BancorpSouth Announces Earnings of $0.15 per Diluted Share for the Second Quarter of 2011

TUPELO, Miss., July 25, 2011 /PRNewswire/ -- BancorpSouth, Inc. (NYSE: BXS) today announced financial results for the quarter ended June 30, 2011.  The Company reported net income of $12.8 million, or $0.15 per diluted share, for the second quarter of 2011 compared with a net loss of $12.6 million, or $0.15 per diluted share, for the second quarter of 2010.

"We are pleased to report significant improvement in our financial results for the second quarter of 2011, compared with both the second quarter of 2010 and the first quarter of 2011," remarked Aubrey Patterson, Chairman and Chief Executive Officer of BancorpSouth.  "Our stronger earnings are primarily the result of a reduction in our provision for credit losses for the second quarter of 2011 to $32.2 million from $62.4 million for the second quarter of 2010 and $53.5 million for the first quarter of 2011.

"These results reflect improved credit performance, with a 10.6 percent decrease in non-performing loans ("NPLs") at the end of the second quarter of 2011 from the end of the first quarter of 2011 and a reduction in comparable and sequential quarter net charge-offs of approximately 35 percent.  In addition, we experienced a decline in nonaccrual loan formation for the third sequential quarter and a decline in 30 – 89 day past due loans for the fifth sequential quarter.  New loans placed on non-accrual status during the quarter represent the lowest level of additions in eight quarters.  We are encouraged by this performance, but we remain cautious about short-term prospects for continued improvement given slow economic growth and persistently high unemployment.

"NPLs decreased by $45.2 million to $379.8 million at the end of the second quarter of 2011 compared with the end of the first quarter of 2011.  This decline was primarily the result of a $39.7 million decrease in nonaccrual loans.  Construction, acquisition and development ("CAD") nonaccruals declined $24.4 million, or 10.9%, to $200.4 million and represented 60.5 percent of total nonaccrual loans at the end of the second quarter.  Gross nonaccrual loan formation declined to $50.4 million for the second quarter of 2011.  This represents the third consecutive quarter of lower nonaccrual loan formation after $166.2 million of loans were placed in nonaccrual status in the third quarter of 2010.  

"The sequential-quarter decline in NPLs also included a slight decline in loans 90 days or more past due and still accruing to $4.0 million at the end of the second quarter.  Restructured loans, still accruing, declined $4.7 million, or 9.5 percent, during the second quarter of 2011.

"Other real estate owned increased $14.8 million to $151.2 million at the end of the second quarter of 2011 compared with the first quarter of 2011.  This net increase reflected $38.2 million added through foreclosure, partially offset by sales of other real estate owned of $21.1 million, which increased from sales of $13.5 million for the first quarter of 2011.  Write-downs in the value of existing properties were $2.3 million for the second quarter of 2011.  The sales of other real estate owned during the second quarter of 2011 resulted in a net gain of $140,000.  

"BancorpSouth's core operations produced solid, consistent results, with pre-tax, pre-provision earnings of $48.0 million for the second quarter of 2011, compared with $46.4 million for the second quarter of 2010 and $47.7 million for the first quarter of 2011."  

Patterson added, "We continue to have solid performance from our community banking group, our insurance group and our other lines of business.  While elevated non-performing asset levels, and costs associated with their resolution, are indeed a headwind, we made solid progress in continuing to work through those issues during the second quarter.  In addition, earnings for the second quarter and our decision to build capital through a reduction in cash dividends have contributed to strengthening our capital, with our ratio of tangible equity to tangible assets increasing to 7.32 percent at the end of the second quarter of 2011 from 7.23 percent for the second quarter of 2010 and 6.95 percent for the first quarter of 2011.

"Our primary focus going forward is to build on the favorable results achieved for the second quarter by working to resolve credit issues.  We are also continuing our work to improve our core operating results by enhancing organic revenue growth and controlling expenses.  Recent progress in these efforts has resulted in the hiring of additional mortgage origination staff, and the decision to close 23 branches as a part of our branch optimization project."

Net Interest Revenue

Net interest revenue was $109.9 million for the second quarter of 2011, an increase of 0.5 percent from $109.3 million for the second quarter of 2010 and an increase of 0.4 percent from $109.4 million for the first quarter of 2011.  The fully taxable equivalent net interest margin was 3.71 percent for both the second quarter of 2011 and 2010 and 3.69 percent for the first quarter of 2011.

Asset, Deposit and Loan Activity

Total assets were $13.4 billion at June 30, 2011 and June 30, 2010.  Total deposits were $11.3 billion at June 30, 2011, an increase of 0.8 percent from $11.2 billion at June 30, 2010.  Loans and leases, net of unearned income, were $9.2 billion at June 30, 2011, a decrease of 4.5 percent from $9.6 billion at June 30, 2010.

The CAD loan portfolio, which decreased $358.6 million, or 25.3 percent, for the 12 months ended June 30, 2011, accounted for 82.9 percent of the decline in net loans and leases over the same period. Excluding the impact of the CAD loan portfolio, net loans and leases declined $73.7 million, or 0.9 percent, for the 12 months ended June 30, 2011.

During the second quarter of 2011, the Company determined that it no longer had the intent to hold until maturity all securities that were previously classified as held-to-maturity.  As a result of this determination, all securities are now classified as available-for-sale and are recorded at fair value.  Management believes that this decision allows greater flexibility in managing the balance sheet, interest rate risk and liquidity.

Subsequent to this decision, the Company sold $88.9 million in securities, some of which were previously classified as held-to-maturity, resulting in a gain of $9.8 million.  At that time, the Company also repaid $75.0 million in long-term Federal Home Loan Bank ("FHLB") advances, incurring a prepayment penalty of $9.8 million.  Management expects that the combination of these two transactions will have a slightly positive impact to net interest income.

The growth in deposits at June 30, 2011 compared with June 30, 2010 resulted from a 4.5 percent increase in interest bearing demand deposits, a 10.5 percent increase in noninterest bearing demand deposits and a 22.7 percent increase in savings deposits.  These increases reflect, in part, the Company's strategic focus on strengthening existing – and building new – core banking relationships to enhance future growth opportunities.  In an environment conducive neither to loan growth nor to meaningful investment yields, the Company offset 85.1 percent of these deposit increases through a 13.1 percent decline on certificates of deposit over the 12  months ended June 30, 2011.

Provision for Credit Losses and Allowance for Credit Losses

For the second quarter of 2011, the provision for credit losses was $32.2 million, compared with $62.4 million for the second quarter of 2010 and $53.5 million for the first quarter of 2011. Annualized net charge-offs were 1.42 percent of average loans and leases for the second quarter of 2011, compared with 2.08 percent for the second quarter of 2010 and 2.24 percent for the first quarter of 2011.

NPLs were $379.8 million, or 4.12 percent of net loans and leases, at June 30, 2011 compared with $302.3 million, or 3.13 percent of net loans and leases, at June 30, 2010 and $425.0 million, or 4.61 percent of net loans and leases, at March 31, 2011.  The allowance for credit losses was 2.14 percent of net loans and leases at June 30, 2011 compared with 2.08 percent at June 30, 2010 and 2.15 percent at March 31, 2011.

Total NPLs at June 30, 2011 consisted primarily of $331.1 million of loans on nonaccrual status, compared with $370.7 million at March 31, 2011.  NPLs at June 30, 2011 also included $4.0 million of loans 90 days or more past due and still accruing, a decrease from $4.8 million at March 31, 2011, and restructured loans still accruing of $44.8 million, a decrease from $49.5 million at March 31, 2011.  Loans and leases 30 to 89 days past due decreased 6.9 percent to $47.9 million at June 30, 2011 from $51.5 million at March 31, 2011.

At June 30, 2011, approximately 92 percent of non-accrual loans had been determined to be collaterally dependent and had either been charged down or had a specific reserve to reflect values obtained from appraisals. Net of these write-downs and reserves, the remaining book balance of impaired loans was 69 percent of the unpaid principal balance. The allowance for credit losses not specifically allocated to impaired loans represented 550 percent of the remaining unimpaired non-accrual loan balance.

At June 30, 2011, $114.8 million of NPLs were residential CAD loans, $91.4 million were other CAD loans, $66.0 million were commercial real estate mortgage loans and $38.7 million were consumer mortgages.  NPLs from all other loan types totaled $68.9 million at June 30, 2011.  Included in nonaccrual loans reported at June 30, 2011 were $154.2 million of loans, or 46.6 percent of total nonaccrual loans, that were paying as agreed.  These loans were generally placed on nonaccrual status because the collateral values were below the outstanding balances, and because of uncertainty as to whether the borrowers possessed adequate liquidity or will be able to generate sufficient cash flow to satisfy the debt given the short-fall in collateral values.  Such loans are generally impaired, with a specific reserve established for the difference in the balance owed and collateral values.

Noninterest Revenue

Noninterest revenue was $75.1 million for the second quarter of 2011, compared with $57.1 million for the second quarter of 2010 and $68.3 million for the first quarter of 2011.  These results included value adjustments to mortgage servicing rights ("MSR") for the second quarter of 2011 and 2010 and the first quarter of 2011 of negative $3.8 million, negative $8.3 million and positive $2.5 million, respectively.  In addition, results for the second quarter of 2011 included net securities gains of $10.0 million from the sale of securities.

Excluding the MSR value adjustments, mortgage lending revenue was $5.8 million for the second quarter of 2011, compared with $6.0 million for the second quarter of 2010 and $5.0 million for the first quarter of 2011.  Mortgage origination volume for the second quarter of 2011 was $245.3 million, compared with $290.6 million for the second quarter of 2010 and $202.8 million for the first quarter of 2011.

For the second quarter of 2011, credit and debit card fees increased 20.7 percent and 8.9 percent compared with the second quarter of 2010 and the first quarter of 2011, respectively, while service charges declined 12.6 percent and increased 7.7 percent for the same respective periods. Insurance commission revenue for the second quarter of 2011 increased 5.9 percent compared with the second quarter of 2010, the fifth consecutive comparable quarter increase, and increased 1.7 percent compared with the first quarter of 2011.  

Noninterest Expense

Noninterest expense for the second quarter of 2011 was $137.1 million, compared with $120.0 million for the second quarter of 2010 and $130.0 million for the first quarter of 2011.  Included in noninterest expense for the second quarter of 2011 was $9.8 million in prepayment expenses related to the early repayment of FHLB advances.  Foreclosed property expense decreased 1.3 percent to $3.8 million for the second quarter of 2011 compared with the second quarter of 2010 and 46.8 percent compared with the first quarter of 2011.  FDIC insurance expense increased 47.5 percent to $6.4 million for the second quarter of 2011 compared with the second quarter of 2010 and 18.6 percent compared with the first quarter of 2011.  Salaries and employee benefits increased 2.9 percent for the second quarter of 2011 compared with the second quarter of 2010 and declined 0.3 percent compared with the first quarter of 2011. Net occupancy expense and equipment expense for the second quarter of 2011 each declined on both a comparable and sequential quarter basis.

Capital Management

BancorpSouth remains a "well capitalized" financial holding company, as defined by federal regulations, with Tier 1 risk-based capital of 10.82 percent at June 30, 2011 and total risk based capital of 12.08 percent, compared with required minimum levels of 6 percent and 10 percent, respectively, to be classified as "well capitalized."  The Company's equity capitalization is 100 percent common stock.  BancorpSouth's ratio of shareholders' equity to assets increased to 9.33 percent at June 30, 2011, compared with 9.24 percent at June 30, 2010 and 8.94 percent at March 31, 2011.  The ratio of tangible shareholders' equity to tangible assets increased to 7.32 percent at June 30, 2011, compared with 7.23 percent at June 30, 2010 and 6.95 percent at March 31, 2011.  

Summary

Patterson concluded, "We are encouraged by the improvement achieved in our credit costs and other credit metrics for the second quarter, especially with regard to the continued decline of new NPL formation.  We are focused on continuing this improvement, although, given the weak economic environment, we are appropriately cautious about the near term.  Based on our capital level and liquidity position, as well as the progress achieved to date in addressing our credit issues, we remain confident that our credit issues are manageable and that our measures of credit quality will return to more normal levels over time.

"We continue to be pleased with the solid performance of our core operations, despite a multi-year period in which the financial services industry has not experienced significant loan growth.  Throughout this period, we have successfully managed our net interest margin, steadily expanded noninterest revenue and controlled expenses.  In addition, we have continued to work to deepen relationships with existing clients and to develop new relationships through our deposit accounts, mortgage lending and other products and services.

"Through the performance of our core operations in a challenging environment, we have enhanced our retail franchise and our ability to produce stronger results in a better economic environment.  We continue to expect the strength of this franchise, built on outstanding customer service, comprehensive financial products and services and capital level and liquidity, will enable us to enhance BancorpSouth's long-term shareholder value as well."

Conference Call

BancorpSouth will conduct a conference call to discuss its second quarter 2011 results tomorrow, July 26, 2011, at 10:00 a.m. (Central Time).  Investors may listen via the Internet by accessing BancorpSouth's website at http://www.bancorpsouth.com.  A replay of the conference call will be available at BancorpSouth's website for at least two weeks following the call.

Forward-Looking Statements

Certain statements contained in this news release 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 Securities Exchange Act of 1934, as amended.  These forward-looking statements may be identified by their reference to a future period or periods or by the use of forward-looking terminology such as "anticipate," "believe," "estimate," "expect," "may," "might," "will," "would," "could" or "intend."  These forward-looking statements include, without limitation, statements relating to our ability to resolve remaining credit problems, our ability to improve our core operating results, the impact of classifying all securities as available-for-sale, the impact of using proceeds from the sale of securities to prepay certain long-term FHLB advances, the return of credit quality to more normal levels, our ability to expand long-term shareholder value, the ability of borrowers to repay outstanding loans, and our use of non-GAAP financial measures.

We caution you not to place undue reliance on the forward-looking statements contained in this news release in that actual results could differ materially from those indicated in such forward-looking statements because of a variety of factors.  These factors may include, but are not limited to, conditions in the financial markets and economic conditions generally, the soundness of other financial institutions, the availability of capital on favorable terms if and when needed, liquidity risk, the credit risk associated with real estate construction, acquisition and development loans, estimates of costs and values associated with real estate construction, acquisition and development loans in the Company's loan portfolio, the adequacy of the Company's allowance for credit losses to cover actual credit losses, governmental regulation and supervision of the Company's operations, the susceptibility of the Company's business to local economic conditions, the impact of recent legislation and regulations on service charges for core deposit accounts, changes in interest rates, the impact of monetary policies and economic factors on the Company's ability to attract deposits or make loans, volatility in capital and credit markets, the impact of hurricanes or other adverse weather events, risks in connection with completed or potential acquisitions, dilution caused by the Company's issuance of any additional shares of its common stock to raise capital or to acquire other banks, bank holding companies, financial holding companies and insurance agencies, restrictions on the Company's ability to declare and pay dividends, the Company's growth strategy, diversification in the types of financial services the Company offers, competition with other financial services companies, interruptions or breaches in security of the Company's information systems, the failure of certain third part vendors to perform, the Company's ability to improve its internal controls adequately, any requirement that the Company write down goodwill or other intangible assets, other factors generally understood to affect the financial results of financial services companies, and other factors described from time to time in BancorpSouth's filings with the Securities and Exchange Commission.  We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

BancorpSouth, Inc. is a financial holding company headquartered in Tupelo, Mississippi, with $13.4 billion in assets.  BancorpSouth Bank, a wholly-owned subsidiary of BancorpSouth, Inc., operates approximately 312 commercial banking, mortgage, insurance, trust and broker/dealer locations in Alabama, Arkansas, Florida, Louisiana, Mississippi, Missouri, Tennessee and Texas. BancorpSouth Bank also operates an insurance location in Illinois.

SOURCE BancorpSouth, Inc.