111 7.88% 51,602 3,638 7.05% 52,581 3,470 6.60%
Held to maturity
securities:
Taxable 796,125 49,086 6.17% 670,051 39,007 5.82% 665,219 38,908 5.85%
Non-taxable(3) 325,027 24,108 7.42% 315,206 23,072 7.32% 280,558 21,236 7.57%
Available-for-sale
securities:
Taxable 1,040,875 68,740 6.60% 1,108,558 67,939 6.13% 1,108,293 70,123 6.33%
Non-taxable(4) 73,829 6,011 8.14% 88,364 7,163 8.11% 87,929 6,724 7.65%
Federal funds sold and
short term investments 119,752 7,440 6.21% 162,578 8,135 5.00% 187,735 10,037 5.35%
---------- -------- ---- ---------- -------- ----- ---------- -------- ----
Total interest earning
assets and revenue 8,186,638 686,114 8.38% 7,607,898 608,547 8.00% 7,093,162 585,310 8.25%
Other assets 646,878 604,718 547,420
Less: allowance for
credit losses (77,042) (73,420) (65,712)
---------- --------- ----------
Total $8,756,474 $8,139,196 $7,574,870
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand - interest bearing $1,672,466 $ 54,226 3.24% $1,585,545 $45,380 2.86% $1,454,694 $ 43,528 2.99%
Savings 874,707 38,947 4.45% 956,056 36,145 3.78% 844,557 33,453 3.96%
Time 3,758,003 217,191 5.78% 3,376,833 175,229 5.19% 3,280,353 180,324 5.50%
Federal funds purchased,
securities sold under
repurchase agreements and
other short-term
borrowings(5) 454,089 26,742 5.89% 270,185 13,748 5.09% 157,773 9,216 5.84%
Long-term debt 164,683 9,776 5.94% 185,632 9,652 5.20% 199,205 10,584 5.31%
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities and expense 6,923,948 346,882 5.01% 6,374,251 280,154 4.40% 5,936,582 277,105 4.67%
Demand deposits -
non-interest bearing 967,823 934,169 861,421
Other liabilities 102,819 93,250 95,384
---------- ---------- ----------
Total liabilities 7,994,590 7,401,670 6,893,387
Shareholders' equity 761,884 737,526 681,483
---------- ---------- ----------
Total $8,756,474 $8,139,196 $7,574,870
========== ========== ==========
Net interest revenue $339,232 $328,393 $308,205
======== ======== ========
Net interest margin 4.14% 4.32% 4.35%
Net interest rate spread 3.37% 3.60% 3.58%
Interest bearing liabilities to
interest earning assets 84.58% 83.78% 83.69%
- -------------
(1) Includes taxable equivalent adjustment of $1,538,000, $1,293,000 and
$1,110,000 in 2000, 1999 and 1998, respectively, using an effective tax
rate of 35%.
(2) Non-accrual loans are immaterial for each of the years presented.
(3) Includes taxable equivalent adjustments of $8,438,000, $8,092,000 and
$7,433,000 in 2000, 1999 and 1998, respectively, using an effective tax
rate of 35%.
(4) Includes taxable equivalent adjustment of $2,103,000, $2,492,000 and
$2,353,000 in 2000, 1999 and 1998, respectively, using an effective tax
rate of 35%.
(5) Interest expense includes interest paid on liabilities not included in
averages.
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Net interest revenue may also be analyzed by segregating the rate and
volume components of interest revenue and interest expense. The table that
follows presents an analysis of rate and volume change in net interest revenue
from 1999 to 2000 and from 1998 to 1999. Changes that are not solely due to
volume or rate have been allocated to volume.
2000 OVER 1999 -- INCREASE 1999 OVER 1998 -- INCREASE
(DECREASE) (DECREASE)
---------------------------- ----------------------------
(TAXABLE EQUIVALENT BASIS) VOLUME RATE TOTAL VOLUME RATE TOTAL
- -------------------------- ------- -------- ------- ------- -------- -------
INTEREST REVENUE
Loans (net of unearned income)......... $52,841 $ 15,184 $68,025 $44,155 $(19,374) $24,781
Mortgages held for sale................ (957) 430 (527) (69) 237 168
Held to maturity securities:
Taxable.............................. 7,773 2,306 10,079 281 (182) 99
Non-taxable.......................... 728 308 1,036 2,536 (700) 1,836
Available-for-sale securities:
Taxable.............................. (4,470) 5,271 801 16 (2,200) (2,184)
Non-taxable.......................... (1,183) 31 (1,152) 35 404 439
Federal funds sold and short term
investments.......................... (2,661) 1,966 (695) (1,259) (643) (1,902)
------- -------- ------- ------- -------- -------
Total........................ 52,071 25,496 77,567 45,695 (22,458) 23,237
------- -------- ------- ------- -------- -------
INTEREST EXPENSE
Demand -- interest bearing........... 2,818 6,028 8,846 3,745 (1,893) 1,852
Savings.............................. (3,622) 6,424 2,802 4,215 (1,523) 2,692
Time................................. 22,029 19,933 41,962 5,006 (10,101) (5,095)
Federal funds purchased, securities
sold under repurchase agreements and
other short-term borrowings.......... 10,830 2,164 12,994 5,720 (1,188) 4,532
Long-term debt......................... (1,244) 1,368 124 (706) (226) (932)
------- -------- ------- ------- -------- -------
Total........................ 30,811 35,917 66,728 17,980 (14,931) 3,049
------- -------- ------- ------- -------- -------
Increase (decrease) in effective
interest differential................ $21,260 $(10,421) $10,839 $27,715 $ (7,527) $20,188
======= ======== ======= ======= ======== =======
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INTEREST RATE SENSITIVITY
The interest sensitivity gap is the difference between the maturity or
repricing scheduling of interest sensitive assets and interest sensitive
liabilities for a given period of time. A prime objective of asset/liability
management is to maximize net interest margin while maintaining a reasonable mix
of interest sensitive assets and liabilities. The following table sets forth the
Company's interest rate sensitivity at December 31, 2000.
INTEREST RATE SENSITIVITY
MATURING OR REPRICING
---------------------------------------------------------------------
91 DAYS OVER 1
0 TO 90 TO YEAR TO OVER
DAYS 1 YEAR 5 YEARS 5 YEARS
--------------- --------------- -------------- --------------
(IN THOUSANDS)
Interest earning assets:
Interest bearing deposits with banks $ 11,687 $ -- $ -- $ --
Federal funds sold & repurchase agreements 212,925 -- -- --
Held-to-maturity securities 102,383 190,195 692,950 203,601
Available-for-sale securities 52,490 54,746 497,395 252,769
Loans, net of unearned discount 2,098,956 588,806 2,879,638 527,915
Mortgages held for sale 27,820 -- -- --
-------------- -------------- ------------- -------------
Total interest earning assets 2,506,261 833,747 4,069,983 984,285
-------------- -------------- ------------- -------------
Interest bearing liabilities:
Interest bearing demand deposits & savings 535,488 294,389 1,180,872 596,120
Time deposits 879,972 1,843,294 1,137,980 2,997
Federal funds purchased & securities
sold under repurchase agreements 503,427 -- -- --
Long-term debt 109 10,084 5,528 136,328
Other 821 144 547 1,022
-------------- -------------- ------------- -------------
Total interest bearing liabilities 1,919,817 2,147,911 2,324,927 736,467
-------------- -------------- ------------- -------------
Interest rate sensitivity gap $ 586,444 $ (1,314,164) $ 1,745,056 $ 247,818
============== ============== ============= =============
Cumulative interest sensitivity gap $ 586,444 $ (727,720) $ 1,017,336 $ 1,265,154
============== ============== ============= =============
In the event interest rates decline after 2000, based on this interest
rate sensitivity gap, it is likely that the Company would experience a slightly
positive effect on net interest income in the following one year period, as the
cost of funds will decrease at a more rapid rate than interest income on
interest earning assets. Conversely, in periods of increasing interest rates,
based on this interest rate sensitivity gap, the Company would likely experience
decreased net interest income. It should be noted that the balances shown in the
table above are for a specific point in time and may not be reflective of
positions at other times during the year or in subsequent periods. Allocations
to specific interest rate sensitivity periods are based on the earlier of
maturity or repricing dates.
PROVISIONS FOR CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses is the annual cost of providing an
allowance or reserve for estimated probable losses on loans. The amount for each
year is dependent upon many factors, including loan growth, net charge-offs,
changes in the composition of the loan portfolio, delinquencies, management's
assessment of loan portfolio quality, the value of collateral and general
economic factors. The process of determining the adequacy of the provision
requires that management make material estimates and assumptions that are
particularly susceptible to significant change. See "Item 1. - Business."
When determining the adequacy of the allowance for credit losses,
management considers changes in the size and character of the loan portfolio,
changes in non-performing and past due loans, historical loan loss experience,
the existing risk of individual loans, concentrations of loans to specific
borrowers or industries and existing economic conditions. The allowance for
credit losses for commercial loans is based principally upon the Company's loan
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classification system. The Company has a disciplined approach for assigning
credit ratings and classifications to individual credits. Each credit is
assigned a grade by the relevant loan officer, which serves as a basis for the
credit analysis of the entire portfolio. The grade assigned considers the
borrower's creditworthiness, collateral values, cash flows and other factors. An
independent loan review department is responsible for reviewing the credit
rating and classification of individual credits and assessing trends in the
portfolio, adherence to internal credit policies and procedures and other
factors that may affect the overall adequacy of the allowance. The loan review
department is supplemented by regulatory agencies that provide an additional
level of review. The loss factors assigned to each classification are based upon
the attributes (loan to collateral values, borrower creditworthiness, etc.) of
the loans typically assigned to each grade. Management periodically reviews the
loss factors assigned in light of the general economic environment and overall
condition of the loan portfolio and modifies the loss factors assigned to each
classification as deemed appropriate. The allowance for credit losses for the
consumer loan portfolio is based upon delinquencies and historic loss rates. The
overall allowance includes a component representing the results of other
analyses intended to insure that the allowance is adequate to cover other
probable losses inherent in the portfolio. This component considers analyses of
changes in credit risk resulting from the differing underwriting criteria in
acquired loan portfolios, industry concentrations, changes in the mix of loans
originated, overall credit criteria and other economic indicators.
The provision for credit losses, the allowance for credit losses as a
percentage of loans outstanding at the end of 2000, 1999 and 1998 and net
charge-offs for those years are shown in the following table:
2000 1999 1998
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
Provision for credit losses $26,166 $17,812 $19,310
Allowance for credit losses as
a percentage of loans
outstanding at year end 1.34% 1.34% 1.39%
Net charge-offs $19,634 $12,965 $14,009
Net charge-offs as a percentage
of average loans 0.34% 0.25% 0.30%
The provision for credit losses for 2000 increased 46.9% from the
provision for 1999 and reflects a one-time charge of $6.1 million made to
provide for probable losses in the loan portfolio acquired in the merger with
First United Bancshares, Inc., and to reflect differences in underwriting
standards at the acquired company. In part, these differences in underwriting
standards also led to a 51.4% increase in net charge-offs during 2000 and
increases in internal credit ratings and classifications of the Company's
overall loan portfolio at December 31, 2000. The provision for credit losses for
1999 decreased 7.8% from the provision for 1998, principally as result of a 7.5%
decrease in net charge-offs during 1999. In all years presented, increases in
consumer based loans were the principal contributors to the higher levels of net
charge-offs.
OTHER REVENUE
The components of other revenue for the years ended December 31, 2000,
1999 and 1998 and the percentage change from the prior year are shown in the
following table:
2000 1999 1998
---------------------------- ----------------------------- ----------------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------------- --------- ------------- ---------- ------------- ---------
(DOLLARS IN THOUSANDS)
Mortgage lending $ 10,874 -40.5% $ 18,289 +32.4% $ 13,816 +74.6%
Service charges 40,472 +10.9 36,503 +7.9 33,835 +4.3
Life insurance premiums 4,300 +8.2 3,975 +8.8 3,655 -3.1
Trust income 6,700 +4.7 6,400 +9.6 5,841 +5.7
Securities gains (losses), net (15,632) N/M 4,416 +224.0 1,363 -1.4
Insurance commissions 16,034 +18.1 13,573 +8.8 12,475 +22.5
Other 22,830 +33.0 17,165 +18.9 14,433 -13.2
------------- ------------- -------------
Total other revenue $ 85,578 -14.7% $ 100,321 +17.4% $ 85,418 +9.7%
============= ============= =============
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Mortgage lending revenue consists principally of revenue generated by
originating loans and by servicing loans for others. The origination process,
which includes secondary marketing of loans originated, produced revenue of
$8,183,000, $11,256,000 and $13,724,000 for 2000, 1999 and 1998, respectively.
Historically, origination volumes have varied as mortgage interest rates have
changed. Rising mortgage interest rates have generally resulted in a decrease in
the volume of originations, while falling mortgage interest rates have generally
resulted in an increased volume of originations. The servicing process includes
the actual servicing of loans and the recognition of changes in the valuation of
capitalized mortgage servicing rights. Capitalized mortgage servicing rights are
evaluated for impairment based on the excess of the carrying amount of the
mortgage servicing rights over their fair value. The servicing process generated
revenue of $2,691,000 in 2000, $7,034,000 in 1999 and $92,000 in 1998. The
fluctuation in servicing revenue is primarily due to changes in the valuation of
capitalized mortgage servicing rights. Lower mortgage rates in 2000 resulted in
impairment expense of $1.0 million. Rising mortgage interest rates during 1999
resulted in the recovery of $3.3 million during 1999 of previously recorded
impairment. This compares to the recognition of $4.1 million in impairment
expense during 1998. The following table presents the principal amount of
mortgage loans serviced at December 31, 2000, 1999 and 1998 and the percentage
change from the previous year end.
2000 1999 1998
----------------------- ----------------------- ------------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------- --------- ------- -------- --------- --------
(DOLLARS IN MILLIONS)
Mortgage loans serviced $2,217.0 +6.3% $2,085.2 +13.6% $1,836.0 +25.9%
Service charges on deposit accounts increased in 2000, 1999 and 1998
because of higher volumes of items processed as a result of greater economic
activity, growth in the number of deposit accounts and rate increases. Life
insurance premium revenue increased 8.2% in 2000 and 8.8% in 1999, as compared
to a decline 3.1% during 1998. Trust income increased 4.7% in 2000, 9.6% in 1999
and 5.7% in 1998, as a result of increases in the number of trust accounts and
the value of assets under care (either managed or in custody). In 2000, the
Company restructured the securities portfolio acquired through the August 31,
2000 merger with First United Bancshares, Inc. by selling approximately $680
million of securities and reinvesting the net proceeds in higher yielding
securities, which resulted in securities losses of $15.7 million in 2000. In
1999, the Company established a charitable foundation and contributed
appreciated equity securities to initially fund the foundation. This transaction
resulted in one-time securities gains of approximately $4.14 million, which are
reflected in the results for 1999. Revenue from insurance commissions grew
steadily during 2000, 1999 and 1998, as the Company continued to expand those
products and services. The increases in the other component of other revenue in
2000 and 1999 were primarily attributable to fees generated from brokerage and
annuity sales, as well as increased analysis charges and debit card net
interchange.
OTHER EXPENSE
The components of other expense for the years ended December 31, 2000,
1999 and 1998 and the percentage change from the prior year are shown in the
following table.
2000 1999 1998
----------------------------- ---------------------------- --------------------------
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT % CHANGE
------------- --------- ------------- --------- ------------- ---------
(DOLLARS IN THOUSANDS)
Salaries and employee benefits $ 133,855 +7.3% $ 124,750 +9.0% $ 114,443 -3.0%
Occupancy, net 18,343 +8.4 16,918 +7.5 15,736 -1.7
Equipment 24,137 +11.7 21,618 +7.5 20,103 +5.6
Telecommunications 7,234 +1.9 7,096 +18.5 5,987 +42.7
Merger-related 9,215 +656.6 1,218 -65.9 3,577 +574.9
Other 81,443 +1.4 80,282 +9.9 73,082 +8.3
------------- ------------- -------------
Total other expense $ 274,227 +8.9% $ 251,882 +8.1% $ 232,928 +3.4%
============= ============= =============
Salaries and employee benefits expense for 2000, 1999 and 1998
included increases in salaries and employee benefits due to incentive payments
and salary increases, increases in the cost of employee heath care benefits and
the hiring of employees to staff the banking locations added during those years;
however, salaries and employee benefits expense for all three years were
impacted by changes in stock appreciation rights (SARs) expense, which is
included in salaries and employee benefits expense. The Company previously
granted SARs to certain of its employees, which
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requires the Company to recognize an expense in the event of an increase in the
market price of the Company's common stock or a reduction of expense in the
event of a decline in the market price of the Company's common stock. In 2000,
the Company's common stock price declined by approximately 25.3%, in 1999 the
Company's common stock price declined by approximately 9.9% and in 1998 the
Company's common stock price declined by approximately 24%. As a result of these
declines in value, reductions in expense of $1,844,000, $956,000 and $2.7
million were recorded in 2000, 1999 and 1998, respectively. At December 31,
2000, the Company had approximately 475,000 SARs outstanding. Based on that
amount, a dollar increase in the Company's stock price would result in $475,000
in SAR expense while a dollar decrease in the Company's stock price would result
in a $475,000 reduction in SAR expense.
Occupancy and equipment expenses increased in 2000 and 1999 principally
as a result of additional branch offices and upgrades to the Company's inter