BancorpSouth Earnings Call Insights: OCC Guidance Impact, Credit Cost Leverage
OCC Guidance Impact
Steven Alexopoulos – JPMorgan: What was the impact of the OCC guidance around Chapter 7 bankruptcy on TDRs and charge-offs?
Aubrey B. Patterson Jr. – Chairman and CEO of the Company and the Bank: Let me, I’ll let Bill Prater to speak to that, if I may.
William Lloyd Prater – Treasurer and CFO; EVP, CFO and Cashier of the Bank: We did assess that; we have a fairly low threshold for impairment. We assess any loans the first and seconds that had gone through Chapter 7 bankruptcy and ours was a fairly negligible number and pretty much all of it had already been subjected to the impairment process because again our threshold for evaluating impairment is very low. It was a negligible impact.
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Steven Alexopoulos – JPMorgan: Looking at the 65% of mortgage that was refi, 35% purchase. Is the right way from a real high level for us to think about what’s normal here that about half of the mortgage banking revenues will go to weigh once the refi wave ends, albeit, it might not be right for several more quarters. But is that the right way we should be think about this given how much you’ve invested in the business?
Aubrey B. Patterson Jr. – Chairman and CEO of the Company and the Bank: I am going to ask James Threadgill to speak to that in just a second, but there is obviously a significant change in this business and in the competitive landscape and we have invested over an extended period of time and had very effective results from it in new staff and within our footprint, reaching out to gain market share through the development of new market penetrations and it’s not a static measure. So James give a little flavor to that if you will?
James Ronald Hodges – EVP; Vice Chairman & Chief Lending Officer of the Bank: I will Aubrey; we mentioned earlier Aubrey talked about this, excuse me expanding our production staff. We ended the quarter with a 104 mortgage loan originators that was up from 95 at the end of the previous quarter and up from I believe 83 at the same quarter last year. Even in a non-refi interest rate environment, you would typically still see somewhere between 35% and 40% refis. Even in the non-refi so we typically even in a higher interest rate environment, we’ll do 65% purchase, 35% refi. So the numbers have kind of flip flopped a little bit. We are seeing our purchase business though go up significantly as we have increased this production staff. So we are expanding our market presence in a number of markets and so I don’t think you could say that it would all go away even if interest rates take back up.
Aubrey B. Patterson Jr. – Chairman and CEO of the Company and the Bank: Well we certainly don’t have a crystal ball; all indications are that these opportunities are going to continue for a number of quarters.
Credit Cost Leverage
Jennifer Demba – SunTrust Robinson Humphrey: With your steady improvement in asset quality, can you sort of articulate on how much credit cost leverage you envision that you still have left. I am assuming you believe you still have some left in to 2013.
Aubrey B. Patterson Jr. – Chairman and CEO of the Company and the Bank: Let me make a general comment and Bill may want to fill in with a little more specificity. Certainly, the trends have contain – the trends in reducing our non-performing assets and cash collections on non-accrual loans have continue and I’ve recited those numbers in our earlier presentation that they are all in more detail in the press release. We believe we clearly have some opportunity to continue those trends. We are very pleased with the progress that’s been made, but we know we have more work to do to get to the levels of this Company certainly traditionally operated at and I believe that we will. Bill, you might want to just add a comment or two.
William Lloyd Prater – Treasurer and CFO; EVP, CFO and Cashier of the Bank: Well, I think the thing Jennifer that makes it difficult to predict, a significant amount of that leverage that we’ve had this year has come from recoveries. We had just over $21 million of recoveries year-to-date as Aubrey mentioned in the script, and those are very difficult to predict. When you think about where those recoveries come from, it’s particularly recovery of amounts from borrowers where we had previous impairments. Part of the charge-offs or a good chunk of the charge-offs are a little over $9 million, I believe this quarter were charge-offs of loans that had previously been impaired, some of those were brought to resolution, you can have a charge off constructively on a loan and a recovery as you settle with the guarantor fairly quickly after that, so it makes it pretty difficult to predict. There being case-by-case situations, but as Aubrey just mentioned the trend is there on the last, if you think about the other metrics that are not direct, but are metrics that speak to the fundamentals you see in the models that predict, expected losses we’re seeing improvement in criticized levels, as well as the severity of criticism and as we mentioned over the past couple of quarter’s where we have had new loans identified to be placed on nonaccrual and evaluated for impairment, the loss content of those loans has significantly improved over the course of the last several quarters.
Jennifer Demba – SunTrust Robinson Humphrey: Bill, where do you think the majority of your earnings growth potential for next year can come from given you guys and the industry are under such net interest margin pressure, and when do you think you can finally see loan growth again?
William Lloyd Prater – Treasurer and CFO; EVP, CFO and Cashier of the Bank: Loan growth — we’re getting steady, not robust, but steady production and as Aubrey kind of alluded to, I’m not sure how quantified it was in his remarks, but if you think about the loan – we didn’t have any growth this quarter, it was fairly flat down just a little bit, but – and the effort that we’re having to move out some nonaccrual loans that show up in that loan number as well as loans that are rated substandard particularly is when that kind of runs its course I think we’ll be in a better position for some of that production to find its way to the totals of the loans, obviously that’s a very challenging environment and something that we are giving a lot of attention to plans within the planning cycle for next year that we are really just in the early stages of life specific plans in place to accomplish those goals.
Aubrey B. Patterson Jr. – Chairman and CEO of the Company and the Bank: Jennifer, I made a fairly general comment, but it had a one or two minor specifics. When you look at the reductions in the loan portfolio from the loans that we are obviously moving out, charging off deliberately, shrinking the portfolio on the one hand, actually our production has generally throughout these last several quarters been able to offset that. So our focus – and it won’t be unique to BancorpSouth obviously, but our focus is going to be to continue to speak good quality credit and pre-establish economy permitting reestablish a stronger net loan growth as we continue out of the cycle.
A Closer Look: BancorpSouth Earnings Cheat Sheet>>