BancorpSouth Announces Second Quarter 2013 Earnings of $20.8 Million or $0.22 per Diluted Share

TUPELO, Miss., July 22, 2013 /PRNewswire/ -- BancorpSouth, Inc. (NYSE: BXS) today announced financial results for the quarter and six months ended June 30, 2013.

Highlights for the second quarter of 2013 included:

• Net income of $20.8 million or $0.22 per diluted share.
• Announced the results of a Voluntary Early Retirement Program ("VERO"), which resulted in a pre-tax charge of $10.9 million, or $0.07 per share net of tax, during the quarter and is expected to result in fully phased-in annual pre-tax savings of approximately $9 million, or $0.06 per share net of tax.
• Announced BancorpSouth Capital Trust I will redeem all of its outstanding 8.15 percent trust preferred securities ("TRUPS") on August 12, 2013, which is expected to result in an annual reduction of interest expense for the Company of $9.1 million, or $0.06 per share net of tax.
• Generated net loan growth of $97.2 million, or 4.5 percent annualized.
• Mortgage production of $435.0 million and mortgage sales of $424.4 million, which contributed to mortgage lending revenue of $17.9 million for the quarter, including a positive mortgage servicing rights ("MSR") valuation adjustment of $5.3 million.
• Insurance commission revenue of $25.9 million, which represents an increase of $2.9 million, or 12.6 percent, on a comparable-quarter basis.
• Non-performing loans and leases ("NPLs") declined $39.1 million, or 18.9 percent, compared to the first quarter of 2013, while non-performing assets ("NPAs") decreased $47.0 million, or 15.5 percent, over the same period.

The Company reported net income of $20.8 million, or $0.22 per diluted share, for the second quarter of 2013 compared with net income of $20.6 million, or $0.22 per diluted share, for the second quarter of 2012 and net income of $20.8 million, or $0.22 per diluted share, for the first quarter of 2013.  Additionally, the Company reported net income of $41.6 million, or $0.44 per diluted share, for the first six months of 2013 compared to $43.5 million, or $0.47 per diluted share, for the first six months of 2012.  

"Much progress was made during the second quarter towards improving our cost structure and turning our attention toward growth," remarked Dan Rollins, Chief Executive Officer.  "We made two very significant announcements during the quarter.  The VERO and the TRUPS repayment are two items on which we have worked diligently.  These two initiatives are expected to result in annual savings of over $18 million for our Company.  We are also pleased to report quarter-over-quarter loan growth for the first time in over three years.   We've consistently communicated to our team the importance of growing our Company while improving operating efficiency."

Earnings for the quarter benefitted from continued solid performance from noninterest lines of business.  Mortgage production totaled $435.0 million for the quarter, which contributed to mortgage lending revenue of $17.9 million for the quarter, including a positive MSR valuation adjustment of $5.3 million.  Insurance commission revenue totaled $25.9 million for the second quarter, which represents an increase of $2.9 million, or 12.6 percent, compared to $23.0 million for the second quarter of last year. 

Rollins added, "We also continue to be encouraged by the pace at which our credit team is working through the remaining problem assets."  Earnings for the quarter reflect a provision for credit losses of $3.0 million, which is a decrease from $6.0 million for the second quarter of 2012 and $4.0 million for the first quarter of 2013.  NPLs declined $39.1 million, or 18.9 percent, during the second quarter of 2013 to $167.9 million compared with $207.0 million at March 31, 2013 and declined $99.0 million, or 37.1 percent, from $266.9 million at June 30, 2012.  In addition, total NPAs declined $47.0 million, or 15.5 percent, to $256.4 million at June 30, 2013 compared with $303.3 million at March 31, 2013 and declined $154.2 million, or 37.6 percent, from $410.6 million at June 30, 2012.  Net charge-offs declined to $4.6 million for the second quarter of 2013 compared with $5.9 million for the first quarter of 2013 and $11.9 million for the second quarter of 2012.  Net charge-offs during the second quarter of 2013 included $4.3 million of charge-offs of loans which had been identified and reported as impaired and were reserved for in previous quarters. 

Net Interest Revenue

Net interest revenue was $98.2 million for the second quarter of 2013, a decrease of 6.2 percent from $104.7 million for the second quarter of 2012 and an increase of 0.1 percent from $98.1 million for the first quarter of 2013.  The fully taxable equivalent net interest margin was 3.36 percent for the second quarter of 2013 compared to 3.65 percent for the second quarter of 2012 and 3.37 percent for the first quarter of 2013.  Yields on loans and leases declined to 4.62 percent for the second quarter of 2013 compared with 4.99 percent for the second quarter of 2012 and 4.70 percent for the first quarter of 2013 while yields on total interest earning assets declined to 3.82 percent for the second quarter of 2013 compared with 4.27 percent for the second quarter of 2012 and 3.87 percent for the first quarter of 2013.  These declines were partially offset by declines in the average cost of interest bearing liabilities, which was 0.61 percent for the second quarter of 2013 compared with 0.80 percent for the second quarter of 2012 and 0.66 percent for the first quarter of 2013.

Asset, Deposit and Loan Activity

Total assets were $13.2 billion at June 30, 2013 compared with $13.1 billion at June 30, 2012.  Total deposits were $11.0 billion at both June 30, 2013 and June 30, 2012.  Loans and leases, net of unearned income, were $8.7 billion at both June 30, 2013 and June 30, 2012. 

The decrease in time deposits of $305.5 million, or 11.0 percent, at June 30, 2013 compared to June 30, 2012 was offset by significant growth in noninterest bearing demand deposits, which increased $298.7 million, or 12.9 percent, over the same period.  Additionally, savings deposits increased $127.2 million, or 11.7 percent, while interest bearing demand deposits declined $115.2 million, or 2.4 percent, over the same period.  As of June 30, 2013, $901.5 million of time deposits were scheduled to mature during the following two quarters at a weighted average rate of 0.65 percent. 

Provision for Credit Losses and Allowance for Credit Losses

For the second quarter of 2013, the provision for credit losses was $3.0 million, compared with $6.0 million for the second quarter of 2012 and $4.0 million for the first quarter of 2013.  Net charge-offs for the second quarter of 2013 were $4.6 million, compared with $11.9 million for the second quarter of 2012 and $5.9 million for the first quarter of 2013.  Recoveries of previously charged-off loans were $7.7 million for the second quarter of 2013, compared with $10.0 million for the second quarter of 2012 and $3.9 million for the first quarter of 2013.  Annualized net charge-offs were 0.21 percent of average loans and leases for the second quarter of 2013, compared with 0.55 percent for the second quarter of 2012 and 0.27 percent for the first quarter of 2013. 

NPLs were $167.9 million, or 1.94 percent of net loans and leases, at June 30, 2013, compared with $266.9 million, or 3.06 percent of net loans and leases, at June 30, 2012, and $207.0 million, or 2.41 percent of net loans and leases, at March 31, 2013.  The allowance for credit losses was $161.0 million, or 1.86 percent of net loans and leases, at June 30, 2013 compared with $175.8 million, or 2.01 percent of net loans and leases, at June 30, 2012 and $162.6 million, or 1.89 percent of net loans and leases, at March 31, 2013. 

NPLs at June 30, 2013 consisted primarily of $149.5 million of nonaccrual loans, compared with $188.2 million of nonaccrual loans at March 31, 2013.  Included in the reduction of nonaccrual loans during the second quarter of 2013 were payments received on nonaccrual loans of $27.5 million, compared with payments received on such loans of $23.6 million during the first quarter of 2013.  NPLs at June 30, 2013 also included $1.4 million of loans 90 days or more past due and still accruing, compared with $1.1 million of such loans at March 31, 2013, and included restructured loans still accruing of $17.0 million at June 30, 2013, compared with $17.7 million of such loans at March 31, 2013.  Early stage past due loans, representing loans 30-89 days past due, declined to $21.2 million at June 30, 2013 from $24.4 million at March 31, 2013.  

At June 30, 2013, $18.8 million of NPLs were residential construction, acquisition and development ("CAD") loans, $27.2 million were other CAD loans, $42.6 million were commercial real estate loans and $37.6 million were consumer mortgages.  NPLs from all other loan types totaled $41.7 million at June 30, 2013.  Included in nonaccrual loans at June 30, 2013 were $72.4 million of loans, or 48.4 percent of total nonaccrual loans, that were paying as agreed, compared with $105.9 million, or 56.3 percent, at March 31, 2013.  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.

Other real estate owned ("OREO") decreased $7.9 million to $88.4 million during the second quarter of 2013 from $96.3 million at March 31, 2013.  This net decrease reflected $9.6 million added through foreclosure, offset by sales of OREO of $15.6 million.  Write-downs in the value of existing properties were $1.9 million for the second quarter of 2013 compared to $1.3 million for the first quarter of 2013.  Sales of OREO during the second quarter of 2013 resulted in a net loss of $0.2 million compared to a net gain of $0.2 million for the first quarter of 2013.  At June 30, 2013, OREO was carried at 43.9 percent of the aggregate loan balances at the time of foreclosure, compared with 42.2 percent at March 31, 2013.

Noninterest Revenue

Noninterest revenue was $76.1 million for the second quarter of 2013, compared with $66.5 million for the second quarter of 2012 and $71.3 million for the first quarter of 2013.  These results included a positive MSR valuation adjustment of $5.3 million for the second quarter of 2013 compared with a negative adjustment of $3.8 million for the second quarter of 2012 and a positive adjustment of $1.0 million for the first quarter of 2013. 

Excluding the MSR valuation adjustments, net mortgage lending revenue was $12.6 million for the second quarter of 2013, compared with $14.9 million for the second quarter of 2012 and $11.3 million for the first quarter of 2013.  Mortgage origination volume for the second quarter of 2013 was $435.0 million, compared with $444.1 million for the second quarter of 2012 and $425.9 million for the first quarter of 2013.

Credit and debit card fee revenue was $8.3 million for the second quarter of 2013, compared with $7.8 million for the second quarter of 2012 and $7.5 million for the first quarter of 2013.  Service charge revenue was $12.8 million for the second quarter of 2013, compared with $13.7 million for the second quarter of 2012 and $12.8 million for the first quarter of 2013.  Insurance commission revenue was $25.9 million for the second quarter of 2013, compared with $23.0 million for the second quarter of 2012 and $26.6 million for the first quarter of 2013. 

Noninterest Expense

Noninterest expense for the second quarter of 2013 was $142.3 million, compared with $136.5 million for the second quarter of 2012 and $135.4 million for the first quarter of 2013.  Noninterest expense for the second quarter of 2013 included a pre-tax charge of $10.9 million related to additional benefits offered under the VERO while noninterest expense for the first quarter of 2013 included a charge of $6.8 million that was recorded to increase the litigation accrual.   Salaries and employee benefits expense was $78.3 million for the second quarter of 2013 compared to $77.7 million for the second quarter of 2012 and $79.4 million for the first quarter of 2013.    Foreclosed property expense was $3.2 million for the second quarter of 2013 compared with $10.2 million for the second quarter of 2012 and $2.4 million for the first quarter of 2013.  Deposit insurance assessments were $2.9 million for the second quarter of 2013 compared to $4.0 million for the second quarter of 2012 and $2.8 million for the first quarter of 2013.

Capital Management

BancorpSouth remains a "well capitalized" financial holding company, as defined by federal regulations, with Tier 1 risk-based capital of 14.21 percent at June 30, 2013 and total risk based capital of 15.47 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 11.04 percent at June 30, 2013, compared with 10.79 percent at June 30, 2012 and 10.94 percent at March 31, 2013.  The ratio of tangible shareholders' equity to tangible assets was 9.04 percent at June 30, 2013, compared with 8.80 percent at June 30, 2012 and 8.96 percent at March 31, 2013.

Summary

Rollins concluded, "Our team is excited about the progress that was made during the second quarter and the momentum that we have heading into the second half of the year.  While the two initiatives announced during the quarter result in significant tangible expense savings for the Company, there remains much work to be done to improve our cost structure.  We continue to work daily on improving operating efficiency in all of our business segments.  We also continue to emphasize the importance of growth, not only with our lenders but also in all of our noninterest lines of business.  We are extremely encouraged by the fact that our production efforts resulted in net loan growth for the quarter.  Our team is energized and focused on continuing to enhance shareholder value." 

Conference Call

BancorpSouth will conduct a conference call to discuss its second quarter 2013 results on July 23, 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.

BancorpSouth, Inc. is a financial holding company headquartered in Tupelo, Mississippi, with $13.2 billion in assets.  BancorpSouth Bank, a wholly-owned subsidiary of BancorpSouth, Inc., operates 292 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.

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 expense savings related to the VERO, the redemption of the TRUPS, interest expense reduction related to the redemption of the TRUPS, 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 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, and supervision of the Company's operations, the short-term and long-term impact of changes to banking capital standards on the Company's regulatory capital and liquidity, the impact of regulations on service charges on the Company's core deposit accounts, the susceptibility of the Company's business to local economic or environmental 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, the Company's ability to adapt its products and services to evolving industry standards and consumer preferences, 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, unfavorable ratings by rating agencies, 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, 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.