BancorpSouth Announces Earnings For First Quarter 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." -- BancorpSouth, Inc.