BancorpSouth Announces Third Quarter 2013 Earnings of $24.9 Million or $0.26 per Diluted Share

TUPELO, Miss., Oct. 21, 2013 /PRNewswire/ -- BancorpSouth, Inc. (NYSE: BXS) today announced financial results for the quarter and nine months ended September 30, 2013.

Highlights for the third quarter of 2013 included:

• Net income of $24.9 million or $0.26 per diluted share.
• BancorpSouth Capital Trust I redeemed 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. The redemption resulted in a charge of $2.9 million, or $0.02 per share net of tax, related to the write-off of unamortized issuance costs.
• Generated net loan growth of $94.4 million, or 4.3 percent annualized, which represents the second consecutive quarter of net loan growth.
• The net interest margin increased to 3.45 percent from 3.36 percent for the second quarter of 2013, benefitting from the TRUPS redemption as well as net loan growth.
• Meaningful progress in reducing noninterest expense. Specifically, salaries and employee benefits declined $4.8 million, or 6.1 percent, on a sequential-quarter basis.
• Non-performing loans and leases ("NPLs") declined $23.6 million, or 14.1 percent, compared to the second quarter of 2013, while non-performing assets ("NPAs") decreased $35.2 million, or 13.7 percent, over the same period.

The Company reported net income of $24.9 million, or $0.26 per diluted share, for the third quarter of 2013 compared with net income of $23.8 million, or $0.25 per diluted share, for the third quarter of 2012 and net income of $20.8 million, or $0.22 per diluted share, for the second quarter of 2013.  Additionally, the Company reported net income of $66.4 million, or $0.70 per diluted share, for the first nine months of 2013 compared to $67.3 million, or $0.72 per diluted share, for the first nine months of 2012.  

"Our results for the third quarter reflect improved profitability achieved through specific initiatives that were announced during the first half of the year as well as a continuing focus on growth and efficiency," remarked Dan Rollins, Chief Executive Officer.  "We are pleased to report net loan growth for the second consecutive quarter which, coupled with the redemption of the TRUPS, helped us achieve significant improvement in our net interest margin as well as growth in net interest income.  We are also beginning to see the benefits of our effort to improve efficiency.  Specifically, salaries and employee benefits expense declined meaningfully on a sequential-quarter basis as a result of the voluntary early retirement program as well as our effort to closely monitor headcount.

"Earnings for the quarter were impacted by two items that we consider to be non-routine," commented Rollins.  "The redemption of the TRUPS resulted in a pre-tax, non-cash charge of $2.9 million related to the write-off of unamortized issuance costs.  Also, income tax expense included a benefit of $1.3 million associated with the favorable resolution of an uncertain tax position, thus lowering the effective tax rate for the quarter.  Additionally, legal expense for the quarter included an increase of $2.8 million in the legal accrual for potential losses associated with certain ongoing legal matters, $1.8 million of which we consider to be related to matters outside the normal course of business."    

Rollins added, "We continue to be encouraged by trends in our credit quality, specifically the pace at which we are moving problem assets."  Earnings for the quarter reflected a provision for credit losses of $0.5 million, which was a decrease from $6.0 million for the third quarter of 2012 and $3.0 million for the second quarter of 2013.  NPLs declined $23.6 million, or 14.1 percent, during the third quarter of 2013 to $144.3 million at September 30, 2013 compared with $167.9 million at June 30, 2013 and declined $103.0 million, or 41.6 percent, from $247.3 million at September 30, 2012.  In addition, total NPAs declined $35.2 million, or 13.7 percent, to $221.2 million at September 30, 2013 compared with $256.4 million at June 30, 2013 and declined $154.4 million, or 41.1 percent, from $375.5 million at September 30, 2012.  Net charge-offs were $7.6 million for the third quarter of 2013 compared with $4.6 million for the second quarter of 2013 and $12.8 million for the third quarter of 2012.  Net charge-offs during the third quarter of 2013 included $3.4 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 $100.2 million for the third quarter of 2013, a decrease of 3.0 percent from $103.4 million for the third quarter of 2012 and an increase of 2.1 percent from $98.2 million for the second quarter of 2013.  The fully taxable equivalent net interest margin was 3.45 percent for the third quarter of 2013 compared to 3.55 percent for the third quarter of 2012 and 3.36 percent for the second quarter of 2013.  Yields on loans and leases declined to 4.55 percent for the third quarter of 2013 compared with 4.85 percent for the third quarter of 2012 and 4.62 percent for the second quarter of 2013, while yields on total interest earning assets declined to 3.85 percent for the third quarter of 2013 compared with 4.13 percent for the third quarter of 2012 and increased from 3.82 percent for the second quarter of 2013.  The average cost of interest bearing liabilities declined to 0.53 percent for the third quarter of 2013 from 0.76 percent for the third quarter of 2012 and 0.61 percent for the second quarter of 2013.

Asset, Deposit and Loan Activity

Total assets were $12.9 billion at September 30, 2013 compared with $13.2 billion at September 30, 2012.  Total deposits were $10.7 billion at September 30, 2013 compared with $11.0 billion at September 30, 2012.  Loans and leases, net of unearned income, were $8.8 billion at September 30, 2013 compared with $8.7 billion at September 30, 2012. 

The decrease in time deposits of $274.8 million, or 10.2 percent, at September 30, 2013 compared to September 30, 2012 was partially offset by significant growth in noninterest bearing demand deposits, which increased $105.3 million, or 4.2 percent, over the same period.  Additionally, savings deposits increased $116.7 million, or 10.6 percent, while interest bearing demand deposits declined $203.9 million, or 4.3 percent, over the same period.  As of September 30, 2013, $969.9 million of time deposits were scheduled to mature during the following two quarters at a weighted average rate of 0.92 percent. 

Provision for Credit Losses and Allowance for Credit Losses

For the third quarter of 2013, the provision for credit losses was $0.5 million, compared with $6.0 million for the third quarter of 2012 and $3.0 million for the second quarter of 2013.  Net charge-offs for the third quarter of 2013 were $7.6 million, compared with $12.8 million for the third quarter of 2012 and $4.6 million for the second quarter of 2013.  Recoveries of previously charged-off loans were $4.3 million for the third quarter of 2013, compared with $6.1 million for the third quarter of 2012 and $7.7 million for the second quarter of 2013.  Annualized net charge-offs were 0.35 percent of average loans and leases for the third quarter of 2013, compared with 0.59 percent for the third quarter of 2012 and 0.21 percent for the second quarter of 2013. 

NPLs were $144.3 million, or 1.65 percent of net loans and leases, at September 30, 2013, compared with $247.3 million, or 2.85 percent of net loans and leases, at September 30, 2012, and $167.9 million, or 1.94 percent of net loans and leases, at June 30, 2013.  The allowance for credit losses was $154.0 million, or 1.76 percent of net loans and leases, at September 30, 2013 compared with $169.0 million, or 1.95 percent of net loans and leases, at September 30, 2012 and $161.0 million, or 1.86 percent of net loans and leases, at June 30, 2013. 

NPLs at September 30, 2013 consisted primarily of $121.4 million of nonaccrual loans, compared with $149.5 million of nonaccrual loans at June 30, 2013.  Included in the reduction of nonaccrual loans during the third quarter of 2013 were payments received on nonaccrual loans of $27.7 million, compared with payments received on such loans of $27.5 million during the second quarter of 2013.  NPLs at September 30, 2013 also included $1.5 million of loans 90 days or more past due and still accruing, compared with $1.4 million of such loans at June 30, 2013, and included restructured loans still accruing of $21.5 million at September 30, 2013, compared with $17.0 million of such loans at June 30, 2013.  Early stage past due loans, representing loans 30-89 days past due, totaled $28.9 million at September 30, 2013 compared to $21.2 million at June 30, 2013.  

At September 30, 2013, $12.4 million of NPLs were residential construction, acquisition and development ("CAD") loans, $20.3 million were other CAD loans, $34.8 million were commercial real estate loans and $34.2 million were consumer mortgages.  NPLs from all other loan types totaled $42.6 million at September 30, 2013.  Included in nonaccrual loans at September 30, 2013 were $61.5 million of loans, or 50.6 percent of total nonaccrual loans, that were paying as agreed, compared with $72.4 million, or 48.4 percent of total nonaccrual loans, at June 30, 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 $11.6 million to $76.9 million during the third quarter of 2013 from $88.4 million at June 30, 2013.  This net decrease reflected $9.5 million added through foreclosure, offset by sales of OREO of $19.3 million.  Write-downs in the value of existing properties were $1.8 million for the third quarter of 2013 compared to $1.9 million for the second quarter of 2013.  Sales of OREO during the third quarter of 2013 resulted in a net loss of $0.4 million compared to a net loss of $0.2 million for the second quarter of 2013.  At September 30, 2013, OREO was carried at 45.6 percent of the aggregate loan balances at the time of foreclosure, compared with 43.9 percent at June 30, 2013.

Noninterest Revenue

Noninterest revenue was $62.5 million for the third quarter of 2013, compared with $70.4 million for the third quarter of 2012 and $76.1 million for the second quarter of 2013.  These results included a negative mortgage servicing rights ("MSR") valuation adjustment of $0.2 million for the third quarter of 2013 compared with a negative adjustment of $3.2 million for the third quarter of 2012 and a positive adjustment of $5.3 million for the second quarter of 2013. 

Excluding the MSR valuation adjustments, net mortgage lending revenue was $5.4 million for the third quarter of 2013, compared with $16.8 million for the third quarter of 2012 and $12.6 million for the second quarter of 2013.  Mortgage origination volume for the third quarter of 2013 was $341.9 million, compared with $607.9 million for the third quarter of 2012 and $435.0 million for the second quarter of 2013.

Credit and debit card fee revenue was $8.8 million for the third quarter of 2013, compared with $8.3 million for both the third quarter of 2012 and the second quarter of 2013.  Service charge revenue was $13.7 million for the third quarter of 2013, compared with $14.2 million for the third quarter of 2012 and $12.8 million for the second quarter of 2013.  Insurance commission revenue was $23.8 million for the third quarter of 2013, compared with $23.5 million for the third quarter of 2012 and $25.9 million for the second quarter of 2013. 

Noninterest Expense

Noninterest expense for the third quarter of 2013 was $129.4 million, compared with $133.8 million for the third quarter of 2012 and $142.3 million for the second quarter of 2013.  Noninterest expense for the third quarter included pre-tax charges of $2.9 million related to the write-off of unamortized issuance costs associated with the TRUPS and $2.8 million to increase the litigation accrual related to potential losses associated with various legal proceedings.  Noninterest expense for the second quarter of 2013 included a pre-tax charge of $10.9 million related to additional benefits offered under the early retirement program.  Salaries and employee benefits expense declined to $73.5 million for the third quarter of 2013 compared to $74.8 million for the third quarter of 2012 and $78.3 million for the second quarter of 2013.  Foreclosed property expense was $3.3 million for the third quarter of 2013 compared with $8.8 million for the third quarter of 2012 and $3.2 million for the second quarter of 2013.  Deposit insurance assessments were $3.3 million for the third quarter of 2013 compared to $4.0 million for the third quarter of 2012 and $2.9 million for the second 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 13.26 percent at September 30, 2013 and total risk based capital of 14.52 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 11.46 percent at September 30, 2013, compared with 10.93 percent at September 30, 2012 and 11.04 percent at June 30, 2013.  The ratio of tangible shareholders' equity to tangible assets was 9.43 percent at September 30, 2013, compared with 8.91 percent at September 30, 2012 and 9.04 percent at June 30, 2013.

Summary

Rollins concluded, "We believe the financial results for the quarter reflect tangible benefits from the actions that we have taken and the focus that we have discussed both internally and externally over the last several months.  We have been able to grow loans and grow net interest income for two consecutive quarters while continuing to reduce the residual problem assets at a reasonable pace.  While we are not immune to the industry headwinds related to mortgage, we have also been able to continue to grow several of our noninterest revenue sources. Results for the quarter also reflect progress made in reducing expenses.  Specifically, the results of the voluntary early retirement program and a diligent focus on managing headcount provided a meaningful reduction to the salaries and benefits expense line for the quarter.  We believe that other actions that we continue to take daily with respect to other expense items will improve efficiency going forward." 

Conference Call

BancorpSouth will conduct a conference call to discuss its third quarter 2013 results on October 22, 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 $12.9 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 interest expense reduction related to the redemption of the TRUPS, the impact of cost-saving initiatives, our ability to improve efficiency, 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.