BXS BancorpSouth Bank

TUPELO, Miss., April 25, 2011 /PRNewswire/ -- BancorpSouth, Inc. (NYSE: BXS) today announced financial results for the quarter ended March 31, 2011.  The Company reported a net loss of $494,000, or $0.01 per diluted share, for the first quarter of 2011 compared with net income of $8.4 million, or $0.10 per diluted share, for the first quarter of 2010.

Commenting on the announcement, Aubrey Patterson, Chairman and Chief Executive Officer of BancorpSouth, said, "BancorpSouth's break-even financial performance for the first quarter as compared to net income of $15.8 million in the fourth quarter of 2010 is primarily the result of an increase in the provision for credit losses of $10.2 million from the fourth quarter to $53.5 million, a decline in mortgage lending revenue of $10.5 million from the fourth quarter, and an increase in salaries and benefits of $4.4 million consisting primarily of increases in FICA taxes, 401(k) contributions and medical insurance expense.

"The provision for credit losses continues to be affected by losses in real estate construction, acquisition and development ("CAD") loans, especially as it relates to residential loans.  We also incurred a $6.8 million loss on a commercial loan during the first quarter.

"The decline in mortgage lending revenue was a result of a lower positive fair value adjustment of mortgage servicing rights ("MSR") and a decrease in mortgage loan production from the fourth quarter.  During the first quarter, the MSR fair value adjustment declined to $2.5 million from $8.9 million in the previous quarter.  Mortgage loan production during the first quarter was $202.8 million, down from $451.9 million in the fourth quarter of 2010.  This decline was primarily the result of lower levels of refinancing as mortgage interest rates increased.  Mortgage lending is an important line of business for BancorpSouth and we have recently expanded our production capabilities, adding fourteen (14) mortgage loan originators in our Alabama region, which effectively tripled the size of our production staff in that region.

"Salaries and benefits expense of $70.4 million for the first quarter of 2011 reflects an increase of $4.4 million compared to the fourth quarter of 2010 and is primarily attributable to increases in FICA taxes, medical insurance and 401(k) contributions.

"In summary, while the first quarter of 2011 did not produce the bottom-line financial results we would have liked to have seen as we entered the new year, pre-tax, pre-provision earnings for the quarter were $47.7 million, and reflected solid performance from our core operations.  While our capital levels remain strong, continued success in managing our net interest margin, producing strong levels of non-interest revenue, and controlling expenses is important as we continue to work through a difficult credit environment."

Mr. Patterson added, "As a result of the significant progress made in identifying and addressing our non-performing loans "(NPLs"), we believe that our credit issues are very manageable and that BancorpSouth remains well-positioned, with strong capital and ample liquidity.  However, as a business subject to economic and interest-rate cycles, we remain cautious regarding the strength or sustainability of the nation's economic recovery in the near term.  We remain focused on working to resolve remaining credit issues and maintaining an appropriate level of reserves."

Net Interest Revenue

Net interest revenue was $109.4 million for the first quarter of 2011, a decrease of 2.2 percent from $111.9 million for the first quarter of 2010 and a 0.7 percent decrease from $110.3 million for the fourth quarter of 2010.  The fully taxable equivalent net interest margin was 3.69 percent for the first quarter of 2011, compared with 3.88 percent for the first quarter of 2010 and 3.59 percent for the fourth quarter of 2010.

The increase in net interest margin for the first quarter of 2011 from the fourth quarter of 2010 was the result of maintaining the same yield on interest-earning assets for both quarters, as the overall interest rate on interest bearing liabilities continued to decline.  Growth in the investment portfolio offset a portion of the impact of the decline in loans.  The decrease in total interest expense of $3.4 million from the fourth quarter of 2010 to the first quarter of 2011 reflected, in part, a continued shift in interest bearing deposits away from time deposits to lower rate demand and savings deposits.

Asset, Deposit and Loan Activity

Total assets at March 31, 2011 were $13.5 billion, an increase of 2.4 percent compared with $13.2 billion at March 31, 2010.  Total deposits were $11.5 billion at March 31, 2011, an increase of 4.3 percent from $11.0 billion at March 31, 2010.  Loans and leases, net of unearned income, were $9.2 billion at March 31, 2011, a decrease of 5.1 percent from $9.7 billion at March 31, 2010.  

The CAD loan portfolio, which decreased $340.4 million, or 23.8 percent, for the 12 months ended March 31, 2011, accounted for 69.0 percent of the decline in net loans and leases. Excluding the impact of the CAD loan portfolio, net loans and leases declined $156.6 million, or 1.6 percent, for the 12 months ended March 31, 2011.

The increase in BancorpSouth's deposits at the end of the first quarter of 2011 from the end of the first quarter of 2010 was a result of strong growth in interest bearing and noninterest bearing demand deposits of 9.5 percent and 9.0 percent, respectively, and growth in savings deposits of 21.4 percent.  Partially offsetting this growth, certificates of deposits declined 7.8 percent.  The growth achieved in core deposits through initiating new relationships and strengthening existing relationships during the past year remains a strategic focus of the Company.

Provision for Credit Losses and Allowance for Credit Losses

For the first quarter of 2011, the provision for credit losses was $53.5 million, compared with $43.5 million for the first quarter of 2010 and $43.3 million for the fourth quarter of 2010. Annualized net charge-offs were 2.24 percent of average loans and leases for the first quarter of 2011, compared with 1.26 percent for the first quarter of 2010 and 2.19 percent for the fourth quarter of 2010.

NPLs were $425.0 million, or 4.61 percent of net loans and leases, at March 31, 2011 compared to $235.7 million, or 2.43 percent of net loans and leases, at March 31, 2010 and $394.4 million, or 4.23 percent of net loans and leases, at December 31, 2010.  The allowance for credit losses was 2.15 percent of net loans and leases at March 31, 2011 compared to 1.95 percent at March 31, 2010 and 2.11 percent at December 31, 2010.

Total NPLs at March 31, 2011 consisted of: $370.7 million of loans on nonaccrual status, compared with $347.5 million at December 31, 2010; $4.8 million of loans 90 days or more past due and still accruing, a decrease from $8.5 million at December 31, 2010; and restructured loans still accruing of $49.5 million, an increase from $38.4 million at December 31, 2010.  Loans and leases 30 to 89 days past due decreased 14.7 percent to $51.5 million at March 31, 2011 from $60.4 million at December 31, 2010.

At March 31, 2011, $117.6 million of NPLs were residential CAD loans, $88.9 million were other CAD loans, $79.2 million were commercial real estate mortgage loans and $65.6 million were consumer mortgages.  NPLs from all other loan types totaled $73.7 million at March 31, 2011.

Included in the $370.7 million of nonaccrual loans reported at March 31, 2011 were $136.3 million of loans that were paying as agreed.  These loans are generally placed on nonaccrual status because the collateral values were below the outstanding balances, and because of uncertainty as to whether the borrowers possess 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.

Other real estate owned increased $3.0 million during the first quarter of 2011 to $136.4 million, from $133.4 million at December 31, 2010.  This net increase reflected $21.5 million added through foreclosure, less sales of other real estate owned of $13.5 million and write-downs in the value of existing properties of $4.9 million.

Noninterest Revenue

Noninterest revenue was $68.3 million for the first quarter of 2011, compared with $63.3 million for the first quarter of 2010.  BancorpSouth's mortgage production and servicing operations accounted for the largest component of this growth, with revenue for the first quarter of 2011 of $7.6 million, which included a $2.5 million positive MSR fair value adjustment, compared with revenue of $5.0 million, which included an immaterial MSR fair value adjustment, for the first quarter of 2010.  Mortgage origination volume for the first quarter of 2011 was $202.8 million compared with $207.4 million for the first quarter of 2010.

Credit and debit card fees increased 17.4 percent and trust income rose 21.1 percent on a comparable quarter basis.  Insurance commission revenue for the first quarter of 2011 increased 4.1 percent from the first quarter of 2010, which was the fourth consecutive comparable quarter increase.  Service charge income declined 5.5 percent for the first quarter of 2011 compared with the first quarter of 2010.

Noninterest Expense

Noninterest expense for the first quarter of 2011 was $130.0 million, compared with $120.5 million for the first quarter of 2010 and $123.4 million for the fourth quarter of 2010. Foreclosed property expense increased to $7.1 million for the first quarter of 2011 from $3.5 million for the first quarter of 2010 and $6.1 million for the fourth quarter of 2010.  FDIC insurance expense was $5.4 million for the first quarter of 2011 compared with $4.3 million and $5.9 million for the first and fourth quarters of 2010, respectively.  Salaries and employee benefits, net occupancy and equipment expenses for the first quarter of 2011 increased 1.1 percent from the first quarter of 2010 and increased 5.6 percent from the fourth quarter of 2010, primarily due to increases in FICA taxes and employee benefits.

Capital Management

BancorpSouth's commitment to a strong capital base is one of its fundamental strengths.  The Company's equity capitalization is 100 percent common stock.  BancorpSouth's ratio of shareholders' equity to assets was 8.94 percent at March 31, 2011, compared with 9.56 percent at March 31, 2010.  The ratio of tangible shareholders' equity to tangible assets was 6.95 percent at March 31, 2011, compared with 7.52 percent at March 31, 2010.  BancorpSouth remains a "well capitalized" financial holding company, as defined by federal regulations, with Tier 1 risk-based capital of 10.65 percent at March 31, 2011 and total risk based capital of 11.92 percent, compared with required minimum levels of 6 percent and 10 percent, respectively, to be classified as "well capitalized."  

Summary

Patterson concluded, "Despite the increase in NPLs during the first quarter, we are encouraged that the rate of NPL formation slowed dramatically for the past two quarters compared with the previous five quarters.  We remain highly focused on working through remaining credit issues and maintaining appropriate reserves for losses expected in our portfolio.  We have made much progress in addressing these issues, and we are confident that, in time, we will return our measures of credit quality to more normal levels.

"We continue to be cautious about the potential for loan growth in 2011 in a period of high unemployment and modest economic growth.  As the expansion in our core deposits and the strength in our mortgage and other noninterest revenue businesses make clear, we continue to have significant opportunities to gain market share that should position us for stronger performance when the loan environment improves.

"BancorpSouth remains a strong, well capitalized financial institution, offering outstanding service and high quality products and services for our retail and small-to-medium sized business customers.  With a long-term history of successfully expanding our business through organic growth and acquisition, we believe we are well positioned to effectively manage BancorpSouth through the current environment, while continuing to build our prospects for long-term growth and increased shareholder value."

Conference Call

BancorpSouth will conduct a conference call to discuss its first quarter 2011 results tomorrow, April 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 financial performance, our reserves for losses, returning our credit quality to more normal levels, unresolved credit issues, our capital and liquidity, the ability of borrowers to repay outstanding loans, opportunities to gain market share 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 our 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 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 $13.5 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.