BancorpSouth Inc. in Tupelo, Miss., surprised investors late last week by announcing it would delay filing its annual report because auditors found asset-quality issues that will likely require an earnings restatement.

The $13.2 billion-asset company has weathered the economic downturn relatively well, and it declined on Friday to provide further details on the extent of its credit problems or when it would file the report with the Securities and Exchange Commission.

Analysts said that lack of disclosure likely contributed to the market's harsh reaction. BancorpSouth's shares fell 13.6% by late afternoon Friday in heavy trading.

"This has been a company that had held up extremely well from a credit perspective," said Mark Muth, an analyst at Howe Barnes Hoefer & Arnett Inc.

"They had a little slippage in recent quarters, but nothing compared to the sector as a whole," he continued. "They still looked very strong. The market is fearing the worst at this point, especially given the skimpy details in the release and no time line for when revisions would be made."

A statement from Aubrey Patterson, the company's chairman and chief executive, said: "We are taking all actions necessary to release our final audited 2009 financial results as soon as possible. Regardless of the outcome of the current review, we are confidently looking forward to continued strong performance as a company."

BancorpSouth was scheduled to file the results today.

BancorpSouth's credit quality has held up better than many other banks because it is a conservative lender that operates in smaller cities where the real estate bubble was not as pronounced.

But those second-tier markets are now starting to feel the ripple effects of real estate troubles, and that could be affecting BancorpSouth's results, said Adam Barkstrom, a managing director with Sterne, Agee & Leach.

"Traditionally they had been in slower-growth markets and they were fairly conservative lenders, which meant we didn't see the loan growth and balance-sheet growth at BancorpSouth that you saw at others," he said.

Barkstrom also noted the lack of disclosure, saying it could signal that the company has found a serious problem.

"For these guys to do it this way, I think it is more than a mere blip," he said.

But not everyone agrees that BancorpSouth's approach is a signal that credit quality has suffered significantly.

Michael Rose, an analyst at Raymond James & Associates, said in his view the market overreacted to the news of the delay.

"Any credit problems they have are manageable," he said. "I don't think any potential problem would be devastating to the company."

On Jan. 21, BancorpSouth reported fourth-quarter earnings of $19.4 million, up 16% from a year earlier. It earned 23 cents a share, below Wall Street expectations of 29 cents. The miss in estimates was attributed to higher-than-expected credit costs.

The credit loss provision for the quarter was $34.7 million, almost double a year earlier and up roughly 50% from the third quarter.

BancorpSouth reported chargeoffs of $24.6 million or 1.01% of average loans, up from 0.57% in the fourth quarter of 2008 and 0.68% in the third quarter.

Its nonperforming loans increased 34 basis points in the quarter, to 1.48% of loans.

In announcing the filing delay, BancorpSouth's press release said its auditors, KPMG LLC, determined certain asset-quality indicators, "including the allowance for credit losses, and their impacts on BancorpSouth's financial statements for the quarter," were under review and were expected to lead to a decline in net income for 2009.

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