BancorpSouth Announces Earnings of $0.43 per Diluted Share for First Quarter 2008

TUPELO, Miss., April 21 /PRNewswire-FirstCall/ -- BancorpSouth, Inc. today announced financial results for the first quarter ended March 31, 2008.

Highlights of the announcement include: -- An increase in net interest revenue of 11.6 percent to $110.1 million for the first quarter of 2008, the third consecutive quarter of double- digit growth from the comparable period in the prior year. -- The expansion of net interest margin to 3.79 percent for the quarter, the highest level in five years. -- A 13.5 percent increase in noninterest revenue over the first quarter of 2007 to $66.2 million. -- Strong credit quality, despite some deterioration in nonperforming loans, annualized net charge-offs and allowance for credit losses in the current economic cycle. -- Growth in insurance commission revenue of 24.6 percent compared to the first quarter of 2007, primarily reflecting the third quarter 2007 acquisition of the Insurance Network of Jonesboro, Arkansas, as well as the acquisitions in the first quarter of 2008 of the Joe Max Green/Insurance Concepts Insurance Agency headquartered in Nacogdoches, Texas, and an insurance broker in Springfield, Missouri. -- The origination of $280.7 million in mortgages for the first quarter of 2008, an increase of 70.0 percent from the first quarter of 2007 and 30.4 percent from the fourth quarter of 2007. -- A $1.1 million reversal of a portion of a prior charge related to a guarantee of Visa's obligations for certain litigation matters and a $2.8 million gain related to the sale of shares of Visa common stock in connection with its initial public stock offering. -- Further strengthening of BancorpSouth's capital structure reflected by an 8.7 percent increase in shareholders' equity at the end of the first quarter of 2008 from the end of the first quarter of 2007. BancorpSouth's equity to asset ratio was 9.30% at March 31, 2008. First Quarter 2008 Summary Results

The Company's net income for the first quarter of 2008 increased 4.7 percent to $35.1 million from $33.6 million for the first quarter of 2007. Net income per diluted share for the first quarter of 2008 increased 2.4 percent to $0.43 from $0.42 for the first quarter of 2007.

"BancorpSouth performed well for the first quarter in a challenging economic environment," said Aubrey Patterson, Chairman and Chief Executive Officer of BancorpSouth. "We produced double-digit growth in both net interest revenue and noninterest revenue, while achieving further improvement in operating efficiency. In addition to funding moderate loan growth, our asset/liability management strategies drove the second consecutive quarterly increase in our net interest margin to the highest level since the first quarter of 2003. BancorpSouth's credit quality and capital structure remain strong, and we have maintained ample sources of liquidity.

"As our expanding insurance business demonstrates, we continue to execute our long-term growth strategy throughout the economic cycle. The acquisition of two insurance agencies in the first quarter of 2008 follows our proven strategy of aligning with market-leading providers. We expect them to strengthen our presence in a number of attractive growth markets and to provide our initial entry into others. We also opened five full-service banking locations during the first quarter as we expanded operations in growing markets within our eight-state franchise."

Net Interest Revenue

Interest revenue for the first quarter of 2008 increased 1.8 percent, or $3.3 million, to $190.5 million from $187.1 million for the first quarter of 2007 and decreased 6.4 percent from $203.6 million for the fourth quarter of 2007. Interest expense decreased 9.1 percent, or $8.1 million, to $80.4 million for the first quarter of 2008 from $88.5 million for the first quarter of 2007 and decreased 14.4 percent from $93.9 million for the fourth quarter of 2007.

The average taxable equivalent yield on earning assets decreased to 6.50 percent for the first quarter of 2008 from 6.85 percent for the first quarter of 2007 and from 6.84 percent for the fourth quarter of 2007. The average rate paid on interest bearing liabilities was 3.19 percent for the first quarter of 2008, down from 3.80 percent for the first quarter of 2007 and 3.68 percent for the fourth quarter of 2007.

Net interest revenue increased 11.6 percent to $110.1 million for the first quarter of 2008 from $98.7 million for the first quarter of 2007 and increased 0.4 percent from $109.7 million for the fourth quarter of 2007. Net interest margin increased to 3.79 percent for the first quarter of 2008 compared with 3.66 percent for the first quarter of 2007 and 3.72 percent for the fourth quarter of 2007.

Patterson commented, "In a declining interest rate environment and with moderate loan growth, our asset/liability management initiatives produced an increase in net interest margin for the second consecutive quarter. We expanded interest revenue by continuing to fund loan growth primarily with proceeds from maturing lower yielding investment securities and short-term borrowings from the Federal Home Loan Bank (FHLB). Our investment portfolio also experienced a slight increase in yield for the quarter.

"Through conservative pricing of public fund time deposits, we reduced other time deposits by 13.8 percent at the end of the quarter from the same time in 2007, while continuing our strong focus on serving the needs of our core deposit customers. Our comparable-quarter data further demonstrates our use of FHLB borrowings and moderate growth in demand deposits to offset the decrease in these higher rate time deposits. As interest rates declined in the first quarter of 2008, demand deposits increased, reducing our use of short-term FHLB borrowings. As a result, we generated a 5.3 percent increase in demand deposits for the first quarter compared with the fourth quarter of 2007 and a 39.1 percent reduction in short-term FHLB borrowings. The resulting decline in interest expense combined with the increase in interest revenue produced BancorpSouth's third consecutive double-digit increase in net interest revenue on a comparable quarter basis, supporting the growth achieved in net interest margin."

Deposit and Loan Activity

Total assets at March 31, 2008 increased 1.5 percent to $13.2 billion from $13.0 billion at March 31, 2007. Total deposits declined 5.4 percent to $10.1 billion at March 31, 2008 from $10.7 billion at March 31, 2007. Loans and leases, net of unearned income, increased 5.7 percent to $9.2 billion at March 31, 2008 from $8.7 billion at March 31, 2007.

"The increase in BancorpSouth's total loans since the first quarter last year represented solid organic growth," said Patterson. "As the economy slowed in recent quarters, we have continued to produce positive results, although the 2.3 percent annualized rate of loan growth for the first quarter of 2008 reflects the impact of a challenging economic environment. The slower growth in total assets for the 12 months ended March 31, 2008 primarily reflects our use of maturing securities to fund loan growth. While total deposits declined 5.4 percent over the same period, demand deposits increased 2.1 percent and total time deposits decreased 12.2 percent."

Provision for Credit Losses and Allowance for Credit Losses

For the first quarter of 2008, the provision for credit losses was $10.8 million compared with $1.4 million for the first quarter of 2007 and $7.8 million for the fourth quarter of 2007. The unusually low provision for credit losses for the first quarter of 2007 was primarily a result of net charge-offs reaching an unsustainably low level during the quarter. Annualized net charge-offs were 0.29 percent of average loans and leases for the first quarter of 2008 compared with 0.08 percent for the first quarter of 2007 and 0.21 percent for the fourth quarter of 2007.

Non-performing loans and leases increased to $38.7 million, or 0.42 percent of loans and leases, at March 31, 2008 from $24.2 million, or 0.28 percent of loans and leases, at March 31, 2007 and from $29.2 million, or 0.32 percent of loans and leases, at December 31, 2007. The allowance for credit losses was 1.29 percent of loans and leases at March 31, 2008 compared with 1.20 percent of loans and leases at March 31, 2007 and 1.25 percent of loans and leases at December 31, 2007.

Patterson added, "The increase in the provision for credit losses for the first quarter was consistent with the rise in net charge-offs and nonperforming loans. These increases, in part, reflect a slowing economic environment, although markets across our eight-state franchise remain relatively steady. Our strength of credit quality, a reflection of conservative lending and credit policies consistently applied, continues to differentiate BancorpSouth from our peers."

Noninterest Revenue

For the first quarter of 2008, noninterest revenue increased 13.5 percent to $66.2 million from $58.4 million for the first quarter of 2007. This growth was driven by a 24.6 percent increase in insurance commission revenue and 16.0 percent growth in credit and debit card fee revenue. Comparable quarter mortgage lending revenue, excluding changes in the value of the mortgage servicing asset, rose 37.7 percent. This increase was offset by a decline in the value of the mortgage servicing asset totaling $3.4 million for the first quarter of 2008 compared with a $1.8 million decline in value for the first quarter of 2007. The acquisition of The Signature Bank, effective March 1, 2007, and the insurance agencies acquired in 2007 and 2008 contributed to the increases in the various categories of noninterest revenue. Noninterest revenue also includes the $2.8 million gain from the sale of Visa stock discussed above.

"We are pleased with the strong growth of our noninterest revenue, which reached 60.2% of net interest revenue for the quarter," remarked Patterson. "Our noninterest revenue products and services continue to diversify our total revenue and reduce our interest rate spread dependency. They also differentiate BancorpSouth in our markets by enabling us to provide comprehensive solutions to our customers' financial needs.

"The two insurance agency acquisitions completed during the first quarter are representative of ongoing opportunities to expand this line of business through the purchase of quality operations in existing or contiguous markets. During 2007, our insurance revenue ranked 38th in the country, according to Business Insurance, and sixth among commercial banks, according to Michael White/Symetra."

Noninterest Expense

Noninterest expense increased 7.4 percent to $113.5 million for the first quarter of 2008 from $105.6 million for the first quarter of 2007 and increased 3.0 percent from $110.2 million for the fourth quarter of 2007. The comparable-quarter increase in noninterest expense is primarily attributable to the acquisition of The Signature Bank, effective March 1, 2007, and the insurance agencies acquired in 2007 and 2008. BancorpSouth also incurred additional salaries, employee benefits and occupancy expense associated with the opening of new loan production offices and full-service branch bank offices during 2007 and the first quarter of 2008. Noninterest expense also includes the positive effect of a $1.1 million reversal of a portion of the $2.3 million charge in the fourth quarter of 2007 related to a guarantee of Visa's obligations for certain litigation matters.

Capital Management

BancorpSouth repurchased 15,000 shares of its common stock during the first quarter of 2008 under a stock repurchase plan for the repurchase of up to three million shares that commenced on May 1, 2007 and expires on April 30, 2009. BancorpSouth will continue to evaluate additional share repurchase opportunities under this plan. The Company has repurchased approximately 12.0 million shares of its common stock since its original share repurchase program was initiated in 2001.

Patterson stated, "The Company is committed to maintaining a sound and adequate capital position to comfortably meet the needs of the marketplace. Our capital to asset ratio at March 31, 2008 was 9.30 percent, compared to 8.69 percent at March 31, 2007, and 9.07 percent at December 31, 2007."

Summary

Patterson concluded, "We attribute BancorpSouth's solid first quarter operating and financial performance primarily to our disciplined, consistent adherence to conservative growth strategies and operating policies. Because of our commitment to this philosophy throughout the economic cycle, we have maintained strong credit quality, capital and liquidity, positioning BancorpSouth to take full advantage of future growth opportunities.

"While we do not minimize the continuing challenges our industry faces in a slowing economic environment, our strong foundation enhances our ability to provide outstanding service to our core customers and to implement strategies to expand market share. As a result, we are proceeding with plans to strengthen our presence in existing and contiguous markets through additional de novo branch bank development. The BancorpSouth team has leveraged our proven business model to build a long-term record of growth through many business cycles. We remain confident of our prospects for continuing to achieve our growth objectives."

Conference Call

BancorpSouth will conduct a conference call to discuss its first quarter 2008 results tomorrow, April 22, 2008, 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 strategy of aligning with market-leading providers, expansion in existing and contiguous markets, our credit quality and repurchases under our common stock repurchase plan.

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, changes in economic conditions and government fiscal and monetary policies, fluctuations in prevailing interest rates and the ability of BancorpSouth to manage its assets and liabilities to limit exposure to changing interest rates, the ability of BancorpSouth to increase noninterest revenue and expand noninterest revenue business, the ability of BancorpSouth to maintain credit quality, changes in laws and regulations affecting financial service companies in general, the ability of BancorpSouth to compete with other financial services companies, the ability of BancorpSouth to provide and market competitive services and products, changes in BancorpSouth's operating or expansion strategy, geographic concentration of BancorpSouth's assets, the ability of BancorpSouth to manage its growth and effectively serve an expanding customer and market base, the ability of BancorpSouth to achieve profitable growth and increase shareholder value, the ability of BancorpSouth to attract, train and retain qualified personnel, the ability of BancorpSouth to repurchase its common stock on favorable terms, the ability of BancorpSouth to identify, close and effectively integrate potential acquisitions, the ability of BancorpSouth to expand geographically and enter growing markets, 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.

BancorpSouth, Inc. is a financial holding company headquartered in Tupelo, Mississippi, with approximately $13.2 billion in assets. BancorpSouth Bank, a wholly-owned subsidiary of BancorpSouth, Inc., operates approximately 290 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.

BancorpSouth, Inc. Selected Financial Data Three Months Ended March 31, 2008 2007 (Dollars in thousands, except per share amounts) Earnings Summary: Net interest revenue $110,070 $98,668 Provision for credit losses 10,811 1,355 Non-interest revenue 66,231 58,359 Non-interest expense 113,470 105,610 Income before income taxes 52,020 50,062 Income tax provision 16,875 16,485 Net income $35,145 $33,577 Earning per share: Basic $0.43 $0.42 Diluted $0.43 $0.42 Balance sheet data at March 31: Total assets $13,154,871 $12,960,658 Total earning assets 11,909,702 11,834,420 Loans and leases, net of unearned income 9,233,023 8,739,106 Allowance for credit losses 119,301 104,687 Total deposits 10,086,201 10,659,493 Common shareholders' equity 1,223,653 1,126,003 Book value per share 14.86 13.70 Average balance sheet data: Total assets $13,100,524 $12,296,324 Total earning assets 11,947,759 11,226,190 Loans and leases, net of unearned interest 9,213,294 8,150,205 Total deposits 10,090,342 10,036,386 Common shareholders' equity 1,199,457 1,055,665 Non-performing assets at March 31: Non-accrual loans and leases $14,709 $10,128 Loans and leases 90+ days past due 21,522 12,749 Restructured loans and leases 2,493 1,312 Other real estate owned 26,623 9,215 Net charge-offs as a percentage of average loans (annualized) 0.29% 0.08% Performance ratios (annualized): Return on average assets 1.08% 1.11% Return on common equity 11.78% 12.90% Net interest margin 3.79% 3.66% Average shares outstanding - basic 82,330,916 79,456,437 Average shares outstanding - diluted 82,533,799 79,892,404 BancorpSouth, Inc. Consolidated Balance Sheet (Unaudited) March 31, % 2008 2007 Change (Dollars in thousands) Assets Cash and due from banks $290,246 $292,401 (0.74%) Interest bearing deposits with other banks 19,258 11,390 69.08% Held-to-maturity securities, at amortized cost 1,523,994 1,693,329 (10.00%) Available-for-sale securities, at fair value 971,613 1,102,248 (11.85%) Federal funds sold and securities purchased under agreement to resell - 225,055 (100.00%) Loans and leases 9,280,659 8,785,170 5.64% Less: Unearned income 47,636 46,064 3.41% Allowance for credit losses 119,301 104,687 13.96% Net loans and leases 9,113,722 8,634,419 5.55% Loans held for sale 161,814 63,291 155.67% Premises and equipment, net 328,920 306,659 7.26% Accrued interest receivable 92,520 94,854 (2.46%) Goodwill 270,762 250,337 8.16% Other assets 382,022 286,675 33.26% Total Assets $13,154,871 12,960,658 1.50% Liabilities Deposits: Demand: Noninterest bearing $1,722,914 1,787,365 (3.61%) Interest bearing 3,484,607 3,312,765 5.19% Savings 725,494 743,767 (2.46%) Other time 4,153,186 4,815,596 (13.76%) Total deposits 10,086,201 10,659,493 (5.38%) Federal funds purchased and securities sold under agreement to repurchase 784,532 702,837 11.62% Short-term Federal Home Loan Bank borrowings 430,000 - NA Accrued interest payable 34,203 42,231 (19.01%) Junior subordinated debt securities 160,312 163,405 (1.89%) Long-term Federal Home Loan Bank borrowings 288,939 152,186 89.86% Other liabilities 147,031 114,503 28.41% Total Liabilities 11,931,218 11,834,655 0.82% Shareholders' Equity Common stock 205,913 205,447 0.23% Capital surplus 200,742 186,089 7.87% Accumulated other comprehensive income (loss) 1,032 (23,120) NA Retained earnings 815,966 757,587 7.71% Total Shareholders' Equity 1,223,653 1,126,003 8.67% Total Liabilities & Shareholders' Equity $13,154,871 $12,960,658 1.50% BancorpSouth, Inc. Consolidated Condensed Statements of Income (Dollars in thousands, except per share data) (Unaudited) Quarter To Date Mar-08 Dec-07 Sep-07 Jun-07 Mar-07 INTEREST REVENUE: Loans and leases $159,184 $171,068 $174,787 $169,717 $153,241 Deposits with other banks 208 274 316 268 286 Federal funds sold and securities purchased under agreement to resell 67 311 232 633 2,511 Held-to-maturity securities: Taxable 15,947 16,890 17,585 16,962 16,705 Tax-exempt 2,075 2,120 2,077 2,044 2,015 Available-for-sale securities: Taxable 9,564 10,227 10,554 10,839 9,592 Tax-exempt 1,204 941 960 1,010 1,115 Loans held for sale 2,210 1,751 1,454 1,082 1,675 Total interest revenue 190,459 203,582 207,965 202,555 187,140 INTEREST EXPENSE: Interest bearing demand 17,257 19,765 22,189 21,992 19,887 Savings 1,543 1,934 2,503 2,481 2,383 Other time 46,860 52,551 55,728 55,459 51,985 Federal funds purchased and securities sold under agreement to repurchase 5,195 8,259 9,151 9,283 7,824 Federal Home Loan Bank Borrowings 6,285 8,107 7,130 3,332 3,302 Other 3,249 3,309 3,348 3,350 3,091 Total interest expense 80,389 93,925 100,049 95,897 88,472 Net interest revenue 110,070 109,657 107,916 106,658 98,668 Provision for credit losses 10,811 7,771 5,727 7,843 1,355 Net interest revenue, after provision for credit losses 99,259 101,886 102,189 98,815 97,313 NONINTEREST REVENUE: Mortgage lending 1,543 (1,149) 100 5,484 1,779 Credit card, debit card and merchant fees 7,976 7,904 7,667 7,391 6,874 Service charges 15,839 18,125 17,281 17,677 15,396 Trust income 2,234 2,996 2,487 2,457 2,214 Security gains, net 78 97 7 10 7 Insurance commissions 24,668 16,181 17,542 17,665 19,794 Other 13,893 11,160 12,810 9,548 12,295 Total noninterest revenue 66,231 55,314 57,894 60,232 58,359 NONINTEREST EXPENSES: Salaries and employee benefits 70,175 64,594 63,269 63,851 63,628 Occupancy, net of rental income 9,483 8,967 8,959 8,709 8,463 Equipment 6,433 6,078 6,057 6,053 6,026 Other 27,379 30,530 28,066 27,315 27,493 Total noninterest expenses 113,470 110,169 106,351 105,928 105,610 Income before income taxes 52,020 47,031 53,732 53,119 50,062 Income tax expense 16,875 14,803 17,475 17,238 16,485 Net income $35,145 $32,228 $36,257 $35,881 $33,577 Net income per share: Basic $0.43 $0.39 $0.44 $0.44 $0.42 Diluted $0.43 $0.39 $0.44 $0.43 $0.42 BancorpSouth, Inc. Average Balances, Interest Income and Expense, and Average Yields and Rates (Dollars in thousands) (Unaudited) Quarter Ended March 31, 2008 Average Yield/ (Taxable equivalent basis) Balance Interest Rate ASSETS Loans, loans held for sale, and leases net of unearned income $9,356,790 $162,267 6.97% Held-to-maturity securities: Taxable 1,406,000 15,947 4.56% Tax-exempt 191,754 3,192 6.69% Available-for-sale securities: Taxable 864,368 9,563 4.45% Tax-exempt 102,658 1,853 7.26% Short-term investments 26,189 275 4.22% Total interest earning assets and revenue 11,947,759 193,097 6.50% Other assets 1,273,866 Less: allowance for credit losses (121,101) Total $13,100,524 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - interest bearing $3,485,167 $17,257 1.99% Savings 709,403 1,543 0.88% Other time 4,291,257 46,860 4.39% Short-term borrowings 1,247,203 9,015 2.91% Junior subordinated debt 160,312 3,184 7.99% Long-term debt 249,391 2,530 4.08% Total interest bearing liabilities and expense 10,142,733 80,389 3.19% Demand deposits - noninterest bearing 1,604,515 Other liabilities 153,819 Total liabilities 11,901,067 Shareholders' equity 1,199,457 Total $13,100,524 Net interest revenue $112,708 Net interest margin 3.79% Net interest rate spread 3.31% Interest bearing liabilities to interest earning assets 84.89% Net interest tax equivalent adjustment $2,638 BancorpSouth, Inc. Average Balances, Interest Income and Expense, and Average Yields and Rates (Dollars in thousands) (Unaudited) Quarter Ended March 31, 2007 Average Yield/ (Taxable equivalent basis) Balance Interest Rate ASSETS Loans, loans held for sale, and leases net of unearned income $8,254,869 $155,740 7.65% Held-to-maturity securities: Taxable 1,523,186 16,705 4.45% Tax-exempt 184,853 3,099 6.80% Available-for-sale securities: Taxable 964,323 9,592 4.03% Tax-exempt 93,108 1,716 7.47% Short-term investments 205,851 2,798 5.51% Total interest earning assets and revenue 11,226,190 189,650 6.85% Other assets 1,170,197 Less: allowance for credit losses (100,063) Total $12,296,324 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - interest bearing $3,130,639 $19,887 2.58% Savings 722,849 2,384 1.34% Other time 4,521,939 51,985 4.66% Short-term borrowings 761,968 9,093 4.84% Junior subordinated debt 151,239 3,081 8.26% Long-term debt 141,183 2,042 5.87% Total interest bearing liabilities and expense 9,429,817 88,472 3.80% Demand deposits - noninterest bearing 1,660,959 Other liabilities 149,883 Total liabilities 11,240,659 Shareholders' equity 1,055,665 Total $12,296,324 Net interest revenue $101,178 Net interest margin 3.66% Net interest rate spread 3.05% Interest bearing liabilities to interest earning assets 84.00% Net interest tax equivalent adjustment $2,510