BancorpSouth Announces Second Quarter 2012 Earnings of $20.6 Million or $0.22 per Diluted Share

TUPELO, Miss., July 23, 2012 /PRNewswire/ -- BancorpSouth, Inc. (NYSE: BXS) today announced financial results for the quarter ended June 30, 2012.

            Highlights for the second quarter of 2012 included:

• Net income of $20.6 million, or $0.22 per diluted share, despite a negative pre-tax mortgage servicing rights ("MSR") valuation adjustment of $3.8 million.
• Other real estate owned ("OREO") sales of $26.2 million, which contributed to a 14.4 percent decline in OREO and a 9.4 percent reduction in total non-performing assets ("NPAs").
• A decrease of $79.6 million, or 12.5%, in substandard classified loans.
• Reduction in net charge-offs to $11.9 million, which included recoveries of $10.0 million of previously charged off loans.
• Generated mortgage production of $444.1 million, which contributed to mortgage lending revenue of $14.9 million, excluding the MSR valuation adjustment.
• Maintained a stable net interest margin at 3.65 percent.
• Announced the acquisition of the assets of The Securance Group, Inc., which will allow us to expand our insurance offerings into new markets within the Alabama portion of our footprint.

"We are pleased to report results that reflect another successful quarter in terms of improving profitability and asset quality," remarked Aubrey Patterson, Chairman and Chief Executive Officer of BancorpSouth.  "Earnings for the quarter reflect continued decreases in credit costs as non-performing loans ("NPLs"), classified asset totals, and other credit quality metrics, including recoveries of previously charged off loans, continue to improve.  In addition, we were pleased with the results of disposition efforts related to our other real estate owned, which resulted in a significant decline in the balance of these properties during the quarter." 

The Company reported net income of $20.6 million, or $0.22 per diluted share, for the second quarter of 2012 compared with net income of $12.8 million, or $0.15 per diluted share, for the second quarter of 2011 and net income of $22.9 million, or $0.25 per diluted share, for the first quarter of 2012.  The Company reported net income for the first six months of 2012 of $43.5 million, or $0.47 per diluted share, compared with $12.3 million, or $0.15 per diluted share, for the first half of 2011.     

Earnings for the quarter benefited from a reduction in the provision for credit losses to $6.0 million compared to $32.2 million for the second quarter of 2011 and $10.0 million for the first quarter of 2012.  NPLs declined $18.3 million, or 6.4 percent, during the second quarter of 2012 to $266.9 million compared with $285.2 million at March 31, 2012 and declined $112.9 million, or 29.7 percent, from $379.8 million at June 30, 2011.  In addition, gross nonaccrual loan formation was $41.1 million for the second quarter of 2012 compared to $50.4 million for the second quarter of 2011 and $40.4 million for the first quarter of 2012.  Total loans 30 to 89 days past due decreased during the second quarter of 2012 to $28.6 million at June 30, 2012 from $29.0 million at March 31, 2012.  Net charge-offs decreased $11.4 million, or 48.9 percent, to $11.9 million for the second quarter of 2012 compared with $23.3 million for the first quarter of 2012.  Net charge-offs during the second quarter of 2012 included $8.4 million of charge-offs of loans which had been identified and reported as impaired and were reserved for in previous quarters. 

Patterson added, "Our noninterest revenue lines of business produced another solid quarter and continue to contribute almost 40 percent of our total revenues.  Our mortgage business generated $444.1 million of production during the quarter and contributed $14.9 million of revenue, excluding a negative MSR valuation adjustment of $3.8 million.  Insurance commissions accounted for $23.0 million of noninterest revenue, consistent with both the second quarter of 2011 and the first quarter of 2012." 

Net Interest Revenue

Net interest revenue was $104.7 million for the second quarter of 2012, a decrease of 4.7 percent from $109.9 million for the second quarter of 2011 and a decrease of 0.8 percent from $105.6 million for the first quarter of 2012.  The fully taxable equivalent net interest margin was 3.65 percent for the second quarter of 2012 compared with 3.71 percent for the second quarter of 2011 and 3.66 percent for the first quarter of 2012. 

Asset, Deposit and Loan Activity

Total assets were $13.1 billion at June 30, 2012 compared with $13.4 billion at June 30, 2011.  Total deposits were $11.0 billion at June 30, 2012, a decrease of 3.1 percent from $11.3 billion at June 30, 2011.  Loans and leases, net of unearned income, were $8.7 billion at June 30, 2012, a decrease of 5.2 percent from $9.2 billion at June 30, 2011.

The construction, acquisition, and development ("CAD") loan portfolio, which decreased $225.7 million, or 21.3 percent, from June 30, 2011 to June 30, 2012, accounted for almost half of the decline in net loans and leases over the same time period. Despite the year-over-year decreases, loans and leases, net of unearned income, were flat compared to $8.7 billion at March 31, 2012.  Patterson added, "We were pleased with loan production efforts during the quarter as we were able to replace strategic runoff of non-performing and certain criticized credits as well as all other normal runoff with new loans.  We were particularly pleased with production in our commercial and industrial portfolio, which yielded an increase of almost $56 million in total outstanding loans in this category during the quarter."

Time deposits, which decreased $548.5 million, or 16.5 percent at June 30, 2012 compared to June 30, 2011, were offset partially by significant growth in noninterest bearing demand deposits, which increased $215.4 million, or 10.3 percent, over the period.  Additionally, savings deposits increased $138.3 million, or 14.6 percent, while interest bearing demand deposits decreased $157.3 million, or 3.2 percent, over the same period.  As of June 30, 2012, approximately $1.1 billion of time deposits were scheduled to mature during the following two quarters at a weighted average rate of 0.89 percent.   

Provision for Credit Losses and Allowance for Credit Losses

For the second quarter of 2012, the provision for credit losses was $6.0 million, compared with $32.2 million for the second quarter of 2011 and $10.0 million for the first quarter of 2012.  Net charge-offs for the second quarter of 2012 were $11.9 million, compared with $32.9 million for the second quarter of 2011 and $23.3 million for the first quarter of 2012.  Recoveries increased to $10.0 million for the second quarter of 2012, compared with $3.3 million for the second quarter of 2011 and $5.5 million for the first quarter of 2012.  Annualized net charge-offs were 0.55 percent of average loans and leases for the second quarter of 2012, compared with 1.42 percent for the second quarter of 2011 and 1.06 percent for the first quarter of 2012.  

NPLs were $266.9 million, or 3.06 percent of net loans and leases, at June 30, 2012 compared with $379.8 million, or 4.12 percent of net loans and leases, at June 30, 2011 and $285.2 million, or 3.26 percent of net loans and leases, at March 31, 2012.  The allowance for credit losses was $175.8 million, or 2.01 percent of net loans and leases, at June 30, 2012 compared with $197.6 million, or 2.14 percent of net loans and leases, at June 30, 2011 and $181.8 million, or 2.08 percent of net loans and leases, at March 31, 2012. 

NPLs at June 30, 2012 consisted primarily of $240.2 million of nonaccrual loans, compared with $253.2 million of nonaccrual loans at March 31, 2012.  Included in the reduction of nonaccrual loans during the second quarter of 2012 were payments received on nonaccrual loans of $27.1 million, compared with payments received on such loans of $20.6 million during the first quarter of 2012.  NPLs at June 30, 2012 also included $1.6 million of loans 90 days or more past due and still accruing, compared with $1.7 million at March 31, 2012, and included restructured loans still accruing of $25.1 million at June 30, 2012, compared with $30.3 million at March 31, 2012.  Loans and leases 30 to 89 days past due were $28.6 million at June 30, 2012 compared with $29.0 million at March 31, 2012.

At June 30, 2012, $66.4 million of NPLs were residential CAD loans, $43.8 million were other CAD loans, $52.0 million were commercial real estate loans and $39.4 million were consumer mortgages.  NPLs from all other loan types totaled $65.3 million at June 30, 2012.  Included in nonaccrual loans at June 30, 2012 were $132.7 million of loans, or 55.2 percent of total nonaccrual loans, that were paying as agreed, compared with $137.5 million, or 54.3 percent, at the end of the first 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 will 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 second quarter, 83.4 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 67.9 percent of the unpaid principal balance.  At June 30, 2012, coverage of unimpaired nonaccrual loans by the nonspecified allowance for credit losses was 381 percent and coverage of unimpaired NPLs by the nonspecified allowance for credit losses was 228 percent. 

OREO decreased $24.2 million to $143.6 million during the second quarter of 2012 from $167.8 million at March 31, 2012.  This net decrease reflected $6.9 million added through foreclosure, offset by sales of other real estate owned of $26.2 million.  OREO sales were $11.8 million for the first quarter of 2012.  Write-downs in the value of existing properties were $4.9 million for the second quarter of 2012 compared to $5.0 million for the first quarter of 2012.  Sales of OREO during the second quarter of 2012 resulted in a net loss of $2.7 million compared to a net loss of $0.8 million for the first quarter of 2012.  At June 30, 2012, OREO was carried at 51.0 percent of the aggregate loan balances at the time of foreclosure, compared with 52.4 percent at March 31, 2012.

Noninterest Revenue

Noninterest revenue was $66.5 million for the second quarter of 2012, compared with $75.1 million for the second quarter of 2011 and $72.4 million for the first quarter of 2012.  These results included negative MSR valuation adjustments of $3.8 million for both the second quarters of 2012 and 2011 and a positive MSR valuation adjustment of $3.7 million for the first quarter of 2012.  Additionally, noninterest revenue for the second quarter of 2011 included $10.0 million of net securities gains, while net securities gains for the first two quarters of 2012 were not material.    

Excluding the MSR valuation adjustments, net mortgage lending revenue was $14.9 million for the second quarter of 2012, compared with $5.8 million for the second quarter of 2011 and $11.4 million for the first quarter of 2012.  Mortgage origination volume for the second quarter of 2012 was $444.1 million, compared with $245.3 million for the second quarter of 2011 and $395.1 million for the first quarter of 2012.

Credit and debit card fee revenue was $7.8 million for the second quarter of 2012, compared with $11.3 million for the second quarter of 2011 and $7.5 million for the first quarter of 2012.  Service charge revenue was $13.7 million for the second quarter of 2012, compared with $16.6 million for the second quarter of 2011 and $15.1 million for the first quarter of 2012.  Insurance commission revenue was $23.0 million for the second quarter of 2012, compared with $22.9 million for the second quarter of 2011 and $23.2 million for the first quarter of 2012. 

Noninterest Expense

Noninterest expense for the second quarter of 2012 was $136.5 million, compared with $137.1 million for the second quarter of 2011 and $135.7 million for the first quarter of 2012.  Results for the second quarter of 2011 included a one-time prepayment penalty of $9.8 million related to the early repayment of $75.0 million of Federal Home Loan Bank advances.  Salaries and employee benefits expense increased to $77.7 million for the second quarter of 2012 from $70.1 million for the second quarter of 2011 and $74.9 million for the first quarter of 2012.    Foreclosed property expense increased to $10.2 million for the second quarter of 2012 from $3.8 million for the second quarter of 2011 and $8.4 million for the first quarter of 2012.  Deposit insurance assessments declined to $4.0 million for the second quarter of 2012 from $6.4 million for the second quarter of 2011 and $5.4 million for the first 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 13.41 percent at June 30, 2012 and total risk based capital of 14.66 percent, compared with required minimum levels of 6 percent and 10 percent, respectively, for "well capitalized" classification.  The Company's equity capitalization is 100 percent common stock.  BancorpSouth's ratio of shareholders' equity to assets increased to 10.79 percent at June 30, 2012, compared with 9.33 percent at June 30, 2011 and 10.46 percent at March 31, 2012.  The ratio of tangible shareholders' equity to tangible assets increased to 8.80 percent at June 30, 2012, compared with 7.32 percent at June 30, 2011 and 8.49 percent at March 31, 2012.

Summary

Patterson concluded, "Our second quarter results reflect meaningful profitability improvement, achieved through consistent and successful efforts to improve asset quality as well as continued strong performance from our noninterest lines of business.  We are pleased with progress made in many of our credit quality metrics, but our OREO disposition results are particularly encouraging.  Total OREO dispositions for the quarter represent the highest level achieved during this credit cycle and are reflective of the success of our disposition efforts.

"Our noninterest lines of business continue to contribute a very significant portion of our total revenues and have become increasingly important given margin pressures and subdued loan demand.  The Company has demonstrated a commitment to continue to grow these lines of business, particularly insurance and mortgage, both organically and through strategic acquisitions.  The recently announced acquisition of the assets of The Securance Group further demonstrates this commitment and will allow us to expand our insurance offerings into new markets and continue to grow revenue.  We believe that BancorpSouth is well positioned to achieve long-term growth and continue to increase shareholder value."

Conference Call

BancorpSouth will conduct a conference call to discuss its second quarter 2012 results on July 24, 2012, 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 impact of the acquisition of the assets of The Securance Group, Inc. on our market presence, our ability to achieve long-term growth and increased shareholder value, 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 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 $13.1 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 and Tennessee, including an insurance location in Illinois.

SOURCE BancorpSouth, Inc.