BancorpSouth Announces Fourth Quarter 2012 Earnings of $17.0 Million or $0.18 per Diluted Share

TUPELO, Miss., Jan. 23, 2013 /PRNewswire/ -- BancorpSouth, Inc. (NYSE: BXS) today announced financial results for the quarter ended December 31, 2012.

Highlights for the fourth quarter of 2012 included:

• The appointment of James D. Rollins III as the Company's new Chief Executive Officer.
• Quarterly net income of $17.0 million or $0.18 per diluted share, resulting in net income of $84.3 million, or $0.90 per diluted share, for the year.
• Mortgage production of $549.4 million, which contributed to mortgage lending revenue of $17.2 million for the quarter.
• Other real estate owned ("OREO") sales of $27.9 million, which contributed to a 19.5 percent decline in OREO and a 10.3 percent reduction in total non-performing assets ("NPAs") from the prior quarter and reductions of 40.6 percent and 32.1 percent, respectively, compared to the end of 2011.
• Nonaccrual loans decreased $12.5 million, or 5.7 percent, from the prior quarter and $69.6 million, or 25.1 percent, from the fourth quarter of 2011.  At the end of the quarter, 55.7 percent of nonaccrual loans were paying in accordance with their contractual terms.
• Capital ratios continued to rise, with Tier 1 leverage and Total risk-based capital ratios increasing to 10.25 percent and 15.08 percent, respectively. 

On November 26, 2012 the Company announced that the Board of Directors had selected James D. "Dan" Rollins III as its new Chief Executive Officer.  Rollins assumed this position effective November 27, 2012, and also became a member of BancorpSouth's Board of Directors at that time.  Rollins succeeded Aubrey B. Patterson, who continues to serve as Chairman of the Board.  Rollins remarked, "I am both humbled by the confidence that the Board of Directors has placed in me and excited about working with a team of professionals who share a desire and commitment to move our Company forward.  While I was only a part of the team for the last month of 2012, I believe that the results reported for the year are the product of a lot of hard work and effort over a number of quarters to continue to improve the Company's credit quality and operating performance."

The Company reported net income of $17.0 million, or $0.18 per diluted share, for the fourth quarter of 2012 compared with net income of $13.3 million, or $0.16 per diluted share, for the fourth quarter of 2011 and net income of $23.8 million, or $0.25 per diluted share, for the third quarter of 2012.  The Company reported total net income for 2012 of $84.3 million, or $0.90 per diluted share, compared with $37.6 million, or $0.45 per diluted share, for 2011.     

"Results for the fourth quarter reflect yet another quarter of strong mortgage production and asset quality improvement," remarked Patterson.  "Mortgage production for the quarter was $549.4 million, contributing to total mortgage lending revenue of $17.2 million.  This level of production resulted in a record annual production volume of almost $2 billion for 2012.  As to asset quality, we are particularly pleased with disposition efforts related to OREO.  Total sales for the quarter exceeded $27 million, which represents the largest quarter of sales during the credit cycle.  We made decisions during the quarter to expedite the disposition of many of the OREO properties and to more aggressively price others going forward.  Some of these decisions adversely impacted current quarter earnings, but we believe they are prudent ones that will help improve profitability in future periods."

Earnings for the quarter reflect a provision for credit losses of $6.0 million, which is a decrease from $19.3 million for the fourth quarter of 2011 and is flat compared to $6.0 million for the third quarter of 2012.  Non-performing loans ("NPLs") declined $13.8 million, or 5.6 percent, during the fourth quarter of 2012 to $233.6 million compared with $247.3 million at September 30, 2012 and declined $88.7 million, or 27.5 percent, from $322.3 million at December 31, 2011.  In addition, total NPAs declined $38.7 million, or 10.3 percent, to $336.8 million compared with $375.5 million at September 30, 2012 and declined $159.3 million, or 32.1 percent, from $496.1 million at December 31, 2011.  Net charge-offs declined to $10.6 million for the fourth quarter of 2012 compared with $12.8 million for the third quarter of 2012.  Net charge-offs during the fourth quarter of 2012 included $6.4 million of charge-offs of loans which had been identified and reported as impaired and were reserved for in previous quarters. 

Earnings for the quarter were also impacted by additional compression in the net interest margin.  The fully taxable equivalent net interest margin was 3.44 percent for the fourth quarter of 2012 compared with 3.55 percent for the third quarter of 2012 and 3.69 percent for the fourth quarter of 2011.  Patterson added, "As others in the industry have experienced, we continue to see pressure on the net interest margin as a result of re-pricing on the asset side of the balance sheet.  Our securities portfolio continues to roll over at lower rates and loan yields are under pressure both prior to and at maturity.  The importance of fee income generation and efficiency are becoming increasingly magnified as we work to navigate through this rate environment."    

Net Interest Revenue

Net interest revenue was $100.9 million for the fourth quarter of 2012, a decrease of 6.2 percent from $107.5 million for the fourth quarter of 2011 and a decrease of 2.4 percent from $103.4 million for the third quarter of 2012.  The fully taxable equivalent net interest margin declined to 3.44 percent for the fourth quarter of 2012 from 3.69 percent for the fourth quarter of 2011 and 3.55 percent for the third quarter of 2012.  Declines in the net interest margin were due primarily to continued pressure on asset yields, particularly yields on loans and leases, which declined to 4.76 percent for the fourth quarter of 2012 compared with 5.02 percent for the fourth quarter of 2011 and 4.85 percent for the third quarter of 2012. 

Asset, Deposit and Loan Activity

Total assets were $13.4 billion at December 31, 2012 compared with $13.0 billion at December 31, 2011.  Total deposits were $11.1 billion at December 31, 2012, an increase of 1.2 percent from $11.0 billion at December 31, 2011.  Loans and leases, net of unearned income, were $8.6 billion at December 31, 2012, a decrease of 2.6 percent from $8.9 billion at December 31, 2011.  The construction, acquisition, and development ("CAD") loan portfolio, which decreased $172.6 million, or 19.0 percent, from December 31, 2011 to December 31, 2012, accounted for 74.0 percent of the decline in net loans and leases over the same time period.

The decrease in time deposits of $389.2 million, or 13.0 percent, at December 31, 2012 compared to December 31, 2011, was offset partially by significant growth in noninterest bearing demand deposits, which increased $275.4 million, or 12.1 percent, over the same period.  Additionally, savings deposits increased $154.1 million, or 15.5 percent, while interest bearing demand deposits increased $92.7 million, or 2.0 percent, over the same period.  As of December 31, 2012, $801.9 million of time deposits were scheduled to mature during the following two quarters at a weighted average rate of 0.73 percent.   

Provision for Credit Losses and Allowance for Credit Losses

For the fourth quarter of 2012, the provision for credit losses was $6.0 million, compared with $19.3 million for the fourth quarter of 2011 and $6.0 million for the third quarter of 2012.  Net charge-offs for the fourth quarter of 2012 were $10.6 million, compared with $23.8 million for the fourth quarter of 2011 and $12.8 million for the third quarter of 2012.  Recoveries of previously charged-off loans were $9.2 million for the fourth quarter of 2012, compared with $2.6 million for the fourth quarter of 2011 and $6.1 million for the third quarter of 2012.  Annualized net charge-offs were 0.49 percent of average loans and leases for the fourth quarter of 2012, compared with 1.06 percent for the fourth quarter of 2011 and 0.59 percent for the third quarter of 2012.  Total annual net charge-offs were $58.7 million for 2012 compared with $131.9 million for 2011.  Recoveries of previously charged-off loans totaled $30.7 million for 2012 compared with $10.2 million for 2011. 

NPLs were $233.6 million, or 2.70 percent of net loans and leases, at December 31, 2012, compared with $322.3 million, or 3.63 percent of net loans and leases, at December 31, 2011, and $247.3 million, or 2.85 percent of net loans and leases, at September 30, 2012.  The allowance for credit losses was $164.5 million, or 1.90 percent of net loans and leases, at December 31, 2012 compared with $195.1 million, or 2.20 percent of net loans and leases, at December 31, 2011 and $169.0 million, or 1.95 percent of net loans and leases, at September 30, 2012. 

NPLs at December 31, 2012 consisted primarily of $207.2 million of nonaccrual loans, compared with $219.7 million of nonaccrual loans at September 30, 2012.  Included in the reduction of nonaccrual loans during the fourth quarter of 2012 were payments received on nonaccrual loans of $31.6 million, compared with payments received on such loans of $26.7 million during the third quarter of 2012.  NPLs at December 31, 2012 also included $1.2 million of loans 90 days or more past due and still accruing, compared with $1.4 million at September 30, 2012, and included restructured loans still accruing of $25.1 million at December 31, 2012, compared with $26.1 million at September 30, 2012.  Early stage past due loans, representing loans 30-89 days past due, declined to $28.2 million at December 31, 2012 from $43.8 million at September 30, 2012.  

At December 31, 2012, $35.7 million of NPLs were residential CAD loans, $36.3 million were other CAD loans, $62.2 million were commercial real estate loans and $40.7 million were consumer mortgages.  NPLs from all other loan types totaled $58.7 million at December 31, 2012.  Included in nonaccrual loans at December 31, 2012 were $115.4 million of loans, or 55.7 percent of total nonaccrual loans, that were paying as agreed, compared with $125.0 million, or 56.9 percent, at the end of the third quarter of 2012.  These loans were generally placed on nonaccrual status because the collateral values were less than the outstanding balances, and because of uncertainty as to whether the borrowers possessed adequate liquidity or would be able to generate sufficient cash flow to satisfy the debt given the short-fall in collateral values.  Such loans are generally deemed to be impaired, with a specific reserve established for the difference in the balance owed and the disposition value of the collateral.

At the end of the fourth quarter, 75.6 percent of nonaccrual loans were determined to be collateral dependent, and after write-downs and specific reserves, the remaining book balance of these loans was 70.9 percent of the unpaid principal balance.  At December 31, 2012, coverage of unimpaired nonaccrual loans by the nonspecified allowance for credit losses was 305 percent and coverage of unimpaired NPLs by the nonspecified allowance for credit losses was 200 percent. 

OREO decreased $25.0 million to $103.2 million during the fourth quarter of 2012 from $128.2 million at September 30, 2012.  This net decrease reflected $8.5 million added through foreclosure, offset by sales of OREO of $27.9 million.  Write-downs in the value of existing properties were $5.5 million for the fourth quarter of 2012 compared to $6.3 million for the third quarter of 2012.  Sales of OREO during the fourth quarter of 2012 resulted in a net loss of $4.2 million compared to a net loss of $0.8 million for the third quarter of 2012.  At December 31, 2012, OREO was carried at 44.0 percent of the aggregate loan balances at the time of foreclosure, compared with 49.2 percent at September 30, 2012.

Noninterest Revenue

Noninterest revenue was $70.9 million for the fourth quarter of 2012, compared with $65.3 million for the fourth quarter of 2011 and $70.4 million for the third quarter of 2012.  These results included a positive mortgage servicing rights ("MSR") valuation adjustment of $0.2 million for the fourth quarter of 2012 compared with negative adjustments of $1.0 million for the fourth quarter of 2011 and $3.2 million for the third quarter of 2012. 

Excluding the MSR valuation adjustments, net mortgage lending revenue was $17.0 million for the fourth quarter of 2012, compared with $9.9 million for the fourth quarter of 2011 and $16.8 million for the third quarter of 2012.  Mortgage origination volume for the fourth quarter of 2012 was $549.4 million, compared with $389.6 million for the fourth quarter of 2011 and $607.9 million for the third quarter of 2012.

Credit and debit card fee revenue was $8.1 million for the fourth quarter of 2012, compared with $7.8 million for the fourth quarter of 2011 and $8.3 million for the third quarter of 2012.  Service charge revenue was $13.9 million for the fourth quarter of 2012, compared with $17.4 million for the fourth quarter of 2011 and $14.2 million for the third quarter of 2012.  Insurance commission revenue was $20.5 million for the fourth quarter of 2012, compared with $19.4 million for the fourth quarter of 2011 and $23.5 million for the third quarter of 2012.  The decrease in insurance commission revenue was seasonal, as fourth quarter policy renewals are typically lower than other quarters. 

Noninterest Expense

Noninterest expense for the fourth quarter of 2012 was $143.2 million, compared with $135.9 million for the fourth quarter of 2011 and $133.8 million for the third quarter of 2012.  Salaries and employee benefits expense increased to $77.2 million for the fourth quarter of 2012 from $70.5 million for the fourth quarter of 2011 and $74.8 million for the third quarter of 2012.    Foreclosed property expense increased to $12.0 million for the fourth quarter of 2012 from $10.8 million for the fourth quarter of 2011 and $8.8 million for the third quarter of 2012.  Deposit insurance assessments were $3.1 million for the fourth quarter of 2012 compared to $5.7 million for the fourth quarter of 2011 and $4.0 million for the third quarter of 2012.

Capital Management

BancorpSouth remains a "well capitalized" financial holding company, as defined by federal regulations, with Tier 1 risk-based capital of 13.82 percent at December 31, 2012 and total risk based capital of 15.08 percent, compared with required minimum levels of 6 percent and 10 percent, respectively, for "well capitalized" classification.  The Company's equity capitalization consists of 100 percent common stock.  BancorpSouth's ratio of shareholders' equity to assets was 10.82 percent at December 31, 2012, compared with 9.72 percent at December 31, 2011 and 10.93 percent at September 30, 2012.  The ratio of tangible shareholders' equity to tangible assets was 8.83 percent at December 31, 2012, compared with 7.67 percent at December 31, 2011 and 8.91 percent at September 30, 2012.

Summary

Patterson concluded, "Our fourth quarter results finalize a very successful and productive year in many aspects.  During 2012, we were able to reduce NPLs by over 25 percent, OREO by over 40 percent, and total NPAs by over 30 percent.  We experienced a record year in both mortgage production and mortgage lending income.  In addition, we achieved growth in other fee lines of business, including a 3.7 percent increase in insurance commissions.  As we enter 2013, we believe that this progress will be instrumental in helping us continue to enhance company performance despite industry headwinds." 

Rollins added, "Over the course of my first few weeks as CEO, I have had an opportunity to meet many of my teammates across several different markets.  I have experienced firsthand professionals who share my desire to help our company succeed.  BancorpSouth has a history of over 135 years as a well-respected organization with a strong commitment to the values of client service and community support.  Our team clearly understands that the industry landscape has changed.  Regulatory measures have placed pressure on NSF and card fee income and the credit cycle has resulted in declining loan balances, both of which have contributed to declines in profitability.   Our team understands that growth is the real key to battling industry headwinds and to improving profitability."

Conference Call

BancorpSouth will conduct a conference call to discuss its fourth quarter 2012 results on January 24, 2013, 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 the disposition and the aggressive pricing of certain OREO properties, credit quality and operating performance, profitability, 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 ongoing debt crisis and the downgrade of the sovereign credit ratings for various nations, the adequacy of the Company's provision and allowance for credit losses to cover actual credit losses, the credit risk associated with real estate construction, acquisition and development loans, losses resulting from the significant amount of the Company's other real estate owned, limitations on the Company's ability to declare and pay dividends, the short-term and long-term impact of changes to banking capital standards on the Company's regulatory capital and liquidity, the impact of legal or administrative proceedings, the availability of capital on favorable terms if and when needed, liquidity risk, governmental regulation, including the Dodd Frank Act, supervision of the Company's operations, the impact of regulations on service charges on the Company's core deposit accounts, the susceptibility of the Company's business to local economic conditions, the soundness of other financial institutions, 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, reputational risk, the impact of hurricanes or other adverse weather events, any requirement that the Company write down goodwill or other intangible assets, diversification in the types of financial services the Company offers, competition with other financial services companies, risks in connection with completed or potential acquisitions, the Company's growth strategy, interruptions or breaches in the Company's information system security, the failure of certain third party vendors to perform, dilution caused by the Company's issuance of any additional shares of its common stock to raise capital or acquire other banks, bank holding companies, financial holding companies and insurance agencies, the effectiveness of the Company's internal controls, other factors generally understood to affect the financial results of financial services companies and other factors detailed from time to time in the Company's press releases and filings with the Securities and Exchange Commission. 

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 293 commercial banking, mortgage, insurance, trust and broker/dealer locations in Alabama, Arkansas, Florida, Louisiana, Mississippi, Missouri, Tennessee and Texas, including an insurance location in Illinois.

  

SOURCE BancorpSouth, Inc.