BancorpSouth, Inc.
Aubrey Patterson, BancorpSouth's Chairman and Chief Executive Officer, remarked, "We are pleased to report that BancorpSouth began 2003 on a strong note with substantial profitable growth for the first quarter. This growth is primarily attributable to increased non-interest revenue for the quarter, particularly as a result of net gains from the sale of securities of $13.6 million, $8.4 million after tax, or $0.11 per diluted share. In addition, our ongoing strategies to serve a greater portion of our banking customers' financial needs through the sale of additional products and services that generate non-interest revenue produced substantial growth in non-interest revenues from mortgage lending, deposit account service charges and insurance commissions as compared to the first quarter of 2002. Together, the growth in these non-interest revenue streams more than offset a slight decline in net interest revenue for the quarter, which is reflective of low interest rates and restrained loan demand in a challenging economic environment. Disregarding the securities transactions, net income per diluted share for the first quarter of 2003 increased $0.04, or 11.1% over net income per diluted share for the first quarter of 2002."
Net Interest Revenue
Interest revenue for the first quarter of 2003 was $137.7 million, down 7.9 percent from $149.5 million for the first quarter of 2002 and 4.7 percent from $144.5 million for the fourth quarter of 2002. Interest expense for the latest quarter declined 16.8 percent to $47.5 million from $57.1 million for the first quarter of 2002 and 8.8 percent from $52.1 million for the fourth quarter of 2002.
The average taxable equivalent yield on earning assets for the first quarter of 2003 decreased to 6.00 percent from 6.90 percent for the first quarter of 2002 and 6.19 percent for the fourth quarter of 2002. The average rate paid on interest-bearing liabilities for the first quarter of 2003 fell to 2.36 percent from 3.03 percent and 2.55 percent for the first and fourth quarters of 2002, respectively.
Net interest revenue for the first quarter of 2003 was $90.1 million, a 2.5 percent decrease from $92.4 million for each of the first and fourth quarters of 2002. Net interest margin was 3.97 percent for the first quarter of 2003 compared with 4.31 percent for the first quarter of 2002 and 4.00 percent for the fourth quarter of 2002.
"We were relatively pleased with our net interest margin for the first quarter," said Patterson, "considering the softness of interest rates during the period. We must constantly manage our assets and liabilities to limit our exposure to changing interest rates. Included in the steps we took to achieve this goal during the first quarter were the securities sales that produced our net securities gains for the quarter. These sales contributed to the pressure on our net interest margin. Our customers continue to pool funds in demand and short-term time deposits. This fact, coupled with the market's demand for longer term fixed-rate loans at current historically low interest rates, led management to alter the Company's earning asset structure to be more sensitive to a changing interest rate environment. The sale of $720 million of securities with an average life of 3.3 years narrowed the interest sensitivity gap between our maturing assets and liabilities. While this significant event could possibly reduce our net interest revenue and net interest margin in the near-term, the Company will be better positioned to take advantage of rising interest rates if and when the economy, nationally and in our market areas, improves."
Deposit and Loan Activity
Assets at March 31, 2003 totaled $10.3 billion, up 5.3 percent from $9.8 billion at March 31, 2002. Deposits increased 6.3 percent to $8.7 billion at March 31, 2003 from $8.2 billion at the end of the first quarter last year. Gross loans were $6.3 billion at March 31, 2003, an increase of 0.8 percent from $6.2 billion at March 31, 2002.
Patterson commented, "We attribute the limited growth in gross loans during the first quarter of 2003 compared to the same period last year primarily to the weak economic climate in both the regional and national economy, as well as uncertainty about the impact of world events on prospects for near-term improvement in the economy. We believe that our increasing level of total deposits demonstrates that we continue to gain market share successfully. With a 12.0 percent increase in non-interest bearing demand deposits at the end of the first quarter of 2003 from the end of the first quarter of 2002, we are also continuing to support our growth with a relatively low-cost mix of funds."
Consistent with BancorpSouth's practice for the three previous years, the Company sold its accumulated inventory of insured student loans during the first quarter of 2003, producing a $2.4 million gain compared with a $2.1 million gain from similar sales in the first quarter of 2002. The Company has also continued to reduce its exposure to indirect automobile sales financing by allowing that portfolio to decline to $51.4 million at March 31, 2003 from $123.0 million at March 31, 2002.
Provision for Credit Losses and Allowance for Credit Losses
The provision for credit losses declined 3.5 percent for the first quarter of 2003 to $6.5 million from $6.8 million for the first quarter of 2002 and 9.8 percent from $7.2 million for the fourth quarter of 2002. Annualized charge-offs were 0.30 percent of average loans for the latest quarter, down from 0.39 percent and 0.43 percent for the first and fourth quarters of 2002, respectively.
Non-performing loans at March 31, 2003 totaled $40.2 million, or 0.64 percent of net loans, versus $38.3 million, or 0.62 percent of net loans at March 31, 2002. The allowance for credit losses at the end of the first quarter of 2003 was 1.43 percent of loans, up from 1.37 percent at the same time in the prior year and 1.38 percent at the end of the fourth quarter of 2002.
Patterson added, "In spite of a difficult economic environment, BancorpSouth's credit quality remains strong, with annualized charge-offs for the first quarter of 2003 declining as a percentage of average loans on a comparable-quarter basis and for the second consecutive quarter sequentially. Lower charge-offs have contributed to a strengthened allowance for credit losses at the end of the first quarter of 2003, and a positive impact on our first-quarter provision for credit losses. Weaker loan demand also acts to reduce the provision for credit losses, even as the uncertain economy accounted for a slight increase in non-performing assets at the quarter's end. We remain fully committed to our conservative lending and credit philosophy, which we believe is fundamental to BancorpSouth's strategy of achieving increased long-term shareholder value."
Non-Interest Revenue
Non-interest revenue increased 57.5 percent to $55.0 million for the first quarter of 2003 from $34.9 million for the first quarter of 2002 and 56.4 percent from $35.2 million for the fourth quarter of 2002. Net securities gains of $13.6 million for the first quarter of 2003 resulted from the sale of $720 million in intermediate term bonds pursuant to our continuous efforts to manage the interest rate sensitivity of our assets and liabilities. For the first quarter of 2002, there was a net loss of $25,000 from the sale of securities.
Excluding the impact of the net securities gains of $13.6 million during the first quarter of 2003, non-interest revenue increased $6.5 million, or 18.6 percent during the first quarter of 2003 compared to the first quarter of 2002 due to substantial growth in non-interest products and services, such as fees from mortgage lending. Continuing low mortgage loan interest rates during the first quarter of 2003 resulted in significant mortgage activity, with $302.4 million of mortgage loan originations for the first quarter of 2003, up 57.3 percent from $192.2 million for the first quarter of 2002. This growth also accounted for the expansion of the Company's mortgage servicing portfolio to $2.8 billion at March 31,2003 from $2.6 billion at March 31, 2002. The relatively stable interest rates for both comparable-quarter periods had little impact on the valuation of the mortgage servicing asset, with a reversal of previously recorded impairment charges for the first quarter of 2003 of $0.8 million and for the first quarter of 2002 of $0.5 million, compared with an impairment charge of $3.2 million in the fourth quarter of 2002.
Non-interest revenue for the first quarter of 2003 also reflected growth in service charges to $13.7 million, an increase of 33.7 percent from $10.2 million for the first quarter of 2002, as well as a 12.7 percent increase in insurance commissions to $6.4 million for the first quarter of 2003 from $5.7 million for the first quarter of 2002.
"We believe the mortgage lending volume we have experienced with the current unusually low interest rates will create long-term benefits for BancorpSouth," said Patterson. "We expect these low interest rates to reduce the pre-payment risk of our mortgage servicing asset significantly, which we believe will improve the consistency of this important revenue stream in future periods. Our mortgage origination volume also introduces us to new customers and strengthens our relationships with existing customers, enhancing our opportunity to provide our markets with expanded deposit, insurance, cash management and investment brokerage products and services. By leveraging our existing customer relationships to serve more of their financial needs, we expect to improve customer satisfaction with BancorpSouth, while achieving our financial objective of increasing non-interest revenue as a percentage of total revenue."
Non-Interest Expense
Non-interest expense increased 3.2 percent for the first quarter of 2003 to $79.6 million from $77.2 million for the first quarter of 2002. In addition to a continuing focus on expense control, the Company benefited from reduced comparable-quarter costs associated with the successful integration of previous acquisitions and the completion of initiatives to improve operating efficiency.
Capital Management
BancorpSouth continued to repurchase shares of its common stock during the first quarter of 2003 under the repurchase plan authorized in February 2002 for the repurchase of up to 4.1 million shares. In the first quarter of 2003, the Company repurchased 396,500 shares, bringing the total number of shares repurchased under the plan to 3,869,108 at the end of the first quarter of 2003. Combined with the shares repurchased under a separate 4.2 million-share plan authorized in March 2001 that was completed during 2002, the Company has now repurchased approximately 8.1 million shares of its common stock as of March 31, 2003, or 9.6 percent of its outstanding shares as of March 31, 2001. BancorpSouth will continue to evaluate additional share repurchases under the February 2002 plan, which authorizes these repurchases during an 18-month period following the authorization of the plan.
Summary
Mr. Patterson concluded, "While the current economic environment has a real impact on our customers and therefore our operating and financial results, we have learned the value of a consistent, conservative approach to our business from our experience in previous economic cycles. As a result of the strong organization we have built through this approach, we continue to have many opportunities for further growth, in spite of the current economy. Throughout the remainder of 2003, we will continue to focus on four principal growth strategies:
* continuing our efforts to expand our share of rapidly growing urban
markets in our existing franchise, supported by lower cost deposits
from slower growth markets;
* building non-interest revenue through increased cross-selling efforts
of fee income products to customers in Mississippi, Alabama and
Tennessee, and through our ongoing roll-out of these products in our
newer markets in Arkansas, Louisiana and Texas;
* driving profit margin improvement by leveraging our substantial earlier
investments in centralized processing across a broader base of
business; and
* continuing to evaluate strategic and in-market acquisitions.
"We are committed to these strategies to expand our strong franchise within our current six-state market. We occupy a unique position in this market because of our ability to provide traditional community bank customer service, backed by a level of product, service and system sophistication that many other community banks do not have the critical mass to provide. We are confident the consistent implementation of these growth strategies and our strong focus on high credit quality enhance BancorpSouth's prospects for long- term growth."
Conference Call
BancorpSouth will conduct a conference call with analysts at 1:30 p.m. (Central Time) on April 17, 2003. 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 bank holding company headquartered in Tupelo, Mississippi with approximately $10.3 billion in assets. BancorpSouth operates approximately 250 commercial banking, insurance, trust, broker/dealer and consumer finance locations in Alabama, Arkansas, Louisiana, Mississippi, Tennessee and Texas.
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, those relating to interest rates, loan volume, credit quality, non-interest revenue, net interest revenue, interest rate margin, interest rate sensitivity, loan losses, market share, expansion and prospects of products and services, deposits, common stock repurchase plan, customer satisfaction, mortgage servicing asset, potential acquisitions and BancorpSouth's future growth and profitability.
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, due to a variety of factors. Those factors include, but are not limited to, changes in economic conditions and government fiscal and monetary policies, fluctuations in prevailing interest rates, the ability of BancorpSouth to reduce interest rates paid on deposits as interest rates decline or stabilize, the ability to maintain credit quality, changes in laws and regulations affecting financial institutions in general or relating to taxes, possible adverse rulings, judgments, settlements and other outcomes of pending litigation, the ability of BancorpSouth to compete with other financial services companies, the ability of BancorpSouth to provide competitive services and products, changes in BancorpSouth's operating or expansion strategy, geographic concentration of BancorpSouth's assets, availability of and costs associated with obtaining adequate and timely sources of liquidity, the ability of BancorpSouth to attract, train and retain qualified personnel, the ability of BancorpSouth to effectively market its services and products, the ability of BancorpSouth to repurchase its common stock on favorable terms, the ability of BancorpSouth to identify potential acquisitions, changes in consumer preferences, 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.
Selected Financial Data Three Months Ended
March 31,
2003 2002
(Dollars in thousands, except per
share amounts)
Earnings Summary:
Net interest revenue $90,144 $92,429
Provision for credit losses 6,522 6,760
Noninterest revenue 55,016 34,930
Noninterest expense 79,623 77,172
Income before income taxes 59,015 43,427
Income tax provision 19,867 14,029
Net income $39,148 $29,398
Net Income per share: Basic $0.51 $0.36
Diluted $0.50 $0.36
Balance sheet data at March 31:
Total assets $10,335,009 $9,816,856
Total earning assets 9,587,753 9,156,724
Loans and lease receivables, net of
unearned discount 6,263,585 6,206,910
Allowance for credit losses 89,600 85,140
Total deposits 8,689,351 8,175,131
Common shareholders' equity 820,610 810,667
Book value per share 10.61 9.98
Average balance sheet data:
Total assets $10,191,544 $9,592,825
Total earning assets 9,494,684 8,967,582
Loans and lease receivables, net of
unearned discount 6,347,818 6,142,294
Total deposits 8,560,002 8,000,913
Common shareholders' equity 815,907 806,956
Non-performing assets at March 31:
Non-accrual loans $13,764 $7,863
Loans 90+ days past due 26,458 30,389
Restructured loans 17 38
Other real estate owned 16,641 18,576
Net charge-offs as a percentage
of average loans (annualized) 0.30% 0.39%
Performance ratios (annualized)
Return on average assets 1.56% 1.24%
Return on common equity 19.46% 14.77%
Net interest margin 3.97% 4.31%
Average shares outstanding - diluted 77,857,362 81,680,282
BancorpSouth, Inc.
Consolidated Balance Sheets
(dollars in thousands)
(Unaudited)
March 31, March 31,
2003 2002 % Chg
Assets
Cash & due from banks $351,278 $288,797 21.6%
Interest bearing deposits with other
banks 26,305 13,608 93.3%
Held-to-maturity securities 1,864,519 1,180,333 58.0%
Available-for-sale securities 1,069,325 1,420,635 (24.7%)
Federal funds sold and securities
purchased under agreement to resell 303,735 278,053 9.2%
Loans & leases 6,263,585 6,206,910 0.9%
Allowance for credit losses (89,600) (85,140) 5.2%
Net loans & leases 6,173,985 6,121,770 0.9%
Mortgages held for sale 60,283 57,185 5.4%
Bank premises & equipment 210,789 213,329 (1.2%)
Accrued interest receivable 70,919 85,555 (17.1%)
Other real estate owned 16,641 18,576 (9.3%)
Other assets 187,230 139,015 34.1%
Total assets $10,335,009 $9,816,856 5.3%
Liabilities
Demand deposits:
Non-interest bearing $1,214,216 $1,084,148 12.0%
Interest bearing 2,489,120 2,320,449 7.3%
Total demand deposits 3,703,336 3,404,597 8.8%
Savings & time deposits:
Savings 819,430 893,693 (8.3%)
Certificates of deposit 4,166,585 3,876,841 7.5%
Total savings & time deposits 4,986,015 4,770,534 4.5%
Total deposits 8,689,351 8,175,131 6.3%
Federal funds purchased and
securities sold
under agreement to repurchase 446,932 444,137 0.6%
Short-term borrowings 0 4,000
Accrued interest payable 25,036 31,956 (21.7%)
Long-term debt 139,450 140,651 (0.9%)
Junior subordinated debt 125,000 125,000 ---
Other liabilities 88,630 85,314 3.9%
Total liabilities 9,514,399 9,006,189 5.6%
Shareholders' Equity
Common stock 193,319 203,078 (4.8%)
Capital surplus 21,115 15,112 39.7%
Unrealized gain (loss) on securities 30,677 15,790 94.3%
Retained earnings 575,499 576,687 (0.2%)
Total shareholders' equity 820,610 810,667 1.2%
Total liabilities & shareholders'
equity $10,335,009 $9,816,856 5.3%
BancorpSouth, Inc.
Consolidated Statements of Income
(amounts in thousands, except per share data)
(Unaudited)
Quarter Ended
Mar-03 Dec-02 Sep-02 Jun-02 Mar-02
Interest Revenue:
Loans, including fees $105,252 $110,129 $113,922 $113,735 $113,342
Held-to-maturity
securities: 15,818 15,681 16,577 16,093 16,429
Available-for-sale
securities 14,221 16,277 14,440 15,571 16,413
Short term investments 2,391 2,451 2,569 3,427 3,363
Total interest
revenue 137,682 144,538 147,508 148,825 149,547
Interest Expense:
Deposits 40,544 44,695 47,099 46,834 49,901
Short term borrowings 904 1,132 1,268 1,186 1,034
Long term borrowings 2,082 2,090 2,095 2,069 2,112
Junior subordinated debt 2,547 2,547 2,547 2,547 1,783
Other interest expense 1,461 1,680 1,877 2,107 2,288
Total interest
expense 47,538 52,144 54,886 54,743 57,118
Net interest revenue 90,144 92,394 92,622 94,083 92,429
Provision for credit
losses 6,522 7,228 8,208 7,215 6,760
Net interest
revenue,
after credit loss
provision 83,622 85,166 84,414 86,868 85,669
Other Revenue:
Mortgage lending 7,561 6,069 (2,595) 900 5,554
Service charges 13,654 13,557 12,888 12,595 10,210
Life insurance premiums 961 1,031 1,091 1,091 1,127
Trust income 1,486 1,767 1,693 1,644 1,917
Securities gains, net 13,556 170 2,453 2,888 (25)
Insurance commissions 6,387 5,927 6,123 5,887 5,668
Other 11,411 6,661 7,654 7,814 10,479
Total other revenue 55,016 35,182 29,307 32,819 34,930
Other Expense:
Salaries and employee
benefits 45,461 45,985 42,301 40,226 42,591
Occupancy 5,580 5,497 5,485 5,422 5,254
Equipment 6,003 6,093 6,070 6,264 6,535
Telecommunications 1,860 1,948 1,922 2,032 1,925
Other 20,719 25,356 19,995 20,630 20,867
Total other expense 79,623 84,879 75,773 74,574 77,172
Income before
income taxes 59,015 35,469 37,948 45,112 43,427
Income tax expense 19,867 9,848 11,876 14,185 14,029
Net Income $39,148 $25,621 $26,072 $30,927 $29,398
Net Income Per Share:
Basic $0.51 $0.33 $0.33 $0.38 $0.36
Diluted $0.50 $0.33 $0.33 $0.38 $0.36
BancorpSouth, Inc.
Average Balances, Interest Income and Expense,
and Average Yields and Rates
(dollars in thousands)
(Unaudited)
Quarter Ended
March 31, 2003
Average Yield/
(Taxable equivalent basis) Balance Interest Rate
ASSETS
Loans net of Unearned Income $6,398,632 $105,660 6.70%
Held-to-maturity securities:
Taxable 1,274,105 13,602 4.33%
Non Taxable 178,998 3,409 7.72%
Available-for-sale securities
Taxable 1,056,317 12,127 4.66%
Non Taxable 201,746 3,222 6.48%
Short term investments 384,886 2,390 2.52%
Total interest earning
assets and revenue 9,494,684 140,410 6.00%
Other assets 785,579
Less: allowance for credit losses (88,719)
Total $10,191,544
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand - interest bearing $2,500,301 $7,134 1.16%
Savings 820,832 2,159 1.07%
Time 4,132,837 31,252 3.07%
Short-term borrowings 445,811 2,364 2.15%
Junior subordinated debt 125,000 2,547 8.15%
Long-term debt 139,559 2,082 6.05%
Total interest bearing
liabilities and expense 8,164,340 47,538 2.36%
Demand deposits -
non-interest bearing 1,106,032
Other liabilities 105,265
Total liabilities 9,375,637
Shareholders' equity 815,907
Total $10,191,544
Net interest revenue $92,872
Net interest margin 3.97%
Net interest rate spread 3.64%
Interest bearing liabilities to
interest earning assets 85.99%
Net interest tax equivalent
adjustment $2,728
BancorpSouth, Inc.
Average Balances, Interest Income and Expense,
and Average Yields and Rates
(dollars in thousands)
(Unaudited)
Quarter Ended
March 31, 2002
Average Yield/
(Taxable equivalent basis) Balance Interest Rate
ASSETS
Loans net of Unearned Income $6,199,602 $113,818 7.45%
Held-to-maturity securities:
Taxable 935,448 13,938 6.04%
Non Taxable 198,319 3,832 7.84%
Available-for-sale securities
Taxable 1,055,547 14,256 5.48%
Non Taxable 193,462 3,318 6.96%
Short term investments 385,204 3,363 3.54%
Total interest earning
assets and revenue 8,967,582 152,525 6.90%
Other assets 709,501
Less: allowance for credit losses (84,258)
Total $9,592,825
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand - interest bearing $2,257,654 $8,834 1.59%
Savings 890,858 3,560 1.62%
Time 3,814,671 37,508 3.99%
Short-term borrowings 451,464 3,322 2.98%
Junior subordinated debt 83,333 1,783 8.56%
Long-term debt 139,859 2,112 6.12%
Total interest bearing
liabilities and expense 7,637,839 57,119 3.03%
Demand deposits -
non-interest bearing 1,037,730
Other liabilities 110,299
Total liabilities 8,785,869
Shareholders' equity 806,956
Total $9,592,825
Net interest revenue $95,406
Net interest margin 4.31%
Net interest rate spread 3.86%
Interest bearing liabilities to
interest earning assets 85.17%
Net interest tax equivalent
adjustment $2,977
SOURCE: BancorpSouth, Inc.
CONTACT: L. Nash Allen, Jr., Treasurer and Chief Financial Officer,
+1-662-680-2330, or Gary C. Bonds, Senior Vice President and Controller,
+1-662-680-2332, both of BancorpSouth, Inc.
Web site: http://www.bancorpsouth.com/