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BancorpSouth reaches 2-year high on earnings, plans regional restructuring

The year’s first quarter brought BancorpSouth Inc. its best quarterly showing in two years, with the Tupelo-based regional bank reporting net income of $22.9 million, or 25-cents a share.

The burden of bad real estate loans also eased during the quarter, according to Aubrey Patterson, chairman and CEO BancorpSouth, a $13 billion banking company with operations in Alabama, Arkansas, Florida, Louisiana, Mississippi, Missouri, Tennessee and Texas.

“Earnings for the quarter reflect decreases in credit costs as a result of asset quality improvement,” he said in a press statement detailing 1Q earnings.

In an earnings presentation to analysts last Tuesday, Patterson further noted that the earnings improvements “are still not reflective of historical profitability,” but added that asset quality and earnings “show significant progress toward returning to more normal profitability levels.”

Earnings for the quarter benefited from a reduction in the provision for credit losses to $10 million compared to $53.5 million for the first quarter of 2011 and $19.3 million for the fourth quarter of 2011. Non-performing loans (NPLs) declined $37 million, or 11.5 percent, during the first quarter of 2012 to $285.2 million at March 31, 2012 compared with $322.3 million at December 31, 2011. NPLs have declined $139.8 million, or 32.9 percent, from $425.0 million at March 31, 2011.

BancorpSouth also showed significant improvement in loans classified as “non-accrual,” essentially loans on which principal and interest have not been paid for 90 days. Gross non-accrual loan formation totaled $40.4 million for the first quarter compared to $111.2 million for 2011’s first quarter and $39.5 million for the fourth quarter of 2011.

Patterson, in comments to analysts, said the bank is “ encouraged by percentage of non-accrual loans that are continued to be paid on time.” He noted these loans accounted for 54 percent of the dollar amount of non-accrual loans.

“This continues to rise as the percentage of paying non accrual loans,” Patterson said.

Total loans 30 – 89 days past due decreased during the first quarter of 2012 to $29.0 million at March 31, 2012 from $37.5 million at Dec. 31.

BancorpSouth’s 1Q income received a boost from $395.1 million of new loans that contributed $15.1 million of revenue, including a positive mortgage servicing rights (“MSR”) valuation adjustment of $3.7 million, the bank said in its earnings report.

Net interest revenue declined 3.5 percent, however, going from $109.4 million in 1Q of 2011 to $105.6 million in this year’s first quarter.

“What we’re seeing is heightened competition for high quality credit,” with leverage resting with the borrower for now, Patterson said. “Pricing is going to continue to reflect that competition.”

He noted, however, that BancorpSouth is beginning to see an increase in its loan pipeline, though he added: “We don’t expect to see a tremendous rebound in terms of loan demand in the next quarter.

“We’re going to be out there hustling to get the business.”

Like other banks hammered during the economic downturn by construction, acquisition, and development loans, or CAD, BancorpSouth has looked to decrease its overall CAD loan portfolio. To that end, the bank decreased the CAD portfolio to $259.2 million, or 23.2 percent, from March 31, 2011 to March 31, it said.

This accounted for 54.5 percent of the decline in net loans and leases over the same time period. Excluding the impact of the CAD loan portfolio, net loans and leases declined $216.7 million, or 2.7 percent, during this period, according to the bank.

A reorganization dubbed as a “streamlining” by BancorpSouth led to the closings last August of 23 bank branches in Mississippi, Alabama, Arkansas, Missouri, Tennessee and Texas. The volume of sustained business growth at the locations had to support the normal and routine expenses required to continue operating the branches, BancorpSouth said.

Largely through the branch closings, BancorpSouth’s workforce has dropped from about 4,400 to around 4,300 today, according to Patterson.

Another restructuring is underway, though this one appears to not involve branch closings. Patterson said in last week’s earnings call the bank’s operations will be divided into four regional divisions, with Mississippi divided into the Northeast and Southeast regions. Metro Jackson and south Mississippi will be in the Southeast Region, along with operations in Alabama and Florida. North Mississippi will be joined in the Northeast Region by the bank’s Tennessee operations.

He called the restructuring largely an internal strategy and predicted it will have a “direct positive impact.”


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