Bank of Mississippi, the major subsidiary of BancorpSouth, has long been the most profitable large bank in the Magnolia State. This is usually attributed to Bank of Mississippi's above average credit quality and wider, consumer-based net interest margins.
But there's another factor. About 13% of BancorpSouth's annual earnings come from three of Bank of Mississippi's non-bank units: consumer finance, credit insurance, and leasing.
Taken together, the three businesses help diversify the holding company's earnings stream and boost overall profitability.
Personal Finance Corp., with about $30 million in outstandings, lends to customers with impaired credit out of 34 offices across the state. Profit margins are high: Mississippi's generous small-loan law allows effective loan yields up to 40%.
BancorpSouth treasurer and chief financial officer L. Nash Allen Jr. estimates the Bank of Mississippi subsidiary will return close to $1.3 million to the holding company's bottom line this year.
The only negative offset is that Personal Finance's 100 or so employees constitute a drag on BaneorpSouth's overhead ratio, since consumer finance is a people-intensive business.
That's not true for Century Credit Life, another Bank of Mississippi subsidiary, which produces $2.6 million in annual premium revenues with only one full-time administrative employee.
The policies, which protect the bank from default on retail installment and large corporate loans, are actually sold by branch loan officers. Mr. Nash expects the unit to contribute $1.2 million to BancorpSouth's bottom line this year.
First Continental Leasing is a 12-person unit within the Bank of Mississippi that specializes in municipal tax-free leasing of capital equipment, such as fire trucks and police cars. Mr. Nash expects $1.2 million in earnings from this division, which has $65 million in outstanding leases.
Unfortunately, the mortgage division has been a drain on earnings this year, producing $414,000 in after-tax losses, worth about 5 cents a share, in the first half. BancorpSouth earned $11.1 million, or $1.41 a share, during the period.
The unit, with a servicing portfolio of $800 million, was caught short by the violent surge in interest rates this year. "We were hedged to a certain extent, but not to the point to cover the movement in rates we experienced in the first six months," Mr. Nash said.
Bank of Mississippi recently hired away an experienced mortgage banker from Memphis-based First Tennessee National Corp. to run the mortgage division.
Mr. Nash says the losses "have gone away" since senior vice president Ben Chappell came on board and he predicts the mortgage division will make a positive contribution to earnings in the third quarter.
