TUPELO, Miss (

TheStreet

) -- Shares of

BancorpSouth

(BBT) - Get Report

were down 10% Tuesday morning to $12.49, after the bank announced after Monday's market close a very large increase in nonperforming loans during the third quarter.

BancorpSouth reported third-quarter net income of $11.3 million, or 13 cents a share. While the bottom-line figure was ahead of the consensus estimate of 5 cents a share among analysts polled by Thomson Reuters, it included a tax benefit of $9.8 million, or about 12 cents a share.

In comparison, the company posted a net loss of $12.6 million, or 15 cents a share, the previous quarter and earned $21.5 million, or 26 cents a share, a year earlier.

Nonperforming assets - including nonaccrual loans, loans past due more than 90 days, restructured loans and repossessed real estate - totaled $492 million as of September 30 and made up 3.62% of total assets. That is compared to 2.76% the previous quarter and 1.31% a year earlier.

Net charge-offs - loan losses less recoveries - totaled $50.5 million during the third quarter, flat from the second quarter and increasing from 16.5 million a year earlier. Most of the newly identified problem loans were construction, land acquisition and development loans in the lender's Alabama, Nashville and Greater Memphis, Tenn. Markets.

BancorpSouth's third-quarter provision for credit losses was $54.9 million, declining from $62.4 million during the second quarter but increasing from $22.5 million during the third quarter of 2009.

The company's sharp decline in loan quality during the third quarter and continued buildup of loan loss reserves ran counter to the trend for the largest U.S. bank holding companies, including

Citigroup

(C) - Get Report

, which released $1.8 billion from loan loss reserves;

Bank of America

(BAC) - Get Report

, which also released $1.8 billion from reserves;

Wells Fargo

(WFC) - Get Report

, which released $650 million from reserves; and

JPMorgan Chase

(JPM) - Get Report

, which released $1.7 billion from reserves during the third quarter.

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BancorpSouth's annualized ratio of net charge-offs to average loans for the third quarter was 2.10%, increasing from 2.08% in the second quarter and 0.68% during the third quarter of 2009. Loan loss reserves covered 2.16% of total loans as of September 30, and CEO Aubrey Patterson said the bank was "appropriately reserved for losses inherent in our loan portfolio," as the majority of the nonperforming loans had been charged-down or had specific reserves to reflect lower real estate values. Patterson added that "the remaining net book balance of impaired loans was 64 percent of the unpaid principal balance."

The company reported a preliminary Tier 1 leverage ratio of 8.26% as of September 30, well above the 5% required for most banks to be considered

well-capitalized

by regulators. The tangible equity ratio was 7.11% as of September 30, and the company's capital is all common stock. The company emphasized in its earnings release that it had not needed to raise capital or participate in the Troubled Assets Relief Program, or TARP, through the credit crisis.

BancorpSouth pays a quarterly dividend of 22 cents a share, translating to an attractive yield of 6.10%, based on Monday's closing share price of $14.43, however, the company's dividend payout has exceeded earnings since the fourth quarter of 2009.

When asked during the BancorpSouth's earnings conference call about whether the company might consider cutting the dividend, Patterson said the company was "still above the 7% tangible equity ratio" and was "in a strong capital position." He said the company's board of directors would address the dividend "at the proper time," and have an announcement then.

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--

Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.