BancorpSouth's (BXS) Q2 Earnings Beat On Higher Revenues

BancorpSouth, Inc.’s (NYSE:BXS) adjusted operating earnings in second-quarter 2017 came in at 42 cents per share, beating the Zacks Consensus Estimate by 2 cents. Moreover, the company compared favorably with the year-ago quarter tally of 39 cents.

Revenues escalated aided by strong loans and deposits balances. Further, stable non-interest expenses were a positive. However, decreased mortgage lending revenues were a major drag.

Including mortgage servicing rights (“MSR”) valuation adjustment of $1.5 million, the company’s second-quarter net income amounted to $37.9 million or 41 cents per share, down from $34.7 million or 37 cents reported in the year-ago quarter.

Revenues, Loans and Deposits Escalate, Costs Stable

BancorpSouth’s second-quarter net revenue increased 2.7% year over year to $185.6 million. Revenues, however, missed the Zacks Consensus Estimate of $187.8 million.

Net interest revenue amounted to $117.5 million, up 4.6% year over year. Fully-taxable equivalent net interest margin was 3.52%, down 4 basis points (bps) from the prior-year quarter figure on high average cost of deposits.

Non-interest revenues dipped slightly year over year to $68.1 million. The decline was mainly due to a drop in mortgage banking revenues and deposit service charges. These decreases were partially offset by high insurance commissions and other income.

Excluding the MSR valuation adjustments, mortgage banking revenues totaled $7.6 million, down 36.7% from $12.0 million in the prior-year quarter.

Non-interest expenses remained stable at $127.6 million on a year-over-year basis.

As of Jun 30, 2017, total deposits were $11.9 billion, up 4.4% year over year, while net loans and leases rose 3.8% to $11.0 billion.

Credit Quality: A Mixed Bag

BancorpSouth’s credit quality displayed a mixed picture. The company recorded $1.0 million of provisions in the reported quarter compared with $2 million in year-ago quarter. Non-performing loans and leases decreased to $71.7 million or 0.65% of net loans and leases as of Jun 30, 2017, from $80.2 million or 0.76% as of Jun 30, 2016.

Additionally, allowance for credit losses to net loans and leases edged down to 1.10% from 1.20% recorded in the comparable period last year. Also, non-performing assets were $79.4 million, down 16.3% year over year.

However, annualized net charge-offs, as a percent of average loans and leases were 0.17% compared with annualized 0.06% in the prior-year quarter.

Strong Capital Position

BancorpSouth remained well capitalized during the second quarter. As of Jun 30, 2017, Tier I capital and tier I leverage capital was 11.90% and 9.93%, while it was 12.37% and 10.66%, respectively, at the end of the prior-year quarter.

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The ratio of its total shareholders' equity to total assets was 11.40% at the end of the quarter, down from 12.12% as of Jun 30, 2016. The ratio of tangible shareholders' equity to tangible assets contracted 67 bps to 9.44%.

During the second quarter, the company repurchased 1.38 million common shares at an average price of $29.64 per share.

Our Viewpoint

We believe BancorpSouth is well poised to expand through strategic acquisitions, backed by a strong capital and liquidity position. In addition, gradual economic recovery is likely to boost the company’s top-line performance, highlighting its organic prospects. However, decline in mortgage banking revenues is a matter of concern.