BancorpSouth (BXS) Q1 Earnings Beat On Higher Revenues

BancorpSouth, Inc.’s (NYSE:BXS) first-quarter 2017 operating earnings per share of 39 cents surpassed the Zacks Consensus Estimate by a penny. Moreover, earnings were in line with the year-ago quarter. This figure includes mortgage servicing rights (“MSR”) valuation adjustment for the quarter.

Better-than-expected results were primarily driven by an increase in revenues and lower expenses. The company also witnessed growth in loan and deposit balances. Further, credit quality improved in the quarter. However, weak capital position was a headwind.

Including MSR and certain other non-recurring items, the company’s first-quarter net income amounted to $36.9 million, matching the year-ago quarter number.

Revenues Up, Costs Down

Net revenue for the quarter increased 5.5% year over year to $185.5 million. However, the figure lagged the Zacks Consensus Estimate of $186.4 million.

Net interest revenue amounted to $114.6 million, up 3.1% year over year.

Also, non-interest revenues increased 9.5% year over year to $70.9 million. The rise was mainly due to an increase in mortgage banking revenues and security gains, partially offset by a decline in revenues from deposit service charges.

Excluding the MSR valuation adjustments, net mortgage lending revenues totaled $8.1 million, down from $9.8 million in the year-ago quarter.

Fully taxable equivalent net interest margin was 3.46%, down 10 basis points (bps) from the prior-year quarter.

Non-interest expenses were down 10.2% year over year to $127.1 million. The decrease was due to a fall in all equipment related costs and other expenses. Also, the year-ago quarter included a settlement charge of a previously announced joint investigation.

As of Mar 31, 2017, total deposits were $12.0 billion, up 3% from the previous quarter. However, net loans and leases decreased slightly to $10.7 billion on a sequential basis.

Improved Credit Quality

The company’s non-performing loans and leases decreased to $81.6 million as of Mar 31, 2017, from $94.2 million as of Mar 31, 2016. Also, non-performing assets were $90.0 million, down 15.8% from the prior-year quarter. Provisions for credit losses of $1 million in the reported quarter were in line with the year-ago quarter.

Moreover, annualized net recovery, as a percentage of average loans and leases, were 0.02% as against a 0.04% charge-offs in the prior-year quarter. Also, allowance for credit losses to net loans and leases dipped to 1.16% from 1.21% in the prior-year quarter.

Capital Position Weakens

As of Mar 31, 2017, Tier I capital and tier I leverage capital were 12.16% and 9.95%, respectively, compared with 12.34% and 10.61% at the end of the prior-year quarter.

The ratio of its total shareholders' equity to total assets was 11.45% at the end of the quarter, down from 12.06% as of Mar 31, 2016. The ratio of tangible shareholders' equity to tangible assets decreased 56 bps to 9.49%.

Share Repurchase

In the quarter, the company repurchased 1.6 million shares of common stock at an average price of $30.62 per share.

Our Viewpoint

BancorpSouth is likely to benefit from its improving credit quality and increasing revenues. Also, its balance sheet displayed consistent growth. However, increasing expenses are likely to hurt the company’s financials in the near term. BancorpSouth’s net interest margin continues to remain under pressure despite two rate hikes since Dec 2016. Also, stringent regulations remain a concern.

BancorpSouth currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other Southeast banks, Regions Financial Corporation’s (NYSE:RF) first-quarter 2017 earnings from continuing operations of 23 cents per share surpassed the Zacks Consensus Estimate by a penny. Also, the figure was 15% higher than the prior-year quarter tally.

First Horizon National Corporation (NYSE:FHN) reported first-quarter 2017 earnings per share of 23 cents, in line with the Zacks Consensus Estimate. However, the figure represents an increase of 15% over the year-ago quarter.

Bank of the Ozarks, Inc.’s (NASDAQ:OZRK) first-quarter 2017 earnings of 73 cents per share surpassed the Zacks Consensus Estimate of 71 cents. The figure improved 28.1% on a year-over-year basis.

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