| BANCORPSOUTH INC ITEM 1A RISK FACTORS Certain statements contained in this Annual Report may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, as amended |
| These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,” “believe,” “estimate,” “expect,” “foresee,” “may,” “might,” “will,” “would,” “could” or “intend,” future or conditional verb tenses, and variations or negatives of such terms |
| These forward-looking statements include, without limitation, those relating to the Company’s operating results, growth strategies and growth opportunities, interest earning assets and interest bearing liabilities, unsecured loans, credit card losses, commercial loans, earnings, rates of return on plan assets, discount rates, economic conditions in the Company’s market area, internal control over financial reporting, maturities of held-to-maturity securities, amortization expenses, valuation of mortgage servicing rights, diversification of revenue stream, asset quality, goodwill, net interest revenue, interest rate sensitivity, credit quality and credit losses, sources of liquidity and liquidity strategies, non-performing assets, dividends, future acquisitions, market risk, significant accounting policies, underwriting and loan administration policies, loans to directors and executive officers, indirect lending activities, market conditions, stock repurchase program, the impact of Hurricane Katrina, allowance for credit losses, actual or perceived financial condition of the Company’s borrowers, pension and other post-retirement benefit amounts, loans in the Tennessee office of the Bank’s consumer finance subsidiary, the Wright & Percy Insurance and Ramsey, Krug, Farrell & Lensing, Inc, acquisitions, expansion of products and services offered by the Company’s insurance agencies, competitive position, legal and regulatory limitations and compliance, junior subordinated debt securities, the adoption of SFAS Nodtta 123R, the effect of certain legal claims and pending 16 _________________________________________________________________ [49]Table of Contents lawsuits, the audit by the Mississippi State Tax Commission, deferred tax assets, fair value discount rates and accelerated vesting of options |
| We caution you not to place undue reliance on the forward-looking statements contained in this Annual Report in that actual results could differ materially from those indicated in such forward-looking statements due to a variety of factors |
| These factors include, but are not limited to, the following: • The rate of economic recovery in the areas affected by Hurricane Katrina; • The ability of the Company to increase noninterest revenue and expand noninterest revenue business; • Changes in economic conditions and government fiscal and monetary policies; • Fluctuations in prevailing interest rates and the effectiveness of the Company’s interest rate hedging strategies; • The ability of the Company to maintain credit quality; • The ability of the Company to provide and market competitive products and services; • Changes in the Company’s operating or expansion strategy; • Geographic concentration of the Company’s assets and susceptibility to economic downturns in that area; • The availability of and costs associated with maintaining and/or obtaining adequate and timely sources of liquidity; • Laws and regulations affecting financial institutions in general; • The ability of the Company to operate and integrate new technology; • The ability of the Company to manage its growth and effectively serve an expanding customer and market base; • The ability of the Company to attract, train and retain qualified personnel; • Changes in consumer preferences; • The ability of the Company to repurchase its common stock on favorable terms; • The ability of the Company to collect amounts due under loan agreements and attract deposits; • Legislation and court decisions related to the amount of damages recoverable in legal proceedings; • Possible adverse rulings, judgments, settlements and other outcomes of pending litigation; and • Other factors generally understood to affect the financial results of financial services companies; The Company undertakes no obligation to update its forward-looking statements to reflect events or circumstances that occur after the date of this Report |
| In addition to the factors listed above that could influence our forward-looking statements, management believes that the risk factors set forth below should be considered in evaluating the Company’s business |
| Other relevant risk factors are outlined below and may be supplemented from time to time in the Company’s press releases and filings with the Securities and Exchange Commission |
| Rising interest rates may result in higher interest rates being paid on interest bearing deposits than are charged on outstanding loans |
| If interest rates rise, we may pay interest on our customers’ interest-bearing deposits and our other liabilities at higher rates than the interest rates paid to us by our customers on outstanding loans that were made when interest rates were at a lower level |
| This situation would result in a negative interest rate spread with respect to those loans and cause an adverse effect on our earnings |
| This adverse effect would increase if interest rates continued to rise while we had outstanding loans payable at fixed interest rates that could not be adjusted to a higher interest rate |
| Our allowance for loan losses may not be adequate to cover actual loan losses |
| We make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for potential losses based on a number of factors |
| If our assumptions are wrong, our allowance for loan losses may not be sufficient to cover our losses, which would have an adverse effect on our operating results, and may also cause us to increase the allowance in the future |
| Further, our net income would decrease for any period in which we add additional amounts to our allowance for loans losses |
| 17 _________________________________________________________________ [50]Table of Contents Hurricanes or other adverse weather events could negatively affect local economies where we maintain branch offices or cause disruption or damage to our branch office locations, which could have an adverse effect on our business or results of operations |
| Our operations include business in the States of Mississippi, Alabama, Louisiana and Texas, which includes areas susceptible to hurricanes or tropical storms |
| Such weather conditions can disrupt our operations, result in damage to our branch office locations or negatively affect the local economies in which we operate |
| In late August 2005, Hurricane Katrina devastated parts of the Mississippi Gulf Coast, causing substantial damage to residences and businesses in these areas, including 13 of our banking locations |
| We cannot predict whether or to what extent damage caused by future hurricanes or storms will affect our operations or the economies in our market areas, but such weather conditions could result in a decline in loan originations and an increase in the risk of delinquencies, foreclosures or loan losses |
| Our business or results of operations may be adversely affected by these and other negative effects of devastating hurricanes or storms |
| Our operations are subject to extensive governmental regulation |
| is a financial holding company under the Bank Holding Company Act, and BancorpSouth Bank is a Mississippi state banking corporation |
| Accordingly, both are subject to extensive governmental regulation, legislation and control |
| These laws limit the manner in which we operate, including the amount of loans we can originate, interest we can charge on loans and fees we can charge for certain services |
| We cannot predict whether, or the extent to which, the government and governmental organizations may change any of these laws or controls |
| We also cannot predict how any of these changes would adversely affect our business and prospects |
| We face risks in connection with completed or potential acquisitions |
| We completed one acquisition in 2005 and, if appropriate opportunities present themselves, we intend to pursue additional acquisitions in the future that we believe are strategic |
| There can be no assurance that we will be able to identify, negotiate or finance future acquisitions successfully or integrate such acquisitions with our current business |
| Upon completion of an acquisition, we are faced with the challenges of integrating the operations, services, products, personnel, and systems of acquired companies into our business, which may divert management’s attention from ongoing business operations |
| We cannot assure that we will be successful in integrating any acquired business effectively into the operations of our business |
| Moreover, there can be no assurance that the anticipated benefits of any acquisition will be realized |
| The success of our acquisitions is dependent on the continued employment of several key employees |
| If acquired businesses do not meet projected revenue targets, or if certain key employees were to leave the businesses, we could conclude that the value of the businesses has decreased and that the related goodwill has been impaired |
| If we were to conclude that goodwill has been impaired that conclusion would result in an impairment of goodwill charge to us, which would adversely affect our results of operations |
| Issuing additional shares of our common stock to acquire other banks, bank holding companies, financial holding companies and insurance agencies may result in dilution for existing shareholders and may adversely affect the market price of our stock |
| In connection with our growth strategy, we have issued, and may issue in the future, shares of our common stock to acquire additional banks, bank holding companies, financial holding companies and insurance agencies |
| Resales of substantial amounts of common stock in the public market and the potential of such sales could adversely affect the prevailing market price of our common stock and impair our ability to raise additional capital through the sale of equity securities |
| We usually must pay an acquisition premium above the fair market value of acquired assets for the acquisition of banks, bank holding companies, financial holding companies and insurance agencies |
| Paying this acquisition premium, in addition to the dilutive effect of issuing additional shares, may also adversely affect the prevailing market price of our common stock |
| Our ability to declare and pay dividends is limited by law |
| We derive our income solely from dividends received from owning the Bank’s common stock |
| Federal and state law limit the Bank’s ability to declare and pay dividends |
| In addition, the Federal Reserve may impose restrictions on our ability to declare and pay dividends on our common stock |
| 18 _________________________________________________________________ [51]Table of Contents Our growth strategy includes risks that could have an adverse effect on financial performance |
| A significant element of our growth strategy is the acquisition of additional banks, bank holding companies, financial holding companies and insurance agencies in order to achieve greater economies of scale |
| We cannot assure you that the current level of growth opportunities will continue to exist, that we will be able to acquire banks, insurance agencies, bank holding companies and financial holding companies that satisfy our criteria or that any such acquisitions will be on terms favorable to us |
| Further, our growth strategy will require that we continue to hire qualified personnel, while concurrently expanding our managerial and operational infrastructure |
| We cannot assure you that we will be able to hire and retain qualified personnel or that we will be able to successfully expand our infrastructure to accommodate future acquisitions or growth |
| As a result of these factors, we may not realize the expected economic benefits associated with our acquisitions |
| Diversification in types of financial services may adversely affect our financial performance |
| As part of our business strategy, we may further diversify our lines of business into areas that are not traditionally associated with the banking business |
| As a result, we would need to manage the development of new business lines in which we had not previously participated |
| Each new business line would require the investment of additional capital and the significant involvement of our senior management to develop and integrate the service subsidiaries with our traditional banking operations |
| We can offer no assurances that we will be able to develop and integrate the new services without adversely affecting our financial performance |
| Monetary policies and economic factors may limit our ability to attract deposits or make loans |
| The monetary policies of federal regulatory authorities, particularly the Federal Reserve, and economic conditions in our service area and the United States generally, affect our ability to attract deposits and extend loans |
| We cannot predict either the nature and timing of any changes in these monetary policies and economic conditions, including the Federal Reserve’s interest rate policies, or their impact on our financial performance |
| The banking business is subject to various material business risks, which may become more acute in periods of economic slowdown or recession |
| During such periods, foreclosures generally increase and such conditions could also lead to a potential decline in deposits and demand for loans |
| We compete with other financial holding companies, bank holding companies, banks, insurance and financial services companies |
| The banking business is extremely competitive in our service areas in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana |
| We compete, and will continue to compete, with well-established banks, credit unions, insurance agencies and other financial institutions, several of which have significantly greater resources and lending limits |
| Some of these competitors provide certain services that we do not provide |
| Anti-takeover provisions may discourage a change of our control |
| Our governing documents and certain agreements to which we are a party contain several provisions which make a change-in-control difficult to accomplish, and may discourage a potential acquirer |
| These include a shareholder rights plan, or “poison pill,” a classified or “staggered” Board of Directors, change-in-control agreements with members of management and supermajority voting requirements |
| These anti-takeover provisions may have an adverse effect on the market for our common stock |
| Our management is responsible for establishing and maintaining adequate internal control over financial reporting |
| Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States |
| Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions, providing reasonable assurance that transactions are recorded as necessary for preparation of the financial statements, providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization, and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis |
| Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements 19 _________________________________________________________________ [52]Table of Contents would be prevented or detected |
| Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud |
| Our stock price may fluctuate |
| The stock market has, from time to time, experienced extreme price and volume fluctuations, which often have been unrelated to the operating performance of particular companies |
| Any announcement with respect to the banking industry, market conditions or any variance in our revenues or earnings from levels generally expected by securities analysts for a given period could have an immediate and significant effect on the trading price of our common stock |
| In evaluating an investment in shares of our common stock, the factors set forth in this section should be carefully considered, along with other matters discussed in reports and other filings that we have made with the Securities and Exchange Commission |
| It should not be assumed that we have listed or described the only risks that could affect our future performance or the market price of our common stock |